COMMISSIONER INLAND REVENUE, MUZAFFARABAD VS GHALIB HUSSAIN, 2014 PTD-HIGH-COURT-AZAD-KASHMIR 1484 (2014)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 122C, 127, 137 & 133---General Clauses Act (X of 1897) Ss. 5, 6 & 6-A---Azad Jammu and Kashmir Interim Constitution Act (VIII of 1974) S.56---Provisional assessment---Section 122C of the Income Tax Ordinance 2001---Nature---Question before the High Court was whether S.122C of the Income Tax Ordinance regarding provisional assessment, could be applied retrospectively and whether the right of appeal provided under S. 127 of the Income Tax Ordinance, 2001 was available to a taxpayer in order to impugn an order under S. 122C of the Ordinance---Held, that perusal of S. 56 of Azad Jammu and Kashmir Interim Constitution Act, 1974 read with Ss. 5,6, 6-A and other enabling provisions of the General Clauses Act, 1897; for interpretation of statutes regarding "coming into operation of the enactment" "effect of repeal" etc; it became crystal clear that S. 122C of the Income Tax Ordinance, 2001 could neither operate retrospectively nor could it take away right of appeal of taxpayer provided under S. 127 of the Income Tax Ordinance, 2001---Income Tax Ordinance, 2001 was amended whereby S. 122C was inserted, and it had not been given retrospective effect, rather it had been enforced from date of coming into force of amending statute---Right of appeal under S. 127 of the Income Tax Ordinance, 2001 was a substantive right which could not be taken away by addition of S. 122C of the Ordinance---Tax under provisional assessment order under S. 122C of the Income Tax Ordinance, 2001 had been made payable vide S. 137 of the Ordinance and such scheme of law suggested the prospective applicability of S. 122C of the Ordinance---Law followed events and laws of the time of occurrence/incident would apply, hence the law of the year for which the assessment was made, would be applied in order to make assessment of tax amount---Reference was answered, accordingly.

2011 SCR 390; 2006 SCR 396; PLD 1996 SC (AJ&K) 1 and Commissioner Inland Revenue v. Islam-ud-Din and others 2014 PTD (Trib.) 1018 rel.

Shaikh Masood Iqbal and Liaqat Ali for Petitioners.

Mirza Zaid Ullah for Respondents.

ORDER

SARDAR ABDUL HAMEED KHAN, J.---Through the above captioned Tax reference applications the applicants have assailed the validity and sanctity of the orders passed by the Appellate Tribunal, Inland Revenue (hereinafter to be referred as ATIR) on 10-1-2012 and 14-5-2012.

2.Both the above applications raise identical questions of law and facts and the tax payers in both the above references are co-owners of the same plot/plaza, therefore, these applications filed under section 133 of the Income Tax Ordinance, 2001 were clubbed, heard together and are answered through this single order.

3.Brief facts, giving rise to Reference No.24/2012 are that Ghalib Hussain and Liaqat Ali, Tax payers/Assessees are co-owners of Ali Plaza, Dadyal District Mirpur. Ghalib Hussain was assessed by the Tax Department and ordered to pay Rs.45,93,800 to the Taxation Officer vide assessment order dated 22-2-2011. In response, whereof, the tax payer, vide application dated 21-4-2011 furnished his explanation with the request to drop the provisional assessment order passed under section 122(c) of the Ordinance. The tax payer vide letter No.1182 dated 27-4-2011 was intimated that he had again given stereotype arguments to defend his unexplained income which was not acceptable at this stage. He was therefore advised that the provisional assessment order could be abated if he had furnished return of income along with wealth statement and wealth reconciliation statement within sixty days period. He was further informed that the provisional assessment order had attained finality as period of sixty days had been elapsed. The tax-payer filed an application under section 221 of the Ordinance and requested the Circle office for rectification of the assessment order, which was rejected, whereupon he filed an appeal before the learned Commissioner, Inland Revenue, which also stood dismissed on 13-8-2011. The taxpayers being unsatisfied with the decision of the Commissioner, filed 2nd appeal before the ATIR, which vide judgment dated 10-1-2012 was partly accepted and the case was remanded to the Taxation Officer for rectification of the mistake. Feeling aggrieved from the said judgment, the Commissioner Inland Revenue has filed the instant reference application seeking decision on the following questions:--

(a)Whether under the facts and circumstances of the case was the learned ATIR justified to hold that the provisions of section 122-C of the Income Tax Ordinance, 2001 have been applied retrospectively for the tax Year 2007, when the provisions of sections 122-C were enacted w.e.f. 1-7-2010. Hence, question of retrospective application is not involved in this case?

(b)Whether under the facts and circumstances of the case the Tribunal has not misconstrued the judgment of the Hon'ble Supreme Court of Pakistan in the case CIT v. Eli Lilly reported as (200) 100 Tax 81(SC.Pak) wherein it has been held that provisions of section 122(5-A) enacted on 1-7-2003 are applicable on the assessment completed after the said date and applying the same analogy, provisions of section 122-C are applicable in the cases, where, returns were not filed till the date of enactment of section 122-C i.e. 1-7-2010 irrespective of the tax involved?

(c)Whether under the facts and circumstances of the case, both the appellate authorities have not been erred in law by entertaining an appeal against an order for which taxpayer himself chose not to exercise option of filing of returns to nullify the provisional assessment within 60 days as provided in subsection (2) of section 122-C?

(d)Whether under the facts and circumstances of the case, the finality of an order which has been opted by the taxpayer himself, can be challenged before the Commissioner (Appeals)?

(e)Whether under the facts and circumstances of the case, an assessment made under section 122-C of the Income Tax Ordinance, 2001 as a consequence of failure on the part of taxpayer to file a return in response to a notices under section 114(4) was not an agreed assessment especially when the taxpayer himself opted not to file return within the period of sixty days to nullify the assessment order under section 122C?

4.Whereas, facts of Reference No. 35 of 2012, are that the provisional order under section 122-C followed by order No. 155/2011 and order No. 174/2011 were challenged together before CIT appeal but same were turned down without providing opportunity of hearing to the applicant/appellant and passed the Order No. Tax/CIR/A/457-58/2011 dated 20-10-2011 by rejecting the appeal being against the law merely on the basis that no appeal lie against order passed under section 122-C, while his honour passed the comments on the same order to the Taxation Officer that correct procedure has not been followed as the proceedings against Non-Resident ought to be conducted against his representative. This order was appealed against before the ATIR which was dismissed and it was held that the appeal before the first appellate authority does not lie against the provisional assessment order passed under section 122 (C) of the Ordinance contrary to the order passed by the ATIR in the earlier appeal.

5.Now, by way of this reference application, following law points have been referred for adjudication of this Court:--

(a)Whether section 122-C has been specifically barred by section 127 for the purpose of appeal to CIT appeal, if answer is Negative. Is the order of ITAT is maintainable?

(b)Whether the passing of order by Taxation Officer in February 2011 is justified by law to impose upon tax payer the tax for the year 2007 when no such law was in existence, if the answer is Negative. Is the order of Tribunal having legs to stand and bear the test of Superior Court?

(c)Whether non consideration of ground No. II as per ITAT order (while CIT himself admitted) is justified by law, if answer is Negative. Is order of ITAT is a speaking order?

(d)Whether ITAT is justified to apply differently pick and chose formula in entertaining the same law points in the second partner of the same case, if the answer is in Negative. Is the order of ITAT a judicial one?

6.Mirza Zaid-Ullah Khan, Advocate, the learned counsel for the Commissioner Inland Revenue Azad Jammu and Kashmir argued that the learned ATIR erred in law while holding that application of section 122-C of the Act is not retrospective in nature and remanded that case to the Taxation Officer. While controverting the stance in another appeal filed by Liaqat Ali the learned counsel referred to PLJ 2013 Tax Cases (Lah) 146 (DB) and contended that in the division bench case, it has been held that section 122(C) has been introduced to facilitate the Tax-payers whereby, they have been given additional facility to furnish return during a period of sixty days and if they do so, the provisional assessment comes to an end. It was further contended that when a beneficial legislation having additional facility for the tax-payers is introduced, it will take effect retrospectively because it is in favour of Taxpayers. The learned counsel prayed for dismissal of the cross appeal and requested the Court that the impugned order passed by the ATIR dated 10-1-2012 be set-aside and by keeping intact the order passed by the ATIR in Reference No. 35/2012 filed by Liaqat Ali, the reference of Taxpayers may kindly be answered in negative and the application filed by Liaqat Ali be rejected with heavy cost.

7.Shaikh Masood Iqbal, Advocate, the learned counsel for the Taxpayers argued that section 122-C has been introduced in 2010, whereas the assessment year was 2007-08. The learned counsel contended that ATIR correctly reached the conclusion by accepting the appeal of the Taxpayer, (Ghalib Hussain) and by holding that section 122-C cannot be applied retrospectively and remanded that case to the Taxation Officer to rectify the mistake as provided by law. The learned counsel vehemently argued that contrary to his earlier judgment the learned ATIR fell in error while dismissing the appeal of the Taxpayer Liaqat Ali which was filed on the same as well as some additional grounds. The learned counsel further contended that Liaqat Ali is a non-resident and the legal procedure was not adopted by the Tax Authorities proceeded without appointing representative of the non-resident which is mandatory under law. The learned counsel further argued that the property which was the subject of the tax known as "Ali Plaza" in Dudyal is a common property of both the partners; Liaqat Ali and Ghalib, equal in share. It is further contended by him that the property consists of a plot of size less than 500 yards and in this way, while dividing the property equally between the partners, the property does not come within the purview of imposition of property tax.

8.The learned counsel further maintained that section 122-C of the Income Tax Ordinance, 2001 cannot be enforced retrospectively in light of the other enabling provisions of the Tax Act rather this amending Ordinance was enforced by a notification of the future dated, hence, the retrospective enforcement of the law was out of question. The learned counsel argued that law of appeal is substantive, which cannot be substituted by the subsequent legislation. It was also argued by him that it is very important point that the appellant/taxpayer, Liaqat Ali has been condemned unheard and to meet the ends of justice it was imperative upon the learned ATIR and the first appellate authority to remand the case back to the Taxation Officer for decision on merit. The learned counsel referred the following case-law in support of his submissions:-

(i)2011 SCR 390

(ii)2006 SCR 396 and

(iii)PLD 1996 SC (AJ&K) 1

9.We have heard the learned counsel for the parties, in support of their respective claims at great length, and have also perused the record as well as the case-law, referred and relied upon by the parties.

10.Before attending the merits of the applications, it deems proper to consider the case-law, referred to and relied upon by parties.

11.In case titled Commissioner Inland Revenue v. Islam ud Din and others' 2014 PTD (Trib.) 1018, a division bench of the Lahore High Court consisting of Mr. Justice Sved Mansoor Ali Shah and Mr. Justice Muhammad Farrukh Irfan Khan, JJ, it has been observed as under:--

'Examination of the erstwhile section 121(1) (a) and section 122-C reveals that subsection (a) of sections 121(1) has been shifted into an independent provision i.e. 122-C. The change in the two provisions is that the assessment order has been divided into two parts; i.e., provisional assessment followed by final assessment after a period of sixty days. Sections 122-C therefore provides an additional facility to the assessee to furnish a return during the period of sixty days and if he does so, provisional assessment comes to an end. Learned counsel for the petitioner department supported this legal position and referred to Circular No.2 of 2010. Under sections 121(1), there is no provision of provisional assessment or final assessment. No such facility is available to the assessee under section 121(a), wherein final assessment is made without providing for provisional assessment or providing extra time (sixty days) to the taxpayer. We are, therefore, of the view that section 122-C is a beneficial legislation and is, therefore, retrospective in its application.'

12.It will not be out of place to mention that the above observation of the Hon'ble High Court is of great significance, which has to be interpreted in the light of the case-law, holding the field laid down by the apex Court of Azad Jammu and Kashmir related to the proposition of retrospective application of law.

13.The moot point has been observed in the case titled Nizam Din and another v. Custodian and 15 others, reported as [2011 SCR 390]. Relevant observation of their lordships in the apex Court of Azad Jammu and Kashmir is at page 400 of the report, which reads as under:--

'

The golden principle of interpretation of statutes is that no statute is to be construed to have retrospective effect unless its language so necessitates or unless it is expressly so provided. Where a matter stands decided and the decision attains finality as a transaction past and closed, the subsequent amendment in the law will not affect the decision in absence of express intention of the law if it touches a right or existence of a right at that time unless expressly provided, it will not operate retrospectively.'

14.The same point also got attention of the apex Court of Azad Jammu and Kashmir in another case titled Azad Government and 4 others v. Shezad Naseem Abbasi, [2006 SCR 396], wherein, it was observed that any amendment made in existing law would be prospective unless the same is given retrospective effect by the law itself.

15.In light of the case-law referred above it can safely be, concluded that the observation/point of view of the Hon'ble Lahore High Court would be taken as a precedent of persuasive nature, whereas, the dictum of the Supreme Court of Azad Jammu and Kashmir is binding upon the Court as postulated under section 42-B of the Azad Jammu and Kashmir Interim Constitution Act, 1974.

16.In this view of the matter, we are persuaded to follow the rule of law laid down by the apex Court of Azad Jammu and Kashmir.

17.It is pertinent to mention that section 56-C of the Interim Constitution Act, 1974 also protects the effect of repeal of law to affect any right, privilege, obligation or liability acquired, accrued or incurred under the law. It is also added that when this Constitutional provision is read with sections 5, 6, 6-A and other enabling provisions of the General Clauses Act, 1897 (Act X of 1897) for the interpretation of statutes regarding 'coming into operation of the enactment', 'Effect of repeal' and repeal of the Act making textual amendment in Act or regulation' it becomes crystal clear that the impugned section of the subject tax law can neither operate retrospective nor takes away the right of appeal as provided under section 127 of Income Tax Ordinance, 2001.

18.While going through the scheme of law under consideration it transpires that Income Tax Ordinance, 2001 was amended by amending Ordinance, 2009, 2010 and lastly by Amending Act, 2010, whereby more than 50(fifty) sections have been amended, added and omitted, including addition of section 122-C. It is also worth-mentioning that the law in question has not been given any retrospective effect, rather it has been enforced firstly from 28-10-2009 vide the amending Ordinance (XXII) of 2009 and lastly by Finance Act, 2010 (Act XV of 2010) dated 5-6-2010, which was given effect from 1-7-2010. Hence, the retrospective effect is ruled out.

19.It is noted that new section 122-C has been inserted to provide authority to the Commissioner to make a provisional assessment of taxable income or income of a person which will be considered final assessment if the taxpayer does not file return of income along with other required statements/documents within a period of 60 days from the date of service of order of such provisional assessment. Wherefrom it cannot be concluded that any additional facility has been extended to the taxpayer.

20.It is evident from the provision of section 127 of the Income Tax Ordinance, which relates to appeals to Commissioner that all the penalties have been listed in sections 182 and 184 to 189 have been omitted from the Ordinance and no doubt, the right of appeal is provided under this Section, which is substantive right and the same cannot be taken away by addition of section 122-C, ibid. It is also pertinent to note that the Tax under the provisional assessment order under section 122-C has been made payable vide section 137 of the Ordinance and this scheme of law also suggests the prospective applicability of section 122-C.

21.Moreover, provisions regarding penalties and recovery of tax in succeeding sections and assessment of tax in preceding sections and provision of appeal under section 127 is in between, which also suggests that the right of appeal is provided against an order passed under the preceding section, automatically in the light of law of interpretation of statutes. It may be added that this is a universal principle that law follows the events and laws of the time of occurrence/incident will apply, hence, the law of the year for assessment will be applied while making assessment of subject tax amount.

22.As a result of the above discussion, the references in hand need no further interpretation of the law and stand answered in the following manner:--

(a)The reference application filed on behalf of Commissioner Inland Revenue, Reference No.24/2012 dated 5-4-2012 is answered in negative and order/judgment of the learned ATIR dated 10-1-2012 is upheld.

(b)The reference filed by Liaqat Ali, taxpayer/assessee, Reference No.35/2012 dated 12-6-2012 is answered in affirmative and it is held that section 122-C is prospective in nature and cannot be given retrospective effect in the light of the supra-noted rule of law. Resultantly, the impugned order passed by the learned ATIR dated 14-5-2012 is set aside.

23.In light of the above resolution, the cases are sent back to the Taxation Officer to rectify the mistake of retrospective applicability of section 122-C and issue a fresh assessment order after giving opportunity of hearing to the taxpayers, keeping in mind the supra mentioned rule of law within a reasonable time. It is further directed that while assessing the tax, the Taxation Officer/authorities will abide by law regarding the non-resident tax-payer and size of plot; when divided in the two partners according to their respective shares and the rates of tax prevailing in the relevant tax year.

24.Order announced. The parties are directed to appear before the concerned authority. The files shall be consigned to record after sending the record of the case. Copies of this order shall be sent to the ATIR and Commissioner, Inland Revenue, as required under law.

KMZ/56/HC(AJ&K)Order accordingly.