2004 P T D 921

[Karachi High Court]

Before Shabbir Ahmed and Muhammad Mujeebullah Siddiqui, JJ

COMMISSIONER OF INCOME‑TAX, KARACHI

Versus

Messrs NAZIR AHMED AND SONS (PVT.) LTD., KARACHI

Income Tax Appeal No.790 of 2000, decided on 30/10/2003.

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 50(4), Explanation [as added by (Finance Act III of 1998) w.e.f. 1‑7‑1998]‑‑‑Deduction of tax at source on payments made on purchases prior to insertion of Explanation to S. 50(4) of Income Tax Ordinance, 1979 by Finance Act, 1998‑‑‑Scope‑‑‑Said Explanation deeming a sale by fiction of law to be supply of goods was a substantive piece of legislation enlarging and extending scope of S. 50(4) of the Ordinance and could not be applied retrospectively‑‑‑No person could be saddled with responsibility/liability for non‑compliance of law to be enacted in future‑‑‑Requirement of deduction of tax on purchase would apply from the date of insertion of such explanation and not since the very inception of the Income Tax Ordinance, 1979.

Dream Land Cinema v. CIT PLD 1977 Lah. 292 fol.

(b) Interpretation of statutes‑‑‑

‑‑‑‑ Explanation to a statutory provision‑‑‑Object, scope and effect‑‑ Principles elaborated.

The ordinary object of an explanation to a statutory provision is to explain the meaning and intendment of the Act. Where there is any obscurity, ambiguity or vagueness in the main enactment, the explanation clarifies the same so as to make it consistent with the dominant object, which it seems to be subservient. The explanation is a note of caution by the Legislature to rectify the judicial error and give guideline for future clarifying the intention of the Legislature. Normally, the explanation does not enlarge or limit the provision already enacted. Some times, the Legislature steps in to convey its real intention, if not fully conveyed by the earlier enactment or there has been a misconception about the scope of a provision. Some times, a definition or a deeming clause is inserted by an explanation. Some times on account of inaptness or lack of dexterity on the part of draftsman, substantive provisions are also enacted with the heading explanation. If an explanation is merely declaratory or clarificatory in nature or is meant to fill in certain obvious gaps or to convey the real intention of the Legislature by explaining the meaning and intendment of the Act or by clarifying an obscurity or vagueness in the main enactment, it is always retrospective in effect and is operative since the very inception of the enactment and shall be held to be existing all along. However, where a substantive/a new enactment has been made or a new definition is added or a deeming provision is inserted or the scope of a provision particularly a substantive/charging provision is enlarged or extended, it shall not have the retrospective effect, until and unless specifically specified so by the Legislature.

No hard and fast rule can be made applicable to all the explanations inserted by subsequent legislation. The explanations squarely falling within the normal purpose and scope of enactments, to wit, being declaratory, clarificatory meant for removal of doubt, obscurity or an ambiguity or filling in any obvious gap or correcting any pronouncement by the Court taking as judicial error by the Legislature, shall have the retrospective effect. However, the explanation whereby substantive legislation has been made or deeming provisions have been enacted or substantive provisions of law have been enlarged or extended creating new liabilities, they shall not have retrospective effect.

Muhammadi Bibi v. Kashi Upadhya AIR 1926 All. 725; Joti Ram Khan v. Jonaki Nath Jhosi 33 IC 54; Young v. Adams 1898 AC 469; Pakistan Petroleum v. Commissioner of Income‑tax 1985 PTD 1; Rehman Corporation v. Income‑tax Officer 1985 PTD 787; Commissioner of Income‑tax v. Mangalore Ganesh Beedi Works (1992) 193 ITR 77; Hindustan Steel Foregings v. CIT (1989) 179 ITR 280 and CIT v. Nitro Phosphetic Fertilizer (1998) 174 ITR 269 rel.

(c) Interpretation of statutes‑‑‑

----Real intent and purpose of a provision can be determined by examining entire statute and comparing various provisions contained therein.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 12(4) Expln., 19(3) Expln., 22 Expln. 23(1) Expln., 23(1)(vii -dd) Expln., 24(e) Expln., 36 Expln., 41 Expln., 50(5) Expln., 54 Expln., 59(1) Expln., 65 (2) Expln., 80‑D Expln., First Sched., Part II, Cls. (c), Expln., First Sched., Part IV, para. A, Expln.‑‑‑Explanations enacted initially or added subsequently‑‑‑Nature and scope‑‑‑All such explanations are not necessarily declaratory and clarificatory or for removal of doubt‑‑‑Some Explanations are definitive in nature, some have been specifically inserted with retrospective effect, some have enlarged/extended scope of already enacted provisions, while through some Explanations substantive legislation has been resorted to‑‑‑No hard and fast rule could be applied to all such Explanations‑‑‑Explanations squarely falling within normal purpose and scope of enactment being declaratory, clarificatory meant for removal of doubt, obscurity or an ambiguity or filling in any obvious gap or correcting any pronouncement by Court taking as judicial error by Legislature, would have retrospective effect‑‑‑Explanations whereby substantive legislation have been made or deeming provisions have been enacted or substantive provisions of law have been enlarged/extended creating new liabilities, would not have retrospective effect.

(e) Interpretation of statutes‑‑‑

‑‑‑‑ Fiscal statutes‑‑‑Words used in tax laws, until and unless defined in the statute shall be taken in the same sense and meaning as is understood in the common parlance by the business community.

(f) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 50(4), Explanation [as added by Finance Act (III of 1998)]‑‑‑"Supply of goods" and "sale of goods"‑‑‑Distinction‑‑‑Supply of goods and sale are not one and the same in nature‑‑‑Every supply is sale, but every sale is not supply.

(g) Interpretation of statutes‑‑‑

‑‑‑‑No absurdity or unreasonableness is to be attributed to Legislature.

(h) Interpretation of statutes‑‑‑

‑‑‑‑ No person can be saddled with responsibility or liability for non compliance of law to be enacted in future.

Aqeel Ahmed Abbasi for Appellant.

Nemo for Respondent.

Date of hearing: 30th October, 2003.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.‑‑‑This appeal under section 136(1) of the. Income Tax Ordinance, 1979, is directed against the order of Income Tax Appellate Tribunal in I.T.A. No.208/KB of 1999‑2000, dated 4‑4‑2000.

The Revenue being aggrieved with the finding of Tribunal has proposed following question of law for our opinion:‑‑

"Whether on the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal was justified to delete the addition made under section 52/86 for Failure to deduct and deposit tax under section 50(4) from the payments made towards the purchases by holding that the explanation added to section 50(4) by the Finance Act, 1998, cannot he applied retrospectively?

The relevant facts as stated in the impugned order of the Tribunal are that in the Assessment year 1995‑96, the respondents had purchased parts for repairing of its fork‑Lifters and Top‑Lifters, which are used in handling cargo. The respondent did not deduct tax under section 5,0(4) of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance) and therefore, the Assessing Officer, treated the respondent as defaulter under section 52 of the Ordinance and further imposed additional tax under section 86 of the Ordinance. The respondent preferred first appeal before the learned CIT(A) which was dismissed. Still dissatisfied they preferred second appeal before the Tribunal, contending that under section 50(4) of the Ordinance, as it stood during the' relevant period the tax was required to be deducted on supplies only and purchases were not liable to deduction of tax. In support of this contention reliance was placed on the judgments of Tribunal in the case of respondent itself pertaining to the Assessment years 1991‑92 and 1996‑97, wherein it was held that purchases were not covered under section 50(4) of the Ordinance and consequently section 52 was not attracted.

During the course of arguments it was pointed out that by Finance Act, 1998 an explanation was added to section 50(4) of the Ordinance which reads as follows:‑‑

"Explanation: for the purpose of clause (a) the expression "'Supply of Goods" includes both cash and credit purchases of goods by the payer, whether under a contract or not on credit or in cash."

A plea was taken on behalf of the department that by virtue of this amendment the distinction between supplies and purchases was removed and the meaning of supplies was extended to include purchases for the purpose of deduction of tax under section 50(4) of the Ordinance. It was further contended that the learned CIT(A) has upheld the treatment given by the Assessing Officer, with reference to the above explanation which is of clarificatory nature and is retroactive in operation and shall apply to All pending proceedings. The learned Members of the Tribunal did not accept the contention holding that the nature of amendment was such that it could not be applied retrospectively, because at the time when goods were purchased there was no provision for deduction of tax on payments on account of purchase. It was further held that with the insertion of explanation, the purchases were included in the supply of goods and therefore, the requirement of deduction of tax was made applicable from the date of insertion of the explanation in the Ordinance and prior to the insertion of the explanation there was no requirement to deduct tax under section 50(4) of the Ordinance, on the payments made on purchases.

With the above observations the addition made under sections 52/86 of the Ordinance in the assessment year 1995‑96 were deducted and the appeal was allowed.

The Revenue feeling aggrieved has preferred this appeal seeking our opinion on the questions of law already reproduced.

We have heard Mr. Aqeel Ahmed Abbasi, learned counsel for the appellant, who submitted that every explanation enacted by the Legislature is declaratory and clarificatory and therefore, has retrospective application. In support of his contention he has placed reliance on the judgment of Lahore High Court, in the case of Dream Land Cinema v. CIT PLD 1977 Lah. 292.

We have considered the contention raised on behalf of Revenue and we are of the opinion that point of law already stands settled and now it is a matter of application only. Looking to the nature of explanation inserted in section 50(4) of the Ordinance, we are of the opinion that the learned Tribunal has rightly decided the point under consideration and therefore, the question proposed for our opinion requires no fresh finding and consequently the appeal 'is liable to be dismissed in limine.

However, since Mr. Aqeel Ahmed Abbasi, insisted that every enactment/legislation under the nomenclature of explanation has retrospective effect therefore, we will discuss the issue at some length.

First, we would like to examine the judgment on which the learned counsel has placed reliance. In the cited case Explanation (ii) added to section 24(2) was considered which reads as follows:‑‑

"Explanation 2." For the avoidance of doubt it is hereby declared that"

(a) No loss of an unregistered firm shall be carried forward and set off under this section, under any circumstances against its income, profits and gains of the subsequent year if is registered in that year under section 26‑a is treated as a registered firm in such year under clause (b) of subsection (5) of section.

The learned Division Bench of the Lahore High Court, after considering two judgments of Hon'ble Supreme Court to the effect that after an amendment has been brought about only to avoid any doubt its application would be from the inception of the original provisions and that if an explanation does not amount to original explanation but is only clarificatory in nature to explain the intent of the Act as it has always been there, held that, "the amendment under review is, however, of explanatory type stated to have been introduced for the avoidance of doubt. The rule about interpretation of such statutes is distinct though the principles of interpretation of taxing statutes would apply if attracted in the situation."

The learned Division Bench of the Lahore High Court referred to the Construction of the Statute by Crawford wherein it is observed that, the declaratory statutes declaring meaning of an existing law are to be construed as intended to lay down a rule for future cases, and to act retrospectively. They closely resemble in interpretation clause and their paramount purpose is to remove doubt as to the meaning of existing law or to correct a construction considered erroneous by the Legislature.

A reference was made to a passage from Caries on Statutes law, which reads as follows:‑‑

"For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective.

The usual reason for passing a declaratory Act is to set aside what Parliament deemed to have been a judicial error, whether in the statement of the common law or in the interpretation of statute."

Another passage was‑also referred to which reads as follows:‑‑

"Whether a statute is passed for the purpose of supplying an obvious omission in a former statute or, as Parke J. (afterwards Baton Parke) said in R.v. Dursley (1832) 3B and Ad, 465(469), to `explain' a former statute, the subsequent statute has relation back to the time when the prior Act was passed "

A passage from Maxwell on the Interpretation of Statute was also, reproduced which is as under:‑‑

"If a statute is in its nature a declaratory Act, the argument that it is not be construed, so as to take away previously vested rights is inapplicable."

After referring above passages, it was observed that, there was unambiguous view that declaratory statutes apply retrospectively and that reading of the explanation under consideration showed that intention of the legislature was to remove the doubt and explain extended import of the original provision. "

However, it was further explained as to what is meant by a declaratory Act. Reliance was placed on a judgment from Indian jurisdiction in the case of Muhammadi Bibi v. Kashi Upadhya AIR 1926 725, wherein it was held that a declaratory Act is an Act to remove doubts existing as to the meaning or effect of statutes and the individual reason for passing a declaratory Act is to set aside what the Legislative Body deems to have a judicial error.

Ratio of another judgment in Joti Ram Khan v. Jonaki Nath Jhosi 33 IC 94, was also referred, wherein it was held that the provision of section 3 of the Bengal Tenancy Amendment Act, 1907, cannot be given a retrospective operation as the Act is not a declaratory one, but has effected the fundamental alteration in the law.

Large number of cases were examined in this behalf. A judgment by Judicial Committee in the case of Young v. Adams 1898 AC 469, was also considered. The relevant finding reads as follows:‑‑

"They think that in a case like the present the learned C.J. was right in saying that a retrospective operation ought not to be given to the statues unless the intention of the legislature that it should be so construed is expressed in plain and unambiguous language, because it manifestly shocks one's sense of justice that an act legal at the time of doing; it should be made unlawful by some new enactment. It will serve no useful purpose to refer to other cases cited before us in this connection because here we are able, as we shall presently proceed to show, to distinguish upon the words of the Act itself the language of the Act in that respect being plain and, unambiguous; which of its provisions are retrospective and which prospective and we have not to rely upon any presumption as to intent relating to its operation to be inferred from the character of the Act being declaratory or otherwise."

The learned Division Bench of the Lahore High Court, ultimately held that the upshot of whole discussion is that the addition of Explanation 2 to section 24(4) was with the object of removing a doubt (probably created by the two judgments of the West Pakistan High Court) referred to in the judgment. The Enactment was expressly explanatory in nature and therefore, it had to apply retrospectively to all the cases pending at that time.

The issue was considered by a Division Bench of this Court in the case of Pakistan Petroleum v. Commissioner of Income‑tax 1985 PTD 1. An Explanation added by Finance Act, 1975 to clause (d) subsection (4) of section 10 of the Income Tax Act 1922, was considered and it was held that, that the explanation was merely Explanatory. It either added to nor subtracted to any liability in the then existing provisions of section 10 of the Act. It was enacted with the object to clarify the existing provision of law for guidance.

The issue pertaining to the retrospective application of the explanation was considered by another Division Bench of this Court in the case of Rehman Corporation v. Income‑tax Officer 1985 PTD 787 the question came for consideration in the following perspective:‑‑

Under subsection (7-A) of section 50 of the Ordinance, any person making sale, by public auction, of any property belonging to the Government, a local authority or a public company, or a foreign association declaring to be a company under clause 16(2) or a foreign contractor or consultant or consortium was required to collect advance tax on the sale price of such property. A question came for consideration whether a contact to collect Octroi was a property or not as envisaged in section 7‑A of section 50 of the Ordinance. Export tax contract was given to the petitioner for the year 1983‑84. An explanation was inserted in section 7‑A of section 50 of the Ordinance by Finance Act, 1984, which reads as follows:‑‑

"Explanation. For the purposes 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, tolls, fees or other levies, by whatever name called."

It was ultimately held that the explanation was declaratory in nature inserted for the purpose to remove doubt and therefore, it was held that the explanation would apply retrospectively. Another consideration in arriving at the above opinion was that the provisions were not in the nature of charging sections. They only provided a mechanism for the collection of Revenue but the liability, for the payment of tax by the petitioner has to be determined by independent proceedings under the Income Tax Act and the amount so collected is liable to be refunded partly or wholly in case it is found to be in excess of liability or where no liability to pay tax is incurred. It was specifically held that the explanation shall have retrospective effect.

We will presently show that with the introduction of presumptive tax regime and insertion of section 80‑C in the Income Tax Ordinance. 1979, by Finance Act, 1991, the tax deducted under subsection (4) of section 50, shall be treated as final discharge of the tax liability and no amount out of the tax so deducted shall be refunded.

The issue has been considered in the Indian jurisdiction also in large number of cases including Commissioner of Income‑tax v. Mangalors Ganesh Beedi Works (1992) 193 ITR 77. In this case the Karnataka High Court considered a large number of cases, it referred to art observation by the Rajasthan High Court in, the case of Gajanand Poonam Chand and Brother v. CIT (1988) 174 ITR 346 wherein the principles pertaining to Explanation have been laid down as follows:‑‑

"The ordinary purpose of an explanation is to clarify that which is already enacted and not to enact something new. No doubt, an explanation some times, may be a distinct enacting provision itself. However, it would then not be performing its ordinary or normal function of an explanation."

Another judgment of Punjab and Haryana High Court in the case of Hindustan Steel Forgings v. CIT (1989) 179 ITR 280, was cited wherein while considering an amendment by way of an explanation it was held as follows:‑‑

"Therefore, it is clear that the amendment brought in by the Amendment Act, 1984, was only clarificatory with a view to explain what was the hidden so as to make it apparent to the naked eye. Such an amendment is always considered retrospective so that what looked hidden hithertofore should be considered as apparent and if that is so, the clarification which has been brought about by the amendment should lie read as if the un-amended provision was also to be read in the same way."

Law pertaining to the prospective or retrospective effect explanation was considered by a Full Bench of Allahabad High Court in CIT v. Nitro Phosphetic Fertilizer (1998) 174 ITR 269. It was held as follows:‑‑

An Act can be considered declaratory when a provision is made to that effect in the Amending Act itself. In the instant case, nothing was said by Parliament indicating its intention as to whether it wanted to affect the past assessment years as well the intention had been to affect the past years as well, one would have expected a provision for reopening of assessments which had become final. Its absence is a clue to the view that the amendment is not retrospective. Parliament was aware of the same and it was for this reason that the Explanations were made applicable with effect from 1985‑86. In the absence of any indication in the Statement of Objects and Reasons, it is difficult to hold that the said section was retrospective. We have noticed above that no Court had ever held section 40(b) to be suffering from ambiguity. There was, no doubt, a difference of opinion amongst the Courts about the interpretation of section 40(b), but that could not be considered to be an omission for the clearing of which the Explanations have been added. One line of thinking can be that the Explanations have been added with the object of laying down that in future, that is, after 1985‑86, the interest paid by an individual on the investments of his monies would be liable to be deducted. In Central Bank of India v. Their Workmen (1959) 29 Comp. Cas. 367, (SC), the proviso introduced in section 10(b) (iii) of the Banking Companies Act, 1949, by the Amending Act of 1956, though held to be remedial, was not applied for period anterior to the date of operation of the Amending Act. S.K. Das J., in that case, observed (at p.392):

`A remedial Act, on the contrary, is not necessarily retrospective; it may be either enlarging or restraining and it takes effect prospectively, unless it has retrospective effect by express terms of necessary intendment.'

Section 10 of the Taxation Laws (Amendment) Act, 1984, neither is, nor purports to be, declaratory or retrospective from a date prior to the assessment year 1985‑86. At least, if the Amending Act had been made retrospective, one could have thought it was a clarificatory piece of legislation. But the Legislature has given effect to the Amending Act from 1985‑86 this would mean that the Explanations as inserted by the Taxation Laws (Amendment) Act, 1984, would not apply to earlier assessment years."

The scope of explanation was also considered by a dissenting opinion in the above judgment of the Allahabad High Court, wherein it was observed as follows:‑‑

"...It is manifest that the object of an Explanation to a statutory provision is:

(a) to explain the meaning and intendment of the Act itself:

(b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to sub-serve.

An Explanation cannot in any way interfere with or‑change the enactment or airy part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act, it can help or assist the Court in interpreting the true purport and intendment of the enactment, and consequently, we find that the function of an Explanation to a statutory provision is:

(c) to provide additional support to the dominant object of the Act in order to make it meaningful and purposeful;

(d) to help or assist the Court in interpreting the true purport intendment of the enactment, in order to suppress the mischief and advance the object of the Act where some gap is left which is relevant, for the purpose of the Explanation though, it cannot in any way interfere with or change the enactment or any part thereof."

The Karnataka High Court ultimately held as under‑‑

"the normal principle in construing an Explanation is to understand it as explaining the meaning of the provision to which it is added; the Explanation does not enlarge or limit the provision, unless the Explanation purports to be a definition or a deeming clause; 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 to explain the purport of the provision; such an Explanation has to be given effect to, as pointing out the real meaning of the provision all along. "

From the above proposition of law' relating to the scope of explanation the following conclusions are drawn: ‑‑

(i) The ordinary object of an explanation to a statutory provision is to explain the meaning and intendment of the Act.

(ii) Where there is any obscurity, ambiguity or vagueness in the main enactment, the explanation clarifies the same so as to make it consistent with the dominant object which it seems to be subservient. The explanation is a note of caution by the Legislature to rectify the judicial error and to give guideline for future, clarifying the intention of the Legislature.

(iii) Normally, the explanation does not enlarge or limit the provision already enacted.

(iv) Sometimes, the legislature steps in to convey its real, intention if not fully conveyed by the earlier enactment or there has been a misconception about the scope of a provision.

(v) Sometimes definition or a deeming clause is inserted by an explanation.

(vi) Sometimes on account of ineptness or lack of dexterity on the part of draftsman, substantive provisions are also enacted with the heading explanation.

(vii) If an explanation is merely declaratory or clarificatory in nature or is meant to fill in certain obvious gaps or to convey the real intention of the legislature by explaining the meaning and intendment of the Act or by clarifying an obscurity or vagueness in the main enactment it is always retrospective in effect and is operative since the very inception of the enactment and shall be held to be existing all along.

(viii) However, if a substantive/a new enactment has been made or clew definition is added or a deeming provision is inserted or the scope of a provision particularly a substantive/charging provision is enlarged or extended it shall not have the retrospective effect until and unless specifically specified so by the Legislature.

Keeping the above principles in view pertaining to the scope of explanation and prospective or retrospective application thereof, we will examine the explanation added to section 50(4) of the Income Tax Ordinance, 1979, which is the subject‑matter under consideration. In order to demonstrate that the Legislature has resorted to substantive enactment and the enactments which are not strictly mere explanatory, declaratory or clarificatory in nature but having the effect of enlarging and extending the substantive provisions creating new liabilities and enacting definitive and deeming 'provisions in the Income Tax Ordinance, 1979, itself, we will examine various explanations contained in the Ordinance. However, wherever Legislature has intended to, give retrospective effect to any explanation it has specifically specified so, we are resorting to this exercise for the reason that it is an established principle of interpretation of statutes to infer the real intent and purpose of a provision by examining the entire statute and comparing the various provisions contained therein.

A perusal of the Ordinance shows that an explanation was added to subsection (3) of section 19 of the Ordinance as follows:‑‑

Explanation.‑‑‑For the purpose of this section, any property, the owner of which is in receipt of any rent, whether in cash or otherwise, whether from employer or otherwise, shall not be taken to be in the occupation of such owner for the purpose of his own residence."

The above explanation is in the nature of substantive legislation and it was added by Finance Act, 1996, specifically stating that it shall be deemed always to have been so added. Although this explanation was added to nullify the effect of a judgment given by the Income Tax Appellate Tribunal and thus, it could be argued that the Legislature stepped in to correct the judicial error and convey the real intent of sub section (3) of section 19 but the Legislature realized that the provisions contained in the explanation was not within the normal scope of explanation and had enlarging effect therefore, the explanation was added with specific statement that it shall be deemed always to have been so added. There is another explanation in section 12, subsection (4) and subsection (5) which read as follows:‑‑

"Explanation.‑‑‑For the purposes of this subsection and subsection (4) of section 31, `royalty' means consideration (including any lump‑sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head `Capital gains) for‑

(i) the transfer of all or any rights (including the granting of a licence) in support of a patent, invention, model, design, secret process or formula, or trade mark or similar property;

(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret process or formula, or trade mark or similar property;

(iii) the use of any patent, invention, model, design, secret process or formula, or trade mark or similar property;

(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill;

(v) the transfer of all or any rights (including the granting of licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting but not including consideration for the sale, distribution or exhibition of cinematograph films; or

(vi) the rendering of any services in connection with the activities referred to in clauses (i) to (v)."

"Explanation:‑‑For the purposes of this subsection clause (b) of section 24, subsection (2) of section 30, subsection (3A) of section 50 and section 80AA, "fees for technical services" means any consideration (including any lump‑sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of the services of technical or other personnel) but does not include consideration for any construction, assembly or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salary'."

A perusal of the above Explanations shows that they contain definitions.

There is an explanation to section 22 as under:‑‑

Explanation.‑‑‑where speculative transactions carried on by an assessee are of such a nature as to constitute a business; the business (hereinafter referred to as speculation business') shall be deemed to be distinct and separate from any other business carried on by the assessee."

The plain language of the above explanation shows that it is a deeming provision. An explanation was added to section 23(1) (viidd) as follows:‑‑

Explanation.‑‑‑for the purpose of this section the expression `Originator', `Special Purpose vehicle' and `Securitization' shall have the same meaning as are respectively assigned to them in the Assets Backed Securitization Rules, 1999."

The above explanation also contains a mere definition. There is explanation to subsection (1) of section 23 in the following terms:‑‑

"Explanation.---

(a) the expression `any expenditure', as used in clauses (xii), (xiii) and (xiv), includes expenditure in the nature of capital expenditure; and

(b) the expression pad as used in this section and sections 18.24 and 31, means actually paid or incurred according to the method of accounting upon the basis of which the income is computed. "

The above explanation also contains the definition and these explanations are since very inception of the Ordinance.

Likewise, there is a explanation to section 24(e) of the Ordinance, in the following terms:‑‑

"Explanation.‑‑As used in this clause, `head office expenditure', means executive and general administration expenditure incurred by the assessee outside Pakistan for the purposes of the business or profession, including expenditure incurred in respect of‑‑‑

(a) any rent, local rates and taxes (excluding any foreign tax corresponding to any tax leviable under this Ordinance), current repairs or insurance against risks of damage or destruction of any premises outside Pakistan used for the purposes of the business or profession;

(b) any salary paid to an employee employed by the head office outside Pakistan for the purposes of the business or profession;

(c) any travelling by such employee for the purposes of business or profession; and

(d) such other matters connected with executive and general administration as may be prescribed;

(f) any allowance in respect of expenditure on entertainment in excess of such limits and in contravention of such conditions as may be prescribed:

(ff) any payments, made on or after the first day of July, 1998, on account of expenditure under a single account head which, in aggregate, exceed fifty thousand rupees made otherwise than through a crossed bank cheque or by a crossed bank draft except transactions not exceeding five hundred rupees or payments on account of postage or utility‑bills."

(fff) Notwithstanding anything contained in clause (ff), any payment made on or after the first day of July, 1998, on account of salary if‑‑

(i) it exceeds five thousand rupees, through a crossed cheque or transfer to the employee's bank account or

(ii) it does not exceed five thousand rupees, made through a bearer cheque.

(g) any sum paid to any provident fund,, superannuation fund or gratuity fund, not being a. recognised provident fund, an approved superannuation fund or an approved gratuity fund;

(h) any sum paid to any provident fund or other fund established for the benefit of employees of the assessee, unless the assessee has made effective arrangements to secure that tax shall be deducted at source from any payments made from the fund which are chargeable to tax under the head `Salary;

(i) any expenditure incurred by an assessee on the provision of perquisites, allowances or other benefits to any employee, in excess of fifty per cent of his salary excluding perquisites, allowances or other benefits."

"Explanation.‑as used in this clause‑‑‑

(i) "Salary" means remuneration or compensation for services rendered paid, or to be paid' at regular intervals, and includes dearness or cost of living allowance and bonus or commission payable to an employee in accordance with the terms of his employment as remuneration or compensation for services but does not include the employer's contribution to all recognized provident fund or an approved superannuation or gratuity fund or any other sum which does not enter into the computation for pensionary or retirement benefits:

(ii) "perquisite", `employee', and `employer' have the same meaning as in subsection (2) of section 16 and

(iii) `benefits' does not .include employer's contribution to a recognised fund or an approved superannuation or gratuity fund; or

(j) any expenditure incurred on account of payment of a fine or penalty for the violation of any law or rule or regulation for the time being in force."

All the above explanations contained definitions and explanations in clauses (ff) and (fff) are specifically prospective in effect. There is an explanation to section 36 also as under:‑‑

Explanation.‑The expression `speculation business', as used in this section and section 22, means business in which a contract for the purchase and sale of any commodity (including stocks and shares) is periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity or scripts, but does not include business in which

(a) a contract in respect of raw materials or merchandise is entered into by a person in the course of his manufacturing of mercantile ‑business to guard against loss through future price fluctuations for the purpose of fulfilling his other contracts for the actual delivery of the goods to be manufactured or the merchandise to be sold by him:

(b) a contract in respect of stocks arid shares is entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; and

(c) a contract is entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member.

The above explanation also contains definition. Likewise there is explanation to section 41 as under:‑‑

Explanation.‑‑‑as used in this clause, and subsection (2) of section 43, `Pakistani industrial public company' means a public company within the meaning of clauses (a) and (b) of sub paragraph (2) of paragraph b of Part IV of the First Schedule which is formed for the purpose of or is actually engaged in the carrying on of an industrial undertaking set up in Pakistan on or after the fourteenth day of August, 1947, provided such undertaking (i) is owned by such company and (ii) fulfills the conditions specified in clauses (a), (d) (e) of subsection (2) of section 48; and includes any public company engaged in, or formed for the purpose of carrying on insurance or transport business or the business of building residential houses for sale in Pakistan or any business in the case of Government sponsored finance corporation approved by the Central, Board of Revenue or the Controller of Capital Issues for the purposes of this section.

(g) Modaraba Certificates (other than Certificates acquired by purchase or otherwise from a previous holder thereof) of a modaraba of specific value issued by a modaraba company;

(h) Modaraba certificates of a modaraba of non‑specific value issued by a modaraba company; and

(i) Participation Term Certificate (other than certificates acquired by purchase or otherwise from a previous holder thereof) issued by a company.

As above explanation also contains definition.

Then comes the explanation under consideration which reads as follows:‑‑

Explanation.‑‑‑For the purposes of clause (a) the expression `supply of goods' includes both cash and credit purchases of goods by the payer, whether under a contact or not, on credit or in cash.

The nature of this explanation shall be considered presently. There is an explanation to subsection (5) of section 50 also as follows:‑‑

Explanation.‑‑‑As used in this subsection,‑‑

(i) `value', in relation to any goods, means the value, as determined under section 25 of the Customs Act, 1969 (IV of 1969), as if the goods were subject to ad valorem duty; and

(ii) `Collector of. Customs' means a person appointed as Collector of Customs under section 3 of the Customs Act, 1969 (IV of 1969) and includes a Deputy Collector of Customs, an Assistant Collector of Customs or an officer of Customs appointed as such under the aforesaid section.

The above explanation is also definitive in nature, and is substantive enactment. An explanation was added to section 54 for removal of doubt as under:‑‑

Explanation.‑‑‑For the removal of any doubt, it is declared that the expression `tax payable' as used in this section includes the tax under section 80D.

Although the above explanation clearly states that it was inserted for removal of any doubt but still the Legislature deemed it fit to state that the explanation was always be deemed added. Thus, the explanation squarely falling within the scope of the expression was inserted specifically with the retrospective effect. An explanation was added to section 55 of the Ordinance in the following terms:

Explanation.‑Non‑furnishing of wealth return alongwith the return of total income, certificate or statement of income shall render such return, certificate or statement as invalid.

This explanation is not by way of removal of any doubt and is a substantive enactment in its nature. It was enacted with prospective effect. An explanation was inserted to section 59(1) as follows:‑‑

Explanation.‑‑‑For the removal of doubt it is hereby declared that a return of total income furnished under section 55 does not include a return of total income furnished under section 57.

It was for the removal of doubt and was inserted with specific statement that it shall be deemed always to have been so added. An explanation was added to section 65(2) as follows:‑‑

"Explanation.‑‑‑As used in this subsection `definite information' includes information in respect of sales and purchases, made by the assessee, or any goods, and any information regarding acquisition, possession or transfer, by the assessee, of any money, asset or valuable article, or any investment made or expenditure incurred by him.

The above explanation is clearly clarificatory in nature. An explanation was inserted to section 80‑D of the Ordinance as under:‑‑

Explanation.‑‑‑For the removal of doubt, it is declared that the expression where no tax is payable or paid' and `or the tax payable or paid' apply to all cases where tax is not payable or paid for any reasons whatsoever including any loss of income, profits or gains or set off of loss of earlier years, exemption from tax, credits or rebates in tax, and allowances and deduc tions (including depreciation) admissible under any provision of this Ordinance or any other law for the time being in force.

Although it was for the removal of doubt and declaratory in nature but it was inserted with specific statement that it shall be deemed always to have been so inserted.

An explanation was added to clause (c) of Part‑II of the First Schedule to the Ordinance, which reads as under:‑

Explanation.‑‑‑For the removal of doubt, it is hereby declared that the term `total income' referred to in this paragraph does not include income to which section 80C or section 80CC applies.

A plain language of the explanation shows that it is declaratory and clarificatory in nature..

A similar explanation was added to Para‑A Part‑IV of the First Schedule as follows:‑‑

Explanation.‑‑‑For the removal of doubt, it is hereby declared that the term total income referred to in this sub‑paragraph does not include income to which sections 80B, 80C and 80CC apply:‑‑

The above explanation is also declaratory and clarification in nature.

From the perusal of various explanations either enacted at the time of promulgation of the Ordinance itself, or inserted subsequently, it is‑obvious, that all the explanations are not necessarily declaratory and clarificatory or for removal of doubt. Some explanations are definitive in nature, some of them have enacted the deeming provisions, some explanations are on the face of them declaratory, clarificatory and for the removal of doubt. Some of the explanations have been specifically inserted with retrospective effect and the others have no such statement, some of the explanations have enlarged and extended the scope of already enacted provisions and through some explanations substantive legislation has been resorted to. The result is that no hard and fast rule can be made applicable to all the explanation inserted by subsequent legislation. The explanations squarely falling within the normal purpose and scope of explanations, to wit, being declaratory, clarificatory, meant for removal of doubt, removing of obscurity or an ambiguity or filing in any obvious gap or correcting any pronouncement by the Court taking as judicial error by the Legislature, shall have the retrospective effect. However, the explanation whereby substantive legislation has been made or deeming provisions have been enacted or substantive provisions of law have been enlarged or extended creating new liabilities they shall not have retrospective effect.

Now coming to the explanation under consideration, we find that under the original enactment any person responsible for making any payment in full or in part to any person on account of supply of goods was required to deduct the advance tax at the time of making payment at the rate specified in the First Schedule, However, by inserting explanation through Finance Act, 1998, it was provided that the expression supply .of goods include both cash and credit purchase of goods, by the buyer whether on a contract or not or credit or in cash. With the insertion of this explanation the distinction between supply and sale was removed. The Trite Law of Taxation is that the words used in the tax laws until and unless defined in the statute shall be taken in the same sense and meaning as is understood in the common parlance by the business community. There can be no doubt that the supply of goods and sale are not one and, the same in nature. Although every supply is a sale but every sale is not supply. These concepts are so clear, that they do not require any elaboration. With the insertion of explanation under consideration the sale was also held to be supply of goods and thus, it is a 'substantive piece, of legislation whereby a sale, by a fiction of law has been deemed to be supply of goods. It is also pertinent to note that it has enlarged and extended the scope of section 50(4) of the Ordinance anti because of the provisions contained in section 80‑C of the Ordinance, has the effect of enhancing the liability whereby the tax deducted under section 50(4) is to be held as full and final discharge of liability and the tax so deducted shall not be allowed adjustment as originally envisaged in subsection (4) of section 50, whereby the credit of tax so deducted in any financial year was subject to the provisions of section 53, because of non‑obstante clause contained in section 80‑C, thus, looking to the effect of the explanation it cannot be held that it is merely declaratory or clarificatory in nature or has been inserted for the purpose of removal of doubt. There is yet another principle that no absurdity or unreasonableness is to be attributed to the Legislature. Now if the provisions contained in the explanation under consideration are held, to be retroactive in application, it will create illogical and unreasonable consequences as the payer shall be held to be a defaulter under section 52 of the Ordinance, for not deducting the advance tax on sales treating the same as supply of goods and shall further be liable to the charge of additional tax for failure to deduct the advance tax under section 86 of the Ordinance for failure to deduct the advance tax, as was done in the case under consideration. The case, under consideration pertains to assessment year 1995‑96, meaning thereby the period ending 31st June, 1995. The explanation has been inserted by Finance Act, 1998 and if the operation of the explanation is held to be retroactive a person would be held to be defaulter for not making compliance with law which was to be enacted after three years of the transaction taking place during the period relevant to the assessment year 1995‑96. It is inconceivable that a person can be saddled with responsibility/liability for non compliance of law which is to be enacted somewhere in future. Because of the totally changed facts and circumstances, emanating from the introduction of presumptive tax regime the ratio of the judgment in the case of Dream Land Cinema v. Commissioner of Income Tax, 1977‑35 Tax 179 (Lah.) is not attracted.

For the foregoing reasons, it is held that the learned Tribunal was fully justified to hold that the explanation added to section 50(4) of the Ordinance, by Finance Act, 1998, cannot be applied retrospectively.

After hearing learned counsel for the appellant, the appeal was dismissed in limine by a short order on 30‑10‑2003. These are the detailed reasons in support thereof.

S.A.K./C‑89/KAppeal dismissed.