Income Tax Ordinance (XXXIX of 1979)---

---Ss.156 & 62---Income Tax Ordinance (XLIX of 2001), S.221(1A)-- Constitution of Pakistan (1973), Art.199---Constitutional petition-- Rectification of mistake--Limitation-- Order under S.62, Income Tax Ordinance, 1979 or any other provision of the said Ordinance could not be rectified after expiry of four years by invoking the provisions of S.221 of the Income Tax Ordinance, 2001---Principles.

In the present case, at the time when the original assessment was rectified on 1-5-1999 the provisions of section 156 of the late Income Tax Ordinance, 1979 were in the field. Subsection (4) of section 156 of the late Ordinance provided that no rectification order "shall be made after the expiry of four years from the date of the order sought to be amended". The Income Tax Ordinance, 2001 was promulgated on 13th September, 2001 (though not with immediate effect). In the new Ordinance section 221 (Rectification of Mistakes) was introduced as parallel to the provisions of section 156 (Rectification of Mistakes) of the late Ordinance. Then by Finance Act, 2003 subsection (1A) to 5.221 was introduced in the new Ordinance of 2001 to enable the Revenue/Commissioner to amend any order passed under the repealed Ordinance by a Deputy Commissioner or an Income Tax Panel. As framed originally subsection (4) of section 221 of the new Ordinance provided that "no order under subsection (1) may be made after five years from the date of the order sought to be rectified". The legal position, therefore, as asserted by the petitioner, melts down to the proposition whether an order under section 62 or any other provision of the late Income Tax Ordinance can be rectified after expiry of four years by invoking the provisions of section 221 of the new Ordinance.

The answer to the proposition in hand is in the negative. Although the provisions relating to limitation are procedural in nature yet these cannot be invoked or made use of where a longer limitation is brought on the statute by way of an amendment when the act sought to be touched had already attained finality on expiry of the limitation under the previous legislation.

The law prescribing the period of limitation is to be considered as procedural rather than substantive. This proposition of law would have only one exception, i.e., if under the existing law of limitation the right to initiate a proceeding has already become time-barred then a subsequent enlargement of time by an amendment of law cannot be availed of. In such a case, the matter having attained finality, would vest a party with substantive right which has already accrued. This accrued right cannot be taken away by a subsequent amendment. Substantive laws determine the rights and liabilities of the parties concerned, whereas procedural laws govern the manner in which such rights or obligations are to be enforced or realized.  

In the present case the order recorded under section 156 of the repealed Ordinance on 1-5-1999 attained finality after the expiry of the prescribed limitation of four years in that Ordinance on 30-4-2003. On the other hand the power to rectify the orders recorded under the late Ordinance was vested in the Revenue by introducing said subsection (1A) in section 221 through Finance Act, 2003 dated 17-6-2003. Since by that time the period of four years prescribed under the late Income Tax Ordinance, 1979 had already expired, subsection (4) of section 221 of the new Income Tax Ordinance, 2001 could not be invoked to extend the period to five years. On expiry of the prescribed period of four year under the late Ordinance the petitioner acquired a vested right and it, orders under section 156 recorded on 1-5-1999 rectifying the origin assessment orders matured into a past and closed transaction.

Commissioner of Income-tax v. Mrs. Manjula Sood (1997) 227 ITR 873 fol.

Sajid Ijaz Hotiana for Petitioner.

Shahid Jamil Khan for Respondents.

Date of hearing: 24th June, 2004.

JUDGMENT

This judgment will dispose of Constitutional Petitions Nos. 16021, 16024, 16025 and 16026 of 2003. These Constitutional petitions seek to challenge show-cause notice, dated 30-10-2003 under section 221 of the Income Tax Ordinance, 2001 expressing the intention of the Taxation Officer to rectify assessments framed in respect of the petitioner/assessee in the assessment years, 1991-1992 to 1994-95. The two basic reasons to assail the notice are stated in grounds B&C of the petition, which read as under: -

"(B) That w.e.f. 1-7-2002 the Income Tax Ordinance, 1979 was repealed and it was succeeded by the Income Tax Ordinance, 2001; that through the Finance Act, 2003 subsection (1A) was inserted in section 221 of the new Ordinance which applied section 221 retrospectively even to the assessments completed under the repealed Ordinance; that subsection (4) of section 221 which dealt with the limitation for initiating of action under section 221 was also made applicable to the assessments completed under the repealed Ordinance; that as a result of this amendment the limitation for rectification of mistake stood extended from four years as provided under the repealed Ordinance to five years.

(C) That subsection (1A) of section 221 was brought on the statute w.e.f. 1-7-2003 whereas the limitation for initiation of action for rectification of mistake in the case of the petitioner under the old law stood expired before this amendment; that the original assessment was made on 23-2-1993 and rectification in the assessment order was made on 1-5-1999; that now even if the date of rectification in the original order is taken as the starting point for counting the period of limitation it stood expired on 1-5-2003 whereas the new Ordinance was amended w.e.f. 1-7-2003 to apply it retrospectively to the assessments made under the repealed Ordinance.

2. The petitioner in all the four petitions is a listed company and is engaged in manufacturing and sale of yarn. It is claimed that the original assessments for the years, 1991-92 to 1994-95 were framed respectively on, 23-2-1993, 23-2-1993, 16-10-1993 arid 27-1-1996 Although the assessee was allowed exemption under clause 118-B of the Second Schedule to the repealed Ordinance, 1979 yet minimum tax at Rs.8,02,969, Rs.9,92,637, Rs.9.05,101 and Rs.6.57,930 respectively was charged under section 80-D of the said late Ordinance. It is states that after the judgment of the Hon'ble Supreme Court, dated 4-6-1997 in re: Elahi Cotton Mills v. Federation of Pakistan to which the petitioner was also a party on his application moved under section 156 of the late Ordinance, the Revenue allowed its claim of exemption from levy of minimum tax under section 80-D of the late Ordinance as well ' The plea of the assessee was accepted and the aforesaid assessment orders were rectified under section 156 of the late Ordinance on 1-5-1999. In the rectified order it was agreed that the charge of minimum tax under the late Ordinance was a mistake apparent from the record and therefore, the rectification was being made. However, on 30-10-2003 the petitioner received the impugned show-cause notice under section 221 of .the Income Tax Ordinance, 2001 stating that in view of C.B.R's., Circular No.C-2(98)/IT/98, dated 11-12-1997 the provisions of section 80-D of the late Ordinance were not applicable in the cases covered by exemption clauses 118-C, 118-D and 118-E of the Second Schedule to the repealed Ordinance. Therefore, according to the Taxation Officer, since in the case of the petitioner the claim of exemption was allowed under clause 118-D it was not eligible for exemption from the levy of minimum tax under section 80-D of the late Ordinance. Therefore, as noted above, the concerned Taxation Officer, expressed his intention' to rectify the rectified assessment orders dated 1-5-1999.

3. These petitions have been heard with the agreement of the parties after treating them as admitted cases. Having heard the parties, I am inclined to allow the relief claimed these petitions and to declare the impugned show-cause notice in all the four assessments to be illegal on account of its being barring by limitation. It is an admitted position that at the time when the original assessment was rectified on 1-5-19991 the provisions of section 156 of the late Income Tax Ordinance, 19791 were in the field. Subsection (4) of section 156 of the late Ordinance provided that no rectification order "shall be made after the expiry of four years from the date of the order sought to be amended". It is also an admitted position that the Income Tax Ordinance, 2001 was promulgated on 13th September, 2001 (though not with immediate effect). In the new Ordinance section 221 (Rectification of Mistakes) was introduced as parallel to the provisions of section 156 (Rectification of Mistakes) of the late Ordinance. Then by Finance Act, 2003 subsection (1A) was introduced in the new Ordinance of 2001 to enable the Revenue/Commissioner to amend any order passed under the repealed Ordinance by a Deputy Commissioner or an Income Tax Panel. As framed originally subsection (4) of section 221 of the new Ordinance provides that "no order under subsection (1) may be made after five years from the date of the order sought to be rectified". The legal position, therefore, as asserted by the petitioner, melts down to the proposition if an order under section 62 or any other provision of the late Income Tax Ordinance can be rectified after expiry of four years by invoking the provisions, of section 221 of the new Ordinance.

4. My answer to the proposition in hand is in the negative. The learned counsel for the petitioner is correct in pointing out that although the provisions relating to limitation are procedural in nature yet these cannot be invoked or made use of where a longer limitation is brought on the statute by way of an amendment when the act sought to be touched had already attained finality on expiry of the limitation under the previous legislation. The reliance of the learned counsel in re: Commissioner of Income-tax v. Mrs. Manjula Sood (1997) 227 ITR 873 is relevant and pertinent. Their Lordships of the Punjab and Haryana High Court summarized the effect of changes in procedural law in the following words:---

"The law prescribing the period of limitation is to be considered as procedural rather than substantive. This proposition of law would have only one exception, i.e., if under the existing law of limitation the right to initiate a proceeding has already become time-barred then a subsequent enlargement of time by an amendment of law cannot be availed of. In such a case, the matter having attained finality, would vest a party with substantive right which has already accrued. This accrued right cannot be taken away by a subsequent amendment. Substantive laws determine the rights and liabilities of the parties concerned, whereas procedural laws govern the manner in which such rights or obligations are to be enforced or realized."

5. In the case to hand the order recorded under section 156 of the repealed Ordinance on 1-5-1999 attained finality after the expiry of the prescribed limitation of four years in that Ordinance on 30-4-2003. On the other hand the lower to rectify the orders recorded under the late Ordinance was vested in the Revenue by introducing said subsection (1A) in section 221 through Finance Act, 2003 dated 17-6-2003. Since by that time the period of four years prescribed under the late Income Tax Ordinance, 1979 had already expired, subsection (4) of section 221 of the new Income Tax Ordinance, 2001 could not be invoked to extend the period to five years. On expiry of the prescribed period of four years under the late Ordinance the petitioner acquired a vested right and the orders under section 156 recorded on 1-5-1999 rectifying the original assessment orders matured into a past and closed transaction.

6. Accordingly, as stated above, these petitions are allowed and the impugned show-cause notice under section 221 of the Income Tax Ordinance, 2001, dated 30-10-2003 by the concerned Taxation Officer is declared to be without jurisdiction.

M.B.A./F-64/L Petition allowed.