BISMILLAH & CO. and others VS SECRETARY, MINISTRY OF FINANCE, GOVERNMENT OF PAKISTAN, 2005 PTD-SUPREME-COURT 1942 (2004)

(On appeal from the judgments/orders dated 11-6-1997 passed by Lahore High Court; Lahore in Review Applications Nos.83, 89, 85, 84, 86, 88, 87 of 1997 in Writ Petitions Nos.15429, 15426, 19511, 18246, 13474, 15428, 18247 of 1996, judgment/order dated 18-1-1999 passed by Lahore High Court, Multan Bench, in Writ Petition No.10220 of 1998, order dated 8-2-1999 passed by Lahore High Court, Bahawalpur Bench in W.P. No.411 ,of 1999, order dated 22-2-1999 passed by Lahore High Court, Multan Bench .in Writ Petitions Nos.10578 of 1998, 11040 of 1999 judgment dated 3-6-1999 passed by Lahore High Court Multan Bench in Writ Petitions Nos.12016 and 11327 of 1998 judgment, dated 6-7-1999 in Writ Petition No.5484 of 1998/ BWP, judgment dated 3-6-1999 in Writ Petition No.9886 of 1998, judgment dated 24-9-1998 in Writ Petitions Nos.21917, 21916 and 16358 of 1997, order dated 4-4-2000 in Writ Petitions Nos.19770, 21918, 23488 of 1997, 12635 of 1998, order dated 6-7-1999 in Writ Petitions Nos.6190 of 1997, 973 of 1998, 1635 of 1998, 6081 of 1997, order dated 3-6-1999 in Writ Petitions No.8650 of 1998, order dated 7-6-2000 in Writ Petitions Nos.9130 and 9972 of 1999 and order dated 2-10-2000 in Writ Petitions Nos.7770 of 1989, 11375 of 1999 and 5752 of 1990).

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

----S. 50(7A), Expln.---Explanation to S.50(7A) of Income Tax Ordinance, 1979---Effect---Explanation to S.50(7A) of the Ordinance was a deeming provision---Deeming provision in a taxing statute would have effect of bringing within mischief of chargeability on income, what might not have actually accrued, but by fiction of law would be supposed to have accrued---Person, who had been awarded a contract would earn income, and advance tax would be a security which would be adjusted, when final liability was determined---Principles.

Muhammad Younas v. Chairman Municipal Committees, Sahiwal and others PLD 1984 Lah. 345; Muhammad Ansar and 2 others v. Administrator. Town Committee, Kabirwala, District Khanewal and 4 others 2000 PTD 478; Manzoor Hussain v. Wali Muhammad PLD 1965 SC 425 and Har Shankar v. Dy. E & T Commissioner AIR 1975 SC 1121 ref.

Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan PLD 1997 SC 582; Commissioner of Income Tax v. Asbestos Cement Industries Ltd. and others (1992) 66 Tax 140 (S.C. Pak) and Trustees of the Port of Karachi v. Central Board of Revenue 1989 PTD 1048 rel.

(b) Interpretation of statutes---

----Fiscal statutes---Deeming provision---Effect---Such provision would have .effect of bringing within mischief of chargeability on income, what might not have actually accrued, but by fiction of law would be supposed to have accrued.

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

----S. 50(7A)---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Lease of right to collect export/octroi/mandi tax stipulating deposit of 50% advance income tax by lessees---Validity---Lessees having agreed to pay advance tax in terms of contract could not wriggle out of such contractual obligation by invoking Constitutional jurisdiction of High Court.

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Maqbool Ellahi Malik, Senior Advocate Supreme Court, Khalil Ahmad, Advocate Supreme Court and M.A. Zaidi, Advocate-on-Record for Appellants (C.As. Nos.163 to 169, 1342 to 1344 of 1999 and 894 to 897 of 2000).

Muhammad Munir Peracha, Advocate Supreme Court for Applicant (C.M.A. No.2400 of 2001 in C.A. 163 of 1999).

Rao Munawar Khan, Advocate Supreme Court for Appellants (C.As. Nos. 1297, 1298 of 2001, 1468 of 1999 and 1042 of 2000).

Muhammad Uzair Chughtai, Advocate Supreme Court and Ch. Akhtar Ali, Advocate-on-Record for appellants (C.As. 211, 212 of 1999 and 999 to 1002 of 2000).

Ch. Muhammad Yaqub Sindhu, Advocate Supreme Court for Appellants (C.As. 376, 377, 730 and 731 of 1999).

Ms. Afshan Ghazanfar, A.A.-G. Punjab for Petitioners (C.Ps. 3000-L to 3002-L of 2000).

Raja Muhammad Irshad, D.A.-G. and Ch. Akhtar Ali, Advocate-on-Record for Respondents (C.As. Nos. 163 to 169 of 1999).

M. Ilyas Khan, Senior Advocate Supreme Court, Muhammad Aslant Chatta, Advocate-on-Record and Ch. Akhtar Ali, Advocate-on-Record for Respondents (C.As. Nos.894 to 897 of 2000 and C.Ps. 3000-L to 3002-L of 2000),

Syed Kalim Khursheed, Advocate Supreme Court for Respondents Nos 6 and 5 (C.As. 165 and 166 of 1999).

Malik Muhammad Nawaz, Advocate Supreme Court and Raja Abdul Ghafoor, Advocate-on-Record for Respondents (C.As. 211, 212, 376, 377, 730 and 731 of 1999 and 999 to 1002 and 1042 of 2000).

Ch. Ali Muhammad, Advocate Supreme Court for Respondent No.5 (C.A. No. 1344 of 1999).

Date of hearing: 19^th October, 2004.

JUDGMENT

TASSADIQ HUSSAIN JILLANI, J.---This judgment shall dispose of Civil Appeals Nos. 163 to 169, 211, 212, 376, 377, 730, 731, 1342 to 1344, 1415, 1468 of 1999, 894 to 897, 999, 1000, 1001, 1002, 1042 of 2000, 1297 and 1298 of 2001 and Civil Petitions Nos.3000-L to 3002-L of 2000 as common questions of facts and law are involved.

2. These appeals and connected petitions are directed against impugned judgments passed by two learned Single Benches of Lahore High Court as also the judgment, dated 24-8-1998 passed by learned Division Bench of the Lahore High Court, Lahore vide which the writ petitions of the appellants were dismissed wherein they had challenged the vires of advance income tax being levied under section 50(7A) of the Income Tax Ordinance, 1979 (hereinafter referred to as the "Ordinance").

3. Facts in brief are that appellants are contractors except in Civil Petitions Nos. 3000-L to 3002-L/2000 of the Local Councils and they being the highest bidders for collection of export tax or octroi tax/mandi tax/fee executed contracts with the concerned local bodies i.e. respective Zila Councils, Metropolitan Corporation or the concerned local council. In terms of stipulations/conditions of contract/lease they were mandated to deposit 50% Advance Income Tax. This provision of the contract and vires of section 50(7A) of the Ordinance were challenged by most of the appellants in the Lahore High Court. The Constitutional Petitions were dismissed by three different Benches of the High Court on the ground that section 50(7A) of the Ordinance specifically provides for collection of advance income tax on the sale price of the property sold by the Government, local council or a public company, that Explanation to the afore-referred section stipulates that the sale of the property would include awarding to any person lease to collect octroi duties, tolls fee or other levies, that the petitioners having signed the contract could not wriggle out of the same through a Constitutional petition and that to legislate is the exclusive preserve of the legislature and the superior Courts could not over-ride the power of policy maker unless there is any violation of the Constitution. In support of these petitions learned counsel for appellant made following submissions:

(i)???????? That the appellants were highest bidders in contract for collection of export tax or octroi tax and there was no sale or purchase of property to fall within the mischief of section 50(7A) of the Ordinance.

(ii)??????? That the relationship between the local council and the appellants was not that of a vendor and a vendee.

(iii)?????? That the highest bid offered by the appellants is not an ^"income" amenable to the provisions of Ordinance and does not fall under Item No.47 of Fourth Schedule of the Constitution on which advance income tax could be charged.

3-A. In support of the submissions learned counsel relied upon judgment of Lahore High Court reported in PLD 1984 Lahore 345 (Muhammad Younas v. Chairman Municipal Committees, Sahiwal and others) and added that to nullify effect of this judgment Explanation to section 50(7A) was added which is ultra vires of the spirit and intent of controlling section.

4. Mr. Ilyas Khan, Advocate for the Income Tax Department defended the impugned judgments by submitting that the tax amount is a part of contractual obligations which could not be challenged in Constitutional jurisdiction, that the advance income tax is being levied under the mandate of a statutory provision and the vires of the said provision cannot be challenged in these proceedings. Section 50(7A) of the Ordinance was challenged before the Lahore High Court and in the judgment reported in 2000 PTD 478 (Muhammad Ansar and 2 others v. Administrator. Town Committee, Kabirwala, District Khanewal and 4 others) the vires were upheld. He referred to a judgment of this Court in which a similar provision i.e. section 80-C of the Ordinance was challenged in which the levy of advance tax was upheld.

5. Mr. Ali Muhammad appearing in C.A. 1344 of 1999 defended the impugned judgment and contended that the legislative wisdom cannot be challenged in these proceedings unless they are ultra vires to the Constitution. In support of the submissions learned counsel relied on PLD 1965 SC 425 (Manzoor Hussain v. Wali Muhammad) and AIR 1975 SC 1121 (Har Shankar v. Dy. E & T Commissioner).

6. Learned Deputy Attorney General appearing for the Federal Government defended the impugned judgments and submitted that the appellants can be asked to appear before the Assessing Authority who can assess the tax and can recover it as advance income tax.

7. Ms. Afshan Gahzanfar, Assistant Advocate-General, appearing for Province of Punjab in C.Ps. 3000-L to 3002-L of 2000 adopted the arguments of Mr. Maqbool Ellahi Malik in Civil Appeals Nos. 163 of 1999 etc. and added that levy of advance income tax is harsh.

8. Mr. Muhammad Munir Peracha, Advocate Supreme Court appearing in C.M.A. No.2400 of 2000 in C.A. No.163 of 1999 submitted that he had deposited the advance income tax, therefore, he would not press this application. The said application is accordingly dismissed as not pressed.

9. We have heard learned counsel for the parties and have given anxious consideration to the submissions made.

10. For proper appreciation of the issues raised a reference to subsection (7A) of section 50 of the Ordinance and the Explanation added to it would be imperative. It reads as under:--

"50. Deduction of tax at source.--(1)??????????????

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(2) to (7) ????????????????????????

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(7A) Any person making sale, by public auction, of any property other than a plot of land belonging to the Government a local authority, a public company, a foreign association declared to be a company under clause (16) of section 2, or a foreign contractor or consultant or consortium shall collect advance tax computed on the basis of sales price of such property and at the rate specified in the First Schedule. From any person to whom such property is sold, and credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the person purchasing such property for the assessment year commencing on the first day of July next following the said financial year, or in case of an assessee to whom section 72 or section 81 applies, the assessment year, if any, in which the "said date" as referred to therein, falls, whichever is the later.

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."

11. A bare reading of the afore-referred provision would indicate that the law envisages levy of advance income tax on the basis of sale price of the property in question and by virtue of the Explanation added to subsection (7A) of section 50 of the Ordinance, 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 named called" have been included in "sale". This Explanation was inserted by Finance Ordinance, 1984 through a Presidential Order. It is a deeming provision and it is a settled principle of law that a deeming provision in a taxing statute has the effect of bringing within the mischief of chargeability on income which may not have actually accrued but by fiction of law is supposed to have accrued. The rationale appears to be that a person who has been awarded a contract would earn income that the advance tax would be a security and would be adjusted when the final liability is determined. The concept of advance income tax is neither new nor its vires are under consideration before this Court for .the first time. Section 80-C of the Ordinance embodies the concept of advance tax and section 236 of the Income Tax Ordinance XLIX of 2001 made a provision for levy of advance tax on the telephone bill of a subscriber. Earlier to that section 53 of the Income Tax Ordinance, 1979 carried this power. In Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan (PLD 1997 SC 582) the vires of section 80-C of the Ordinance were challenged. While dismissing the appeals and upholding the vires of the said provision it was inter alia observed at page 677 as under:

"(xvi) That the process of income determination is often expressed as one of the matching costs and revenues. It involves the process of working out costs used in connection with the earning of the revenue in a particular accounting period.

(xvii) That generally the effect of deeming provision in a taxing statute is that it brings within the tax net an amount which ordinarily would not have been treated as an income. In other words, it brings within the net of chargeability income not actually accrued but which supposedly to have accrued notionally."

12. The vires of section 236 of Income Tax Ordinance XLIX of 2001 were challenged before the Sindh High Court by filing Constitutional Petition No. D-468 of 2003 and the same was dismissed. While upholding the Sindh High Court judgment this Court in C.P. No.2187/2003 referred with approval to the operative part of the said judgment of the Sindh High Court which is as under:

"The advance tax impugned in this petition does not fall within the purview of presumptive tax regime. The advance tax collected by the petitioner No.2 from the petitioner No.2 and all other buyers of the pre-paid telephone cards shall be merely credited with the Government which can be utilized and adjusted to the extent found necessary towards the ultimate liability of income tax due, after it has been determined and the excess amount if any is to be refunded to the purchasers of pre-paid telephone cards..."

13. In Commissioner of Income Tax v. Asbestos Cement Industries Ltd. and others (1992) 66 Tax 140 (S.C. Pak) this Court declared section 53 of the Ordinance to be tenable and levy of advance tax as valid. The vires of the provision under challenge before this Court i.e. section 50(7A) of the Ordinance came up for consideration before Sindh High Court in the case of Trustees of the Port of Karachi v. Central Board of Revenue (1989 PTD 1048) wherein at page 1060 while holding the provision as intra vires it was held at page 1060 as follows:--

"A taxing statute usually contains charging and machinery provisions. The former fixes the liability to pay tax and has to be construed strictly and where two reasonable interpretations are possible one which favours the subject should be accepted. Once the liability to tax is fixed the machinery provision comes into play. This has to be construed liberally and in a manner that the recovery is ensured. Where more than one reasonable interpretation of such provision is possible one which favours recovery should be adopted. Such extended meaning can be given only on the basis of reasonable construction of the language of the statute. Section 50(7A) contemplates sale by public auction by a person who may be an auctioneer, the property belonging to Government, local authority, a public company and other specified persons. The subsection fixes the responsibility of the person selling such goods by public auction to collect advance tax. In case of failure to deduct tax under section 52, he shall be deemed to be an assessee in

default? "

14. There is yet another aspect of the matter. Admittedly all the appellants (except petitioners in CPs Nos. 3000-L to 3002-L of 2000) are contractors/lessees and in terms of the contract signed with the local _D authorities concerned they had agreed to pay the advance income tax. They cannot wriggle out of the said contractual obligation by invoking the Constitutional jurisdiction.

15. For what has been discussed above, we find no merit in these appeals/petitions which are dismissed with no order as to costs.

S.A.K./B-28/S???????????????????????????????????????????????????????????????????????? Appeals/petitions dismissed.