Income-tax Act (XI of 1922)---

----Ss.23. 10(4)(bb) & 18---Reference---Assessment year 1977---Assessing Officer disallowed commission paid to non-resident---Provision of S.10(4)(bb), Income-tax Act, 1922 was amended by Finance Act, 1978, with the insertion of words "chargeable under the provision of this Act"-- Assessee's plea was that by the said amendment deduction of tax at source of payment made to non-resident was removed as the commission paid was not chargeable under the provisions of Income-tax Act, 1922---Department contended that amendment was introduced by Finance Ordinance, 1978 to be effective from 1-7-1998 and would be applicable to the assessment year 1978-79---Contention of assessee was that amendment was a remedial or curative amendment/statute and such amendment/statute operated retrospectively and that the amendment or modification of S.10(4)(bb) of Income-tax Act 1922 being more beneficial and advantageous to assessee, would be deemed to operate retrospectively so as to be applicable to the case of assessee for the Assessment Year 1977-78---Validity---Finance Ordinance, 1978 by amending S.10(4)(bb) of the Income-tax Act, 1922 had removed burden of deducting tax at source on payment made to a non-resident in Pakistan for claiming such payment as an admissible deduction though it was not chargeable to tax under the Income-tax Act, 1922---Amending Ordinance had provided benefit both to the assessee and the non-resident in Pakistan-- Amending Ordinance being a remedial or a curative statute would be operative retrospectively---Benefit of amending Ordinance would not be available only in respect of Assessment Year 1978-79, and thereafter but also for Assessment Years prior to 1978-79, subject to the condition that at the time when the amending Ordinance was promulgated the case had not been finally decided and was pending---Case of the assessee having not been finally decided at the time when the amendment was made, assessee would be entitled to the benefit provided by the amending Ordinance-- Commission paid to the non-resident was allowed as expenses in circumstances.

1978 PTD 126 ref.

1993 SCMR 73 and Malik Gul Hasan & Co. and others v. Allied Bank of Pakistan 1996 SCMR 237 rel.

Iqbal Naeem Pasha for Applicant

Nasrullah Awan for Respondent

Date of hearing: 9th October, 1998.

JUDGMENT

SAIYED SAEED ASHHAD, J.---The Income Tax Appellate Tribunal by its Order, dated 24-6-1984 in R.A. No. 112/KB of 1983-84 referred a question of law to this Court for seeking its opinion. The question of law is as under:

"Whether under the facts and circumstances of the case the provisions of section 10(4)(bb) of the repealed Income-tax Act, 1922 as amended by the Finance Ordinance, 1978, were applicable to the case of the applicant."

The facts giving rise to the above Income-tax Reference are that the Applicant/Assessee deriving its income from a textile unit and dividend income filed its return of income for the assessment year 1977-78 disclosing a net income of Rs.54,72,657. The Income-tax Officer framed the assessment under section 23 of the repealed Income-tax Act. In framing the assessment, the Income-tax Officer disallowed an amount of Rs.1,39,198 which was claimed by the Applicant/Assessee as commission paid to non-residents. This disallowance was made by the Income-tax Officer on the basis of the pronouncement made by this Court in the case reported in 1978 PTD 126. In the first appeal filed by the Applicant/Assessee, the Appellate Assistant Commissioner of Income-tax, reversed the finding of the Income tax Officer on the above issue and the addition of Rs.1,39,198 made to the total income of the Applicant/Assessee was deleted. The Department feeling aggrieved by the aforesaid finding of the Appellate Assistant Commissioner of Income-tax filed a second Appeal before the Appellate Tribunal. By order, dated 18-6-1983 in I.T'.A. No.650/KB of 1980-81, the Appellate Tribunal set aside the order of the` Appellate Assistant Commissioner of Income-tax and restored the order of the Income-tax Officer disallowing the amount of Rs.1,39,198 and adding the same to the income of the Applicant/Assessee under section 10(4)(bb) of the repealed Income-tax Act. 'the Applicant/Assessee feeling aggrieved and dissatisfied with the order of the Appellate Tribunal filed Reference Application before the Appellate Tribunal being R.A. No.112/KB of 1983-84 and the Appellate Tribunal by-its order, dated 24-6-1984 referred the aforesaid question of law to this Court for seeking its opinion. '

We have heard the arguments of M/s. Iqbal Naeem Pasha and Nasrullah Awan, learned counsel for the Applicant/Assessee and the Respondent/Department respectively. We have also perused the material on record, the relevant provision of the repealed Income-tax Act and the case law referred to us. '

Mr. Nasrullah Awan in the first instance objected to the maintainability of this Reference as according to him it was very doubtful as to whether the question purporting to be a question of law referred to this Court for seeking its opinion is at all a question of law? A reading of the purported question of law reveals that this Court is required to decide whether the provisions of section 10(4)(bb) of the repealed Income-tax Act as amended by the Finance Ordinance, 1978 would apply to the case of the Applicant? For a proper understanding of the question in issue, it would be appropriate to have a clear view regarding the provisions of .section 10(4)(bb) of the repealed Income-tax Act and it would be advantageous to reproduce the same which is as under:

"Any allowance in respect of any payment by way of brokerage or commission made to a person pot resident in Pakistan unless. tax has been deducted there from under section 18."

It would also be proper and useful .to reproduce clause (bb) of section 10(4) of the repealed Income-tax Act after its amendment by the Finance Ordinance, 1978. The same is as under:

"Any allowance in respect of any payment byway of brokerage of commission chargeable under the provisions of this Act made to a person not resident in Pakistan unless tax has been deducted there from under section 18."

It is the case of the Applicant/Assessee that after the amendment of clause (bb) of section 10(4) of the repealed Act, it was imperative on the part of the Respondent/Department to establish that the brokerage of commission allegedly paid by the Assessee/Applicant to any non-resident was chargeable under the provision of the repealed Act, that is to say, that the amount paid by way of brokerage or commission could be subjected to tax in accordance with the provisions of the repealed Act. It was further submitted by Mr. Iqbal Naeem Pasha that there was not an iota of evidence to establish that the amount paid by the Applicant/Assessee to a non7resident by way of brokerage or commission was or could be charged to tax under the provisions of the repealed Act and m the circumstances the deduction of tax on the amount paid to a non-resident under section 18 of the repealed Act could not be made in the Assessment year 1977-78 as the essential condition envisaged by the amended section 10(4)(bb) of the repealed Act was not fulfilled. He further submitted that as the payment was not liable to be charged to tax, failure of the Applicant/Assessee to deduct tax at source in accordance with section 18 Qf the repealed Act would not be an omission or a ground for disallowing the claim of the Applicant/Assessee of the amount in dispute as an admissible expenditure.

Mr. Nasrullah Awan, elaborating his arguments regarding the objection raised by him submitted that the issue involved a simple question of fact as to whether the amended provisions of section 10(4)(bb) of the repealed Act would be applicable to the case of Applicant/Assessee for the assessment year 1977-78. In this connection, he submitted that the amendment introduced by the Finance Ordinance, 1978 was to be effective from 1-7-1978 and would be applicable to the Assessment year 1978-79, whereas the -present case pertained to the assessment year 1977-78 when no such amendment had been brought and the words, "chargeable under the provision of this Act" did not appear or exist in clause (bb) so as to dispense with the deduction of advance tax/tax at source unless it was established that the amount paid by the Applicant/Assessee by way of brokerage or commission to a non-resident was liable to be charged to tax under the repealed Act so as to deduct tax therefrom under section 18 of the repealed Act. In this connection Mr. Iqbal, Naeem Pasha submitted that the amendment made in clause (bb) of section 10(4) of the repealed Act was remedial or curative in nature, the object of which was to remove the defects or the mischief of a provision of the repealed Income-tax Act and submitted that remedial, or curative statutes were to be interpreted liberally for accomplishing the object of the legislature, and to give wholesome effect of the amendment which would only be possible when the provisions of remedial or curative statute was given retrospective effect, which according to him, is the cardinal principle of interpretation of statutes. In support of his above contention, he referred us to the case of CIT v. M/s. Shah Nawaz Limited and others reported in 1993 SCMR 73.

We have given our due consideration to the respective arguments advanced by the learned counsel for the parties. The issue to be decided in the question referred to us is, as pointed out by Mr. Nasrullah Awan, whether the amended provision of section 10(4)(bb) of the repealed Act would apply to the case of the Applicant/Assessee for the assessment year 1977-78. In this connection, it is to be observed that this is not purely a question of fact. The question to be determined is whether the amendment in section 10(4,)(bb) made by the Finance Ordinance effective from 1-7-1978 was to operative with effect from assessment year 1978-79 or it was to be given retrospective effect so as to cover assessment year 1977-78 for providing the benefit of the amendment to the applicant/assessee. Such determination would require an examination whether the amendment was intended to be prospective or retrospective which, in turn, would require consideration of the principles of interpretation of Statutes. Thus, it cannot be said that the question does not involve an issue of law. The objection raised by Mr. Nasrullah Awan is not well-founded and is overruled.

Prior to the amendment of section 10(4)(bb) of the repealed Act, the applicant/assessee was under an obligation to deduct tax under section 18 of the repealed Act or any payment made by it by way of brokerage or commission to a person not resident in Pakistan, irrespective whether such payment was liable to be charged to tax under the repealed Act or not liable to be charged to tax for the applicant/assessee to claim such payment as an admissible expenditure. Failure of the applicant/assessee to deduct tax at source on such payment would disentitle him from claiming such payment as an admissible expenditure and the Assessing Officer would be legally justified in disallowing the same. After the amendment of section 10(4)(bb) of the repealed Act by insertion of the words "chargeable under the provision of this Act", the Legislature dispensed with, the requirement or obligation which was imposed upon the applicant/assessee to deduct tax at source in accordance with section 18 of the repealed Act notwithstanding the fact that the payment made to a person not resident in Pakistan was not liable or would not be chargeable to tax under the repealed Act. The amendment, thus, removed the burden which was imposed on the applicant/assessee for claiming such payment as an admissible expenditure. The effect of the amendment resulted in providing substantial benefit or relief to the applicant/assessee in claiming such payment as on admissible expenditure without undergoing the ordeal of deducting tax at source and depositing or handing it over to the Revenue Authorities in a case where such payment was not liable to be charged to tax under the repealed Act. The Amending Ordinance neither provided nor imposed any new burden or fresh obligation on the applicant/assessee nor deprived it of any vested right. On the contrary it saved it from the unnecessary ordeal of deducting tax at source from such payment and depositing or handing over the same to the Revenue Authorities for his entitlement to claim such payment as an allowable deduction. In the circumstances, it can be said that the Amending Ordinance had brought a change in the procedure to be adopted by the applicant/assessee for claiming such payment as an allowable deduction in a case where such payment was not chargeable to tax under the repealed Act. The applicant/assessee was absolved of the burdensome condition or obligation to deduct tax at source and to deposit or pay the same to the Revenue Authorities or such payment which admittedly was not to be charged to tax. We may, with advantage refer here to the case of Malik Gul Hasan & Co. and others v. Allied Bank of Pakistan, reported in 1996 SCMR 237, wherein the Supreme Court held that any Statute which did not take away, curtail or affect any vested or substantive right then it would operate retrospectively unless the contrary was expressed. From a perusal of the Amending Ordinance, we are unable to hold that the Legislature either expressly or by necessary implication barred retrospective operation thereof. Regarding the retrospective operation of the Amending Ordinance Mr. Iqbal Naeem Pasha submitted that it was a remedial or curative statute and such Statute operates retrospectively and that the provision of the Finance Ordinance relating to the amendment or modification of section 10(4)(bb) being more beneficial and advantageous to the Applicant/Assessee would be deemed to operate retrospectively so as to be applicable to the case of the Applicant/Assessee for ~the assessment year 1977-78. For his above conclusion he placed reliance on the pronouncement made by the Supreme Court in the case of Commissioner of Income-tax v M/s. Shahnawaz Ltd. and others. We have gone through the afore cited case The Hon'ble Supreme Court in its judgment reproduced a passage from the judgment of this Court with approval, which is as under: --

"In our view, as the amending provision under consideration had been inserted in subsection (6) of section 18-A to remedy a wrong that was being done to the assessee, and the amending provision does not affect any vested right or create any new obligations, the amending provision is to be given retrospective operation for extending benefit of the affected parties in pending cases, to give effect to the intent of the Legislature. As observed earlier, a wrong was being done to the assessees by providing for an indefinite period during which they were made liable for payment of additional tax at the rate of 2 % per mensem and this wrong was sought to be remedied by the remedial and curative amendment brought about by the Finance Act, 1973. If the intention of the Legislature had been that this remedy should be available, only in respect of assessment for the year 1973-74 and subsequent years, the legislature would have used appropriate words to express such intention. No such appropriate words are mentioned in the amending provision. There is no reason why the remedial provision of the amending law should not be applied to pending proceedings. In fact this appears to be the intent of legislature."

It was further observed that retrospective operation of a curative or remedial Statute could be extended only to such cases which were pending at the time the amending law was enacted, i.e., cases which had not been finally determined or proceedings which had not attained finality.

Applying the principle laid down by the Supreme Court to the case, it can be said that the Finance Ordinance, 1978 by amending section 10(4)(bb) of the repealed Act had removed the snag or the burden of deducting the tax at source on payment made to a non-resident in Pakistan for claiming such payment as an admissible deduction though it was not chargeable to tax under the repealed Act. The Amending Ordinance had ` provided benefit both to the applicant/assessee and the non-resident in Pakistan. In the circumstances, the Amending Ordinance was a remedial or a curative Statute and in view of the afore-referred enunciation made by the Supreme Court it would be operative retrospectively. The benefit of the Amending Ordinance would not be available only in respect of assessment year 1978-79 and thereafter but also for assessment years prior to 1978-79, subject to tie condition that at the time when the Amending Ordinance was promulgated the case had not been finally decided and was pending. The applicant/assessee had filed an appeal before the Commissioner of Income-: tax (Appeals) after the Amending Ordinance was enacted. The Commissioner of Income-tax (Appeals) had granted relief to the applicant/assessee and had allowed the payment made by the applicant/assessee by way of brokerage/commission to a non-resident in Pakistan on interpretation of the amended section 10(4)(bb) on which such payment was not found to be chargeable to, tax under the repealed Act. However, the said finding was reversed by the Appellate Tribunal. In view of these facts the case of the Applicant/assessee cannot be said to have been finally decided at the time I when the amendment was made and it would be entitled to the benefit' provided by the Amending Ordinance.

Upon the above discussion, we are satisfied that this Reference merits consideration and succeed. According) we allow this Income Tax Reference, answer the question in the affirmative, set aside the finding of the Appellate Tribunal in its order, dated 18-6-1983 on this issue and restore the finding of the Commissioner of the Income-tax (Appeals)

C.M.A:/100/K(Tax) Reference answered in affirmed.