RIZWAN AHMED VS COMMISSIONER OF INCOME TAX, AUDIT DIVISION-II, 2009 PTD-LAHORE-HIGH-COURT-LAHORE 1491 (2008)

Investment Tax Scheme, 2008---

----Income Tax Ordinance (XLIX of 2001), S.120-A--C.B.R. Circular No.3 of 2008 dated 1-7-2008---C.B.R. Circular No.7 of 2008 dated 19-7-2008---C.B.R. Circular No.8 of 2008, dated 5-9-2008----Investment Tax scheme--Applicability--Scope---Investment Tax Scheme, 2008 which was made for allowing the undisclosed income by payment of tax thereon was "subject to the provisions of Income Tax Ordinance, 2001" which meant that said clause was not a non obstante clause---All the provisions of Income Tax Ordinance, 2001 shall remain intact while making any scheme---Investment scheme would not apply 'on the income which had not escaped assessment and was still subject-matter of the proceedings in some assessment---Phrase "but was not so charged" had made the position very clear---If an amount had already been charged or was subject to charge and the proceedings were pending in respect thereto, the Investment Tax Scheme, 2008 could not be extended on such income---Even if the Board had not issued C.B.R. Circular No.8 of 2008 dated 5-9-208, the Investment Tax Scheme, 2008, because of the definition of "undisclosed income" given therein, could not have been allowed in respect of the income for which department had already issued notices or that the same was in respect of an income which pertained to tax year 2008---Scheme had to remain within the parameters fixed by S.120-A, Income Tax Ordinance, 2001---Principles.

Al-Samrez Enterprise v. The Federation of Pakistan 1986 SCMR 1917; Federation of Pakistan and others v. Ch. Muhammad Aslam and others 1986 SCMR 916 and Commissioner of Income Tax v. Bhanwarlal 1997 ITR 870 ref.

Naveed A. Andrabi, Siraj-ud-Din Khalid and Shahbaz Butt for Petitioners.

Jan Muhammad Chaudhry and Shahid Jamil Khan for Respondents.

Date of hearing: 14th October, 2008.

JUDGMENT

KHAWAJA FAROOQ SAEED, J.---This judgment will dispose of Writ Petitions Nos.11025 of 2008, 11026 of 2008, 1027 of 2008 and 9851 of 2008, as the common questions of law and facts are involved in these writ petitions.

2. Brief facts of the case in Writ Petition No.11025/2008 are that the Federal Board of Revenue through Finance Act, 2008, introduced a scheme namely Investment Tax Scheme, 2008, w.e.f. 1-7-2008 under section 120-A of the Income Tax Ordinance, 2001. The scheme was introduced through Circular No.3/2008. The petitioner in compliance to the said scheme filed a declaration after fulfilling the due requirements on 15-7-2008 for a sum of Rs.5,00,000. After lapse of more than one month, the respondent intimated the petitioner that the declaration filed does not qualify to be accepted under the scheme as the proceedings against the petitioner were pending and were in progress at the time of introduction of said scheme. The respondent along with said letter simultaneously issued notice under section 120-A read with section 122(5) of the Ordinance by showing his intention of making an addition of Rs.5,00,000 into the income of the petitioner which was already statedly covered under the Investment Scheme.

3. The petitioner challenged the treatment by arguing that Circular No.3/2008 does not bear any such restriction on availing the scheme/ Further that the petitioner declaration has attained, finality under clause 6 of the said Circular No.3/2008, which says that if no intimation to its acceptance or rejection has been given within thirty days of the filing of the same it shall be treated as accepted.

4. The claim was rejected by relying upon provision of another Circular which was issued on 8-8-2008.

5. Before this court the petitioner now challenges the same firstly by arguing that the declaration was complete, comprehensive and in strict compliance of the requirements' of Circular No.3/2008. Thus, a vested right had accrued under the said circular of Investment Scheme which can neither be withdrawn subsequently nor can be refused through bringing in new regulations. Secondly, that the matter have attained finality and being past and closed transaction was not to be disallowed subsequently. The subsequent Circular dated 8-8-2008 not only is ultra vires to the powers of Federal Board of Revenue but also against the commitment through which the petitioner has been induced to file the said statement.

6. On a question he conceded that' the Federal Board of Revenue have the power for issuance of Scheme and making amendment therein but reverted that through said amendment an accrued right through earlier announcement cannot be withdrawn under the garb of the said amendments. Not only that it is against the legal right of the promissory estoppel but even otherwise, Federal Board of Revenue have no authority to amend the rules retrospectively. In the present case a subsequent circular through which amendments have been brought, cannot be applied retrospectively against those cases which have filed their declarations. Reliance has been placed on (1986 SCMR 1917) ref: "Al-Samrez Enterprise v. The Federation of Pakistan" (1986 SCMR 916) ref: "Federation of Pakistan and others v. Ch. Muhammad Aslam and others" and (1997 ITR 870) ref: "Commissioner of Income Tax v. Bhanwarlal".

7. The learned Legal Advisor has argued that the provision of section 120-A is novel in its construction. Such provision was not in-existence in the Income Tax Ordinance, 1979 (repealed). In the Income Tax Ordinance, 2001, it has recently been introduced through Finance Ordinance, 2008. It is a unique provision through which an authority has been given to the Federal Board of Revenue to make a Scheme of Tax Investment whenever the need arises. It has its own parameters and the Federal Board of Revenue is bound by the same while announcing a Scheme under the same. Circular No.3 being its first scheme, the spirit of the section could not strictly be kept in view. The same required certain explanations which were given through answer to the questions by the Board and by issuing subsequent circular letter. The provisions of section 120-A provides for an authority to issue the Scheme while the phrases used in the said section have also been interpreted therein. At the time of issuance of Circular No. 3 the definitions provided in section 120-A could not be applied in its spirit. There were, therefore, obvious mistakes with regard to mentioning of the end period as 30th of June, 2008 as well as its inapplicability on the cases where the proceedings had already been initiated. On the date when the said circular was issued, returns for the said tax year, 2008 were not even due. Thus, determination before hand of concealment of the income/ investment etc was pre-mature. Similarly, when the definition itself says that undisclosed income is the one which has not been charged, the Federal Board of Revenue had no authority to grant it immunity The amendments, therefore, are rectifications of obvious mistakes. For example the scheme was up to the tax year, 2008 while returns of the same were not even due. However, under the garb, of correction of mistake one can take away the vested right is obviously a matter of discussion.

8. It is claimed that here again the petitioner would not have any case in the manner that the definition of undisclosed income as per section 120-A, (4)(i) includes the income which is chargeable to tax under section 111 and has not been so charged. Meaning thereby, if in a case such investment has already been charged to tax or has been brought to the regular proceedings, it cannot be covered within the said Scheme. Learned Legal Advisor has even gone to argue that this Scheme is for those who have succeeded in concealing their income and not for those who have been caught by Tax Collectors.

9. I have heard the learned counsel of both the parties and perused the relevant record and case law.

10. The Federal Board of Revenue for the last more than 7 years is preaching for a system of mutual harmony based upon transparency and responsiveness. While drafting a new Act and replacing the Central Board of Revenue with the Federal Board of Revenue through its preamble, the purpose of the required change has been defined as follows:--

"Whereas it is desirable to .enhance the capacity of the tax system to collect due taxes through application of modern techniques, providing assistance to tax payers and creating a motivated, satisfied, dedicated and competent professional work force that is required to perform at an enhanced efficiency levels;

Whereas the Federal Board of Revenue must pursue its objective and vision to be a modern, progressive, effective, autonomous and credible organization for optimizing revenue by providing quality services and promoting compliance with tax related laws, while being mindful of upholding values such as integrity, professionalism, teamwork, courtesy, fairness, transparency and responsiveness".

11. The purpose of mentioning the preamble of the Federal Board of Revenue constitution is to highlight the required progress and proposed positive improvements in the working attitude and behaviour of the revenue collecting agencies. Unfortunately, there has emerged a big gap between tax collector and the taxpayer. It was for the obvious reason that there was a perpetual show of the muscles by the revenue authorities to the taxpayers while on the other hand tax evasion had become a culture. There has been absolutely no pricking on any ones conscience. Moreover, taxpayers were not being given their due respect, thus, even those who may be few in number but were paying their dues lawfully and as per their legal obligation were also getting the same treatment. Neither the Tax Collector was acting as a public servant nor the taxpayer had the education enough to understand as to how he can contribute in the national building by payment of due taxes. Thus, atmosphere of mutual respect and trust was required to be created and it is apparently in the said direction that the revenue authorities have started moving. The progress may be slow and the mile stones may not have been achieved as per the scheduled programme, however, since intentions are positive and clear it needs support of all concerned.

12. It is in the light of these progressive changes, that one is required to apply the new laws. The provision of Income Tax Ordinance, 2001, relevant to the issue. in hand, are therefore, to be understood in the same scenario However, it does not mean that while interpreting the same this court have any intention to deviate from the settled principles of interpretation of Fiscal Statutes. The above required change in the attitude are only being considered in aid thereof, if required here-in?-after.

13. The law applicable is section 120-A of the Income Tax Ordinance, 2001, which reads as follows:--

Section 120-A---Investment Tax on income.---(1) Subject to this Ordinance, the Board may make a scheme of payment of investment tax in respect of undisclosed income, representing any amount or investment made in movable or immovable assets.

(2) Where any person declares undisclosed income under sub-section (1) in accordance with the scheme and the rules, the tax on such income called investment tax shall be charged at such rate as may be prescribed.

(3) Where a person has paid tax on his undisclosed income in accordance with the scheme and the rules, he shall---

(a) be entitled to incorporate in his books of account such undisclosed income in tangible form; and

(b) not be liable to pay any tax, charge, levy, penalty or prosecution in respect of such income under this Ordinance.

(4) For the purposes of this section---

(i) "undisclosed income" means any income, including any investment to be deemed as income under section 111 or any other deemed - income, for any year or years, which was chargeable to tax but was not so charged; and

(ii) "investment tax" means tax chargeable on the undisclosed income under the scheme under subsection (1) and shall have the same meaning as given in clause (63) of section 2 of the Income Tax Ordinance, 2001."

14. The learned Legal Advisor comments that this is a new provision as there was no such or similar permanent authority available with the Board earlier is apparently correct. The Federal Board of Revenue has been granted the power through the above provision to make a scheme of payment of investment tax in respect of undisclosed income of a person which may represent an amount or investment, made by him in acquiring moveable and immovable assets. The very first criteria, therefore, is that the above scheme has to be subject to this Ordinance.

15. Before proceeding further this court would like to explain that `subject to this Ordinance' means the Income Tax Ordinance, 2001, and does not include any other law. Reliance has been placed on the ease of "Commissioner of Income Tax/Wealth Tax, Zone-G (Legal), Lahore v. Messrs Idrees Cloth House, Lahore" ref: (2008 PTD 1420). Further, the scheme which is to be made by the Board for allowing the undisclosed income by payment of tax thereon being subject to the provisions of Income Tax Ordinance, 2001, means that this clause is not a non obstnate clause. All the provisions of Income Tax Ordinance, 2001, shall remain intact while making any scheme.

16. The other important ingredient is that the said scheme shall be in relation to the "undisclosed income" and while declaring the said undisclosed income the person shall pay taxes at the rate and procedure provided in the said scheme. After fulfilling said requirements the person becomes entitled to incorporate the said undisclosed income as a normal income in tangible form without any additional charge, penalty or prosecution etc. in respect of the said tangible addition, in his accounts or assets. The provision has defined the phrase `undisclosed income' through section 120-A (4)(i) as above. The definition is only applicable for the purpose of this section i.e. Investment Tax Scheme, which shall also obviously be under the said scheme. It is a restrictive definition having started with the word "means". However, it includes any investment which is to be deemed as income under section 111 or any other form of the "deemed income" for any year or years. Thus, to the said extent it means the amounts which can be treated as "deemed income" under the provision of section 111 or any other provision of Income Tax Ordinance, 2001. In generality it has to be an amount which is assessable as "deemed income" under the provisions of the Income Tax Ordinance, 2001. It can be for one year or many years. However, the condition which restricts the same is the last phrase i.e. "which was chargeable to tax, but was not so charged". This would, therefore, mean that the undisclosed income shall include only that income which was chargeable as deemed income in the year or years, but have escaped assessment. Meaning thereby it is applicable only on that "deemed income" which has successfully been concealed by the taxpayer.

17. The discussion gives an obvious answer that it would not apply on the income which has not escaped assessment and is still subject matter of the proceedings in some assessment. The phrase "but was not so charged" had made the same as very clear. Hence, if an amount has already been charged or is subject to charge and the proceedings are pending in respect thereto, the scheme cannot be extended by the Board on such income.

18. This court is very particular in its language being conscious that this provision is delegating a power to the Board to make a scheme for payment of investment tax and has itself defined the parameters of the un-disclosed income for which the said scheme can be announced. The Board, therefore, does not have the power to go beyond what is provided therein and therefore, 'the provision of section 120-A shall prevail even if the scheme issued through the said power gives a different impression.

19. The circular No.3 which is now under discussion is obviously in compliance of the above section 120-A, hence, it has to be strictly in compliance thereof. The arguments of the learned counsel for the petitioner that once a Circular giving a benefit to the taxpayer, has been issued, the same cannot be withdrawn through a subsequent Circular, may be correct in legal parlance. However, if the original circular is without authority or a part thereof, is in excess of the jurisdiction of the issuing authority, the same shall not be of any legal effect.

20. As discussed earlier the proceedings in respect of tax year, 2008 were still in process and there was no question of uncharged income as its assessments were still not due, making the said proceedings a part of the scheme was without jurisdiction. This was not a simple mistake but a jurisdictional error. The Board had exceeded its limits by applying the scheme on the income which is still chargeable and for which the assessment was still due. The instructions of the Board where-ever the same are inconsistent with the main provision are invalid. This, has already been discussed in (1993 SCMR 1232) ref: "Central Insurance Company v. Central Board of Revenue" and (PLD 1964 SC 657) ref: "Commissioner of Income Tax v. Noor Hussain".

21. The Central Board of Revenue, now Federal Board of Revenue, is the highest authority in the administrative hierarchy of the fiscal system of this country. However, it does not figure anywhere in the judicial set up. This is the finding of the Hon'ble Supreme Court of Pakistan in the former judgment, while in the later judgment, it has been held that if there is any departure from law involved in the provision in the relaxation .contained in the circular, then the circular to the extent of deviation is invalid, ineffective and power thereunder is illegally exercised. The subsequent circular in terms of Circular No.8/2008, therefore, having explained the correct spirit of the provision of section 120-A is not in deviation of law. Similarly, the Circular No.7/2008 dated 19-7-2008 issued by the Federal Board of Revenue also explains the same situation specially vide its answer to question No.5.

21-A. Coming to the facts of the Writ Petitions No.11025/2008 to 1027/2008, the petitioner's cases were reopened under section 122(9) read with section 122(5) of the Ordinance on November 26, 2007. The reply on behalf of the counsel was filed on January 16, 2008. However, through a letter dated April 30, 2008, the case was selected for audit on the ground that the claim of Rs.5,00,000 as capital gain was not exempt, hence, needs probe. The proceedings with respect thereto would have been concluded had the Federal Board of Revenue not issued the said scheme of investment tax which the petitioners have opted to avail. However, since the said scheme could only be for the income which was chargeable to tax but was not so charged, the department has not accepted it and through a subsequent explanation as well as circular clarified the situation. Thus, there is neither any reversal of a commitment nor any legal prejudice has been caused to the petitioner by way of the explanation or the subsequent Circular.

22. Needless to repeat that even if the Board had not issued Circular No.8, the investment tax scheme because of the definition of 'undisclosed income' given therein could not have been allowed in respect of the income for which department had already issued notices or that the same was in respect of an income which pertains to tax year, 2008. Scheme has to remain within the parameters fixed by section 120-A.

23. Similarly in Writ Petition No.9851/2008 not only the said deemed income has been assessed but the same also is a subject matter of further appeal. In view of these facts as well as discussion above the judgment referred become irrelevant. The same, therefore, are ignored.

24. The result, therefore, is obvious. All these writ petitions are without any merit, hence, this court declines to interfere in the same. Order accordingly.

M.B.A./R-32/L??????????????????????????????????????????????????????????????????????????????????? Petition dismissed.