2010 P T D (Trib.) 519
[Income-tax Appellate Tribunal Pakistan]
Before Syed Nadeem Saqlain, Judicial Member and Mazhar Farooq Sherazi, Accountant Member
I.T.A. No.91/LB of 2008, decided on 05/03/2009.
(a) Income Tax Ordinance (XLIX of 2001)---
----S. 171(2)(c)-Additional payment for delayed refund---Sec tion 171(2)(c) of the Income Tax Ordinance, 2001 had to be read in conjunction with other provisions relating to determination of refund and its issuance.
BILZ (Pvt.) Ltd. v. D.C.I.T., Multan 2002 PTD 1 and Messrs Indus Basin Co. v. C.I.T. 2002 PTD 2169 rel.
(b) Interpretation of statutes---
----First and foremost duty of a Court is to ensure harmonious construction, yet if a conflict is found out amongst different sections of an enactment, it is then to normally resolve in favour of the subject of the State.
2000 PTD 1958 H.C. Lah. rel.
(c) Income Tax Ordinance (XLIX of 2001)---
----S.171---Additional payment of delayed refund---Features of S.171 of the Income Tax Ordinance, 2001 highlighted by Appellate Tribunal.
(d) Interpretation of statutes---
----Legal fiction---Provisions creating legal fiction have to be construed strictly and for the purpose for which they have been enacted.
Elahi Cotton Mills Ltd. and others v. Federation of Pakistan, 1997 PTD 1555; C.I.T./WT Companies Zone, Faisalabad v. K.A. Enterprises (Pvt.) Limited, 2005 PTD 849 and Latif Ghee Industries (Pvt.) Ltd. v. C.I.T. Companies Zone, Karachi 2006 PTD 2368 rel.
(e) Income Tax Ordinance (XLIX of 2001)---
----S.171(2)---Additional payment for delayed refund---Subsection (2) of S.171 of the Income Tax Ordinance, 2001 in totality reflects legal fiction in favour of taxpayers and to provide a check on tax authorities not to employ any negative means to avoid payment of compensation.
(f) Income Tax Ordinance (XLIX of 2001)---
----S.170(3)---Refund---Refund application---Subsection (3) of S.170 of the Income Tax Ordinance, 2001 makes it the sole responsibility of Commissioner to apply excess tax paid in reduction of any other tax due from the taxpayer and refund the remainder, if any---In such situation there was neither any need for filing of refund application nor to wait for 45 days for passing of refund order by Commissioner.
(g) Income Tax Ordinance (XLIX of 2001)---
----S.170(4)-Refund---Application for refund-Suo motu action---Provisions of S.170 (4) of the Income Tax Ordinance, 2001, apply where taxpayer files an application for refund e.g. in cases of a commercial importer where statement under S.115 (4) was filed and there were deductions made under S.148 of the Income Tax Ordinance, 2001---Taxpayer will have to file a refund application because there was nothing on record to make it obligatory for the Commissioner to take suo motu action under S.170(3) of the Income Tax Ordinance, 2001---When an application is filed in such a case, Commissioner was bound to pass an order within 45 days and if he fails to do so, an aggrieved person could file an appeal as provided in S.170(5)(b) of the Income Tax Ordinance, 2001.
(h) IncomeTax Ordinance (XLIX of 2001)---
----Ss.170(3), 171, 120 & 147(10)---Refund---Where refund is created by Commissioner himself as a result of an order under S.120 of the Income Tax Ordinance, 2001 or where it was due in terms of S.147(10) of the Income Tax Ordinance, 2001 then in terms of S.170(3) of the Income Tax Ordinance, 2001 it was the legal obligation of Commissioner to issue refund suo motu---If the Commissioner failed to do so within 90 days of refund becoming due then S.171 of the Income Tax Ordinance, 2001 will come into play.
(i) Income Tax Ordinance (XLIX of 2001)---
----Ss.171(1) 120 & 170(3)---Additional payment for delayed refund---Refund was due on finalization of proceedings under S.120 of the Income Tax Ordinance, 2001--Commissioner was bound to pay the same under S.170(3) of the Income Tax Ordinance, 2001 and there was no need of filing an application to the Commissioner---Commissioner having failed to pay refund, even after filing of application, compensation was payable as envisaged in S.171(1) of the Income Tax Ordinance, 2001.
(j) Income Tax Ordinance (XLIX of 2001)---
----S.171---Additional payment for delayed refund---Refund was due the moment return was filed under S.120 of the Income Tax Ordinance, 2001---Department acknowledged such fact as no adverse order was passed against such claim-Department by ultimately making an order of refund just confirmed what was due at the time of declared version---Commissioner being satisfied about excess payment, his obligation under S.170(3) of the Income Tax Ordinance, 2001 was well defined-Non-payment of excess tax paid within 90 days was a clear violation attracting S. 171 of the Income Tax Ordinance, 2001.
(k) Income Tax Ordinance (XLIX of 2001)---
----S.171---Additional payment for delayed refund --In each and every case the Department did not enjoy 45 days plus 90 days cushion in every case to avoid compensation under S.171 of the Income Tax Ordinance, 2001.
(l) Income Tax Ordinance (XLIX of 2001)---
----S.171---Additional payment for delayed refund---Suo motu adjustment of tax liability---Held, it will be self-contradictory on the one hand when it is claimed that unless -refund was made, date for working compensation under section 171, Income Tax Ordinance, 2001 did not come into existence and on the other hand refunds due were suo motu adjusted against any tax liability and it was a mere lame excuse to deny a person his lawful right of full compensation under S.171 from the date of original order when refund was undisputedly due.
(m) Income Tax Ordinance (XLIX of 2001)---
----Ss.171(2)(c) & 170(3)---Additional payment for delayed refund---Refund due---Order for refund---Words "in any other case, on the date the refund order is made" in S.171 (2), Income Tax Ordinance, 2001 applied where there was legal requirement for making a refund order--In terms of section 170(3) of the Income Tax Ordinance, 2001 read with section 120(1) of the Income Tax Ordinance, 2001 there was no need for making a refund order and S.171(2)(c) shall not apply---Words "for the purpose of this section, a refund shall be treated as having become due" used in Sub-S.2 of S.171 of the Income Tax Ordinance, 2001 did not limit the expression "refund due" as used in Sub-section (1) of S.171 of the Income Tax Ordinance, 2001 but only provided certain situations where, by legal fiction in respect of time, the date for "refund due" had been determined different from the actual one.
(n) Income Tax Ordinance (XLIX of 2001)---
----S. 171(2)(c) --Additional payment for delayed refund---Section 171(2)(c) of the Income Tax Ordinance, 2001 provided a legal fiction and did not override the term "when it becomes due" in S.171(1) of the Income Tax Ordinance, 2001.
(o) Interpretation of statutes---
----Deeming provision---Interpretation of---Principles---Deeming provision had to be strictly construed for the purpose it was enacted---Such provision required strict interpretation and could not be spilled over to other provisions in the statute and had to be interpreted strictly within the four corners of its object for which it was enacted.
2002 PTD 2112 H.C. Lah. rel.
(p) Income Tax Ordinance (XLIX of 2001)---
----Ss.171(2)(c) & 120---Additional payment for delayed refund---Due date for payment of additional tax---Law as stands with regard to framing of assessment is that the assessment is deemed to have been made, if complete return of income was filed---In such-like situation, S.171 of the Income Tax Ordinance, 2001 is to be read in the light of S.120 of the Income Tax Ordinance, 2001 as refund became due the moment an assessment order creating the said refund came into existence---All the proceedings conducted in pursuance of completion of assessment should be considered to have been made along with the actual assessment, which stands completed on the day complete return is filed---In case of a taxpayer who had filed incomplete return, the assessment would not be considered to have been made and any resultant proceedings cannot be initiated--Additional payment for delayed refund as provided under section 171 of the Income Tax Ordinance, 2001 was not immediately payable unless 90 day's limitation expires---Legislature has given sufficient time. i.e. 90 days to avoid compensation for a determined refund---In the Income Tax Ordinance, 1979 it was also made incumbent upon the assessing officer to calculate refund, if any, along with the calculation of tax and mention the same on the IT-30 as well as on the demand notice along with assessment order which was to be sent to the assessee---Stance of the Revenue that the refund should be treated as having become due on the date the refund order was made in terms of section 171(2)(c) of the Income Tax Ordinance, 2001 which is deeming provision enacted to treat in same circumstances the artificial "due" in contradistinction to actual due under S.171(1)(c) of the Income Tax Ordinance, 2001 was not approved.
(q) Income Tax Ordinance (XLIX of 2001)---
----Ss.170(4), 170(3)(c), 171(1), (2) & 120---Refund---Limitation for issuance of refund---In terms of S.170(4) of the Income Tax Ordinance, 2001, Commissioner was duty bound to issue refund within 45 days of receipt of application, but under S.170(3)(c) of the Income Tax Ordinance, 2001 even no refund application was required to refund any amount overpaid after adjustment, if any---Refund in the present case was "due" for the purpose of S.171(1) of the Income Tax Ordinance, 2001 on the date of order treated to have been made and after lapse of three months from the said date, the compensation was due---Section 171(2) of the Income Tax Ordinance, 2001 did not vitiate the right of compensation---Section 171(2) of the Income Tax Ordinance, 2001 created a legal fiction for certain specific "refund due" in section 171(1) of the Income Tax Ordinance, 2001 and a refund shall be treated as having become due.
Complaint No.1096-L of 2005, ref.
S.A. Masood Raza Qazilbash, D.R. for Appellant.
S. Atif Hussain for Respondent.
Date of hearing: 5th March, 2009.
ORDER
The instant appeal at the behest of the Revenue, pertaining to the tax year 2006 has been directed against the impugned order dated 30-11-2007, passed by the learned C.I.A.(A), Multan. Following grounds have been urged through memo. of appeal.
(i) That the learned C.I.T(A) was not justified to hold that refund becomes due when deemed assessment is made under section 120 of the Income Tax Ordinance, 2001.
(ii) That the learned C.I.T(A) was not justified to ignore the provisions of section 171(2) (c) of the Income Tax Ordinance, 2001 respecting the definition of phrase "become due".
(iii) The learned C.I.T(A) was not justified to ignore the decision of Honourable President of Pakistan in Complaint No.1096-L/ 2005, dated 26-5-2006 where Honourable F.T.O's decision was declared having been passed without jurisdiction.
2. Briefly stated the facts relevant for disposal of present appeal are that the taxpayer filed return of income pertaining to the tax year under appeal on 16-10-2006 claiming refund. Return was supported with certificate of deduction of Income Tax. Subsequent thereto, refund application under section 170 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) was filed on 22-11-2006 in accordance with the provisions of section 170(2). In pursuance thereof the taxpayer sent another letter to the department which was received by the Revenue on 15-5-2007 reminding the department with regard to the original letter submitted by the taxpayer in respect of claim of refund. In the said letter, it was further requested that refund was to be issued within 90 days but since it was issued on 3-3-2007 i.e. beyond the prescribed period, request was made for the payment of compensation for the delayed period of 45 days. However, the department was not in an agreement with the claim of the taxpayer with regard to the payment of additional payment for delayed refund. It was the stance of the Revenue that additional payment for delayed refund started after lapse of 3 months of the date on which it became due. The department was of the view that 'as per section 171 of the Ordinance, the refund is considered as having become due on the date of refund order is made. In this respect the department relied upon the conditions laid down 'in section 171(2)(c) of the Ordinance. It was maintained by the Revenue that since the order with regard to payment of refund was passed on 24-4-2007, refund vouchers were issued on the same date, it was delivered within 3 months of the passing of the order, hence the claim of compensation @ 6% under section 171 was unlawful, therefore, the same was rejected.
3. Feeling aggrieved with the treatment accorded by the Revenue, an appeal was preferred before the learned First Appellate Authority who vide an order dated 30-4-2007, accepted the appeal of the taxpayer and, held that the taxpayer is entitled to compensation by way of the additional compensation for delayed payment of refund.
4. The Revenue is in further appeal before the Tribunal to assail the impugned findings recorded by the learned First Appellate Authority.
5. Both the parties have been heard and relevant orders perused. The learned D.R. while appearing on behalf of the Revenue reiterated almost all the arguments which stand incorporated in the impugned order, passed by the learned C.I.T. (A). It has been submitted that additional payment for delayed refund is only payable after the lapse of 3 months of the date on which it became due. Further contended that section 171(2) elaborates the phrase "becomes due", the learned D.R. emphasized that in the case of the taxpayer section 171(c) is attracted because sub-sections (a) and (b) of section 171(2) are relatable to the cases where an order is made in consequence of an appeal by the appellate forums or in case of subsection '(b) where revised order had been made under section 122(a) of the Ordinance. He stated that in all other cases the refund shall be treated as having become due, on the date of refund order is made by the concerned authority. Continuing his arguments, he also tried to highlight the difficulties of the department wherein it needs time to determine the genuineness of the claim by the taxpayer. He stated that the timeframe of 45 days and then 90 days provided under the law was given to facilitate the taxing authority to verify the claim of refund. The learned D.R. summed up his arguments with the plea that the judgment rendered by the F.T.O. and relied upon by the learned First Appellate Authority stood reversed by the President of Pakistan, hence the findings given by the learned First Appellate Authority could not be given legal credence. He prayed for the reversal of the judgment passed by the learned First Appellate Authority.
6. Conversely, the learned A.R. has opposed the arguments advanced by the learned D.R. with great vehemence. He averred at the Bar that under the scheme of things given by the Income Tax Ordinance, 2001, the return filed under section 120 (1) shall be taken for all the purposes to be an assessment order issued to the taxpayer by the Commissioner of Income Tax on the date the return was furnished. The learned A.R. further stated that the Return was furnished. The learned A.R. further stated that the Return filed under section 120(1) will be considered to be a complete assessment, as provided for under the provisions of section 114(2) of the Ordinance. He stated that the taxpayer submitted tax deduction certificate issued by the withholding agent at the time of filing of return, hence there was no deficiency whatsoever as per guidelines given by the law: He argued that the department has made wrong interpretation of section 171 which deals with the additional payment for' delayed refund. He explained that section 171 cannot be read in isolation. In this respect he referred to section 170 ibid which provides that a taxpayer may apply to the Commissioner for refund if the tax he has paid is in excess of the amount which the taxpayer is chargeable. He pointed out that the word "may" does indicate that it is not obligatory for the taxpayer to apply to make a claim for refund. He contended that section 120 of the Ordinance which relates to the framing of assessment provides that in case of furnishing of complete return of income, the return shall be treated to be an assessment order issued to the taxpayer by the Commissioner on the day the Return is furnished. Further contended that even in cases where taxpayer submits an application under section 170(4) of the Ordinance in order to claim refund, the Commissioner is not only bound to decide the issue within 45 days of the receipt of the refund application but an order in writing of the decision is to be served upon the taxpayer applying for the refund within the prescribed period. He further submitted that the period of 3 months as provided in section 171 is to be calculated in the case of non-filing of application for claim of refund from the date of return of income is filed under section 120 of the Ordinance or in case of filing of application from the expiry of 45 days of submission of application for claim of refund. In this respect, he produced a copy of the application submitted to the department which clearly showed that the reminder was sent by the taxpayer mentioning therein that original application for claiming of refund was submitted on 18-10-2006, was received by the department on 15-5-2007. Similarly, copy of letter dated 6-6-2007 whereby the claim of compensation for delayed refund was refused by the department has also been placed on file. It was pointed out by the learned A. R. that it gives no reason whatsoever for passing an order on 3-3-2007 except reproducing section 171(2) and stating that since the refund becomes due on the date refund order is made, hence department was not liable to pay any compensation for delayed refund. As regards learned that Appellate Authority reliance upon the judgment passed by the F.T.O., argument was offered by the learned A.R.
7. We have heard the learned counsel for both the parties and have gone through the relevant order along with the copies of application and reply submitted to the department. Before we embark upon/dilating the key issue involved in the instant case it would be in the fitness of things to reproduce the relevant provisions of law relatable to the current issue:
Section 120(1):--
Where a taxpayer has furnished a complete return of income (other than return order subsection (6) of section 114) for a tax year ending on or after the 1st day of July, 2002,--
(a) The Commissioner shall be taken to have made an assessment of taxable income for that tax year, and the tax due thereon, equal to those respective amounts specified in the return, and
(b) The return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished.
Section 120(2)
A return of income shall be taken to be complete if it is in accordance with the provisions of subsection (2) of section 114.
Section 170 Refunds: (1), (2), (3) & (4):
A taxpayer who has paid tax in excess of the amount which the taxpayer is properly chargeable under this Ordinance may apply to the Commissioner for a refund of the excess.
Section 170(2):
An application for a refund under subsection (1) shall be:-
(a) made in the prescribed form;
(b) verified in the prescribed manner; and
(c) made within two years of the .later of;
(i) The date on which the Commissioner has issued the assessment order to the taxpayer for the tax year to which the refund application relates; or
(ii) The date on which the tax was paid.
Section 170 (3):
Where the Commissioner is satisfied that tax has been overpaid, the Commissioner shall:---
(a) apply the excess in reduction of any other tax due from the taxpayer under this Ordinance.
(b) apply the balance of the excess, if any, in reduction of any outstanding liability of the taxpayer to pay other taxes; and
(c) refund the remainder, if any, to the taxpayer.
Section 170(4):
The Commissioner shall, within forty-five days of receipts of a refund application under section (1), serve on the person applying for the refund an order in writing of the decision after providing the taxpayer an opportunity of being heard.
Section 171(1)
Where a refund due to a taxpayer is not paid within three months of the date on which it becomes due, the Commissioner shall pay to the taxpayer a further amount by way of compensation at the rate of (six) per cent annum of the amount of the refund computed for the period commencing at the end of the three months period and ending on the date on which it was paid.
Section 171(2)
For the purpose of this section, a refund shall be treated as having become due:--
(a) In the case of a refund required to be made in consequence of an order or an appeal to the Commissioner (Appeals), an appeal to the Appellate Tribunal, a reference to the High Court or an appeal to the Supreme Court on the date of receipt of such order by the Commissioner. [or]
(b) In the case of a refund required to be made as a consequence of a revision order under section [122A], on the date that order is 7 made by the Commissioner; or
(c) In any other case, on the date the refund order is made.
8. It is pertinent to mention here that as per established rule of interpretation enunciated by the Honourable apex Court in BILZ (Pvt.) Ltd. v. D.C.I.T., Multan 2002 PTD 1 and by Honourable Sindh High Court in Messrs Indus Basin Co. v. C.I.T. 2002 PTD 2169, all the provisions of law in a statute are to be read together unless a section is self-contained. Section 171(2)(c) has to be read in conjunction with other provisions relating to determination of refund and its issuance. If one start reading different section in isolation it would not only create choas and confusion but it would leave us to nowhere. Through the first and foremost duty of a Court is to ensure harmonious construction, yet if a conflict is found out amongst the different sections of the Ordinance, it is then to normally resolve in favour of the subject of the State. 2000 PTD 2958 (H.C. Lah.) Reverting to section 120 ibid, there is no doubt that reading of sections 120(1) and 120(2) of the Ordinance clearly implies that if a return of income filed is complete in terms of section 114(2) of the Ordinance, not only it would be considered that the assessment is deemed to have been made but the same also stands issued to the taxpayer on the day the return was furnished. After the completion of the formalities regarding assessment, in certain cases the question may arise with regard to the issue of creation/payment of refund. At this stage we would have to resort to sections 170/171 of the Ordinance. In this regard the perusal of section 170(1) provides that if the taxpayer has paid tax excess to the one he is chargeable, he may apply to the Commissioner for the refund of the excess tax, he has already paid. Obviously, the language of the above-mentioned provisions of "law does not make it obligatory for the taxpayer to an application in respect of claim of refund. Had it been the intention of the legislature that no refund could be paid without filing of an application in this regard the same could have been conveyed through use of word "shall"' instead of word "may". It clearly shows that subsection (4) of section 170 would become redundant so far as the taxpayer, who has not submitted an application for claiming refund is concerned. Obviously, in such like cases the presumption of law would be that assessment would be considered/ treated to have been made on the date of complete return is filed in terms of section 120 and section 114(2) of the Ordinance. We must add that subsection (4) of section 170 would come into play when an application is made by a person in pursuance of section 170(1) of the Ordinance. It is also worth-noting that the said provision also provides time limit of 45 days as well as affording of an opportunity of being heard to the taxpayer after the receipt of refund application. At this juncture we would also like to refer to the application made by the taxpayer/respondent which has been placed on record and the same has not been denied/rebutted by the Department. It clearly shows that the application was submitted on 18-10-2008 and the same was to be decided within 45 days on the receipt of the said application. However, it seems that the Department tried to exploit the situation to the maximum and the refund was issued on 3-3-2007 i.e. after having completed not only 45 days available under section 170(4) but the 90 days period provided under section 170(1) of the Ordinance. This is the situation where an elaborate discussion of section 170(1) becomes very much relevant. This is for the reason that stance of the department is the refund becomes due on the date of refund order is made and the department has been provided further 90 days in which the said refund could be paid and if there is any delay over and above the 90 days provided under the law only then the taxpayer is entitled to claim compensation for the delayed payment of refund. In the light of all the discussion which we have made in the preceding paragraphs one can easily say that the issue in the instant case revolves around the interpretation of the phrase "become due" as used in section 171.
9. It is worthwhile to highlight the following features of this section: ---
(i) Subsection (2) of section 171 does not exclusively define the expression "refund due". In fact the opening part of the provision says "a refund shall be treated as having become due", which means that the ordinary situations of refund due have not been excluded but for certain eventualities, for the same of removal of any doubt, deeming provisions have been provided.
(ii) In clause (a) of subsection (2) of section 171, in case of appeal order the department could have taken the plea that starting point for compensation would be actual date of appeal effect. In this manner, the department could have avoided compensation by not giving appeal effect to an appellate order. Therefore, the legislature by fiction of law has determined the date i.e. the day on which appellate order is received by Commissioner and not the date on which appeal effect is actually given.
(iii) In the like manner, in case where there was requirement of refund order, the legislature has provided the date on which refund order is made as starting point for calculation of compensation rather than the date on which refund order is served. If fiction of law is not provided then department could have avoided compensation by not serving the refund order on the taxpayer.
(iv) Clause (c) of subsection (2) of section 171 should be read in this context and not the way the Department has interpreted it. The legislature is not giving a command that in every case it is the date of refund order which matters, because that can be a situation where no refund order is required yet refund is either to be adjusted against the demand and excess, if any, has to be refunded back suo motu in terms of section 170(3).
(v) In fact, the legislature by virtue of legal fiction provided in section 171(2) has placed a check on taxation authorities that in no circumstances they should avoid proper quantum of compensation due to taxpayer if refund is not paid within 90 days of becoming due. The Department could have avoided it by delaying the process of giving appeal effect or through non-service of assessment/refund order. In clause (b) of subsection (2) of section 171, it has been clearly mentioned that where refund is due in consequence of a revision order under section 122-A it will be the date of order of Commissioner from which compensation is to be calculated and not from the date for which order is served on the taxpayer.
(vi) It is cardinal principle of law that provisions creating legal fiction have to be construed strictly and for the purpose for which they have been enacted-Elahi Cotton Mills Ltd. and others v. Federation of Pakistan, 1997 PTD 1555 (Supreme Court of Pakistan), C.I.T./WT Companies Zone, Faisalabad v. K.A. Enterprises (Pvt.) Limited, 2005 PTD 849 (Lahore High Court) and Latif Ghee Industries (Pvt.) Ltd. v. C.I.T. Companies Zone, Karachi 2006 PTD 2368. Therefore subsection (2) of section 171 in totality reflects legal fiction in favour of taxpayers and to provide a check-on tax authorities not to employ any negative means to avoid payment of compensation.
(vii) It is worthwhile to point out that as section 100 in the repealed Ordinance envisaged that where refund is created as a result of assessment/appellant order then there is no need to pass a refund order, in the same manner/subsection (3) of section 170 of the new Ordinance makes it the sole responsibility of Commissioner to apply excess tax paid in reduction of any other tax due from the taxpayer and refund the remainder, if any. In such situation there is neither any need for filing of refund application nor to wait for 45 days for passing order of refund order by Commissioner.
(viii) Provisions of section 170(4) apply where taxpayer files an application for refund e.g. in cases of a commercial importer where statement under section 115(4) is filed and there are deductions under other those made under section 148. He will have to file a refund application because there is nothing on record to make it obligatory for the Commissioner to take suo motu action under section 170(3). In such a case when an application is filed then Commissioner is bound to pass an order within 45 days and if he fails to do so, an aggrieved person can file an appeal as provided in section 170(5)(b). However, where refund is created by Commissioner himself as result of an order under section 120 or where it is due in terms of section 147(10) then in terms of section 170(3), it is the legal obligation of Commissioner to issue refund suo motu. In case, he fails to do so within 90 days of refund becoming due then section 171 will come into play.
(ix) In this case, refund was due on finalization of proceedings under section 120 and the Commissioner was bound to pay it under section 170(3), and there was even no need of filing an application to the Commissioner. Since, the Commissioner failed to pay refund, even after filing of application, compensation was payable as envisaged in section 171(1).
(x) It is undeniable fact in this case that refund was due the moment return was filed under section 120. The department acknowledged this fact as no adverse order was passed against this claim. The Department by ultimately making an order of refund just confirmed what was due at the time declared version for tax year 2006 was treated to be an assessment order. Since the Commissioner was satisfied about excess payment and therefore his obligation under section 170(3) was well-defined. The non-payment of excess tax paid within 90 days was thus a clear violation attracting section 171.
(xi) As explained above, in each and every case the Department does not enjoy 45 days plus 90 days cushion in every case to avoid compensation under section 171.
(xii) If the interpretation of Department is accepted then the Commissioner even for suo motu adjustment of refunds against demands will have to pass formal refund orders. In other words, it will be a self-contradictory: on the one hand it is claimed that unless refund is made, date for working compensation under section 171 does not come into existence and on the other hand refunds due are suo motu adjusted against any tax liability. In fact, it is a mere lame excuse to deny a person his lawful right of full compensation under section 171 from the date of original order when refund was undisputedly due.
(xiii) In section 171(2)(c) it is provided that "in any other case, on the date the refund order is made". Obviously it applies where there is legal requirement for making a refund order. In terms of section 170(3) read with section 120(1) there was no need for making a refund order hence section 171(2)(C) shall not apply. The opening part of subsection (2) of section 171 says that "For the purpose of this section, a refund shall be treated as having become due". It does not limit the expression "refund due" as used in subsection (1) of section 171 but only provides certain situations where, by legal fiction in respect of time, the date for "refund due" has been determined different from the actual one.
9. As evident from above, section 171(2)(c) provides a legal fiction and does not overrides the term "when it becomes due" in section 171(1). It is cardinal principle of interpretation that deeming provision has to be strictly construed for the purpose it is enacted. It requires strict interpretation, and cannot be spilled over to other provisions in statute. It has to be interpreted strictly within the four corner of its object for which it is enacted 2002 PTD 2112 (H.C. Lah.).
10. We have already observed that the law as stands with regard to framing of assessment is that the assessment is deemed to have been made, if complete return of income is filed. In such-like situation, we are constrained to observe that section 171 is to be read in the light of section 120 as refund becomes due the moment an assessment order creating the said refund comes into existence. As a corollary of this fact, we can safely hold that all the proceedings conducted in pursuance of completion of assessment should be considered to have been made along with the actual assessment, which stands completed on the day complete return is filed. However, in the case of a taxpayer who has filed incomplete return, obviously the assessment would not be considered to have been made and, therefore, any resultant proceedings cannot be initiated. It is worth noting that additional payment for delayed refund as provided under section 171 of the Ordinance is not immediately payable unless 90 days limitation expires. Obviously, legislature has given sufficient time i.e. 90 days to avoid compensation for a determined refund. It is also apt to mention that in the repealed Income Tax Ordinance, 1979, it was made incumbent upon the Assessing Officer to calculate refund, if any, along with the calculation of tax and mention the same on the IT-30 as well as on the demand notice along with assessment order which was to be sent to the assessee. We cannot approve the stance adopted by the Revenue that the refund shall be treated as having become due on the date the refund order is made in terms of section 171(2)(c) which is a deeming provision enacted to treat in same circumstances the artificial "due" in contradistinction to actual due under section 171(1)(c).
11. Cumulative reading of above shows that in terms of section 170(4) the Commissioner is duty bound to issue refund within 45 days of receipt of application, but under section 170(3)(c), even no refund application is required, for him to refund any amount overpaid' after adjustment if any. In other words, the refund in this case was "due" for the purpose of section 171(1) on the date of order treated to have been made and after lapse of three months from the said date, e Q compensation was due. Section 171(2) relied upon by the Department does not vitiate the right of compensation as elaborated above. The Department has failed to appreciate the fact that section 171(2) is creating a legal fiction for certain specific "refund due" in section 171(1) and a refund shall be treated as having become due "[Section 171(2)] are not synonymous. The first deals with due on happening of an event, in this case the movement order under section 120 creating refund comes. into existence. In the second situation a refund shall be treated as having become due i.e. when it was not otherwise due. Had this not been the case, there was no need to provide legal fiction as elaborated in detail in earlier paragraphs.
12. In view of the above, we dismiss the appeal of the Department and as a sequel to that, the order passed by the learned C.I.T. (A) is hereby confirmed.
C.M.A./130/Tax(Trib.)Appeal dismissed.