MAQBOOL TEXTILE MILLS LTD. VS FEDERATION OF PAKISTAN
2001 P T D 1
[Lahore High Court]
Before Nasim Sikandar, J
Messrs MAQBOOL TEXTILE MILLS LTD.
versus
FEDERATION OF PAKISTAN through Secretary, Ministry of Finance, Islamabad and others
Criminal Originals Nos. 142/W and 143/W of 2000 in Writ Petitions Nos.8430 and 8431 of 1998, decided on 06/07/2000.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.80D---Economic Reforms Act (XII of 1992)---Minimum tax on income of certain persons---Provisions of Economic Reforms Act, 1992 prevail over the provisions of S.80D of the Income Tax Ordinance, 1979.
(b) Economic Reforms Act (XII of 1992)---
----S.6 & Schedule---All levies of the kind whether recovered or yet to be recovered from the assessees covered by the notifications mentioned in the Sched. to S.6 of the Economic Reforms Act, 1992 were against law.
Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary, Ministry of Finance, Islamabad and 6 others PLD 1997 SC 582 rel.
(c) Precedent---
----Pronouncements by superior Courts interpreting specific provisions of law have retrospective effect.
(d) Precedent---
---- Judgment of the Supreme Court declaring certain provisions of law to be inapplicable to a class of assessees was a judgment in rem.
(e) Income Tax Ordinance (XXXI of 1979)---
---S.80D & Second Sched., cl.(118C)---Minimum tax on income of certain persons---Exemption---Refund of tax ---Assessees having not agitated against turn over tax were also entitled to the refund of tax paid either voluntarily or under coercion---Any such payment made by the assessees or received by the department could not be termed as a past and closed transaction-- Retention of all such sums by the Revenue would be unjustified.
Pfizer Lab. Ltd. v. Federation of Pakistan PLD 1998 SC 64 rel
(f) Interpretation of statutes---
---- Different reasons and principles have emerged to judge if a statute, rule, regulation or by-law was effective from a date earlier to its becoming a superior or subordinate legislation.
(g) Precedent---
----Declaratory judgments of superior Courts, like declaratory statutes, are retrospective in application.
(h) Income Tax Ordinance (XXXI of 1979)---
----S.80D & Second Sched., cl. (118C)---Economic Reforms Act (XII of 1992), S.6---SRO No.1283(I)90, dated 3-12-1990---C.B.R.'s Letter No.2(98)IT-Judi/94, dated 11-12-1998---C.B.R.'s Letter C.No.2(98)ITJ/94, dated 11-12-1997---Law & Justice Division's Letter No.1327/97-SO-I, II, dated 10-10-1997 and Letter No.1329/97 SOR-II, dated 16-12-1998-- Minimum tax on income of certain persons ---Exemption---Assessee's income was exempted under cl. (118C) of the Second Sched. of the Income Tax Ordinance, 1979---Minimum tax under S.80D of the Income Tax Ordinance, 1979 was collected by the Department---Refund of the same was claimed by the assessee on the basis of Supreme Court Judgment reported as PLD 1997 SC 582 = 1997 PTD 1555 (M/s. Elahi Cotton Mills Ltd. and others v. Federation of Pakistan) declaring that such tax was also not chargeable upon the persons whose income was exempt under Second Sched. of the Income Tax Ordinance, 1979---Department refused to refund the tax received on the basis of letters issued by the Central Board of Revenue and Law & Justice Division that assessees who had not filed appeal or petition were not entitled to claim refund as the said judgment was not retrospective in effect---Validity---Levy of minimum/turnover tax under S.80D of the Income Tax Ordinance, 1979 was applicable to certain category of assessees for certain period---Case of the assessee was covered by Economic Reforms Act, 1992, and therefore, was not liable to pay minimum tax---Defence of the department based upon the Circulars being not tenable it was directed to make the payments of the sums received by it under S.80D of the Income Tax Ordinance, 1979.
Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary, Ministry of Finance, Islamabad and 6 others PLD 1997 SC 582; Pfizer Lab. Ltd. v. Federation of Pakistan PLD 1998 SC 64 and Central Insurance Company v. C.B.R. 1993 SCMR 1232 rel.
Walchant Nagar Industries Limited v. Income-tax Officer (1962) 44 ITR 260; Commissioner of Income-tax v. Model Mills Nagpur Limited (1967) 64 ITR 67; Parshram Pottery Works Co. Ltd. v. Wealth Tax Officer (1975) 100 ITR 651; Baghwandas Kavaldas v. N.D. Mehrotra-etc. (1959) 36 ITR 538 (Bom.) and Kid Kotagiri Tea and Coffee Estate Co. Limited v. I.T.A. etc. (1988) 174 ITR 579 ref.
Tariq Javed for Petitioner.
Ch. Sagheer Ahmad, Standing Counsel.
ORDER
Two Criminal Originals bearing Nos. 142-W of 2000 and 143-W of 2000 arise respectively out of Constitutional Petitions Nos.8430 and 8431 of 1998 disposed of on 4-11-1998.
2. Through these Constitutional petitions filed by the petitioner, a Limited Company, it was alleged that after the introduction of section 80-D in the year 1991 in the Income Tax Ordinance, 1979, the petitioner made payments of various amounts for the assessment years 1990-91 to 1996-97 at Rs.5,444,040 (in case of M/s Maqbool Textile Limited) and at Rs.5,504,998 (in case of Ahmad Hassan Textile Mills Limited). It is alleged that the petitioner alongwith a number of assessees challenged the vires of the aforesaid provisions; that while their Constitutional petitions were pending before this Court, the Hon'ble Supreme Court of Pakistan in Re: Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary Ministry of Finance, Islamabad and 6 others (PLD 1997 SC 582 = 1997 PTD 1555 ) decided the issue in favour of the assessee enjoying exemption in accordance with the notification issued and referred to ill the Schedule I to section 6 of Act XII of 1992. After the aforesaid decision, the Constitutional- Petition No.5021 of 1993 (Re: Ahmad Hassan Textile Mills) and W.P. 5022 of 1993 (Re: Maqbool Textile Mills) were disposed of by a Division Bench of this Court on 30-3-1997 in terms of the order delivered by the Hon'ble Supreme Court of Pakistan in Civil Appeal No.307 of 1995 (now reported as cited above).
3. It is the case of the petitioners that having so succeeded, they approached the concerned Deputy Commissioner as well as the Commissioner of Income Tax for refund of the aforesaid amounts paid to the exchequer during these assessment years. However, on their refusal, they were obliged to file the aforesaid two Constitutional petitions for that purpose wherein it was prayed that the respondents should be directed to refund the tax paid by the petitioners under section 80-D of the Income tax Ordinance irrespective of any C.B.R. Circular to the contrary. Particularly the one based upon the view expressed by the Law Department and circulated by the C.B.R to the Regional Commissioner of Income Tax through Letter No.2(98) IT-Judl/94, dated 11-12-1998. These Constitutional Petitions Nos.8430 and 8431 of 1998 came up for hearing on 4-11-1998 and were disposed of by reference to an order recorded in another W. P. No. 1699 of 1998 Re- Fatima Sugar Mills v. Federation of -Pakistan when the learned counsel for the petitioners felt satisfied as the Standing Counsel for the respondent-Federation stated that the authorities would definitely decide the case of the petitioner in the light of the judgment of the Supreme Court reported as Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary Ministry of Finance Islamabad and 6 others (PLD 1997 SC 582) within a period of three months from today".
4. According to the petitioners, when approached again, the respondents rejected their prayer for refund of the aforesaid amount by relying upon C.B.R.'s Letter C. No.2 (98) ITJ/94, dated 11-12-1997. By was of that letter the authorities in the Income Tax Department were instructed not to refund the minimum tax received by them under section 80-D of the Ordinance prior to the said judgment of the Hon'blc PIP Supreme Court of Pakistan. Accordingly it is prayed that the respondents Nos.2 and 3-Central Board of Revenue and D.C.I.T.. Wealth Tax, Companies Circle-33, Multan Zone, Multan be proceeded against for having resiled from their statement made before this Court on 4-11-1998.
5. Heard the learned counsel for the parties.
6. The learned counsel for the respondents opposes initiation of any process against the respondents. His submissions are based upon the alleged opinion of the Law Department which was given trough their Letter No. 1327 of 1997-SO I-II, dated 10-10-1997: The opinion as reproduced in the reply filed to these applications reads as under:---
(i) There is nothing to debar the Government to extend the judgment of Supreme Court, for allowing exemption from minimum tax under section 80-D to tax holiday units in those cases who were not party in appeal before the Supreme Court.
(ii) The judgment of the Supreme Court is not retrospective in nature.
(iii) The tax payers who had not filed appeal or petition, are not entitled to claim refund of minimum tax already paid under section 80-D.
(iv) The additional tax shall be charged only @ 2 % above the bank rates as per directions by the Supreme Court."
7. In the reply, it is also admitted that the aforesaid opinion of the Law and Justice Division and the letter circulating it was challenged before this Court through Writ Petition No.2985 of 1998 and was set aside by this Court on 24-4-1998. However, according to the respondents, the matter was again referred to the Law Division which vide their Letter. No.1329/97 SOR-II, dated 16-12-1998 repeated their earlier view. Therefore, in the view of the learned counsel for the respondents, the case of the petitioner was disposed of according to the order of the Hon'ble Supreme Court of Pakistan and in the light of the opinion of the Law and Justice Division.
8. The learned counsel for the petitioner state and I will readily agree that the opinion expressed by the Law and Justice Division does not appear in accordance with law. In the aforesaid W.P. No.2985 of 1998 decided on 24-4-1998 a Single Bench of this Court after examining the issue at length disapproved the view expressed by the Law Division. These findings need not be repeated again. It is sufficient to remark that in the replies the respondents have admitted that income of the petitioners is exempt from levy of Income Tax under clause 118-C of the Second Schedule to the Income Tax Ordinance, 1979, and therefore, was covered by notification S.R.O. No. 1283 (I) 90, dated 3-12-1990. Also that the Schedule to section 6 of the Act XII of 1992 (Economic Reforms Act; protected the case of the petitioners. The fact that the petitioners had paid the turn over tax under section 80-D of the Ordinance, 1979 was also not disputed. The only reason for refusal to make the refund being that the Law and Justice Division had found that the aforesaid judgment of Hon'ble Supreme Court of Pakistan could not be given retrospective effect. Therefore, it is claimed that the assurance given before the Court was adhered to.
9. The stance taken by the Department is patently against the ratio settled in the said judgment of the apex Court. Para. 54 of the judgment makes it clear that the provisions of Act XII of 1992 prevail over the provisions of section 80-D of the Ordinance. The apex Court specifically I noted that the assessees covered by the Notification referred to in the Schedule to section 6 of Act XII of 1992 were entitled to the protection of the Act. The judgment of the Hon'ble Supreme Court of Pakistan, without any iota of doubt, is declaratory in nature. The earlier Constitutional Petitions Nos.5021 and 5022 of 1993 filed by the assessee were disposed of in the light of the aforesaid judgment of the Hon'ble Supreme Court of Pakistan. Therefore, the same order is presumed to have been passed in the petitions filed by the present petitioners. That being so apparently there was no question of giving retrospective effect to the judgment of the Supreme Court. It was the judgment of this Court in the said two Constitutional petitions which the petitioners subsequently sought to be enforced by the latter two petitions which were disposed of on the assurance of the learned Standing Counsel that the case of refund shall be disposed of in the light of the judgment of apex Court in Re: Elahi Cotton Mills and others (Supra).
10. The apex Court once having decided that certain kinds of assessee. were covered by the two notifications mentioned in the Schedule to section 6 of Act XII of 1992 all levies of the kind whether recovered or yet to be recovered were rendered against law. The position taken up by the Department which no doubt was based upon opinion of the Law Division is patently incorrect when seen in the perspective of sub para. (i) of para. 57 of the aforesaid judgment which reads as under:---
"That assessees who are covered by the notification mentioned in the Schedule to section 6 of the Protection of Economic Reforms Act, 1992 (Act XII of 1992), are entitled to the protection in terms thereof as per paras. 52 to 54 hereinabove. They may approach the Income Tax Department." (emphasis provided).
The last sentence of the judgment that the assessees covered by the Notifications "may approach the. Income Tax Department" would' be -meaningless if the interpretation of the department is accepted.
11. All pronouncements by superior Courts, interpreting specific provisions of law have retrospective effect. The judgment of the Hon'ble Supreme Court declaring certain provisions of law to be inapplicable to a class of assessee is a judgment in rein. It means even if the petitioners had not filed the said Constitutional petitions, they were entitled to the refund of turn over tax either voluntarily paid or coerced by the department. In such situation any payment made by the assessee or received by the department could not be termed as a passed and closed transaction. The retention of all such sums would be unjustified in view of the law laid down by Hon'ble Supreme Court in re: Pfizer Lab. Ltd. v. Federation of Pakistan (PLD 1998 SC 64). Speaking for the Court, Ajmal Mian,. J. examined laws of various foreign jurisdictions to conclude:---
(i) That if one party under a mistake, whether of fact or law, pays some money to another party (which includes a Government department), which is not due by law or contract or otherwise, that must be repaid in view of section 72 of the Contract Act, 1872.
(ii) That the Customs duties and charges referred to in section 33 of the Act should be chargeable and payable by an importer or exporter and that due to inadvertence, error or misconstruction, more amount was paid or recovered than what was due and payable, the claim for the refund of such an excess amount should be made within six months as envisaged in above section 33, but where the duty of tax charged and recovered was not payable at all, above section 33 has no application.
(iii) That if the customs duty or any other levy was realized and its realization was outside the statutory authority, the provisions of section 27(1) of the Indian Customs Act, 1982, providing limitation of six months was not attracted.
(iv) That when any excise duty is recovered which was not leviable, limitation of one year provided in Rule 11 of the Central Excise and Salt Rules, 1944 is not applicable nor an alternate remedy by way of a suit will be a bar to a Constitutional petition.
(v) That payment of excise duty or any other tax without knowledge that the same is exempted under a notification is refundable on the same footing as if there was no lawful imposition.
(vi) To return what has been taken wrongly is as much a duty and grace of Government to levy relentlessly and fully what is due as remarked by V.R. Krishna Iyer, J.
(vii) That where some money is received by the Government not lawfully due, the plea of limitation by its departments is one which the Court always looks upon with disfavour as it is violative of the principles of morality and justice.
(viii) That when moneys are paid to the State which the State has no legal right to receive, it is ordinarily the duty of the State, subject to special provisions of any particular statute or special facts and circumstances of the case, to refund the amount so received and in case of failure, a superior Court in exercise of its Constitutional jurisdiction can direct the refund of the same if no disputed questions of facts are involved.
(ix) That there may not be legal liability on the part of a Government functionary to refund any amount received by it as a tax or other levy by virtue of certain special provisions under the special law but keeping in view that we are living in a democratic society governed by the rule of law and every Government, which claims to have ethical and moral values, must do what is fair and just to the citizens regardless of legal technicalities.
(x) That as per Indo-Pak laws the fact that the amount of tax of which refund is claimed was voluntarily paid, does not preclude the right to claim refund, if it was not lawfully payable.
(xi) That the money paid by a citizen to a public authority in the form of taxes or other levies paid pursuant to an ultra. vires demand by the authority is prima facie recoverable by a citizen as of right. Lord Bridge of Harwish of the House of Lords in the case of Tower Hamlets Borough Council (supra) remarked 'that the retention of moneys known to have been paid under a mistake at law, although it is a course permitted 2o an ordinary litigant is not regarded by the Courts as a high-minded thing' to do but rather as a 'shabby thing' or a 'dirty trick'."
12. 'The issue of retrospectivity of the said judgment otherwise did not arise at all as wrongly thought and then addressed by the Law Division. The phrase is generally used in respect of legislative enactments. Different reasons and principles have emerged to judge if a statute, rule, regulation or bye-law is effective from a date earlier to its becoming a superior or subordinate legislation. Stating as a rule of thumb, declaratory judgments of superior Courts, like declaratory statutes, are retrospective in application. However, as said earlier, judgment of the kind Re: Elahi Cotton Mills (Supra) is declaratory more in its effect and result rather than being merely in nature. It is that charging of turn over tax under section 80D from those covered by the said notification was at no time good and its payment or receipt were both bad in law. In re: Walchant Nagar Industries Limited v. Income-tax Officer (1962) 44 ITR 260), the petitioner was assessed to income-tax which included additional tax in respect of dividends. The levy of additional tax was maintained by the Appellate Tribunal. However, in some other case the Bombay High Court declared the levy to be invalid. That order was maintained by the Supreme Court of India. The assessee moved an application for rectification of the assessment order, made on 30-11-1954 and on his refusal approached the Commissioner in his revisional jurisdiction. Failing before him he filed a Constitutional petition for writ of certiorari for quashment of the orders of the Income-tax Officer and the Commissioner. The Naghpur High Court in the aforesaid reported judgment expressed the view that after the decision of the Bombay High Court was maintained by the Supreme Court, the levy of excess dividend tax was at no time good and, therefore, the assessment order levying that tax was bad at its inception on the date it was made, notwithstanding that the decision of the Supreme Court was given subsequent to that date. In other -wards, the only defence of passed and closed transaction was also not allowed to be taken up by the Revenue in the aforesaid situation.
13. In re: Commissioner of Income-tax v. Model Mills Nagpur Limited reported as (1967) 64 ITR 67, the Supreme Court of India maintained the judgment of the Bombay High Court whereby the Commissioner of Income-tax was directed to refund the amount of excess tax which was illegally collected. There are a number of judgments with relation to section 35 of the Income-tax Act, 1922 and section. 156 of the- Income Tax Ordinance, 1979 which support the submissions made at the bar by the assessee. One of these judgments is by the Gujarat High Court in the case of Parshram Pottery Works Co. Ltd. v. Wealth Tax Officer (1975) 100 ITR 651. The assessee Company in that case claimed a deduction in the computation of net wealth of a certain amount which was disallowed on the ground that the amount provided for tax liability did not constitute a debt owed. The assessee did not prefer any appeal. However, subsequently it came to know that the Income- tax Appellate Tribunal had found similar amount to be deductable in computing the net wealth. Therefore, the assessee Company made an application to the Wealth Tax Officer for rectification of the assessment order on the ground that there was an error apparent on the face of record. However, his application as well as revision before the Commissioner remained unsuccessful. Thereupon, the assessee approached the Gujarat High Court in Constitutional jurisdiction for issuance of writ which was allowed and it was found that the assessment order suffered from an error of law apparent on the face of the record. Their lordships while allowing the Constitutional petition also referred to the following remarks of the Bombay High Court in Baghwandas Kavaldas v. N.D. Mehrotra etc. (1959) 36 ITR 538 (Bombay):---
"When the Court decides a Chatter it does not make the law in any sense but all it does is that it interprets the law and states what the law has always been and must be understood to have been."
14. As to the effect of a binding judgment of the superior Court and the result reached when such a judgment is reversed by yet a higher Court, the judgment of Kerala High Court in the case of Kid Kotagiri Tea and Coffee Estate Co. Limited v. I.T.A. etc. reported as (1988) 174 ITR 579 gives very interesting study. Their lordships addressed themselves to the question "Where an authority has decided on the basis of a decision of the High Court which is subsequently reversed, would there be a rectifiable mistake coming within section 154 of the Income-tax Act?" The conclusion drawn by their lordships inter alia being:---
"A binding decision rendered by a Court is always retrospective and the decision which is overruled was never the law. The overruling decision should be deemed to have been in force even on the day when the order sought to be rectified was passed. We are further of the view that the Appellate Tribunal was in error in holding that the subsequent decision of the High Court has no retrospective operation as in the case of subsequent legislation or the decision of -the Supreme Court. The subsequent binding decision of the Supreme Court or of the High Court has retrospective operation and overruling is always retrospective."
15. The upshot of the above is that the Hon'ble Supreme Court of Pakistan by way of the aforesaid judgment reached the conclusion that the levy of minimum/turnover tax under section 80D of the Income Tax Ordinance, 1979 was applicable to certain category of the assessees for certain period. The respondents have admitted that the cases of the petitioners are covered by Act XII of 1992, and therefore; both of them were not, liable to pay minimum tax. Their defence based upon the aforesaid circular is otherwise not tenable and the respondents Nos.2 and 3 clearly fell in error by following the 'directions contained in the aforesaid C.B.R.'s circulars which were not legally binding in view of the judgment of the Supreme Court in re: Central Insurance Company v. C.B.R. (1993 SCMR 1232). All the more so when this Court had disapproved a similar earlier circular while deciding W.P. 2985/98 on 24-4-1998. The complaint of the petitioners that the respondents failed to honour their assurance made before this Court on 4-11-1998 is accordingly justified. However, since it was a matter of interpretation, I will allow the respondents another 30 days from the day this order is conveyed to them to make the payments of the sums received by them under section 80D of the Ordinance failing which appropriate proceedings against them shall immediately follow. For that purposes, the petitioners may again approach this Court.
Disposed of.
C.M.A./M.A.K./M-383/L
Order accordingly