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

----S.107---Income Tax Rules, 1982, R.48---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Tax Credit ---Entitlement-- Petitioners by virtue of amendment made by Finance Act, 1988, had become entitled to Tax Credit at the rate of 15% of amount invested in between 1-7-1976 and 30-6-1991 for the purposes of replacement, balancing or modernization of machinery and plant already installed-- Prior to said amendment. Tax Credit was available for the investment made between 1-7-1976 and 30-6-1988---In pursuance of and acting upon entitlement available to petitioner under provisions as amended by Finance Act, 1988, petitioners made investments between 1-7-1988 and 30-6-1989---Subsequently subsection (1) of S.107 of Income Tax Ordinance, 1979 was further amended by Finance Act, 1989 whereby year "1991" was substituted as "1988", which amendment had reverted to the position as was prevailing prior to earlier amendment vide Finance Act, 1988---As a consequence of said subsequent amendment by Finance Act, 1989 substituting year 1988 for the year 1991, Authority and Income Tax Department refused the claim of petitioners with regard to tax credit for which they had become entitled by First amendment in Finance Act, 1988---Validity---Right of petitioners to claim tax credit on investment made by them in between 1-7-1988 and 30-6-1989 was matured at the time of investment and thus became a past and closed transaction---Result would be that notwithstanding retrospective amendment made by Legislature in S.107(1) of Income Tax Ordinance, 1979 by Finance Act, 1989, it would not affect rights of petitioners to claim tax credit which had already accrued to them on account of past and closed transaction at the time when said subsequent amendment was made on 1-7-1989---Constitutional petitions filed by petitioners were allowed in the terms that they were entitled to claim tax credit on investments made by them during period between 1-7-1988 and 30-6-1989---Competent Authorities were directed to issue Instalation Certificate to ,petitioners for claiming tax credit.

(b) Interpretation of statutes---

---- In absence of express words used by Legislature, retrospectivity to any law was not to be given so as to reopen the past and closed transactions and deprive any person of any accrued vested right in pursuance of such past and closed transactions.  

The Chief Land Commissioner v Ghulam Hyder Shah 1988 SCMR 715; Province of East Pakistan v. Sharafatullah and others PLD 1970 SC 514; Ghulam Hyder Shah v. Chief Land Commissioner 1983 CLC 1585 and Molasses Trading and Export (Pvt.) Ltd. v. Federation of Pakistan 1993 SCMR 1905 ref.

Nasrullah Awan, Jawaid Farooqui, Aqeel Ahmed Abbasi and Nadeem Azhar Dy. A.-G. for Respondents.

Muneeb Akhtar, Salman Iqbal Pasha, Noorallah holding brief for I.H. Zaidi, Ihsrat Alavi and Abdul Hadi Farid for Petitioners.

None present on behalf of Petitioner (in C.P. No. D-1433 of 1990).

Date of hearing: 21st January, 2004.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.-A common question of law is involved in all the above Petitions, and therefore, we propose to disposed of all the above Petitions by this single consolidated judgment.

2. Common grievance in all the above petitions is that by virtue of amendment inserted by the Finance Act, 1988 the petitioners became entitled to tax credit at the rate of 15% of the amount invested in between first day of July, 1976 and the thirtieth day of June, 1991, for the purposes of replacement, balancing or modernisation of the machinery and plant already installed against the tax payable by them in the manner provided in section 107 of the Income Tax Ordinance, 1979 (now repealed). Prior to the amendment inserted by Finance Act, the tax credit was available for the investment made between the first day of July, 1976 and thirtieth day of June, 1988. After amendment inserted by the Finance Act, 1988 section 107, read as follows:--

"(107) The credit for replacement, balancing and modernization of machinery or plant.---(1) Where an assessee being a Pakistani company invests any amount in the purchase of plant and machinery for installation at any time between the first day of July, 1976 and the thirtieth day of June, 1991 in an industrial undertaking set up in Pakistan and owned by it, for the purposes of replacement, balancing or 'modernisation of the machinery and plant already installed therein, credit at the rate of fifteen per cent of the amount so invested shall be allowed against the tax payable by it in the manner hereinafter provided.

Explanation. As used in this subsection,---

(a) "amount", in case of plant and machinery acquired on lease, means the amount expended by the lessor in the purchase of the said plant and machinery; and

(b) "purchase of plant and machinery" includes acquisition of plant and machinery on lease from a scheduled bank, a financial institution or a leasing company on such terms and conditions as may be approved by the Central Board of Revenue.

(2) The amount of credit admissible under this section shall be deducted from the tax payable by the assessee in respect of the income year in which the machinery or plant in the purchase of which the amount referred to in subsection (1) is invested is installed.

(3) Where no tax is payable by the assessee in respect of the relevant to the income year in which such plant or machinery is installed, or where the tax payable is less than the amount of the credit, the amount of the credit or so much of it as is in excess thereof, as the case may be, shall be carried forward and deducted from the tax payable by the assessee in respect of the following assessment year, and so on, but no such amount shall be carried forward for more than two assessment years so, however, that the deductions made under sub section (2) and this subsection shall not exceed in the aggregate the limit specified in subsection (1).

(4) The provisions of subsections (1) and (2) shall also apply in the like manner to any plant and machinery installed for the purposes of extension of the industrial undertaking:--

(i) on or after the first day of July, 1978 and before the thirtieth day of June, 1983 in the territories of Pakistan; or

(ii) on or after the first day of July, 1983 in the territories of Pakistan (excluding Talukas of Karachi and Hyderabad, and Tehsils of Faisalabad and Lahore, and such adjoining areas of Lahore Tehsil as may be notified in this behalf by the Federal Government.)

(5) Where any credit is allowed under this section and subsequently it is discovered by the Deputy Commissioner that any one or more of the conditions specified in this section was or were not fulfilled, as the case may be, the credit originally allowed shall be deemed to have been wrongly allowed and the Deputy Commissioner may, notwithstanding anything contained in this Ordinance, recomputed the tax payable by the assessee for the relevant year and the provisions of section 65 shall, so far as may be, apply accordingly the period of ten years specified in subsection (3) of that section being reckoned from the end of the assessment year relevant to the income year in which the infringement was discovered.

(6) The provisions of sections 96, 97, 99, 100 and 104 shall, so far as may be, apply to tax credit under this section as they apply to refunds.

(7) As used in this section, "industrial undertaking" means an undertaking which fulfils the conditions laid down in clauses (a), (d) and (e) of subsection (2) of section 48 or which is engaged in the business of exploration or extraction or coal deposits and includes any such undertaking which is approved by the Central Board of Revenue for the purposes of this section.

(8) The Central Board of Revenue may make rules regulating the procedure for the grant of approval under this section and any other matter connected with or incidental to, the operation of this section.

3. In pursuance of and acting upon the entitlement available under the provisions as amended by Finance Act, 1988, the petitioners made investments between the first day of July, 1988 and thirtieth day of June, 1989. Subsection (1) of section 107 was further amended by Finance Act, 1989 whereby the year, "1991" was substituted as, "1988", thus reverting to the position as prevailing prior to 1-7-1988. After coming into force of Finance Act, 1989, the Central Board of Revenue issued Circular No.9 of 1989, dated 26th July, 1989, explaining important provisions relating to income-tax in the light of amendments made in the Income Tax Ordinance, 1979. Para. 11 of the above Circular read as follows:--

"Withdrawal of tax credit for B.M.R. of plant and machinery,--- Section 107 of the Ordinance has been amended to withdraw tax credit of. 15% on investment in the purchase of the plant and machinery with effect from 1st July, 1988".

As a consequence to the amendment inserted by Finance Act, 1989, substituting the year, " 1991 " by the year, " 1988" and issuance of Circular No. 9 of 1989, by the C.B.R., the prescribed authority required to issue Certificate under Rule 48 of the Income Tax Rules, 1982, for the purpose of availing the tax credit under section 107 of the Income Tax Ordinance, 1979, refused to issue the Certificate and the Income Tax Department also refused to entertain the claim.

4. Feeling aggrieved, the petitioners preferred this petition before this Court.

5. The petitioners raised various contentions assailing the refusal of tax credit to them. The contentions can be summarised as follows:--

(1) The law was 'amended with effect from 1-7-1989 and the petitioners had already made investments in accordance with law prevailing between 1-7-1988 and 30th June, 1989, therefore, a vested right accrued, which could not be taken away by subsequent amendment.

(2) The amendment inserted by Finance Act, 1989 was prospective in application and had no retrospective effect, because it was not provided specifically that the amendment shall be deemed to have effect from any date earlier to 1-7-1989.

(3) Even if the amendment inserted by Finance Act, 1989 is held to be retrospective in effect by implication, it shall be deemed to be invalid because no amendment can be made with retrospective effect so as to take away or deprive of the benefits acquired incurred creating a vested right in favour of citizens

(4) The amendment in section 107 of the Income Tax Ordinance, 1979 through a Money Bill is ultra vires the Constitution and as such invalid and inoperative.

(5) The amendment is hit by doctrine of promissory estoppel. Once the Government induced the petitioners to make heavy investments in plant and equipment, it is not entitled to resile therefrom.

(6) Even if the amendment inserted by Finance Act, 1989 is Constitutional and valid and is retrospective in effect, it shall not affect the entitlement of the petitioners to claim the tax credit who had a already qualified for tax credit allowance, amongst other for the following reasons:--

(a) The right to tax credit had matured and 'accrued into an indefeasible/irrecoverable vested right;

(b) It was, when the amendment took effect, a past, closed and completed transaction.

6. The contention of respondents is that, the amendment made in the Income Tax Ordinance, 1979, through Money Bill is valid and the legislature is competent to legislate retrospectively and can also withdraw the vested right. It is further contended that section 107 does not create any charge or liability and does not impose any penalty or additional burden in any manner. It- provides a concession which is subject to fulfilment of certain conditions dependent upon the facts and circumstances of each individual case. It is further contended that the concession of tax credit does not fall within the category of exemption provided from taxation. It is asserted that the legislature is competent to withdraw a concession/tax credit through Finance Act, for a period falling prior to the year of amendment as there is no Constitutional or Legal Bar in this behalf. It is contended that the amendment is with retrospective effect which is indicated from the fact that the cut off date which was extended to 30th June, 1991, has been curtailed to 30th June of 1988, and thereby the period of concession as prevailing before the promulgation of Finance Act, 1988, has been restored. It is further averred that the tax credit was not determined at the time of amendment and consequently no vested right was created. A contingent right had only taken place which in its nature is uncertain and contingent upon happenings of certain thing or event. As against this a vested right is that which is ready to take effect immediately.

7. We have heard Messrs Munib Akhtar, Salam Iqbal Pasha, Mr. Noorullah holding brief for I.H. Zaidi, Ishrat Alavi and Abdltl Hadi Farid, Advocates for the Petitioners, Messrs Nasrullah Awan, Javed Farooqi and Aqeel Ahmed Abbasi, Advocates for the Respondents as well as Mr. Nadeem Azhar, D.A.-G.

8. The learned advocates for the petitioners have not pressed the objection pertaining to the validity of amendment inserted in the Income Tax Ordinance, 1979, through a Money Bill and the competence of legislature to enact with retrospective effect. The learned advocates for the petitioners have mainly argued that -the amendment inserted in section 107(1) of the Income Tax Ordinance, by Finance Act, 1989, substituting the year "1991", by the year "1988", is though retrospective in effect shall not be applicable to the petitioners as they had already made investments prior to the amendment inserted by the Finance Act, 1989. In support of their contentions, they have placed reliance on the judgment in the case of The Chief Land. Commissioner v. Ghulam Hyder Shah 1988 SCMR 715, wherein it has been held as follows:--

"11. Now on a plain reading of the language of the Amending Ordinance there is no ambiguity that, the same was given effect retrospectively and by the mandate of the law the amendments were to be deemed to have taken effect on 11th March, 1972. However, the doubt with regard to the retrospectivity in this case has arisen, on account of the fact and in respect of the orders earlier passed by the Land Commission in exercise of Powers vesting in it under the existing law whereby the alienations declared by the two land holders were affirmed as valid transactions. As pointed out by the High Court the legislature has merely declared the amendments effected in the main Regulation to have taken place retrospectively and left the matter at that. No express provision was made in the amending statute to the effect that the new dispensation, totally prohibiting the recognition of any alienations in favour of non-heirs, will also affect and undo the orders passed under the existing law by the Land Commission prior to the date of the passing of the amending Ordinance. In order to resolve this doubt the matter naturally falls within the domain of interpretation by the Court to determine whether the law as amended will also be applicable to past and closed transactions. To put it differently the question is whether in this sense the amending Ordinance contains an express provision or this result is contemplated by the language of the amending, Ordinance by necessary implications. In this behalf the High Court proceeded on a correct principle of interpretation that "no rule of construction is more firmly established than this, that retrospective operation is not to be given to a statute so as to impair an existing right or obligation". The main and primary rule is that every statute is deemed to be prospective, unless by express provision or necessary intendment it is to have retrospective effect. Also the rule that no statute shall be construed so as to have retrospective operation affecting vested right to a greater extent than its language renders necessary is firmly established."

9. In this judgment the Hon'ble Supreme Court, referred to its earlier decision in the case of Province of East Pakistan v Sharafatullah and others PLD 1970 SC 514, wherein it had affirmed the established rule that a statute cannot be read in such a way as to change accrued rights the title to which consists in transactions past and closed or in facts which are events that have already occurred.

10. In the above judgments, the Hon'ble Supreme Court upheld the view taken by a Division Bench of this Court, in the same case, Ghulam Hyder Shah v. Chief Land Commissioner, 1983 CLC 1585, wherein it was held as follows:--

"The questions therefore, which arise for consideration in these cases are; (i) whether the amendments made in the Regulation by the Governor of Sindh on 2nd September, 1972 is retrospective in operation and (ii) -if these amendments are held to be retroactive, whether these amendments also affected the transactions which were past and closed? The competency of Legislature to enact laws retrospectively and to provide that they will also affect vested rights and transactions which are past and closed cannot be doubted but in order to produce that effect the statute must be expressed in a language which is capable of only one meaning. If the language of the statute is capable of being interpreted in two ways, one preserving the vested rights and obligation and the other impairing them, then the Courts will adopt the construction which preserved the vested 'rights and lean against the construction which impaired the vested right and affected transactions which are past and closed. No rule of construction is more firmly established than this, that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation."

11. The Hon'ble Supreme Court reiterated the proposition of law in the above judgment, in the case of Molasses Trading and Export (Pvt.) Ltd. v. Federation of Pakistan, 1993 SCMR 1905.

12. The learned advocates for the petitioners have contended that the right to claim tax credit under section 107(1) of the Income Tax Ordinance, 1979, takes place with the investment made in the purchase of plant and machinery and as soon as a transaction pertaining to the investment in the purchase of plant and machinery for replacement, balancing and modernization takes place the right to tax credit is perfected and becomes a past and closed chapter. The condition that the plant and machinery shall be installed is not a condition precedent for the accrual of right and likewise the provision that the credit for such investment shall be allowed against tax payable by the assessee making the investment is a matter of formality. They have submitted that the C.B.R. itself has been taken the view that material point for maturity of the right to the claim of tax credit under: section 107 is the investment made in the purchase of plant and machinery and the instalment made subsequently is not material.

13. On the other hand, the learned Advocates for respondents have submitted that there is no cavil to the proposition that the legislature is fully competent to enact any law with retrospective effect and in doing so is further competent to even take away the vested rights, as well as the right accrued under the past and closed transactions. They further maintained that for the purpose, of assessment of the total income and tax payable thereon, the law as prevailing in the assessment year is to be applied and not the law as prevailing in the income year.

14. We have carefully considered the contentions raised by the learned Advocates for the parties and have given our anxious consideration to the relevant provisions of law. We agree with the contention that there is no cavil to the proposition that the legislature is competent to make amendment in the Income Tax Ordinance, through a Money Bill and that an amendment can be made with retrospective effect. It also stands settled by the authoritative pronouncement of Hon'ble Supreme Court that, while enacting a law with retrospective effect that legislature is competent to deprive a person (persons) of the vested right as well. There is no dispute to the proposition that the principle of promissory estoppel is not applicable to the enactment promulgated by the legislature. It is applicable to the administrative/executive acts only. A perusal of the amendment made in section 107(1) of the Income Tax Ordinance, 1979, by Finance Act, 1989, shows that by substituting the year, " 1988" for the year " 1991 " the legislature has brought back the cut-off date for availing the concession of tax credit to the position as it was prevailing prior to the amendment inserted by the Finance Act, 1988. Thus, although the legislature has not stated explicitly that the amendment is with retrospective effect but by necessary implication and intendment, the amendment is retrospective in effect. As already observed above, the legislature while enacting any law or making any amendment with retrospective effect is competent to take away even the vested right already accrued, but for this purpose express words are required in the enactment/amendment. If there are no express words in this behalf, as in this case the presumption would be that the legislature although made enactment/amendment with retrospective but had no intention to take away the accrued vested rights and to reopen the past and closed transactions. By now it is a settled principle of the interpretation statutes that in the absence of express words used by the legislature the retrospectivity to any law is not to be given so as to reopen the past and closed transactions and deprive any person of any accrued vested right in pursuance of such past and closed transactions.

15. Now we proceed to examine, if with the investments made by the petitioners in between 1-7-1988 and 30-6-1989, in pursuance of the law prevailing during this period the right to claim tax credit was matured to a perfect right and such transaction had attained to the status of past and closed transactions. The contention of the petitioners is that, as soon as investment was made for the purchase of plant and machinery, for the purpose of balancing, modernization and replacement the right to claim the tax credit immediately accrued and matured, making the matter as a past and closed transaction. According to them, rest is the matter of procedure only and shall not affect the maturity and perfection of the right to claim the tax credit, which is to be allowed from the tax payable by the assessee. The plea of the department is that the tax credit is allowed through the assessment order when the tax payable is determined and it is trite law of Income Tax that the law prevailing in the assessment year is to be applied and the law as in force in the income year is not applicable.

16. After very careful and prolonged consideration to the contentions raised, we are persuaded to agree with the submissions made by the learned counsel for the petitioners. The reason being that, the tax credit is neither an allowance nor deduction permissible under the income Tax Ordinance, 1979, for the purpose of determining the total income (assessed income). It is not in the nature of exemption as well. Anything in the nature of exemption, allowance or deduction shall form part of the assessment order and thus, shall be integral part of the assessment process and therefore, shall be allowed in accordance with law prevailing in the assessment year. As held above, the tax credit under section 107 of the Income Tax Ordinance, is not in the nature of exemption, allowance or deduction for the purpose of computing the income under the head business or profession, therefore, it shall not be a part of assessment process/assessment order. The contention on behalf of department that the law as prevailing in the assessment year is to be applied for the purpose of tax credit as well, is therefore, not tenable. If the tax credit under section 107 of the Income Tax Ordinance, 1979, would have been in the nature of exemption, allowance or deduction the petitioners would have no case. However, it is not the case, and therefore, a question arises at what point of time, the tax credit matures into an accrued right making it to be a past and closed transaction. The view that the tax credit is not a part of assessment process/assessment order is supported by the instructions issued by the C.B.R. vide Circular No.13(ii)/IT-1/80, .dated March 27, 1984. The instructions are as follows : --

"(i) a separate claim can be filed by a tax payer within the specified period of two years.

(ii) a separate order under section 107 should be passed on the claim made by the assessee."

17. The right to claim any allowance, deduction or exemption is crystallized and matured with finalisation of assessment proceedings culminating into an assessment order. A perusal of subsection (1) of section 107 of the Income Tax Ordinance shows that the right to tax credit accrues on investments made by an assessee being a Pakistani Company, in the purchase of plant and machinery, for the purpose of replacement, balancing or modernization at the rate of 15 % of the amount so invested and under subsection (2) the said amount shall be deducted from the tax payable by the assessee in respect of the income year in which the machinery or plant in the purchase of which the amount referred to in subsection (1) is invested, is installed. Thus, it is obvious without any ambiguity that the right to claim tax credit comes into existence with the making of investment in the purchase of plant and machinery and the actual deduction from the tax payable is a matter of implementation only. With the investment made for the purchase of plant and machinery, the amount of tax credit is automatically determined which is 15 % of the investment and the right to claim the tax credit is immediately matured to the extent that even any further calculation is not required.

18. Consequent to the above discussion, it is held that the right of: the petitioners to claim the tax credit on the investments made by them in between 1-7-1988 and 30-6-1989 was matured at the time of investment and became a past and closed transaction. The result is that notwithstanding the retrospective amendment made by the legislature in section 107(1) by Finance Act, 1989, it shall not effect the right of the petitioners to claim the tax credit which had already accrued on account of past and closed transactions at the time of amendment which was made on 1-7-1989.

19. For the foregoing reasons, all the Petitions are allowed in the terms that the petitioners are entitled to claim the tax credit on the investments made by them during the period between 1-7-1988 and 30-6-1989. The competent authorities concerned are therefore, directed to issue the Installation Certificate to the petitioners for claiming the tax credit and the Assessing Officers are directed to allow the tax credit to the petitioners on their BMR investment, notwithstanding the amendment inserted in subsection (1) of section 107 by Finance Act, 1989.

20. However, we would like to clarify that the direction for allowing the tax credit is subject to the verification of facts by authorities competent in this behalf, as we have given our findings on the provision of law only without considering the facts in each case which shall be examined by the officers competent in this behalf.

H.B.T./G-36/K Petitions allowed.