I.T.A. No. 551/IB of 2005, decided on 15th December, 2005 VS I.T.A. No. 551/IB of 2005, decided on 15th December, 2005, 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2384 (2005)

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

----S. 80D---Finance Act (IV of 1999)---Finance Ordinance (XXV of 2001)---C.B.R. Circular No. 8 of 1999, dated 27-7-1999---Minimum tax---Assessment year 2000-2001---Assessee was an Association of Persons and was charged to minimum tax for the assessment year 2000-2001 under S.80D of the Income Tax Ordinance, 1979---Assessment order was passed as on 29-5-2002---Assessee contended that law was amended by the Finance Ordinance, 2001 w.e.f. 1-7-2001 whereby Association of Persons were excluded from the ambit of S.80D of the Income Tax Ordinance, 1979 and assessment spending completion as on 1-7-2001 would be regulated by the amended law as the amendment in S.80D of the Income Tax Ordinance, 1979 enacted through the Finance Act, 2001 was curative and remedial in nature which should be applied retrospectively---Validity---Inclusion of certain categories of taxpayers within the ambit of 80D of the Income Tax Ordinance, 1979 and the subsequent exclusion of some newly-added taxpayers, were manifestations of policy formulation rather than an exercise in rectifying any wrongs, defects, inequities, contraventions, omissions or irregularities---Subsequent deletion of Association of Persons in S.80D of the Income Tax Ordinance, 1979 was not a measure to remove any hardship or to otherwise soften the law---Such deletion reflected a policy change and coincided with a revamping of income tax law by the Income Tax Ordinance, 1979 and its replacement by the Income Tax Ordinance, 2001---Such amendment was neither curative nor remedial nor a softening of law; it was a simple case of curtailing the extent of tax chargeability---Appeal of the assessee was rejected and orders of Assessing Officer and First Appellate Authority were upheld by the Appellate Tribunal.

1993 SCMR 73; 2002 PTD 285; PLD 1997 Lah. 292; 2002 PTD (Trib.) 221 and 1996 SCMR 273 distinguished.

Black's Law Dictionary Fifth Edition, 1979 and "Statutory Construction" of Crawfard ref.

(b) Interpretation of statutes---

----Retrospective effect of amendment---Where a wrong had been corrected and the amending provision did not affect any vested right nor created any new obligations, it had to be given retrospective operation for extending benefit to the affected parties in pending proceedings.

1993 SCMR 73 rel.

(c) Interpretation of statutes----

---In absence of any indication in the statute that the legislature intended same to &berate retroactively, it must not be given retrospective effect---If per chance any reasonable doubt exists, it should be resolved in favour of prospective operation---Before a law will be construed as retrospective, its language must imperatively and clearly require such a construction.

(d) Interpretation of statutes----

----Retrospective operation of law would only apply if vested rights were not disturbed.

(e) Interpretation of statutes---

----Primary condition for retrospectivity rests upon the existence of an inherent defect in law---Only when such defect existed and was later amended, could be said that an amendment was remedial in nature and would apply to all pending assessments.

Hafiz Muhammad Idrees, A.R. for Appellant.

Muhammad Tahir Khan, D.R. for Respondent.

ORDER

This appeal by the assessee calls in question the charge of tax under section 80D of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance) on the ground that the said section which had been amended by the Finance Act, 1999 to enlarge its scope so as to include individuals. AOPs, URFs and HUFs within the scope of charging minimum tax of 0.5% of the declared turnover of an assessee was later amended by the Finance Ordinance, 2001. Prior to that, Circular No.8 of 1999, dated 27-7-1999 had excluded certain categories of taxpayers from the ambit of the amended section 80D. As such, the two continuous amendments rendered assessees other than companies as not being chargeable to minimum tax of 0.5% under the repealed Ordinance. During the course of hearing, it was forcefully pleaded by the learned AR that the amendments made in law were curative and beneficial in nature and were as such governed by the ratio laid down in cases cited as 1993 SCMR 73, 2002 PTD 285 (H.C. Kar.), (1977) 35 Tax 169 (H.C. Lah.) 2002 PTD (Trib.) 221. He pointed out that the first mentioned case pertains to an amendment in section 18A(6) of the erstwhile Income Tax Act, 1922, the second case pertains to an amendment in sections 23 and 10(4)(bb) of the said Act, the third case is based upon an amendment in the relevant explanation in section 24(2) of the that Act. In the fourth cited case, the Tribunal examined a proviso inserted in section 318(1)(b) of the Wealth Tax, 1963 and held it to be governed by the principle laid down in the first mentioned judgment of the apex Court. The spectrum of cases so covered was wide enough to include all types of amendments in law made from time to time, it was pointed out. In each case, the ratio laid down was that where the law was softened, it was necessarily remedial and was applicable to all pending assessments, the AR maintained. The same principle had also been laid down in 1996 SCMR 273 though in a different context be maintained.

2. In the present case, the order whereby the assessee had been charged to minimum tax for the assessment year 2000-2001 under section 80D of the repealed Ordinance was passed on 29-5-2002. Meanwhile the law was amended by the Finance Ordinance, 2001 w.e.f. 1-7-2001 whereby AOPs were excluded from the ambit of section 80D of the repealed Ordinance, he pointed out. The learned AR maintained that assessments pending completion as on 1-7-2001 would be regulated by the amended law in view of the legal position emerging from the aforementioned case-law. The appellant AOP could, therefore, not be charged to minimum tax under section 80D of the repealed Ordinance after 1-7-2001, be concluded.

3. The learned AR on his part clarified that inter alia, AOPs had become taxable under section 80D by virtue of the amendment enacted through the Finance Act, 1999. However, for the assessment year 1999-2000 such AOPs etc. as were otherwise covered by the Universal Self-Assessment Scheme were excluded from this charge. To clarify this position, Circular No.8 of 1999 was issued and its benefit was also passed on to the present appellant. The amendment subsequently made by the Finance Ordinance, 2001 to exclude AOPs from charge of minimum tax was not meant to be retrospective as the legislature did not indicate any such retrospectivity. Accordingly, while the assessee was not chargeable to minimum tax for the assessment year 1999-2000, the charge of minimum tax for assessment year 2000-2001 was in accordance with law and in implementation of a consciously devised legislation. The assessee therefore, had no case for exclusion from payment of minimum tax under section 80D and the learned Commissioner Appeals had rightly held that the charging provisions of section 80D were operative and applicable to the assessee for the assessment year 2000-2001. He maintained that the amendment in question was not meant to pass on any benefit to non-conforming tax-payers nor was it meant to otherwise remedy any wrong as assumed by the assessee. As such, the amendments introduced by the Finance Ordinance, 2001 were not of remedial nature nor were they retrospective in applicability. He urged that the appeal of the assessee be dismissed as being without merit and not in accordance with law.

4. The ease-law quoted by the learned A.R. has been carefully perused by us in 1993 SCMR 73, the honourable Supreme Court of Pakistan was seized of the proposition of retrospectivity or otherwise of the amendment made in section 18A(6) of the erstwhile Income Tax Act, 1922 whereby the law had been amended to provide that additional tax payable by the assessee who had paid tax on the basis of their own estimate but the tax so paid was less than 80% of the tax determined on the basis of the regular assessment additional tax @ 2% per. mensem was chargeable from the first day of April in which the tax was paid up to 30th June of the year next following or up to the date of the regular assessment, whichever was earlier. Prior to that amendment, additional tax was chargeable from the first date of April in which advance tax was paid up to the date of regular assessment which was an open ended arrangement resulting in an excessive charge of additional tax, if the regular assessment was delayed for any reason, the assessee was adversely affected inasmuch as till such time as the regular assessment was made, the liability to pay additional tax continued unabated. In this regard, the observations of the Karachi High Court had been quoted by the apex Court with approval as under:--

"A happy and remedial change was brought about by the amendment in this subsection by the Finance Act, 1973, which restricted the period to a maximum of 15 months for which the aforesaid additional tax at the rate of 2% per mensem could be charged i.e. from the first date of April of the year in which the tax was paid up to 30th June of the next year following or up to the date of the regular assessment whichever was earlier."

"For assessment year 1973-74 and subsequent years obviously the additional tax at the rate of 2% per mensem was limited to a maximum period of 15 months. The controversy is in relation to assessment year 1972-73 and earlier years where the assessment had not been finalized inasmuch as either regular assessment had not been made by the Income Tax Officer or in case such assessment had been made, an appeal was pending or matter was still sub judice before the High Court in a reference under section 66 of the Income Tax Act, 1922."

"In our view, as the amending provision under consideration had been inserted in subsection (6) of section 18-A to remedy a wrong that was being done to the assessee and the amending provision does not affect any vested right or create any new' obligations the amending provision is to be given retrospective operation for extending benefit to the affected parties in pending cases to give effect to the intent of the legislature. As observed earlier a wrong was being done to the assessees by providing for an indefinite period during which they were made liable for payment of additional tax at the rate of 2% per mensem and this wrong was sought to be remedied by the remedial and curative amendment brought about by the Finance Act, 1973. If the intention of the Legislature had been that this remedy should be available only in respect of assessment for the year 1973-74 and subsequent years, the legislature would have used appropriate words to express such intention. No such appropriate words are mentioned in the amending provision. There is no reason why the remedial provision of the amending law should not be applied to pending proceedings. In fact, this appears to be the intent of legislature."

"the retrospective operation visualized by the instant amendment could extend only to such cases which were pending at the time the amending law as enacted, cases which had not been finally determined or proceedings which had not attained finality. The retrospective effect of the amending law would, therefore, apply only to those cases where assessment had not been made by the I.T.Os or where an appeal was pending before the Tribunal or a reference was sub judice before the High Court, at the time the amending law was enacted. The cases which had finally been determined or had attained finality i.e. which were past and closed transactions, could not be reopened under amending legislation as there are no express words to that effect employed in the amending law."

5. The honourable Supreme Court while dealing with 'the submissions made before it to the effect that the amendment in question even if remedial and curative in nature could not be given retrospective effect, observed asunder:--

"However, nothing has been adduced before us in support of the last mentioned submission. As explained in Crawford's "Statutory Construction" a statute relating to remedial law may properly in several instances, be given retrospective operation and we are of the opinion that as the amendment in the instant case was introduced to redress an injury which in the words of Circular No.6 of 1973 (Income Tax) issued on 7th July, 1973 by the Central Board of Revenue itself was "designed to soften the law in favour of tax-payers who could previously be charged to additional tax up to the date of assessment even though the finalization of assessment was delayed due to no fault of theirs." This was a proper case in which retrospective operation to the extent the High Court gave to it could be given to the amending law."

6. As would be seen, the principle underlying the verdict of the honourable High Court as endorsed by the apex Court was that where a wrong had been corrected and the amending provision does not affect any vested right nor creates any new obligations, it has to be given retrospective operation for extending benefit to the affected parties in pending parties. The extent to which those parameters apply to the present appellant, should determine the fate of this appeal.

7. The learned AR has also relied upon the ratio laid down in PLD 1997 Lah. 292. In the cited case the amendment under review was of explanatory nature and was stated to have been introduced for the avoidance of doubt. The honourable High Court observed that the rule about interpretation of such statute is distinct though the principles of interpretation of taxing statutes would apply to the situation. A reading of the explanation in that case indicated the intention of the legislature was to remove a doubt and explain the intended import of the original provision of law. The object of the statute being explaining the existing provisions or to remove a doubt, such explanations were held to apply retrospectively. Accordingly, Explanation 2 to section 24(2) of the Income Tax Act, 1922 was held to apply retrospectively to all relevant cases pending on the date of such amendment.

8. We observe that the case referred to in the preceding para, has no relevance to the facts of the present appeal. The amendment in section 80D is clearly not an explanation or does it state to intend removing a doubt in any existing provision of law. It is not as such, covered by the ratio of the cited case.

9. The next case cited by the learned AR is reported as 2002 PTD 285. The honourable Karachi High Court while delivering its judgment on a reference answering a question of law, held that the amendment made in section 10(4)(bb) of the Income Tax Act, 1922 being remedial and beneficial in nature was retrospectively applicable to all pending assessments. The judgment in question is based on the principle upheld by the honourable Supreme Court in the case examined by us in the foregoing paras. The point of law involved in the reference before that honourable Court was whether the amendment introducing a necessary pre-condition for deducting tax from payments made on account of brokerage or commission to a person not resident in Pakistan was applicable to assessment-for the year 1978-79 onwards or otherwise. Dilating on this issue, their lordships of the Karachi "High Court observed as under:

"Prior to the amendment of section 10(4)(bb) of the repealed Act, the applicant/assessee was under an obligation to deduct tax under section 18 of the repealed Act on any payment made by it by way of brokerage or commission to a person not resident in Pakistan, irrespective whether such payment was liable to be charged to tax under the repealed Act or not liable to be charged to tax for the applicant/assessee to claim such payment as an admissible expenditure. Failure of the applicant/assessee to deduct tax at source on such payment would disentitle him from claiming such payment as an admissible expenditure and the Assessing Officer would be legally justified in disallowing the same. After the amendment of section 10(4)(bb) of the repealed Act by insertion of the words "chargeable under the provision of this Act", the Legislature dispensed with the requirement or obligation which was imposed upon the applicant/assessee to deduct tax at source in accordance with section 18 of the repealed Act notwithstanding the fact that the payment made to a person not resident in Pakistan was not liable or would not be chargeable to tax under the repealed Act. The amendment, thus, removed the burden which was imposed on the applicant/ assessee for claiming such payment as an admissible expenditure. The effect of the amendment resulted in providing substantial benefit or relief to the applicant/assessee in claiming such payment as an admissible expenditure without undergoing the ordeal of deducting tax at source and depositing or handing it over to the Revenue Authorities in a case where such payment was not liable to be charged to tax under the repealed Act. The amending Ordinance neither provided nor imposed any new burden or fresh obligation on the applicant/assessee nor deprived it of any vested right. On the contrary it saved it from the unnecessary ordeal of deducting tax at source from such payment and depositing or handing over the same to the Revenue Authorities for his entitlement to claim such payment as an allowable deduction. In the circumstances, it can be said that the amending Ordinance had brought a change in the procedure to be adopted by the applicant/assessee for claiming such payment as an allowable deduction in a case where such payment was not chargeable to tax under the repealed Act. The applicant/assessee was absolved of the burdensome condition or obligation to deduct tax at source and to deposit or pay the same to the Revenue Authorities or such payment which admittedly was not to be charged to tax."

10. It was further observed by the honourable Karachi High Court that the amending Ordinance of 1978 had provided benefit both to the applicant/assessee and the non-resident in Pakistan. In both cases, relief was provided where tax was otherwise not payable and that in the circumstances, it was a remedial or curative statute. Viewed in the context of the law laid down by the honourable Supreme Court in the aforementioned case cited as 1993 SCMR 73, that amendment in question was held to be operative retrospectively.

11. The foregoing observation clearly shows that the amendment in law had been made to relax the stringency of condition in law covering certain payments to non-residents not otherwise chargeable to tax. On the other hand the amendment made in section 80D by Finance Ordinance, 2001 is of different nature. As rightly observed by the learned Commissioner Appeals, section 80D creates a charge and the amendment subsequently made altered the category and classes of persons to whom tax could be charged under that section. If the arguments of the learned AR were to prevail, it would amount to state that charge of tax itself and its withdrawal constituted a concession to the taxpayers. With respect, we feel otherwise. The charge of tax or otherwise on certain taxpayers is a policy decision and cannot be categorized with softening of any condition pertinent to the charge of tax.

12. The learned AR has pleaded that being curative and remedial in nature, the amendments in section 80D enacted through the Finance Act, 2001, 'should be applied retrospectively. In order to examine this plea, we may see what the terms mean in legal parlance. `Curative' has been defined in the Black's Law Dictionary Fifth Edition, 1979, as under:--

"Intended to cure (that is, to obviate the ordinary legal effects or consequences of) defects, errors, omissions or irregularities. The word is defined as relating to or employed in the cure of diseases; tending to cure; a remedy."

13. We have carefully examined the relevant provisions and cannot see how the amendment in section 80D could be termed as curative. The learned AR has not been able to show what hardships, abuse, wrongs, defects, errors, omissions or irregularities were present prior to the enactment of the Finance Ordinance, 2001, which were later cured by it.

14. `Remedial' on the other hand, has been defined in the said Black's Law Dictionary, as:--

"Affording a remedy; giving means of obtaining redress; of the nature of a remedy; intended to remedy wrongs and abuses, abate faults, or supply defects; pertaining to or affecting remedy, as distinguished from that which affects or modifies the right, Schultz v. Gosselink, 260 Iowa 115, 148 N.W. 2d 4,34, 436."

15. We have not been shown any element of wrong defect, fault or abuse inherent in the inclusion of AOPs within the charging scope of minimum tax under section 80D, as distinguished from that which affects or modifies the scope of taxation under the law. On the other hand, 1993 SCMR 73 and the other three cases emanating therefrom and quoted by the learned AR, are cases where the law initially contained specific inequities and defects which were later remedied by appropriate amendments therein. Seen in this perspective, the assessee has been unable to prove its case. No retrospectivity can therefore be attributed to the amendments made in section 80D of the repealed Ordinance by the Finance Ordinance, 2001.

16. Crawford in his "Statutory Construction" opines that in the absence of constitutional provisions of this character, statutes with but few exceptions, should if possible, be construed so that they will have only prospective operation. In fact, legislation consists of formulating rules for the future not the past (Oklahoma City v. Dolese 48 Fed (2) 734). Consequently in the absence of any indication in the statute that the legislature intended for it to operate retroactively, it must not be given retrospective effect. If per chance any-reasonable doubt exists, it should be resolved in favour of prospective operation. In other words, before law will be construed as retrospective, its language must imperatively and clearly require such a construction."

17. Remedial statute as defined by Crawford in his "Statutory Construction" (1940 Edition) has been described as follows:--

"282. Remedial statutes.---Even remedial statutes may be subject to the principles hereintofore discussed, opposing any construction which will give the enactment retrospective operation. Yet, since remedial statutes are usually looked upon with favour by the Courts, they should be liberally construed. But there appears to be considerable confusion in the cases with reference to giving remedial Acts retrospective effect through construction, if the rule of liberal construction is to be applied, as it obviously should then any doubt should be resolved in favour of retrospective operation, if such operation does not destroy or disturb vested rights, impair the obligations of contracts, create new liabilities violate due process of law or contravene some other. Constitutional provision, and if such operation will carry out the intention of the legislature as ascertained through the application of the principle of liberal construction. In other words, a statute relating to remedial law may properly, in several instances, be given retrospective operation."(Emphasis supplied).

18. As would be seen, even remedial statutes are not necessarily retrospective hr operation in all cases especially if such operation destroys vested rights. A vested right has been defined as one which rests in perfect obligation. Since in the present case vested rights of the Revenue would obviously be destroyed and disturbed and the due process of law would be upset if retrospective operation is made of the amendment in section 80D the obvious intention of the legislation to create a charge of minimum tax based on the turnover inter alia all individuals and AOPs, it would be wrong to assume that the amendment presently in question is retrospective in nature. In fact, the honourable Supreme Court in 1996 SCMR 237 has also dilated on this aspect and .observed that any statute, which did not take away, curtail or affect any vested or substantive rights, would operate retrospectively unless the contrary was expressed. In other words, retrospective operation of law would only apply if vested rights are not disturbed. In the present case, the vested rights of the Revenue would obviously be disturbed if any retrospectivity was attached to the amendment made in section 80D of the repealed Ordinance.

19. In the last case relied upon by the learned AR reported as 2002 PTD (Trib.) 221 the issue involved was the curtailment of period for which additional wealth tax could be charged on short payments of tax. We have already examined and found the judgment of the august Supreme Court of Pakistan in 1993 SCMR 73 to be distinguishable from the facts of the present case. The principle of retrospective operation of the amended law so laid down by the Supreme Court of Pakistan is not attracted to the facts of the present case.

20. The foregoing would show that retrospectivity in the case before the honourable Supreme Court was held applicable only in the special circumstances of that case. The primary condition for such a verdict in our considered opinion, rests upon the existence of an inherent defect in law. Only when such defect existed and was later amended could be said that an amendment was remedial in nature and would apply to all pending assessments.

21. In the foregoing facts, the central issue of the retrospectivity or otherwise of the amendment in section 80D and whether Such amendment was at all a softening of the law, may also now be examined in the context of the intention of the legislature. A perusal of the budget speech of the then Finance Minister reveals that the following principles formed the basis of rendering the assessee chargeable to tax under section 80D through amendments enacted by the Finance Act, 1999:--

"53. While formulating the measures the following factors have been kept in view.

(i) These measures would be in conformity with our economic policies. Especially the Trade Policy, Monetary Policy and Development Policy.

(iii) These measures will support our socio-economic programmes, mentioned earlier.

(iii) These will broaden tax base by bringing new sectors and persons into tax net, and incidence of tax will be on the persons who have the capability to pay.

(iv) These measures would be easy to understand and implement and would promote tax culture by encouraging people to pay taxes. These will accelerate tax collection and promote self-assessment these will be transparent and just and discourage corruption Tariff system would be overhauled to rid the people of their daily problems in this regard.

(v) These will bring about a pleasant and positive change in the attitudes and improve relations between the taxpayers and tax collectors.

(vi) These will create such trend in tax culture that there would be no need to impose new taxes in the future."

22. As can be seen, the persons added to the taxpayers chargeable to tax under section 80D, were with a view to broaden the tax base by bringing new sectors and persons into tax net. However, vide Circular No.8 of 1999, such registered firms, individuals, URFs, HUFs and AOPs as were covered by the Universal SAS (USAS) were excluded from the ambit of minimum tax so as to conform to the policy outlined within the Budget Speech,. 1999 whereby self-assessment culture was to be promoted. In fact USAS was designed to extend its benefits to all taxpayers including companies etc. This clearly shows that the amendment in section 80D was carefully tailored in accordance with a policy change and not for softening the law or otherwise granting relief, while the fine tuning required to promote self-assessment, as done through appropriate circular instructions of the C.B.R. The inclusion of certain categories of taxpayers within the ambit of section 80D and the subsequent exclusion of some newly-added taxpayers, were manifestations of policy formulation rather than an exercise in rectifying any wrongs, defects, inequities, contraventions, omissions or irregularities.

23. We do find any evidence to suggest that the subsequent defect of AOPs in section 80D was a measure to remove any hardship or to otherwise soften the law. Evidently, the said deletion reflected a policy change and coincided with a revamping of income tax law by the repeal of the Income Tax Ordinance, 1979 and its replacement by the new Income Tax Ordinance, 2001.

24. The basic issue involved in this case is whether the amendment enacted through the Finance Bill, 2001 was curative or remedial? The onus to prove that it was so is undoubtedly on the assessee. From our examination of this plea at paras. 12 to 18 above, it is abundantly clear the said amendment was neither curative, remedial, nor a softening of law. It was a simple case of curtailing the extent of tax chargeability. The case-law quoted in support of the present appeal is based on certain amendments in other tax enactments in the past years which could not be shown to be on all fours with the present situation.

25. In view of the forgoing we find no merit in the appeal of the assessee. It is accordingly rejected. The order of the learned Commissioner Appeals is uphold.

C.M.A./58/Tax (Trib.)Appeal rejected.