COMMISSIONER OF INCOME TAX, GUJRANWALA VS ALI BRICKS COMPANY, JALALPUR BHATTIAN DISTRICT, HAFIZABAD, 2009 PTD-LAHORE-HIGH-COURT-LAHORE 1 (2008)

(a) Income Tax Ordinance (XLIX of 2001)---

----S. 122(5A) [as inserted by Finance Act (I of 2003)]---S.R.O.633(I)/2002 dated 14-9-2002---Notices issued by Income Tax Office in respect of assessments finalized earlier on the basis of provisions of law added by S.R.O. 633(I)/2002 dated 14-9-2002 were void and illegal, same having no sanctity of law being on the basis of a legislation, which was against the law itself and were liable to cancellation.

Kashmir Edible Oils Limited and other's case 2006 SCMR 109 fol.

Constitution Petition No.7788 of 2004 ref.

(b) Income Tax Ordinance (XLIX of 2001)---

----S. 122(5A) [as inserted by Finance Act (I of 2003)]---Provision of S.122(5A), Income Tax Ordinance, 2001 has not specifically been made retrospective.

(c) Income Tax Ordinance (XLIX of 2001)---

----S. 122(5A)---Provision of S.122(5A) inserted with effect from 1-7-2003 is not applicable to the assessments finalized before 1-7-2003 because subsection (5A) of S.122 has not been given retrospective effect and therefore, the assessments finalized before 1-7-2003 cannot be reopened/revised/amended in exercise of jurisdiction under S.122(5) of the Income Tax Ordinance, 2001.

(d) Income Tax Ordinance (XLIX of 2001)---

----S. 122(5)---Income Tax Ordinance (XXXI of 1979), S.65---Amendment of assessment---All the pending matters at the commencement of Income Tax Ordinance, 2001 are required to be decided in accordance with the provision contained in Income Tax Ordinance, 1979 (repealed), but by an Income Tax Authority competent under the Income Tax Ordinance, 2001---Principles.

Commissioner, Sindh Employees Social Security Institution and another v. Ms. E.M. Oil Mills and Industries Limited 2002 SCMR 39; Kashmir Edible Oil Limited's case 2005 PTD 1621; Monnoo Industries Ltd. v. Commissioner Income Tax 2001 84 Tax 26; Fauji Oil Terminal v. CIT 2006 PTD 734 and 2004 PTD 1173 ref.

(e) Words and phrases---

----Pending---Connotation---Pending includes all such issues in which lis has been started.

Messrs Bahria Oil Mills, Vehari v. Commissioner of Income Tax, Zone, Multan 2006 PTD 2421 ref.

(f) Income Tax Ordinance. (XLIX of 2001)---

----S.122(5) [as substituted by Finance Act (I of 2003] & Preamble---Amendment of assessment---Construction of S.122(5), Income Tax Ordinance, 2001---Income Tax Ordinance, 2001, which came into existence on 1-7-2002 applied in respect of tax year that starts from the said date---Provision of S.122(5) of the Income Tax Ordinance, 2001 as existed on that date neither covered the assessments finalized under Income Tax Ordinance, 1979 (repealed) nor the operation of law was made retrospective in various corresponding provisions---Use of new term `tax year' in S.122(5) as against earlier phrase `assessment' and `tax payer' as against the word assessee also had further tilted the issue in favour of the tax payer and against the Revenue.

(g) Income Tax Ordinance (XLIX of 2001)---

----Ss. 122(1)(2) & 2(66)---Amendment of assessment---Application of S.122, Income Tax Ordinance, 2001 on finalized assessments---Scope---Section 122(1) of the Ordinance starts with the words "subject to this section" while in subsection (2) it restricts the said amendment only to the assessments, which have been issued on the "taxpayer"---`Tax payer' is a new construction and as per S.2(66) of the Income Tax Ordinance, 2001, means "any person who derives an amount chargeable to tax under this Ordinance"---Term "this Ordinance" used in the definition cannot mean and include any enactment beyond the Income Tax Ordinance,

CIT Central Zone, Lahore v. National Security Insurance C. Ltd., Lahore 2001 PTD 814 ref.

(h) Income Tax Ordinance (XLIX of 2001)---

----S. 122(1) [as amended by Finance Act (I of 2003)]---Words "or issued under Ss.59, 59-A, 62, 63 or 65 of the repealed Ordinance" inserted by Finance Ordinance, 2003 w.e.f. 1-7-2003 in S.122(1) of the Income Tax Ordinance, 2001 cannot have implied effect of retrospectivity, hence its application on the assessments finalized under Income Tax Ordinance, 1979 is not legal.

CIT Central Zone, Lahore v. National Security Insurance C. Ltd., Lahore 2001 PTD 814 ref.

(i) Income Tax Ordinance (XLIX of 2001)---

----S. 122(5)---S.R.O. 633(I)/2002 dated 14-9-2002---Words "as the repealed Ordinance" added in S.122(5) of Income Tax Ordinance, 2001 and matching amendments in said section through S.R.O. 633(I)/2002 dated 14-9-2002 were illegal and non-existent now---Term "this Ordinance" cannot be extended to include any enactment beyond the Income Tax Ordinance, 2001.

(j) Interpretation of statutes---

----Taxing statute---Language of law should be applied in its natural meanings---Principles.

Cape Brandy Syndicate v. Inland Revenue Commissioner 1921 K.B. 69 ref.

(k) Income Tax Ordinance (XLIX of 2001)---

----S. 122 [as amended by Finance Act (I of 2003)]---Interpretation, scope and application of S. 122, Income Tax Ordinance, 2001 (as' amended).

Kashmir Edible Oils Limited and other's case 2006 SCMR 109; Constitution Petition No.7788 of 2004; Commissioner, Sindh Employees Social Security Institution and another v. Ms. E.M. Oil Mills and Industries Limited 2002 SCMR 39; Kashmir Endible Oil Limited's case 2005 PTD 1621, Monnoo Industries Ltd. v. Commissioner Income Tax 2001 84 Tax 26, Fauji Oil Terminal v. CIT 2006 PTD 734; 2004 PTD 1173; Messrs Bahria Oil Mills, Vehari v. Commissioner of Income Tax, Zone, Multan 2006 PTD 2421; CIT Central Zone, Lahore v. National Security Insurance C. Ltd., Lahore 2001 PTD 814; Cape Brandy Syndicate v. Inland Revenue Commissioner 1921 K.B. 69 and Commissioner of Income Tax/Wealth Tax, Zone-C (Legal), Lahore v. Messrs Idrees Cloth House, Lahore 2008 PTD 1420 ref.

Shahid Jamil Khan, Faiz-ur-Rehman, Sajjad Ali Jafri, Muhammad Iqbal Vehniwal, Imdad Ali Nekokara, Ch. Zakir Hussain, Dhothar, Amjad Hussain Malik, Mian Yousaf Umar and" Muhammad Nawaz Waseer for Petitioner.

Nemo for Respondents.

Date of hearing: 23rd September, 2008.

JUDGMENT

KHAWAJA FAROOQ SAEED, J.---This judgment will dispose of P.T.R. Nos. 17, 18, 19, 25, 31, 35, 36, 46, 47, 63, 64, 65, 66, 67, 77, 78, 98, 99, 106, 107, 108, 133, 134, 135, 136, 147, 148, 149, 150, 163, 164, 165, 166, 167, 168, 169, 170, 171, 172, 173, 174, 175, 176, 177, 206, 207, 226, 227, 228, 229, 230, 231, 250, 252, 253, 260, 264, 265, 266, 267, 268, 274, 316, 317, 318, 320, 323, 325, 327, 330, 331, 333, 334, 335, 338, 339, 348, 384, 399, 400, 409, 432, 433 and 438 of 2008, as the common question of law is involved.

2. These reference applications have been filed by the Income Tax Department against the orders-in-appeal by Income Tax Appellate Tribunal. The questions of law proposed basically are with regard to the scope of section 122 of the Income Tax Ordinance, 2001, with special reference to retrospectively of its subsections specially those which deals with cancellation or reopening of an earlier assessment finalized under Income Tax Ordinance, 1979 (repealed). In this regard the issues which are common and in fact cover all the controversies are as follows:--

(i) Retrospectivity and application of S.R.O. 633(I)/2002, dated 14-9-2002 and consequential cancellation of notices issued on the basis thereof in respect of the assessments finalized prior to the enforcement of the Income Tax Ordinance, 2001.

(ii) Retrospectivity of the provisions of law inserted in terms of section 122 (5A) in Income Tax Ordinance, 2001 by virtue of Finance Ordinance, 2003, and whether the cases finalized under Income Tax Ordinance, 1979 up to 30-6-2003 can be cancelled under the said provision.

(iii) Retrospectivity of the section 122(5) before and after its amendment by Finance Ordinance, 2003.

3. So far as issue No.1 is concerned, the matter has already attained finality in terms of judgment, dated 7-4-2005 in Constitutional Petition No.7788 of 2004 decided by this Court in the case titled as "Kashmir Edible Oils Limited and others" which was subsequently confirmed by Honourable S.C. of Pakistan and is reported as (2006 SCMR 109). In the said judgment this Court has inter alia held that all the notices issued by income tax office in respect of assessments finalized earlier on the basis of provisions of law added by aforementioned S.R.O. 633(I)/2002, dated September 14, 2002, are void and illegal. This obviously means that the same having no sanctity of law being on the basis of a legislation, which was held to be against the law itself were liable to cancellation. The decisions of ITAT, therefore, on the subject are unexceptionable.

4. Section 122(5A) as inserted by the Finance Ordinance, 2003 has not specifically been made retrospective. The arguments of the learned counsel for the petitioner basically was that even before the said insertion the law in terms of section 122 with all its subsections was comprehensive enough to enable the department to cancel the already completed assessments. Moreover, the provisions being substantive could only apply prospectively. This has been held in a long line of judgments including "Commissioner, Sindh Employees Social Security Institution and another v. Ms. E.M. Oil Mills and Industries Limited" reported as (2002 SCMR 39). In fact the judgments reported as Kashmir Edible Oil Limited reported as 2005 PTD 1621, Monnoo Industries Ltd. v. Commissioner Income Tax 2001 84 Tax 26 High Court Lahore, Fauji Oil Terminal v. CIT reported as 2006 PTD 734 decided by High Court Karachi; clinch the issue. The learned Legal Advisor's claim that the same are distinguishable and that the Court was not properly assisted with regard to the language as was obtaining on the date of issuance of notices by ignoring the above S.R.O. does not convince us because he has referred only the discussion that suits his arguments. The objection of the learned Legal Advisor would not need much dilation as Fauji Oil Terminal and Distribution Company Karachi v. A.C. Tax Officer of Audit Division Karachi (supra) has taken care of this situation. Not only that finding in the case of Honda Shahrah Faisal v. Regional Commissioner. I.T. has been followed but it has further been added that "subsection (5A) of section 122 of the Income Tax Ordinance, 2001 inserted, with effect from 1-7-2003 is not applicable to the assessments finalized before 1-7-2003 because subsection (5A) of section 122 has no retrospective effect and therefore, the assessments finalized before 1-7-2003 cannot be reopened/revised/amended in exercise of jurisdiction under section 122(5A) of the Income Tax Ordinance, 2001".

5. The above ratio is unequivocal and clear in its meanings. The Court having found that the provision is not retrospective there is no ground for us to now agree with the department. The finding of learned Income Tax Appellate Tribunal on this issue, therefore, again is unexceptionable.

6. The provisions of section 122(5) have also undergone many changes until it was finally amended so as to add the words "or repealed Ordinance" 'and certain other sentences in its subsection to make the provision perimeteria with section 65 of the erstwhile Income Tax Ordinance, 1979. Notwithstanding the arguments that even after insertion of the above language the provision is not retrospective, the original text had full tilt toward the claim of the taxpayer. This point has also been addressed by Karachi High Court in the reported judgment 2004 PTD 1173 in the case of Allied Motors Limited v. Commissioner Income Tax and others. The finding of the Court is again very clear and unambiguous. The relevant para is as follows:--

"We fully agree with the proposition of law very ably argued by Mr. Aqeel Ahmad Abbasi and hold that all the pending matters at the time of commencement of Income Tax Ordinance, 2001 are required to be decided in accordance with the provision contained in the repealed Ordinance, but by an income tax authority competent under the Income Ordinance, 2001."

7. It does not need any detailed discussion to bring home that the connotation `pending' includes all such issues in which lis has been started. For reference one may quote 2006 PTD 2421 re: Messrs Bahria Oil Mills, Vehari v. Commissioner of Income Tax, Zone, Multan. The outcome therefore, is obvious. The present construction of Income Tax Ordinance, 2001, which came into existence on first day of July, 2002 applies in respect of tax year that starts from the said date. The provisions of section 122(5) as on date neither covered the assessments finalized under repealed Income Tax Ordinance, 1979 nor the operation of law was retrospective in various corresponding provisions. The use of new terms like `tax year', as against the earlier phrase `assessment' and `tax payer' as against the word `assessee's also have further tilted the issue in favour of the tax payer and against the Revenue.

8. The issue of the application of section 122 on finalized assessments has been settled by the language of law itself. For example section 122(1) starts from the language "subject to this section" while in subsection 2 it restricts the said amendment to only the assessments, which have been issued on the "taxpayer". "Taxpayer" as already mentioned above is a new connotation and as per section 2 (66) of I.T. Ordinance, 2001, means "any person who derives an amount chargeable to tax under this Ordinance". Obviously the terms "this Ordinance" used in the definition cannot mean and include any enactment beyond Income Tax Ordinance, 2001, Reference can be made to the case of "CIT Central Zone, Lahore v. National Security Insurance Co. Ltd., Lahore" (2001 PTD 814). The construction of the provisions before the amendment was very clear and unambiguous to the extent of its application from 1-7-2002 onwards. Even the amendment through which in section 122(1) the words "or issued under section 59, 59-A, 62, 63 or 65 of the repealed Ordinance" were added does not help the revenue. For all practical purpose the pharas as above having been inserted in the present form w.e.f. 1-7-2003 it cannot have implied effect of retros pectivity, hence its application on the assessments finalized under Income Tax Ordinance, 1979 has rightly been held to be illegal. Reference in that regard can be made to the case of "CIT Central Zone, Lahore v. National Security Insurance C. Ltd., Lahore" (2001 PTD 814).

9. So far as addition of words "as the repealed Ordinance" and matching amendments in section 122(5) through S.R.O. 633(I)/2000 is concerned, the same also having been held to be as illegal are now non-existent. We have already held that the term `this Ordinance' cannot be extended to include any enactment beyond the Income Tax Ordinance, 2001.

10. While interpreting the language of section 122 as above, this Court had in view the golden principle of interpretation i.e. to remain within the language of law. In Taxing Statutes, there is unanimity among the Courts that the basic principle of interpretation which in fact is the golden principle that the language of law should be applied in its natural meanings. This has always been considered to be as the safest method. In this regard one can refer the most quoted verse of Mr. J. Rowlet in "Cape Brandy Synidcate v. Inland Revenue Commissioner" (1921 K.B. 69), who ruled:--

"It simply means that in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used".

11. Since while going through the language of section 122 of the Income Tax Ordinance, 2001, we have followed the said principle, this Court does not have any doubt in its mind that all the propositions through questions framed are to be answered in favour of the taxpayers and against the Income Tax department. We, therefore, for the reasons of our discussion above and our detailed judgment on the issue reported as (2008 PTD 1420) ref: "Commissioner of Income Tax/Wealth Tax, Zone-C (Legal), Lahore v. Messrs Idrees Cloth House, Lahore" decide all the reference applications in terms thereof.

M.B.A./C-21/LOrder accordingl