ENGRO VOPAK TERMINAL LTD. VS PAKISTAN through Secretary Finance, Islamabad
2012 P T D 130
2012 P T D 130
[Sindh High Court]
Before Muhammad Athar Saeed and Munib Akhtar, JJ
ENGRO VOPAK TERMINAL LTD. through Manager Finance & Corporate Service, Karachi
Versus
PAKISTAN through Secretary Finance, Islamabad and another
C.Ps. Nos.D-1709 of 2008, 785 of 2006, 2490, 2491 of 2007 and 2376 to 2378 of 2008, decided on 27/09/2011.
(a) Income Tax Ordinance (XLIX of 2001)---
----Ss. 53, 115(4), 122(5A), 153, 169 & Second Sched., Part-IV,clause (42)---Constitution of Pakistan, Art. 199---Constitutional petition---Maintainability---Finality of tax---Issuance of show cause notice---Normal Tax Regime---Assessee operated as oil/bulk storage terminal, where oil and other similar types of goods were off-loaded from or on-loaded onto ships calling at port---Taxation Officer issued notice under S.122(5A) of Income Tax Ordinance, 2001, on the ground that income constituting payments received by it from operation of its oil terminal was to be brought to tax under Normal Tax Regime(NTR)---Plea raised by assessee was that payments to which it was entitled as a result of operation of its terminal were within the scope of S.153(1)(c) of Income Tax Ordinance, 2001, and thus tax deducted thereon was the final tax by reason of S.153(3) of Income Tax Ordinance, 2001---Validity---Assessee had raised important questions of law of general importance, including the question regarding conflict between S.53 of Income Tax Ordinance, 2001, and a provision contained in Second Schedule to Income Tax Ordinance, 2001---Such questions could arise at any time with reference to any taxpayer, thus constitutional petition could not be dismissed as not maintainable---Various clauses of different parts of Second Schedule to Income Tax Ordinance, 2001, were to apply for indefinite future unless otherwise amended or omitted---No conflict existed in S.53 and clause (42) of Second Sched., Part-IV, to Income Tax Ordinance, 2001, and latter provision was not to be "read down" to avoid any such conflict---Clause (42) of Second Sched., Part-IV, to Income Tax Ordinance, 2001, did not have any application with regard to assessee, therefore, S.153(3) of Income Tax Ordinance, 2001, was applicable and tax deducted on relevant payments was final tax---High Court in exercise of Constitutional jurisdiction, quashed and set aside the show cause notice and order of Income Tax Tribunal, to the extent the same sought to bring to tax payments received by assessee by way of operation of oil terminals by reference to or application of clause (42) of Second Schedule, Part-IV, to Income Tax Ordinance, 2001---Any other income could be brought to tax on any other basis, the show cause notice would be deemed to remain in field and with regard thereto, the assessee was entitled to such remedies as were available to him in accordance with law---Petition was allowed accordingly.
International Power Global Developments Ltd. v. Commissioner Income Tax 2009 PTD 50; Excise and Taxation Officer v. Burmah Shell Storage and Distribution Co. of Pakistan Ltd. and others 1993 SCMR 338; T.A. Industries v. Federation of Pakistan 2008 PTD 1563; Syed Abid Hussain Shah v. Federal Government and others 2008 PTD 1547; Premier Mercantile Services (Pvt.) Ltd. v. Commissioner Income Tax 2007 PTD 2521 and Ayrshire Employer' Mutual Insurance Co. v. IRC (1946) 27 TC 331, (1946) UKHL 3ref.
(b) Income Tax Ordinance (XLIX of 2001)---
----Second Schedule, Part-IV---Words and phrases used in clauses of Second Schedule, Part-IV, and sections of Income Tax Ordinance, 2001---Scope---If a word, phrase or term is used in a clause of Part-IV of Second Schedule to Income Tax Ordinance, 2001, and that word, etc. is defined in and/or for the purposes of the section being not applicable by the clause under consideration, then it should have the same meaning in the clause as the section itself, unless the clause itself contains a definition to the contrary---Each clause of Second Schedule, Part-IV of Income Tax Ordinance, 2001, applies to a particular and specified section (or part thereof) and it is specifically and intentionally targeted to not apply to a particular provision.
Dr. Farogh Naseem for Petitioners.
Jawaid Farooqui for Respondent.
Muhammad Ashraf Khan Mughal, D.A.-G.
Sadaqat Khan, Standing Counsel.
Dates of hearing: 22nd November, 2010 9th May and 19th September, 2011.
ORDER
MUNIB AKHTAR, J.---By this common judgment, we intend disposing off these connected petitions, which raise questions as to the properinterpretationandinteractionofsections 53and153,andclause (42) of Part IV of the Second Schedule to the Income Tax Ordinance, 2001 ("the 2001 Ordinance"). The lead case is C.P. No.1709 of 2008, filed by Messrs Engro Vopak Terminal Ltd., and it will be sufficient to refer to the facts of this case alone, since the material facts pertaining to all the other petitioners are the same or similar in all relevant aspects.
2.The petitioner operates an oil/bulk storage terminal, where oil and other similar types of goods are off loaded from, or on-loaded onto, ships calling at the port. The petitioner's case is that the payments to which it is entitled as a result of the operation of its terminal come within the scope of section 153(1)(c) of the 2001 Ordinance, and thus, the tax deducted thereon is the final tax by reason of section 153(3). Section 169 provides, inter alia, that when tax has been deducted as final tax in respect of any income, that income cannot be brought to tax under any head of income. Such payment of tax is commonly called the presumptive or "final tax regime" or FTR. The Department on the other hand, contends that the payments received by the petitioner come within the scope of section 153(1)(b), i.e., have been received on account of the rendering of services. Clause (42) of Part-IV of the Second Schedule ("Clause (42)") provides that section 153(3) does not apply, inter alia, to "payments received by a resident person for providing services by way of operation of ... oil terminal at a sea-port in Pakistan". Thus, the Department's case is that the tax deducted on the payments received by the petitioner is not final tax, and hence section 169 has no application to the petitioner's case. It necessarily follows on the Department's view that the petitioner was, and is, liable to be taxed as per the ordinary or normal procedure laid down in the 2001 Ordinance. Payment of tax in terms of the normal procedure is commonly referred to as the "normal tax regime" or NTR. (It may be noted that for convenience, and to ensure uniformity, the reference to the various subsections of section 153 herein above, and herein after, is to the section as it stands today, i.e., as substituted by the Finance Act, 2011. Prior thereto, the relevant subsections were differently numbered and/or were amended from time to time but the provisions have, in substance and as presently material, remained the same.)
3.Consistently with the stand being taken by it, the petitioner filed a statement under section 115(4) for the tax years 2003 and 2004 in respect of payments received by it on account of operation of its oil terminal. It may be noted that the petitioner also had some other income, for which it filed a return under section 114. By means of notices issued under section 122(5A), the concerned taxation officer sought to reopen and amend the petitioner's assessments for the foregoing two years, on the ground (as presently relevant) that the income constituting the payments received for the operation of the oil terminal was liable to be taxed under the NTR, and not the FTR, by reason of Clause (42). The petitioner's representations against the notices did not persuade the taxation officer, and the (deemed) assessment orders were amended to bring the payments to tax under the NTR. The petitioner filed appeals, which failed, and further appeals to the Income Tax Appellate Tribunal met with the same fate. It was stated at the bar that the petitioner has preferred Income Tax References (being I.T.Rs. Nos. 156 and 157 of 2007) against the Tribunal's common order (dated 11-6-2006), which are pending adjudication in this Court.
4.The lead case (i.e., C.P. No.1709 of 2008) is concerned with the tax year 2007. It appears that (as presently relevant) on the basis of the Tribunal's order as aforesaid, the concerned taxation officer issued a notice dated 12-8-2008 under section 122(5A), asking the petitioner to show cause why the income constituting the payments received by it from operation of its oil terminal should not be brought to tax under the NTR. The basis for the notice is thus the same as before, i.e., the Department's contention (now bolstered by, and based on a Tribunal decision) that by reason of Clause 42, the tax deducted on the petitioner's income from the operation of its oil terminal was not final tax and hence not entitled to be taxed under the FTR. Rather than pursuing statutory remedies, the petitioner straightaway came to this Court by means of the present petition. The other petitions either relate to different tax years of the same petitioner, or to other petitioners. However, as noted above, the relevant facts, and the basis for the issuance of the respective show-cause notices, are the same as in the lead case.
5.Learned counsel for the petitioners assailed the show cause notices on more than one ground. However, his principal basis of attack was his contention that there was an inconsistency between section 53 on the one hand, and Clause 42 on the other. Learned counsel submitted that section 53 was obviously and clearly intended to provide exemptions from income tax in terms as stated in its four clauses (a) to (d). The intent was for the tax liability of the taxpayer to stand reduced. This principle lay at the heart of the section. In the case of Clause (42) however, the effect was to enhance, and not reduce, the tax liability of the petitioners by denying them the benefit of the FTR, and pushing them into the NTR. This was the exact opposite of what section 53 provided for, and indeed, according to learned counsel, mandatorily required. Being beneficial legislation, section 53 had to be interpreted and applied in a manner favourable to the taxpayer. Thus, there was a direct conflict between a substantive provision of the 2001 Ordinance, and a provision contained in one of its schedules. Learned counsel submitted that in such a situation, the provision in the schedule had to give way to the section. As to the consequences that followed from such a conflict, learned counsel put his case in the alternative. He first submission was that the conflict made Clause (42) void. In the alternative, he submitted that if at all possible, then Clause (42) had to be "read down" and interpreted in such a manner as to remove the conflict. The specific "reading down" that learned counsel suggested was that Clause (42) should in effect be regarded as giving an option to the taxpayer. If, in any given tax year, his tax liability under the FTR was less than that computed under the NTR, then Clause (42) should be regarded as not applying to the taxpayer. On the other hand, if for the tax year concerned, his tax liability under the FTR exceeded his liability as computed under the NTR, then (and only then) should Clause (42) be regarded as applying to him. The other ground taken by learned counsel was that the Department (and the Tribunal, in accepting the Department's view) had erred in concluding that the operation of the oil terminal amounted to the petitioners providing services. Learned counsel submitted that this was not so, and thus, section 153(1)(b) did not apply at all to the petitioners. Their case came squarely within clause (c). On this view, Clause (42) had no application at all, since on the face of it, it applied only to payments received for providing services for operating an oil terminal. Learned counsel relied on certain authorities in support of his submissions, which are dealt with below. Learned counsel also filed written submissions in support of his case.
6.Learned counsel for the Department opposed the petitions. He challenged their maintainability, and submitted that the petitioners ought first to exhaust the statutory remedies available to them, which had been availed in respect of the tax years 2003 and 2004, as noted above. He submitted that there was no conflict between section 53 and Clause (42). The latter had simply to be construed and applied as it stood. He submitted that that it was possible that, for any given taxpayer, the conjoint reading of section 53 and Clause (42) would lead to different results from tax year to year. In some, the application of the FTR may be more beneficial compared with the NTR. In others, the situation may be reversed. Furthermore, the effect could also vary from one taxpayer to the other even for the same tax year. Thus, it could not be said that there was a conflict between the two provisions. The petitioners' case, on an application of Clause (42), came within the NTR and not the FTR, and that was all that there was to it. Learned counsel further submitted that in fact, the petitioners (or at least some of them) had been changing their stance over the years. When it suited them (i.e., led to a lower tax liability) they were quite content to be governed by Clause (42) and did not dispute its application. On the other hand, when their interest required otherwise, they claimed that it did not apply to them. Learned counsel contended that the petitioners could not be permitted to, as it were, play fast and loose with statutory provisions. Learned D.A.-G. and the learned standing counsel adopted the submissions made by learned counsel for the Department.
7.As regards the maintainability of the petitions, learned counsel for the petitioners submitted that the impugned show cause notices (as presently relevant) were based squarely on the Tribunal's order as aforementioned, which, subject to the decision of this Court, would be binding on the Department. Thus, taking resource to statutory remedies would be an exercise in futility. Furthermore, the issues raised by the petitioners were important questions of law of general importance, and the High Court, being preeminently a forum of considering and deciding such matters, could be straightaway approached in constitutional jurisdiction.
8.We have heard learned counsel for the parties, examined the record with their assistance, and considered the case-law relied upon by them. It will be convenient to first gather the relevant statutory provisions at one place. Sections 53 and 153, as presently relevant, provide as follows:--
53. Exemptions and tax concessions in the Second Schedule.---(1) The income or classes of income, or persons or classes of persons specified in the Second Schedule shall be -
(a)exempt from tax under this Ordinance, subject to any conditions and to the extent specified therein;
(b)subject to tax under this Ordinance at such rates, which are less than the rates specified in the First Schedule, as are specified therein;
(c) allowed a reduction in tax liability under this Ordinance, subject to any conditions and to the extent specified therein; or
(d)exempted from the operation of any provision of this Ordinance, subject to any conditions and to the extent specified therein.
(2)The Federal Government may, from time to time, by notification in the official Gazette, make such amendment in the Second Schedule by-
(a)adding any clause or condition therein;
(b)omitting any clause or condition therein; or
(c)making any change in any clause or condition therein,
as the Government may think fit, and all such amendments shall have effect in respect of any tax year beginning on any date before or after the commencement of the financial year in which the notification is issued.
153. Payments for goods, services and contracts.---(1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person-
(a)for the sale of goods;
(b)for the rendering of or providing of services; and
(c)on the execution of a contract, other than a contract for the sale of goods or the rendering of or providing services, shall, at the time of making the payment, deduct tax from the gross amount payable ....
(3)The tax deducted under clauses (a) and (c) of subsection (1) ... of this section, on the income of a resident person or permanent establishment of a non-resident person, shall be final tax.
(7)In this section,---
(ii)"services" includes the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee;....
Clause (42) of Part IV of the Second Schedule is as follows:--
The provisions of subsection (3) of section 153 shall not apply in respect of payments received by a resident person for providing services by way of operation of container or chemical or oil terminal at a sea-port in Pakistan or of an infrastructure project covered by the Government's Investment Policy, 1997.
9.We first take up the issue of maintainability. We are satisfied that the petitions are maintainable in the circumstances of the present case. As correctly contended by learned counsel for the petitioners, the impugned show cause notices are based squarely on the Tribunal's order dated 11-6-2006. That order was in relation to the petitioner in the lead case, and for the tax years 2003 and 2004, but the Department obviously regards itself bound to follow this order in respect of that petitioner's other tax years, and in the case of other petitioners similarly placed. Resort to statutory remedies below the Tribunal level would therefore be a mere formality. Furthermore, the Tribunal's order is itself before this Court in Income Tax References. In addition, the questions raised in these petitions are important questions of law of general importance, including in particular, the question regarding the conflict between section 53 and a provision contained in the Second Schedule. Such a question can arise at any time with reference to any taxpayer. In these circumstances, the petitions cannot, and ought not, to be dismissed as not maintainable. It is not necessary to consider in any detail the cases relied on by learned counsel for the petitioners on the issue of maintainability. The preliminary objection is overruled.
10.We now turn to the petitions on the merits, and consider first the primary ground argued by learned counsel for the petitioners, namely the conflict stated to exist between section 53 and Clause (42). Now, as accepted by learned counsel for the petitioners (especially in his written submissions), the first three clauses of section 53 expressly require for the relevant provision in the Second Schedule to always lead to, or result in, a reduction in tax liability. Thus, clause (a) deals with what is ordinarily regarded as an "exemption", namely a provision that inserts itself between the levy of a tax and its payment, resulting in the taxpayer having to pay no, or a reduced amount of, tax. Clause (b) expressly relates to a rate of tax being applied to the taxpayer that is "less than the rates specified in the First Schedule". Equally, clause (c) expressly provides for a "reduction in tax liability". Learned counsel, recognizing that clause (d) (which is relevant for present purposes) does not contain any such express language, submitted that it would nonetheless be anomalous to interpret and apply it in any other manner. After having carefully considered the matter, we are, with respect, unable to agree with this submission as advanced. After all, in enacting clause (d), the lawmakermustbetakentobeawareoftheotherprovisionsofsection 53. The omission to use any express language in that clause of the nature as in the preceding three clauses must therefore be regarded as intentional. In our view, it must be recognized that the various clauses of the different parts of the Second Schedule are to apply for the indefinite future, unless otherwise amended or omitted. The long view must be taken, and clause (d) must be looked at from the perspective of a putative or hypothetical taxpayer. In other words, if it could be shown that there could be never a situation in which, or a taxpayer for whom, the relevant clause in Part IV would result in a reduction of tax liability, then perhaps it could be contended that the clause is in conflict with section 53. To this extent alone, the submission made by learned counsel for the petitioners can be accepted. However, if there could be situation(s) in which and/or taxpayer(s) for whom the clause would result in a reduction, then no such conflict can be postulated, even though in the specific case of the particular tax year of the taxpayer actually before the Court (or the taxation officer), the clause does not, in fact, have any such effect. Since in the present case, it can easily be postulated that there could be some tax years and/or taxpayers for whom Clause (42) could result in a reduction in tax liability, this clause cannot be said to be in conflict with section 53. To this extent, the view taken by learned counsel for the Department is correct.
11.Learned counsel for the petitioners relied on two decisions in support of his submission that where there is a conflict between a section and a provision contained in a schedule, the latter must give way to the extent of the inconsistency. One decision was that of a Division Bench of this Court reported as International Power Global Developments Ltd. v. Commissioner Income Tax 2009 PTD 50. However, in that case (which was by a Bench of which one of us, Muhammad Athar Saeed, J. was a member) the Court, while referring to the principle being relied upon, in fact concluded that there was no such conflict in the case before it. The second case is the well-known decision of the Supreme Court reported as Excise and Taxation Officer v. Burmah Shell Storage and Distribution Co. of Pakistan Ltd. and others 1993 SCMR 338. The Supreme Court was there concerned with an identical levy imposed by sections 10 and 8 respectively of the (West Pakistan) Finance Acts of 1962 and 1963. The levy was a tax imposed on every person involved in the "import and export trade" on the basis of the value of the goods being imported or exported, at the rates specified (in each case) in the Third Schedule to the Act. The schedules however, purported to specify the rates on the basis of the licences (for import or export) issued under the Imports and Exports (Control) Act, 1950. It was contended that the schedules were in conflict with the charging sections and no tax could therefore be levied. The persons sought to be taxed succeeded before the High Court, and appeals taken by the tax authorities to the Supreme Court failed. The Supreme Court held as follows (at para 9):--
"There cannot be any cavil to the proposition that the Court can supply an obvious omission in a particular provision of a statute or omit some word which is apparently redundant in the context of the provision, but the Court cannot legislate in place of the legislature. In the instant case in view of section 10 and section 8 of the Acts, the Third Schedules were to provide scale as to the amount of tax which was to be levied and recovered on the value of the goods imported or exported. The Third Schedules, instead of providing the scale in terms of the above sections, purported to levy tax on the value of the licences. In our view, the High Court has rightly held that the inconsistency is such, which cannot be reconciled by applying any rule of construction. The effect of the above inconsistency is that the Third Schedules are not in terms of section 3 and, therefore, cannot be enforced."
It is to be noted that in the case before the Supreme Court, the conflict was between a charging section that levied the tax, and the schedule that purported to specify the rates for the levy of the tax. As is well established, it is fundamental to the law of taxation that charging provisions are to be strictly construed, and applied literally, as they stand. Any failure in the charge always goes to the benefit of the taxpayer. It is also to be noted that the Supreme Court did observe that even in such a situation, the court could supply a casus omissus. In the actual case before it however, the Supreme Court held that the conflict could not be so remedied, nor could any other rule of interpretation be pressed in service. The only possible conclusion was that the schedule gave way to the charging section, and the levy accordingly failed.
12.The present situation is of course, in a sense the converse of the case before the Supreme Court. The provision in question (Clause (42)) seeks not to apply, but rather to disapply a particular provision of the 2001 Ordinance if certain specified conditions are fulfilled. In either case, the petitioners remain liable to tax; the only question is as to the amount of the liability. In our view, the predicament in which the petitioners may be placed as a result of Clause (42) is not that situation that was contemplated by the Supreme Court. This is of course quite apart from the fact that in our view, the proper interpretation of section 53(d) is that which has been given above, and that there is therefore, really speaking, no conflict at all.
13.Learned counsel also relied on two decisions of the Lahore High Court, reported as T.A. Industries v. Federation of Pakistan 2008 PTD 1563 and Syed Abid Hussain Shah v. Federal Government and others 2008 PTD 1547. (Both judgments were of the same learned single Judge, and handed down on the same day (20-6-2008). with the latter simply following the fomer). The point in issue was not the same as that before us in these petitions, but learned counsel contended (in his written submissions) that their "tenor and substance ... [was] that section 53 of the 2001 Ordinance cannot be used to enhance the tax liability". We are, with respect, unable to see how these decisions shed any useful light on the issues before us. In any case, there is a difference on the one hand between section 53 or a clause in the Second Schedule being "used" to enhance tax liability, and a clause of the Second Schedule having the effect of not reducing the tax liability of the taxpayer. It is perhaps arguable that in the situation before the Lahore High Court, the section was being "used" in this manner, since what was assailed there was a notification issued by the Federal Government in the exercise of statutory powers. In the present case however, Clause (42) has been a part of the 2001 Ordinance from inception. It is therefore difficult to see how this provision can be regarded as having been "used" to enhance tax liability.
14.Learned counsel also contended that Clause (42) ought to be appropriately "read down" in order to save it and avoid a conflict with section 53. In particular, he contended that it ought to be interpreted and applied as granting an "option" to the taxpayers concerned. If their tax liability would be reduced by applying Clause (42) (i.e., by disapplying section 153(3)), then they should be regarded as having the "option" of theclauseapplyingtothem.Ifhowever,theirtaxliabilitywouldstand enhanced, then they should be regarded as having the "option" of Clause (42) not applying to them. In our view, such an approach would be inconsistent with the views expressed by the Supreme Court in the Burmah Shell case (supra). While it is permissible to supply a casus omissus to save a schedule (or any provision thereof) from being in conflict with a section, the court cannot "legislate in place of the legislature". In our view, to interpret and apply Clause (42) as an "option", as we are invited to do, would go well beyond the permissible limits. Since we have in any case taken the view that there is no conflict on a proper interpretation of the matter, there is no need to "read down" Clause (42) in any manner, whether as suggested or otherwise. In the circumstances, it is therefore also not necessary to consider in detail the decisions cited by learned counsel in respect of the "reading down" of statutes.
15.For the foregoing reasons, we are, with respect, unable to accept learned counsel's submission that there is a conflict between section 53 and Clause (42) and/or that the latter provision has to be "read down" to avoid any such conflict. We turn therefore to consider the other ground taken by learned counsel.
16.Learned counsel contended that the payments received from the petitioners for the operation of their terminals did not result from providing any services, and that therefore, Clause (42) had no application, even if construed as it stood. Learned counsel placed primary reliance on a decision of this Court reported as Premier Mercantile Services (Pvt.) Ltd. v. Commissioner Income Tax 2007 PTD 2521 (a decision of a Division Bench of which one of us, Muhammad Athar Saeed, J. was a member). In order to properly appreciate what was there decided, it is necessary to note that section 153 as originally promulgated was concerned with "professional services", and it is this term that was defined (in what was then subsection (9)). The definition itself however, was exactly as it stands today. The word "professional" was omitted by the Finance Act, 2003 with the result that the definition (now contained, as noted above, in subsection (7)) now was of the word "services". It was in this context that this Court, after reproducing the relevant provisions of section 153, held in the Premier Mercantile case as follows:
"9. From a combined reading of theses subsections it emerges that initially professional services and then services have been defined to include the services of accountants, dentists, doctors, engineers, interior decorators and lawyers only and does not include other services. We cannot subscribe to the arguments of the learned Counsel for the respondent that all services will fall under clause (b) of subsection (1) of section 153 as the services which have been defined in subsection (9) are services of those persons who required professional qualification to provide these services and, therefore, according to the rule of ejusdem generis which is one of the principles of interpretation, only such type of professional services which require the person to have a professional degree may be included in this definition and in our opinion stevedoring does not require a professional degree and will, therefore, not fall in the definition of services which have been excluded from the provision of clause (c). It is an admitted fact that all the receipts are contractual receipts received for providing stevedoring services. We would also like to point out that though C.B.R does not figure in the hierarchy of the forums whose interpretation or explanation is binding, but, if a law has been correctly interpreted by C.B.R., it cannot be rejected for this reason only. Even otherwise, as far as the respondents are concerned they are bound under section 214 of the Income Tax Ordinance, 2001 to follow the directions of the Central Board of Revenue although the directions of the C.B.R. are not biding on the Appellate Authorities. The Tribunal has relied on itsearlier judgment reported as 2002PTD (Trib.) 228 without realizing that in section 50(4) of the Income Tax Ordinance, 1979 which is pari materia with section 153(1), services were not defined and there was a C.B.R. Circular which apparently was followed in the earlier judgment wherein it was said that services under contract will also not fall within the presumptive tax regime." (pp. 2526-7; emphasis supplied)
Thus, the case put forward by learned counsel on the foregoing basis was that the petitioners' activities in operating their terminals were not, and could not be, services and hence Clause (42) has no application.
17.The definitions contained in subsection (7) (as also in their earlier manifestation in what was subsection (9) are of course, for the purposes of section 153 only, as is made clear by the words "in this section" with which the subsection opens. It is to be noticed that these words are not, and never have been, qualified by other words usually found in a definition provision (e.g., section 2 of the 2001 Ordinance itself) such as "unless there is anything repugnant in the subject or context". In our view, if a word, phrase or term is used in a clause of Part IV of the Second Schedule, and that word, etc. is defined in and/or for the purposes of the section being disapplied by the clause under consideration, then it should have the same meaning in the clause as the section itself, unless the clause itself contains a definition to the contrary. The reason is that each clause of Part-IV applies to a particular and specified section (or part thereof). It is specifically and intentionally targeted to disapply a particular provision. The clause has no other purpose. If a word, etc. in the section being disapplied is specifically defined therein, and a different meaning is ascribed to the same word, etc. if used in the clause, then obviously a conflict may be set up. The clause may either miss its mark entirely, or its scope may be impermissibly enlarged or restricted. Furthermore, interpreting the word, etc. in the clause independently may result in yet another error being committed, namely the mistake of working backwards from the clause to the section being disapplied. Such an approach may, in effect, displace the statutory definition given in the section, which would of course, be impermissible. The principle of harmonious interpretation therefore requires that the same meaning be given to the word, etc. used in the clause as is given in the section that is the subject-matter of the clause. Of course, the position would be different if the clause itself specifically defined the word, etc., and it may be different also if the word, etc. was defined in section 2 for the 2001 Ordinance as a whole. However, these questions do not arise in the present petitions, and we leave them open to be decided in an appropriate case. Insofar as the present petitions are concerned, we are of the view that the word "services", as used in Clause (42) should have, and be given, the same meaning as in the definition subsection of section 153.
18.What then, is the proper meaning of the definition of "services" as contained in section 153? Obviously, for this Court as of today, the proper and correct meaning is as explained by the Division Bench in the Premier Mercantile case in the passage reproduced supra, especially the portion emphasized therein. Learned counsel for the petitioners was therefore correct, in our view, in contending that the Department (and for that matter, the Tribunal) had erred in failing to correctly apply the proper meaning of the word "services" in Clause (42) (although we would note that the Tribunal's order, being prior in time, did not have the benefit of the Court's decision). When the definition is so understood and applied, it is obvious that the "services" can have no application to the petitioners, and hence Clause (42) itself does not apply. The proper meaning of the definition of "services", as explained in the Premier Mercantile case, moves within a narrow locus. If the same word as used in Clause (42) is given a broader meaning that would in effect displace the statutory definition. In other words, one would have worked backwards from the clause to the section, and ended up with a result different from that envisaged by the section itself. Such an approach and conclusion would obviously be impermissible and wrong in principle.
19.In view of the foregoing, we are satisfied that since Clause (42) cannot have any application with regard to the petitioners, section 153(3) does not stand disapplied in their case, and hence it cannot be said that the tax deducted on the relevant payments received by them was not a final tax.
20.Three points need finally to be made. Firstly, it could be argued that Clause (42) has effectively been made redundant. On the approach herein above taken, it could be said that the clause disapplies nothing, and redundancy is a conclusion not lightly to be reached. The answer to this objection must be that we are bound by the meaning ascribed earlier by this Court to the definition of "services". Therefore, at least insofar as this Court is concerned, the lawmaker must be regarded as having missed fire in enacting Clause (42). This occasionally does happen, especially in respect of fiscal statutes, perhaps the most famous example being the decision of the House of Lords in Ayrshire Employers' Mutual Insurance Co. v. IRC (1946) 27 TC 331, [1946] UKHL 3. In the well-known words of Lord Macmillan (emphasis supplied):
"The Attorney-General with engaging candour submitted that he ought to succeed because, although the subsection might not in terms fit the case, it was nevertheless manifest that Parliament must have intended to cover it; if it did not cover it, then he could not figure any case which it could cover, and Parliament must be presumed to have intended to effect something. I can imagine what he would, have said had the case been the converse one of a taxpayer pleading that, although the words of the charging enactment covered his case, it was nevertheless manifest that Parliament could not have intended to tax him....
...The Legislature has plainly missed fire. Its failure is perhaps less regrettable than it might have been, for the subsection has not the meritorious object of preventing evasion of taxation, but the less laudable design of subjecting to tax as profit what the law has consistently and emphatically declared not to be profit. I should dismiss the appeal."
21.Secondly, we are cognizant of the fact that there are Income Tax References pending in this Court which challenge the Tribunal's order dated 11-6-2006. Those cases are not before us. However, the impugned show cause notices are based squarely on the Tribunal's order, and therefore, to the extent that the notices have to be dealt with, the order may well be regarded as having been considered, albeit indirectly. This is so, since any legal error in the Tribunal's order will necessarily infect the impugned show cause notices, and a decision on the latter will be a decision on the former, if only collaterally. While we would not want to decide a case (or any issue in any case) not directly before us we are bound, in the end, to decide the matter of the impugned notices. To the extent our decision may overlap any question raised or arising in the References, we would make the following points: (a) the petitioners before us are themselves the applicants in the References; (b) the References would be considered by a Bench of co-ordinate strength; and (c) we have only considered questions of law herein above, and it is only questions of a similar nature that would come within the remit of this Court when hearing the References.
22.Thirdly, we note that the impugned show cause notices are composite in nature, in the sense that more than one type of income of the petitioners is sought to be brought to tax on different bases. The challenge in these petitions was only to the extent of the attempt to bring to tax certain payments received by the petitioners by reason of, or with reference to, clause (42) and/or the Tribunal's order dated 11-6-2006. Any other basis for bringing any other income to tax has not been challenged and hence is not the subject of this decision.
23.In view of the foregoing discussion, we would dispose off these petitions in the following manner. The impugned show cause notices, to the extent that they seek to bring to tax payments received by the petitioners by way of operation of oil terminals by reference to or application of Clause (42) and/or the Tribunal's order dated 11-6-2006, are hereby quashed and set aside. If, and to the extent only, that any other income is sought to be brought to tax on any other basis, the show cause notices shall be deemed to remain in the field, and with regard thereto, the petitioners shall be entitled to such remedies as are available to them in accordance with law. There will be no order as to costs.
M.H./E-8/KOrder accordingly.