Income Tax Ordinance (XXXI of 1979)---

----Ss.5, 52, Expln., 50(4) & 86---Assessment Years 1997-98 and 1998-99-- Additional tax---Levy of---Jurisdiction of Income-tax Authorities---Liability of persons failing to deduct or pay tax---Additional tax for failure to deduct and pay tax ---Assessee in default---Jurisdiction to impose additional tax-- Assessing Officer levied additional tax under S.86, Income Tax Ordinance, 1979 for non-deduction of tax from the commission paid for re-insurance ceded by various insurance companies ---Assessee challenged jurisdiction of Assessing Officer on the ground that additional tax under S.86, Income Tax Ordinance, 1979 could be levied only by the Assessing Officer who had jurisdiction to pass an order under S.52, Income Tax Ordinance, 1979-- Order under Ss.52 & 86 of Income Tax Ordinance, 1979 could be made by Assessing Officer having jurisdiction in respect of the recipient---Order under S.86 of Income Tax Ordinance, 1979 having been made by the Assessing Officer having jurisdiction over the payer and not the recipient, orders were without jurisdiction---Department contended that after adding Expln. Jo S.52, Income Tax Ordinance, 1979 by Finance Act, 1999, the Legislature had clarified that Assessing Officer. having jurisdiction under S.5, Income Tax Ordinance, 1979 over the case of assessee in default could initiate action ---Assessee contended that Expln. added to S.52, Income Tax Ordinance, 1979 by Finance Act, 1999 was not retrospective in effect as it had not been so stated in Finance Act, 1999---Explanation added to S.52 of the Ordinance was part of main section and therefore, it should be treated as substantive in nature because main S.52 contains substantive provision-- Explanation being substantive in nature shall have prospective effect as shall apply to Assessment Year 1999-2000 and onward and shall not be applicable to Assessment Years 1997-98 and 1998-99---Validity---Contention of assessee was repelled by the Appellate Tribunal observing that a statute may contain both substantive and procedural provisions---Although original and main provisions contained in S.52 of Income Tax Ordinance, 1979 were substantive in nature but Expln. contained a provision which was procedural in nature and showed that it related to the forum which could initiate and adjudicate the issue relating to default on the part of payer, rendering him as assessee in default and making him liable for levy of additional tax-- Explanation added to S.52, Income Tax Ordinance, 1979 being declaratory and procedural in nature was retrospective in effect.

1997 PTD (Trib.) 1771 not relevant.

Tapal Energy and another v. Federation of Pakistan 1999 PTD 4037 and Muhammad Younas v. Chairman, Municipal Committee, Sahiwal PLD 1984 Lah. 345 looses their efficacy.

1997 PTD (Trib.) 318; 1989 PTD (Trib.) 917; Dreamland Cinema, Multan v. CIT PLD 1977 Lah. 292; AIR 1931 All. 725; AIR 1928 Lah. 627; AIR 1932 All. 30; AIR 1965 Mad. 149; Bindra's Interpretation of Statutes, 7th Edn., p.876; Abdul Mannan v. Haji Karam Ellahi PLD 1971 Quetta 1; Dehli Cloth and General Mills Co, v. I.T.C., Delhi AIR 1927 PC 242; PLD 1959 (W.P.) Lah. 883; Rehman Corporation v. Income-tax Officer 1985 PTD 787; Adrian Afzal v. Capt. Sher Afzal PLD 1969 SC 187; PLD 1965 SC 681; PLD 1962 SC 259; Arshad Akram & Co. v. Divisional Superintendent, Pakistan Railway PLD 1982 Lah. 109 and Mst. Muhammadi Bibi v. Kashi Upadhya and others AIR 1926 All. 725 ref.

Muhammad Farid for Appellant.

Zaki Ahmed, D.R. for Respondent.

Date of hearing: 23rd October, 1999.

ORDER

MUHAMMAD MUJIBULLAH SIDDIQUI (CHAIRMAN). ---The above appeals at the instance of assessee are directed against the order, dated 28-4-1999, by the learned CIT (A), Zone-III, Karachi in I.T.As. Nos.109 and 110 relating to the Assessment Years 1997-98 and 1998-99.

2. Both the appeals arise out of order under section 86 whereby additional tax has been levied for non-deduction of tax under section 50(4) of the Income Tax Ordinance, 1979, from the commission paid for re-insurance ceded by various insurance companies.

3. The common objection raised on, behalf of appellant are that the learned CIT (A) was not justified in confirming the levy of additional tax under section 86 of the Income Tax Ordinance, 1979, by the Deputy Commissioner of Income-tax. It is averred in the grounds of appeal that the DCIT was wrong in treating the amount retained by the General Insurance Companies out of the amount ceded by them to the appellant corporation under section 26 of the Pakistan Insurance Corporation Act, 1952, as commission. According to appellant, it is not commission but share of expenses borne by the appellant Corporation out of total expenses incurred by the General Insurance Companies in procuring the business (Premium).

4. The next objection which has not been raised in the grounds of appeal but has been allowed to be raised during the course of arguments, is to the jurisdiction of Assessing Officer who imposed the additional tax.

5. Heard Mr. Muhammad Farid, Advocate, learned counsel for the appellant and Mr. Zaki Ahmed, learned representative for the department.

6. So far the first objection to the effect that the amount retained by the General Insurance Companies out of the amount ceded by them to the appellant Corporation is concerned, Mr. Muhammad Farid has conceded that it stands decided by the Tribunal against the appellant vide order, dated 9-6-1997 in I.T.As. Nos. 2126 to 2128/KB of 1994-95 (reported as 1997 PTD (Trib.) 1771). Mr. Muhammad Farid has submitted that the appellant has preferred appeal before the Hon'ble Sindh High Court against the above order of the Tribunal. Be that as it may, the fact retrains that so long the order of Tribunal is not reversed by the Hon'ble High Court it shall continue to hold the filed. The objection is, therefore, overruled. So far the second objection relating to jurisdiction of Assessing Officer is concerned, Mr. Muhammad Farid has submitted that the Assessing Officer who has levied additional tax under section 86 of the Income Tax Ordinance, 1979 had no jurisdiction, as according to him the additional tax under section 86 can be levied by the same Assessing Officer who has the jurisdiction to pass on order under section 52 treating the person failing to deduct the tax as assessee in default. He has contended that it has been held by Hon'ble Sindh High Court in the judgment, dated 22-3-1999 in C.P. Nos. D-1335 and 1336 of 1998, Tapal Energy and another v. Federation of Pakistan (1999 PTD. 4037) that the order under sections 52 and 86 can be made by Assessing Officer having jurisdiction in respect of recipient. According to Mr. Muhammad Farid, since the order under section 86 have been made by the Assessing Officer having jurisdiction over the payer and not the recipient, therefore, the orders are without jurisdiction.

7. On the other hand, the learned D.R has pointed out that an explanation has been added to section 52 of the Income Tax Ordinance, 1979, by Finance Act, 1999 which read as follows:-

"Explanation: For the purpose of this section, the Deputy Commissioner having jurisdiction under section 5 over the case of the assessee in default may initiate action. "

8. The learned D.R. has contended that after the above amendment inserted by Finance Act, 1999 the legislature has clarified that the Deputy Commissioner having jurisdiction under section 5 over the case of assessee in default may, initiate action. The assessee in default in this case is the appellant and, therefore, by virtue of this amendment the judgment of Hon'ble Sindh High Court has been negated.

9. Mr. Muhammad Farid, learned counsel for the appellant has submitted that the explanation added to section 52, by Finance Act, 1999 is not with retrospective effect, as it has not been so stated in the Finance Act, 1999. Mr. Muhammad Farid was required to address arguments, if the amendment introduced through explanation to section 52 is substantive or procedural in nature. Mr. Muhammad Farid contended that the Explanation added to section 52 is part of the main section and, therefore, it should be treated as substantive in' nature, because the main- section 52 contains substantive provisions. His next contention is that the explanation cannot enlarge the provisions in the main section and has to be read as a part of the main section. In short, the contention of Mr. Muhammad Farid is that the amendment inserted by Explanation to section 52 being substantive in nature, it shall have prospective effect. Mr. Muhammad Farid contended that the amendment, shall apply to the Assessment Year 1999-2000 and onward and shall not be applicable to assessments 1997-98 and 1998-99.

10. We have carefully considered the contentions raised by the learned representatives for the parties. We are not persuaded to agree with the contentions of Mr. Muhammad Farid. The reason being that while considering the Explanation added to subsection (3) of section 19 of the Income-tax Ordinance, 1979, a Division Bench of this Tribunal has held in the judgment reported as 1997 PTD (Trib.) 318 that, 'it is also an accepted principle of the construction of statute that when a statute is enacted in a background it is the duty of Judge to make such construction of the statute as shall suppress the mischief and advance the remedy.' It has been further held that the explanation has been added to section 19 of the Income Tax Ordinance, 1979 to declare that the Tribunal's view in the judgment reported as 1989 PTD (Trib.) 917 was not accepted, to the law maker.

11 The Explanation to section 52 has also been inserted in the similar circumstances. The judgment of Hon'ble Sindh High Court in the case of Tapal Energy Limited (supra) was announced on 22-3-1999, holding that the Assessing Officer having jurisdiction in respect of recipient can make order under sections 52 and 86 and in that background the legislature inserted the Explanation signifying its intention that the view of Hon'ble Sindh High Court was not acceptable to the legislature. We are further of the view that according to the principles of interpretation of statute the normal principle in construing the Explanation is to understand it as explaining the meaning of provisions to which it is added. Normally, the Explanation clause does not enlarge or limit the provisions unless the explanation is purported to be a definition or a deeming clause. However, if the intention of the legislature is not fully conveyed earlier or there has been a misconception about the scope of a provision the legislature steps in is to explain the purport of the provisions and such an Explanation has to be given effect to, as pointing out the real meaning of the provision of law.

12. The issue of retrospectivity of an Explanation came for consideration before the Hon'ble Lahore High Court in the case of Dreamland Cinema, Multan v. CIT reported as PLD 1977 Lah. 292. Explanation 2 was added to section 24(2) of the repealed Income-tax Act, 1922, by Finance Act, 1967. The Tribunal held that the Explanation was retrospective and shall apply to the Assessment Year 1964-65. The reference was made to the Hon'ble Lahore High Court. It was observed that the Explanation was inserted after two judgments of the Lahore High Court. It was held that-the case under consideration was still pending and, therefore, had not attained finality and as such the Explanation shall apply to such proceedings. Ultimately it was held as follows:---

"The upshot of the whole discussion is that the addition of Explanation to section 24(2) was with the object of removing a doubt (probably created by the two judgments of the West Pakistan High Court) referred to in para.4 above. The enactment was expressly explanatory in nature. We are, therefore, of the view that it had to apply retrospectively to all the relevant cases pending at that time. "

13. We are further of the opinion that the era of technical interpretation of statute has bygone and now the principle of purposive approach is reigning the field under which the leading provisions are also enacted through Explanations and the Explanation under consideration is in the nature of leading provisions. We are not persuaded to agree with the contention of Mr. Muhammad Farid that the Explanation added to section 52 of the Income Tax Ordinance contains substantive provisions merely because the original section contains substantive provision of law. As a statute may contain substantive and procedural provisions both, a particular section may also contain substantive and procedural provisions of law. There is no dearth of instances in which a single section is a complete code in itself, meaning thereby that it contains charging provisions, other substantive provisions as well as procedural provisions (commonly known with the tax authorities and tax consultants as machinery provisions). It is further held that although the original and main provisions contained in section 52 are substantive in nature but the Explanation contains a provision which is procedural in nature. A bare perusal of the Explanation shows that it relates to the forum which can initiate and adjudicate the issue relating to default on the part of payer, rendering him as assessee in default and making him liable for the levy of additional tax under section 87. It is an established principle of law that the choice of forum is a matter of procedure and not a substantive right, and in most cases, a new enactment would have a retrospective effect, so far as the choice of forum is concerned. No litigant has or can have vested right in a particular forum. He cannot say as a matter of right that his suit` or application should be tried by this or that forum which existed on the date his cause of action arose. Forum belongs to realm of procedure and does not constitute substantive right of a party or litigant. No litigant has right to insist upon a particular Court or Tribunal or Judge (see AIR 1931 All. 725, AIR 1928 Lah. 627, AIR 1932 All: 30, AIR 1965 Mal. 149 Bindra's Interpretation of Statute, 7th Edn., p.876).

14. There is plethora of rulings on the point of retrospective effect of an Explanation; particularly when it does not create any new liability but is merely declaratory in nature or deals with matters of procedure or is intended to rectify the Judicial error. We would like to refer three judgments only in addition to the judgments already relied upon in the earlier part of this order. The first judgment is in the case of Abdul Mannan v. Haji Karam Ellahi (PLD 1971 Quetta 1). In this case Hon'ble Mr. Justice Dorab Patel held that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication but there is only one exception to this general rule and that is an enactment dealing with procedure. Such enactments are generally deemed to be retrospective and not prospective. Reliance as coming to the above conclusion was placed on the judgment of Privy Council in Dehli Cloth and General Mills Co. v. I.T.C. Delhi (AIR 1927 PC 242).

14-A. The second judgment is by the erstwhile West Pakistan High Court, Lahore Bench reported as (PLD 1959 (W.P.) Lah. 883. It was held in this case as follows:--

" It is open to the Court to look into the intention of the legislature and where it is made clear in some known way that the enactment will have a retrospective effect then the Courts will be bound to give effect to this intention of the legislature. There is, however, one exception to this general mule and that is with regard to the statutes which affect only the procedure and the practice of the Court. Such statutes have a retrospective action. It is possible that the Court may be given jurisdiction for an offence which was committed before the jurisdictional statute."

15. The last judgment is by the Hon'ble Sindh High Court in the case of Rehman Corporation v. Income-tax Officer reported as (1985 PTD 787). In this case an Explanation added to subsection (7A) of section 50 of the Income Tax Ordinance, 1979, inserted by Finance Act, 1984, come for consideration. His Lordship Mr. Justice Naimuddin considered various judgments on the point .of retrospective effect and held that the Explanation was retrospective in effect. In the said case assessee was awarded export tax contract for the year 1983-84 by the District Counsel, Tharparker. There was a judgment (Muhammad Younas v. Chairman, Municipal Committees, Sahiwal PLD 1984 Lah. 345) wherein it was held that the right to collect octroi was in the nature of lease and not in the nature of sale. An Explanation was added which reads as follows:-

" ....Explanation.---For the purpose of this subsection, sale of any property includes the awarding of any lease to any person, including a lease of the right to collect octroi duties, tools, fees or other levies, by whatever name called.".

16. While considering if the Explanation has retrospective effect reference was made to the judgment of Hon'ble Supreme Court of Pakistan in the case. of Adrian Afzal v. Capt. Sher Afzal reported as PLD 1969 SC 187 in which, by placing reliance on a case from English jurisdiction, it was held that if the matter in question be a matter of procedure only then provisions would be retrospective. The Hon'ble Supreme Court of Pakistan further observed that the principle has been adopted in the judgment reported as PLD 1965 SC 681 and PLD 1962 SC 259. The Hon'ble Supreme Court in the said case explained as to what were the matters of procedure. It was held as follows:--

"It is obvious that matter relating to the remedy, the mode of trial, the manner of taking evidence and forms of action are all matters relating to procedure. Crawford, too, takes the view that questions relating to jurisdiction over a cause of action, venue, parties pleadings and rules of evidence also pertain to procedure, provided that burden of proof is not shifted. Thus, a statute purporting to transfer jurisdiction over certain causes of action may operate retroactively. This is what is meant by saying that a change of forum by a law is retrospective, being a matter of procedure only. 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 statue."

17. Reference was made to a judgment of Lahore High Court in the case of Arshad Akram & Co. v. Divisional Superintendent Pakistan Railway reported as PLD 1982 Lah. 109 wherein it was held as follows:---

"It is well-settled that an Explanation does not enlarge the scope of main section which it is supposed to explain. Generally, an Explanation is added to a section by way of clarification and to facilitate its interpretation. However, the true construction of an Explanation must depend upon its terms and the language used in it.

18. His Lordship Mr. Justice Naimuddin thereafter considered the effect of Explanation added to subsection (7A) of section 50 of the Income-tax Ordinance, 1979 and held that it appears that the need for adding the Explanation arose because of the decision of Lahore High Court, dated 16-4-1984 in the case of Muhammad Younas v. Chairman Municipal Committee, Sahiwal. It was further held that a declaratory Act is described in Craies statutes as an Act to remove doubts as to the meaning or effect of a statute and it is also stated that the usual reason for passing a declaratory Act is to set aside what 'Parliament deems to have been a judicial error. Reference was made to Bindra's Interpretation of Statute and Generals Clauses Act (page 605). A judgment of Allahbad High Court was cited with approval in the case of Mst. Muhammadi Bibi v. Kashi Upadhya and others AIR 1926 All. 725 wherein it was held as follows:--

"A declaratory Act is an Act to remove doubt existing as to the meaning or effect of a statute, and usual reason for passing a declaratory Act is to set aside what the legislative body deems to have been a judicial error. Declaratory Act, like judgments, decide cases pending when the judgments are given but do not reopen decided cases."

19. It was ultimately held that the Explanation would apply retrospectively because the provision was not of the nature of charging section. It only provided the mechanisms for collection of revenue. In the operative part of the order it was held as follows:---

"In view of the Explanation added, we are of the view that the Lahore High Court's decision in Muhammad Younas v. Chairman Municipal Committee, Sahiwal and others case has lost. its efficacy and the demand made by the Income-tax Department is valid and unexceptionable. "

20. Respectfully following the dictum laid down in the above judgments, it is held that Explanation added to section 52, being declaratory and procedural in nature, is retrospective in effect. With the insertion of Explanation to section 52 by Finance Act, 1999 the judgment of the Hon'ble Sindh High Court in C.P. NO.D-1335-6 of 1998 Tapal Energy v. Federation of Pakistan and others looses its efficacy. The objection to the jurisdiction of the Assessing Officer in pursuance of the judgment of Hon'ble SSindh High Court referred to above is, therefore, repelled.

21. Consequent to above findings, the appeals at the instance of assessee stand dismissed.

C.M.A./M.A.K./112/Tax(Trib) Appeals dismissed.