Malik MUHAMMAD INAM VS FEDERATION OF PAKISTAN, 2006 PTD-SUPREME-COURT 2277 (2006)

2006 P T D 2277

[Supreme Court of Pakistan]

Present: Iftikhar Muhammad Chaudhry, C.J. Abdul Hameed Dogar and Saiyed Saeed Ashhad, JJ

Malik MUHAMMAD INAM and others

Versus

FEDERATION OF PAKISTAN and others

(On appeal from the judgment, dated 31-10-2001, passed by Lahore High Court, Lahore in Writ Petitions Nos.1973, 13908, 13972, 17396, 17397, 1739, 11552, 11553, 14965, 13863, 25079, 8826, 11366, 14549, 13717, 24448, 1086, 24202, 16000, 14379 of 2001,'19234, 19844, 23256 of 2000, 1985, 7552, 436, 12979, 12378, 14847, 14848, 13878, 13877, 13879, 14401, 14402, 13259, 13261, 13262, 13263, 13265, 13211, 13215, 13216, 14881, 13612, 13374, 13494, 14234, 15806, 17379 of 2001 and 17762, 2912 and 2465 and 2900 of 2000 and dated 28-3-2004 in I.C.A. No.22 of 2002).

Civil Appeal No.2511 of 2001

FEDERATION OF PAKISTAN and others---Appellants

Versus

S. HAMIDULLAH SHAII and others---Respondents

(On appeal from the judgment, dated 17-10-2000 passed by Lahore High Court, Lahore in Writ Petition No.17762 of 2000)

Civil Appeal No.2512 of 2001

COMMISSIONER OF INCOME-TAX and others---Appellants

Versus

MUHAMMAD SALEEM KHAN and others---Respondents

(On appeal from the judgment, dated 17-10-2000 passed by Lahore High Court, Lahore in Writ Petition No.18145 of 2000).

Civil Appeal No.448 of 2004

DEPUTY COMMISSIONER OF INCOME-TAX/WEALTH TAX and others---Appellants

Versus

SARA ROOHI USMANI and others---Respondents

(On appeal from the judgment, dated 10-4-2002 passed by Lahore High Court, Rawalpindi Bench, Rawalpindi in Writ Petition No.2900 of 2000).

Civil appeals Nos.857 to 867, 1792, 1793 of 2002 589, 48 of 2003, 2511, 2512 of 2001, 448 of 2004 and 379 of 2006, decided on 17/04/2006.

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

----Ss. 2(6), 15(a), 16(2)(a)(iii)(c)(i), 50 & Second Sched. Cls.17, 17(AA) & 77---Central Board of Revenue's Circular No.15 of 1997 (Income Tax), dated 6-11-1997---Employees of Banks and Financial Institutions---Introduction of Golden Hand-Shake Scheme giving option to employees to seek retirement voluntarily before attaining age of superannuation on payment of lump sum amounts as compensation for premature retirement/loss of employment or in lieu of salary---Payment of amounts to retiring employees by their employers under such Scheme---Deduction of tax at source by employer while treating such payments as salary---Validity---Terms and conditions of retiring employees by virtue of such Scheme stood modified resulting in termination of their employments on their voluntarily agreeing to retire from service on acceptance of such payments as compensation---Such payments, if not covered or falling within definition of salary, would be deemed to be salary by virtue of provisions of S.16(2)(a)(iii) & (2)(c)(i) of Income Tax Ordinance, 1979, thus, would be liable to be taxed under S.15(a) thereof---Courts would be bound to give effect to deeming provision/legal fiction created by Legislature for bringing such payments within meaning of salary---Every retiring employee would be deemed to be an "assessee" as defined in S.2(6) of Income Tax Ordinance, 1979---Such payments could not be treated as retirement/pensionary benefits to be exempt from tax under cls.17, 17(AA) & 77 of Second Sched., to Income Tax Ordinance, 1979---C.B.R. through Circular No. 15 of 1997 (Income Tax) dated 6-11-1997 did not impose tax on such payments, but apprised concerned persons of provisions of S.16 of Income Tax Ordinance, 1979, whereby such payments were to be treated as salary falling within tax net---Principles.?

Income Tax Commissioner v. E.D. Sheppard AIR 1963 SC 1343 and Commissioner Income Tax, Bengal v. Shawallace and Company AIR 1932 PC 138 ref.

Ellahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary Ministry of Finance, Islamabad and 6 others PLD 1997 SC 582 rel.

(b) Interpretation of statutes---

----Deeming provisions---Legal fiction created in a statute---Object and scope stated.

The Legislature may in a statute provide the existence of a certain fact or the happening of an event or meaning of a word, which actually does not exist or happen or which ordinarily is not assigned to it. It is made to exist or happen or mean by deeming provisions/creating a legal fiction. The Legislature sometimes uses the deeming provisions in a statute to impose for the purpose of the statute an artificial construction of a word or a phrase that would not otherwise prevail. Where in defining anything, the Legislature uses the word "included" or "includes", the rule of interpretation is that it is used as a word of enlargement and it ordinarily implies that something else has been included, which falls outside the general meaning of the word. It may also be used to give a comprehensive description that includes what is not obvious, what is uncertain and what, in the ordinary sense, is not impossible. When the Legislature says that rules, regulations and bye-laws, which have been framed under the statutory power conferred by the Act "shall have effect as if enacted in this Act", it is adopting the well-known device of legal fiction, whereby we are forbidden to treat "Rules" not framed under the Act as which are usually applicable for interpreting legal fictions will have to be resorted to.

N.S. Bindra's book titled Interpretation of Statutes, Sixth Edn. P.43 fol.

(c) Interpretation of statutes---

----Hardship or inconvenience to be caused to a person by a provision of law---Not a ground to be considered by Courts in interpreting and determining legality of a provision of law---When subject falls within ambit of a statute, then irrespective of hardship which a person may face, the provision of statute would be given effect to and he cannot be absolved of his liability on sympathetic or humanitarian grounds---Principles.?

Ghulam Mustafa Insari and 48 others v. Government of the Punjab and others 2004 SCMR 1903 rel.

Ibrar Hussain Naqvi, Advocate Supreme Court and Ejaz Muhammad Khan Advocate-on-Record for Appellants (in C.A. No.858 of 2002).

C.M. Lateef, Advocate Supreme Court for Appellants (in C.As. Nos.857 and 860 of 2002).

Ray Muhammad Nawaz Kharal, Advocate Supreme Court for Appellants (in C.As. Nos.1792 and 1793 of 2002).

Sikandar Hayat Khan, Advocate Supreme Court for Appellants (in C.A. No.379 of 2006).

Muhammad Ilyas Khan Senior Advocate Supreme Court for Respondents (in C.As. Nos.857-867 of 2002 and 589 of 2003).

Malik Muhammad Nawaz, Advocate Supreme Court and Raja Abdul Ghafoor, Advocate-on-Record for Respondents (in C.As. Nos.1792 and 1793 of 2002),

Ch. Akhtar Ali, Advocate-on-Record for Respondents (in C.A. No.1792 of 2002).

Mehr Khan Malik, Advocate-on-Record for Respondents (in C.A. No.2512 of 2001).

Muhammad Ilyas Khan, Senior Advocate Supreme Court and Ch. Muhammad Aslam Chattha, Advocate-on-Record (absent) for Appellants (in C.A. No.2511 of 2001).

Nemo for Respondent (in C.A. No.2511 of 2001).

Muhammad Ilyas Khan, Senior Advocate Supreme Court and Ch. Muhammad Aslam Chattha, Advocate-on-Record (absent) for Appellants (in C.A. No.2512 of 2001).

Mehr Khan Malik, Advocate-on-Record for Respondent (in C.A. No.2512 of 2001).

Muhammad Ilyas Khan, Senior Advocate Supreme Court and Ch. Muhammad Aslam Chattha, Advocate-on-Record (absent) for Appellants (in Civil Appeal No.448 of 2001).

Nemo for Respondent (in C.A. No.448 of 2004).

Date of hearing: 17th April, 2006.

JUDGMENT

SAIYED SAEED ASHHAD, J.---The above 19 appeals with leave of the Court have been directed against the judgment of Lahore High Court dated 31-10-2001 in Writ Petition No.1973 of 2001 and other connected writ petitions, judgment, dated 17-10-2000 in Writ Petitions Nos.17762 of 2000 and 18145 of 2000 and judgment, dated 10-4-2002 and in Writ Petition No.2900 of 2000. In sixteen appeals the appellants are the employees/assessees while Federation of Pakistan and the I.T. Department are the respondents. In three appeals Federation of Pakistan and the I.T. Department are appellants while the employees/assessees are the respondents.

2. The brief facts leading to these appeals are that the assessees (hereinafter referred to as the "retiring employees") were in the service of nationalized banks and financial institutions (hereinafter referred to as the "Financial Institutions") managed and controlled by the Federal Government. The financial institutions in order to reduce the inflated and large number of employees in their Establishments introduced schemes known as "Golden Hand Shake Scheme/Voluntary Separation Scheme (hereinafter referred to as "the Scheme") giving option to their employees to voluntarily seek retirement before attaining the age of superannuation on payment of lump sum amounts as compensation for premature voluntary retirement/loss of employment or in lieu of salary (hereinafter referred to as "such payments"). The Financial institutions offered different terms and conditions to their employees for opting to leave the employment on voluntary retirement. The services of the retiring employees were terminated and they voluntarily retired earlier then their due date of retirement on receipt of such payments offered to them under the aforesaid schemes. Such termination/voluntary retirement took place in the years 2000 and 2001 before promulgation of Income Tax Ordinance, 2001. The Financial Institutions as per instructions of Central Board of Revenue contained in Circular No.15 dated 16-11-1997 deducted tax under section 50 of the repealed Income Tax Ordinance, 1979 (hereinafter referred to as the "repealed Ordinance"). In making such deductions, they were allowed the benefits of C.B.R. Circular No.1 of 1965 dated 1st July, 1965.

3. The retiring employees felt aggrieved and dissatisfied with the deduction of tax from such payments and assailed the action of the Financial Institutions/Income Tax Department by filing writ petitions in Lahore High Court.

4. A large number of writ petitions were disposed of by a learned Single Judge of the Lahore High Court vide judgment, dated 16-4-1998 in Writ Petition No.282 of 1998 allowing the writ petition, holding the circular dated 23-8-1997, whereunder the deductions were said to have been made, to be ultra vires of the power of the C.B.R. and declaring the same to be without lawful authority. Another learned Single Judge of Lahore High Court, Rawalpindi Bench vide judgment, dated 13-12-1999 in Writ Petition No.2086 of 1999 also allowed similar writ petitions holding that such payments received by the retiring employees from their employers were not compensation in lieu of salary but compensation for loss of employment and were to be treated as capital receipts not liable to be taxed as income. The judgments of the learned Single Judge were not accepted by the Income Tax Department and it assailed the same by way of I.C.A. No.241 of 2000. At the same time a large number of writ petitions were heard and disposed of by a Division Bench of Lahore High Court, Lahore, vide judgment, dated 31-10-2001 dismissing all the writ petitions filed by the retiring employees holding that such payments were in the nature of salary as defined in section 16 of the repealed Ordinance and were liable to tax under section 15 of the repealed Ordinance.

5. The retiring employees feeling aggrieved and dissatisfied with the judgment of the learned Division Bench of the High Court dated 31-10-2000 assailed the same by filing civil petition for leave to appeal in this Court. The Department filed three civil petitions for leave to appeal against the judgments of Lahore High Court, dated 17-10-2000 in Writ Petitions Nos. 17762 of 2000 and 18145 of 2000; and dated 10-4-2002 in Writ Petition No. 2900 of 2000.

6. We have heard Mr. Ibrar Hussain Naqvi, Advocate Supreme Court in Civil Appeal No.858 of 2002, Mr. Sikandar Hayat Khan, Advocate Supreme Court in Civil Appeal 379 of 2006 on behalf of the retiring employees. Mr. C.M. Latif, Advocate Supreme Court, Rai Muhammad Nawaz Khan Kharal, Advocate Supreme Court appearing in other civil appeals on behalf of the retiring employees had adopted the arguments of Mr. Sikandar Hayat Khan and Ibrar Hussain Naqvi, Advocate Supreme Court. Mr. Muhammad Ilyas Khan, Senior Advocate Supreme Court and Malik Muhammad Nawaz, Advocate Supreme Court appeared on behalf of the Department.

7. Messrs Ibrar Hasan Naqvi and Sikandar Hayat Khan in the appeals filed by the retiring employees assailed the judgment of the Lahore High Court dated 31-10-2001 on the following grounds:

??????????? (i) That the High Court erred in not holding that such payments were in the nature ????????? of ex gratia payments basically made to the retiring employees to compensate ??????????? them for the loss of employment and in lieu of salary, which they were legally ????????? entitled to receive till attaining the age of superannuation i.e. 60 years; and, as ??? such would be exempt from charge to tax;

??????????? (ii) that the High Court committed a grave illegality in holding that such payments ?????????? fell within the ambit of section 16 of the repealed Ordinance;

??????????? (iii) that the High Court failed to appreciate that such payments were neither in ? the nature of compensation or profits for the loss of service or in lieu of salaries ?????????? but were one time ex gratia payments falling within the definition of capital gains ???? and were exempted from charge of tax under the repealed Ordinance. It was also ???????? submitted that the payments were in the nature of a windfall not liable to be ?????????? taxed;

??????????? (iv) that the High Court committed grave illegality in holding that the retirement ? of the retiring employees in pursuance of golden hand shake scheme/voluntary ??????? separation scheme amounted to modification of terms and conditions of their service inasmuch as they were never in the service of the financial institutions ???? after acceptance of the payments;

??????????? (v) that the High Court also committed grave illegality in not to giving due ????????? consideration to clauses 17, 17-AA and 77 of the Second Schedule to the repealed ??????????? Ordinance; and

??????????? (vi) that the High Court failed to take into consideration the provisions of section ?????????? 16(2)(c)(i) of the repealed Ordinance and section 12(2)(c)(iii) of the Income Tax ? Ordinance, 2001 (hereinafter referred to as the "Ordinance") which if duly ? considered in juxta-position would have led to the only possible inference that ?? such payments were not salary but retirement/ pensionary benefits exempt from ???? change to tax in pursuance of the aforesaid clauses of the Second Schedule to the ?? repealed Ordinance.

7-A. Mr. M. Ilyas Khan, Senior Advocate Supreme Court and Malik Muhammad Nawaz, Advocate Supreme Court appearing on behalf of the Department on the other hand vehemently controverted the arguments advanced by the learned counsel for the retiring employees and submitted that the same did not carry any substance and were not tenable. They fully supported the impugned judgment of Lahore High Court, dated 30-10-2001 and submitted that the learned Division Bench in deciding the writ petition filed by the retiring employees had minutely examined the provisions of the Ordinance as well as of the repealed Ordinance, the arguments advanced by the learned counsel for the parties and the case-law referred to it and rightly pronounced that such payments were in the nature of salary as defined in the repealed Ordinance, liable to be taxed thereunder.

8. We have considered the arguments of the learned counsel for the parties and have gone through the material on record. The sole question, which requires determination, is whether such payments would fall within the definition of salary so as to be taxable under the repealed Ordinance? The relevant provisions of law dealing with the above question are contained in section 16(2)(a)(iii) and (2)(c)(i) of the repealed Ordinance. It will be beneficial to reproduce the above two provisions as under:--

?16.1. The following incomes shall be chargeable under the head "Salary,,, namely:---

(a) ----------------------------------------------------------------

(b) ------------------------------------------------------------------ ??

?

16(2) for the purpose of subsection (1)

(a)? ----------------------------------------------------------------?????

(i)? ----------------------------------------------------------------

(ii) ----------------------------------------------------------------

(iii) any fees, commissions, allowances, perquisites or profits in lieu of, or in addition to salary or wages;

(b) "perquisite" includes--

??????????? (i) ----------------------------------------------------------------

???????????

??????????? (ii) ----------------------------------------------------------------

??????????? (iii) ----------------------------------------------------------------

??????????? (iv) ----------------------------------------------------------------

??????????? (v) ----------------------------------------------------------------

???????????

???????????

(c) "profits in lieu of salary" includes--

??????????? (i) the amount of any compensation due to or received by, an assessee from his employer at, or in connection with, the termination of or the modification of any ????? terms or conditions relating to his employment;

9. From a bare perusal of section 16(2)(a)(iii) of the repealed Ordinance it may be observed that the salary as defined includes profits in lieu of or in addition to salary or wages. Furthermore, according to section 16(2)(c)(i) of the repealed Ordinance the words profit in lieu of salary used in section 16(2)(a)(iii) of the repealed Ordinance would include any amount due or received by any employee or assessee from his employer on account of termination of ,or the modification of any terms and conditions relating to his service/employment. The aforesaid provision of the repealed Ordinance read together leave no room for doubt that such payments irrespective whether they were by way of compensation for loss of service or payments in lieu of the salary, which they would have been entitled to draw till their services came to an end in the normal course of their service, squarely fell within the definition of salary. This conclusion is obvious from a bare reading of the two afore-referred provisions of section 16 of the repealed Ordinance which admit of no other conclusion or inference. By virtue of the golden hand shake/voluntary separation scheme, the terms and conditions of the retiring employees were modified which resulted in termination of their employment on their voluntarily agreeing to retire from service on acceptance of such payments as compensation. Once it is concluded that such payments made to the retiring employees were salaries as defined in section 16 of the repealed Ordinance, the natural consequence would be that such payments, would be liable to be taxed under clause "a" of section 15 of the repealed Ordinance. In view of the clear/express and unambiguous provisions of section 16(2)(a)(iii) and (2)(c)(i) of the repealed Ordinance all the contentions and arguments advanced by the learned counsel for the retiring employees pale into insignificance. The learned counsel were unable to advance plausible, satisfactory and cogent arguments to press home their contention that such payments would not fall within the ambit of the provisions of section 16 of the repealed Ordinance. One of the contentions advanced by the learned counsel for the retiring employees with great vehemence was that they would not fall within the tax net as in section 12 of the Ordinance, which defines salary; such payments have been specifically included in the definition of salary, which was not the case in the repealed Ordinance. It was submitted that inclusion of such payments in the definition of salary in section 12(2)(e)(iii) of the Ordinance would lead to an inference/ conclusion that they would not fall within the definition of salary as defined in the repealed Ordinance in absence of specific inclusion of such payments in section 16 of the repealed Ordinance and that the Legislature being mindful of this lacuna or the shortcoming specifically included such payments in the definition of salary in the Ordinance. On the basis of the above contention it was submitted that when the Legislature intended to bring such payments' within the tax net it specifically included them in the definition of salary as it was a clear indication that the Legislature was satisfied that without doing so such payments could not be brought within tax net under the Ordinance and, if it be so, in the Ordinance then it was imperative that a provision similar to one contained in section 12(2)(e)(iii) of the Ordinance should have been incorporated in the repealed Ordinance for bringing such payments within the tax net without which they would not fall within the definition of salary.

10. This contention is without any substance and does not merit consideration as the Legislature though not specifying or including such payments yet it had taken due care to bring such payments within the definition of salary in the repealed Ordinance. The language used by the Legislature in section 16(2)(a)(iii) and (2)(c)(i) of the repealed Ordinance even in absence of the words payments or profits received on retirement or termination of employment on account of' golden hand shake scheme or voluntary retirement scheme without any doubt or ambiguity brought such payments within the ambit of' definition of salary in the repealed Ordinance, thus, falling within the tax net and chargeable to tax.

11. The contention that such payments could never be considered as profits in lieu of salary as the employment/service of the retiring employees had come to an end on their acceptance of voluntary retirement/termination of their service and treating the said lump sum payments as salary would be contrary and violative of the provisions of section 16 of the repealed Ordinance as while defining the word salary it necessarily envisaged continuation of employment/service and existence of relationship of employer and employees, which had ceased to exist, is without any substance and does not merit consideration. The Legislature may in a statute provide the existence of a certain fact or the happening of an event or meaning of a word, which actually does not exist or happen or which ordinarily is not assigned to it. It is made to exist or happen or mean by deeming provisions/creating a legal fiction. The Legislature sometimes uses the deeming provisions in a statute to impose for the purpose of the statute an artificial construction of a word or a phrase that would not otherwise prevail. Where in defining anything, the Legislature uses the word "included" or "includes", the rule of interpretation is that it is used as a word of enlargement and it ordinarily implies that something else has been included, which falls outside the general meaning of the word. It may also be used to give a comprehensive description that includes what is not obvious, what is uncertain and what is in the ordinary sense, not impossible. It will be useful for having a clear understanding of the scope of the deeming provisions and the device of legal fiction to reproduce a passage from N.S. Bindra's book titled Interpretation of Statutes, Sixth Edn. From page 43 as under:

??????????? "When the Legislature says that rules, regulations and bye-laws, which have been ????????? framed under the statutory power conferred by the Act "shall have effect as if ??????? enacted in this Act", it is adopting the well-known device of legal fiction, whereby we are forbidden to treat "Rules" not framed under the Act as which are ???????? usually applicable for interpreting legal fictions will have to be resorted to."

Thus, the effect of the above two referred provisions of section 16 of the repealed Ordinance is that such payments made or received by the retiring employees from their employers, which otherwise would not be covered or fall within the definition of salary would be deemed to be salary/salaries and the Courts would be bound to give effect to the deeming provision/legal fiction created by the Legislature for bringing such payments within the meaning of salary. Such payments would, thus, fall within the definition of salary and the retiring employees would be liable to pay tax thereon. If any authority is required in support of the above proposition, the- same is available from the judgment of this Court in the case of Ellahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary Ministry of Finance, Islamabad and 6 others PLD 1997 SC 582 wherein following observations were made:--

??????????? "(xvii) That generally the effect of a 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.

??????????? (xix) That where a person is deemed to be something the only meaning possible is ???????? that whereas he is not in reality that something, the Act required him to be treated ?????????? as he were with all inevitable collaries of that state of affairs."

From the pronouncement of this Court in cited case reproduced above not only such payments would have to be treated as salary but every retiring employee would be deemed to be an "assessee" as defined in section 2(6) of the repealed Ordinance.

12. In the circumstance the contention that such payments were in the nature of retirement/pensionary benefits would be exempt to tax under clauses 17, 17(AA) and 77 of the Second Schedule to the Repealed Ordinance is without any substance and is repelled.

13. Learned counsel for the appellants had heavily relied on the case of Income Tax Commissioner v. E.D. Shepppard AIR 1963 SC 1343 in support of their contention that such payments would not fall within the meaning of salary and not liable to be subjected to income tax. After going through the said judgment it is observed that the pronouncement made therein has no application to the facts and circumstances of this case as the facts and circumstances of the cited case were altogether different. The Supreme Court of India while dealing with Explanation 2 to section 11 of the repealed Income Tax Act, 1922, as it existed before it was amended by Finance Act, 1955, specifically provided the payments made solely as compensation for loss of employment to be not liable to tax, which is not the case in hand.

14. Learned counsel also relied on the judgment in the case Commissioner of Income Tax Bengal v. Shawallace and Company AIR 1932 PC 138 in support of their above contention in. In this ease the Privy Council pronounced that sums received as salary for terminating agency would not be income, profit or gain and further that income necessarily connoted periodical monetary return coming in with some sort of regularity or expected regularity from definite source. In the cited case the question for determination was whether the sums received as salary for terminating agency would be income or otherwise. In the case in hand it is not the case of 'termination of agency but a case of termination/retirement of employees before reaching the age of superannuation who agreed to accept the beneficial, extra or special monetary payments. Further more, in the repealed Income Tax Act, 1922 there was no provisions analogous to section 16(2)(a)(iii) and (2)(c)(i) of the repealed Ordinance.

15. It was argued with vehemence that the Central Board of Revenue had no authority in law to declare a particular payment/ receipt of money as income and directing the concerned Authority to deduct or charge income tax thereon, under the repealed Ordinance. It was further submitted that the power to subject any receipt or payment of money to income tax and to direct the concerned Authority to make deduction would be the sole prerogative of the Legislature and, therefore, the Circular of C.B.R. was illegal, ultra vires and of no legal effect.

For determining the legality or otherwise of the said Circular it will be proper to reproduce the same as under:--

"C. No. 1(39)E&IC/97

Government of Pakistan

Central Board of Revenue

Islamabad, the November 6, 1997

Circular No.15 of 1997 (Income tax)

Subject: ?????????? Payments under the Golden Hand Shake Scheme---Tax Treatment of.

Recently a number of banks and other organizations have announced golden handshake schemes for their employees, offering a variety of compensation packages to them. It has been represented to the Board that a portion of this compensation amount would be deducted by way of income tax and, therefore, the actual amount that a terminated/retired employee would be reduced.

(2) Payment made under the golden handshake scheme is primarily a "compensation in connection with termination of employment" and is taxable under the head "salary" under section 16(2)(c) of the Income Tax, 1979. The compensation forms part of an employee's income for the year in which it is received. This treatment obviously results in taxation at a rate higher than that which would normally be applicable to a terminated employee. Realizing this hardship, the C.B.R. issued Circular No.1 of 1965 dated July 1, 1965, whereby a terminated employee was granted the concession of getting this compensation taxed as a separate block, at his three preceding year's average tax rate.

(3) In response to the queries referred to the Board in this regard, it has been confirmed that this concession is still available.

(4) The Board has received representations that in view of the fact that the rates of tax have been substantially reduced from the Assessment Year 1998-99 onwards, the employees who have been allowed golden handshake would not be able to benefit from this reduction if they are taxed at the previous three years average rate.

(5) The matter has been considered by the Board and it has been decided that the terminated/retired employees if they so opt, can get the amount of termination compensation taxed at the reduced rates applicable to assessment year 1998-99. However, if an employee considers that the three years average tax method is more beneficial to him, he can opt for it. These concessions are obviously in addition to exemptions already available to private sector employees in respect of' payments from Recognized/ Gratuity Funds."

From a bare perusal of the Circular this contention appears to be misconceived. It may be observed that C.B.R. had neither levied nor imposed tax on such payments nor had conferred powers on the concerned persons/authorities to deduct income tax under the repealed Ordinance. The contents of the Circular only amount to giving effect to the provision of the section 16(2)(a)(iii) and (2)(c)(i) of the repealed Ordinance by virtue of' which such payments fell within the definition of' salary. If these two provisions had not existed then in their absence such instructions or directions would have amounted to levying tax. In the circumstances, the instructions/directions of the C.B.R. in the Circular in question were for apprising the concerned persons/authority of the relevant provisions of section 16 of the repealed Ordinance whereby such payments were to be treated as salary falling within the tax net and as a natural corollary of the above would be that the provision of section 50(4) of the repealed Ordinance would have to be resorted to by the concerned persons/authority. No exception can be taken relative to the validity of the said circular.

16. Lastly it was submitted that by virtue of termination of services/ employment by way of' voluntary retirement under the golden hand shake/voluntary separation schemes the retiring employees had already undergone/suffered huge financial/monetary loss inasmuch as had they continued to serve the Financial Institutions as per their original terms and conditions of service they would have earned much more from the salaries which they would be drawing till their retirement together with the perks and fringe benefits than such payments made to them and would be well of financially and subjecting such payments to tax would further adversely affect them financially leading to hardships as huge amounts would be deducted from such payments rendering them incapable of meeting the requirements and providing subsistence to their families. This contention also is without merit in view of the settled principle that hardship or inconvenience which may be caused to 'a citizen by a provision of law is not a ground to be considered by the Courts in interpreting and determining the legality of a provision of a statute. If the subject falls within the ambit of the statute then irrespective of the hardships which he may face, the provision of the statute is to be given effect to and the citizen cannot be absolved his liability on sympathetic or humanitarian grounds as was declared by this Court in the case of Ghulam Mustafa Insari and 48 others v. Government of the Punjab and others 2004 SCMR 1903 if not found to be violative of any provision of the Constitution including fundamental rights.

17. For the foregoing facts, discussion and reasons we find that the appeals filed by the retiring employees are without any merit. The impugned judgment of Lahore High Court dated 31-10-2001 does not suffer from any illegality, infirmity or irregularity requiring interference therewith. Accordingly the appeals filed by the retiring employees Nos.857 to 867 of 2002, 1792, 1793 of 2002, 589, 48 of 2003 and 379 of 2006 are dismissed. Appeals bearing Nos.2511, 2512 of 2001 and 448 of 2004 filed by the Department against the judgments of Lahore High Court dated 17-10-2000 and 10-4-2002 are allowed in terms of the above pronouncements and the impugned judgments are set aside. The parties are left to bear their own costs.

S. A. K./M-132/SC???????????????????????????????????????????????????????????????????????????? Order accordingly.