COMMISSIONER INLAND REVENUE ZONE-II, REGIONAL TAX OFFICE, MULTAN VS Mrs. AMBREEN FAWAD CO. PAK ARAB FERTILIZERS LIMITED, MULTAN, 2014 PTD-LAHORE-HIGH-COURT-LAHORE 320 (2013)

(a) Interpretation of statutes---

----"Beneficial legislation"---Meaning and scope of---Principles of interpretation, explained.

N. S.Bindra,InterpretationofStatutes,TenthEdition,pp.341-342 & 348 ref.

(b) Interpretation of statutes---

----"Remedial or curative statutes"---Meaning and scope of---Principles of interpretation, explained.

N. S.Bindra,InterpretationofStatutes,TenthEdition,pp.341-342 & 348 and Antonin Scalia & Bryan A. Garner, Reading Law, The Interpretation of Legal Texts, 2012, p.365 ref.

(c) Interpretation of statutes---

----Retroative legislation--- Retrospective effect of legislation---Principles of interpretation---Scope---Retroactive legislation was looked upon with disfavour, as a general rule, and properly so because of its tendency to be unjust and oppressive---In the absence of any indication in the statute that the Legislature intended for it to operate retroactively, it must not be given retrospective effect---Where a statute however, was procedural, declaratory or explanatory or where a statute was passed for the purpose of supply an obvious omission in a former statute, it was to operative retrospectively obviously because it did not affect vested rights.

EarlT.Crawford,TheConstructionofStatutes,1940pp.562-563; Taxmann Interpretation of Taxing Statutes, p.475 and 1993 SCMR 73 at 78rel.

(d) Interpretation of statutes---

----Retrospective effect of beneficial, remedial or curative legislation---Meaning, object, scope and principles of interpretation for such statutes explained.

N. S.Bindra,InterpretationofStatutes,TenthEdition,pp.341-342 & 348; Antonin Scalia and Bryan A. Garner, Reading Law,The Interpretation of Legal Texts, 2012, p.365; Earl T. Crawford, The Construction of Statutes, 1940 pp 562-563; Taxmann Interpretation of Taxing Statutes, p.475; Commissioner of Income Tax v. Shahnawaz Ltd. and others 1993 SCMR 73 and State Bank of Pakistan v. Messrs Faisal Spinning Mills Limited 1997 SCMR 1244rel.

(e) Interpretation of statutes---

----Beneficial legislation---Retrospective effect of beneficial legislation---Liberal interpretation---Scope---Beneficial legislation, generally, was to be given a liberal interpretation, however for the said legislation to have a retrospective effect, beneficial legislation must carry curative or remedial content---Such legislation must, therefore, either clarifyan ambiguity or an omission in the existing law and must be explanatory or clarificatory in nature---While beneficial legislation was to be liberally interpreted, in order to advance the beneficent object of the statute, it in no manner meant that "beneficial legislation" or "liberal interpretation" necessarily included or interchangeablymeant retrospective application of the statute---Unless the legislation was remedial, curative, explanatory or clarificatory, it could not be interpreted retrospectively merely on the ground that the legislation is generically beneficial in nature.

Commissioner of Income Tax v. Shahnawaz Ltd. and others 1993 SCMR 73 and State Bank of Pakistan v Messrs Faisal Spinning Mills Limited 1997 SCMR 1244rel.

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

----Second Sched. Part I, Cl. (103B) & S.150---Deduction of tax at source---Dividends---Dividends in specie---Conditional exemption on payment of tax on dividends in specie by virtue of Cl.(103B) of the Second Schedule to the Income Tax Ordinance, 2001---Retrospective application of such exemption---Scope---Contention of the taxpayer was that Cl.(103B) of Part I of the Second Schedule to the Income Tax Ordinance, which was introduced in the year 2010, applied retrospectively to the tax year 2008;therefore, the taxpayer was not liable to tax on payment of dividends in specie, for the tax year, 2008---Validity---Section 5 of the Income Tax Ordinance, 2001 was the charging section for the imposition of tax on dividends, and Cl. (103B)ofPart I of the Second schedule to the Ordinance simply introduced a conditional exemption in the year, 2010 which did not remedy or cure any ambiguity or omission in the law, and on the contrary, provided an exemption from tax for the first time which was not in existence in the year 2008---Labeling said Cl. (103B) Part I of the Second Schedule to the Income Tax Ordinance, 2001 as remedial or curative legislation, was therefore, misconceived and it did not have a retrospective effect and had therefore, had no application to the tax year 2008---Reference was answered, accordingly.

Commissioner of Income Tax v. Shahnawaz Ltd. and others 1993 SCMR 73 and Dawood Cotton Mills v. Commissioner of Income Tax 2000 PTD 285 distinguished.

(g) Words and phrases---

----"Deduct", meaning of---Word "deduct" meant to take away money, points, etc. from a total amount; or to take away, separate, or remove, in numbering or estimating, to subtract often with from or out of,and to take away an amount from a total or take away or subtract from a sum.

Oxford Advanced Learner's Dictionary, 8th Edition, p.395; Webster's new International Dictionary, Second Edition, p.684; Merriam-Webster's Collegiate Dictionary, Eleventh Edition, p.324 and The Major Law Lexicon, 4th Edition 2010, p.1841 rel.

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

----Ss. 150, 156(2) & 233(2)---Deduction of tax at source---Dividends---Dividends in specie---Deduction of tax in terms of S.150, Income Tax Ordinance, 2001 on payment of dividend in specie---Question before the High Court was whether a company paying dividend in specie to its directors was entitled to deduct tax in terms of S.150 of the Income Tax Ordinance, 2001---Held, that S.150 of the Income Tax Ordinance, 2001 implied that dividend should in such a form that deduction of tax therefrom was possible from the person paying the dividend---In case of dividend in specie, such deduction was not practically possible---Reference was to be made to S.156(2) of the Ordinance which stated that in case prize was not in cash, the person while giving the prize shall collect tax on the fair market value of the prize; which was similar to the case of Brokerage and Commission under S.233(2) of the Income Tax Ordinance, 2001---Therefore, unless S.150 of the Income Tax Ordinance, 2001 separately provided for collection of tax from assessee at the time of deduction of tax, the same section could not be applied to "dividend in specie"---Reference was answered, accordingly.

Agha Muhammad Akmal Khan andTariq Manzoor Sial, along with Asif Rasool, Addl. Commissioner, Inland Revenue, Multan for Petitioner.

Rana Muhammad Afzal for Respondent-Assessee

Date of hearing; 4th November, 2013.

JUDGMENT

SYED MANSOOR ALI SHAH, J.---Through this judgment we intend to decide the instant Tax Reference along with connected Tax References mentioned in Schedule-A, as well as T.R. No.48 of 2009 filed by the petitioner department against MessrsPak Arab Fertilizers Ltd. The two sets of references involve two separate legal questions, however, for the reasons given hereunder, these legal questions are interlinked and determination of one will have a bearing on the other, besides they arise out of a common factual background. Hence, through this consolidated judgment, we propose to answer the legal questions raised in these references.

2.T.R. No.48 of 2009 pertains to order of the learned Tribunal dated 31-7-2009. The question of law as culled out from the reference is articulated in the following manner:--

"Whether MessrsPak Arab Fertilizers Ltd. Company paying the dividend in specie to its directors are entitled to deduct tax in terms of Section 150 of the Ordinance?".

3.Similarly, the related question of law that arises in the other set of references is:--

"Whether the benefit of Clause 103B, Part-I of the Second Schedule of the Ordinance introduced in the year 2010 can have a retrospective effect and extends to respondent assessee in the year 2008?"

In case this question of law is answered in favour of the respondent assessee then the question raised in T.R. No.48 of 2009 becomes immaterial. However, if it is answered otherwise, then the question of law in the connected reference will have to be taken up.

4.Brief facts of the case are that MessrsPak Arab Fertilizers Ltd. paid "dividend in specie" to its Directors (respondent-assessees in these set of references) but did not deduct tax under section 150 of the Ordinance. Proceedings were initiated against MessrsPak Arab Fertilizers Ltd. and finally the matter was decided against the Department vide impugned order dated 31-7-2009 passed by the learned Appellate Tribunal holding that section 150 does not apply to "dividend in specie". The Department challenged the said order through T.R. No.48 of 2009, but in the meanwhile passed an amended assessment order under section 122 against the individual assessees. The amendment assessment orders were challenged by the respondent-assessees on the ground that the benefit of Clause 103B was available to them in Tax Year 2008, hence they were not liable to pay tax. The contentions raised by the respondent-assessee were upheld by the learned Tribunal vide impugned order dated 4-6-2011.

5.Learned counsel for the respondent assessees argues that clause 103B (inserted in the year 2010) is applicable to their case in 2008 as the said clause being a beneficial legislation, has to be applied retrospectively. In support of this contention he places reliance on "COMMISSIONER OF INCOME TAX v. SHAHNAWAZ LTD. and others" (1993 SCMR 73) and "Dawood Cotton Mills v. Commissioner of Income Tax" (2000 PTD 285).

6.The first question of law is whether clause 103B of the Part-I of Second Schedule of the Ordinance has retrospective application and applies to the Tax Year 2008. It is an admitted legal position that clause 103B was inserted in the Second Schedule vide Finance Act, 2010 and has now been omitted by the Finance Act, 2013. The said clause states as follows:--

"(103B) Any dividend in specie derived in the form of shares in a company, as defined in the Companies Ordinance, 1984 (XLVII of 1984):

Provided that when such shares are disposed off by the recipient, the amount representing the dividend in specie shall be taxed in accordance with provisions of section 5 of the Ordinance and the amount, representing the difference between the consideration received and the amount hereinabove shall be treated in accordance with provision of section 37 or section 37A, as the case may be."

7.Section 5 of the Ordinance is the charging section and provides that every person who receives dividend from a Company shall be liable to tax at the rate specified in Part-I of the First Schedule. The word "dividend" has been defined in section 2(19) of the Ordinance and primarily covers all kinds of assets held in the name of the Company being distributed as dividends. Dividend in specie admittedly falls within the said definition. There is no cavil with the proposition that the "dividend in specie" is taxable, the only question is whether Clause 103B inserted in the Second Schedule to the Ordinance, which provides a conditional exemption in the year 2010 can have a retrospective application and also cover Tax Year 2008.

8.We have gone through clause 103B and find that it provides a partial exemption to the extent that after receiving of "dividend in specie", the assessee is not taxed till such time that the assessee disposes of the said shares to any third party. On the disposal of the "dividend in specie" the assessee is taxed under section 5 on the gross amount of "dividend in specie" received and on capital gains based on the difference arising in consideration while disposing of the said shares under section 37 or 37A of the Ordinance as the case may be.

9.The main contention of the learned counsel is that during the pendency of the litigation, relief has been extended to the respondent-assessee in the year 2010, hence it has a retrospective application. It is additionally argued that Clause 103B being beneficial in nature has to be applied retrospectively. In response to the argument that the relief has been extended to the petitioner during the pendency of this litigation, it is pointed out that Clause 103B stands omitted vide Finance Act, 2013, therefore, the said argument is self destructive. In order to appreciate the argument regarding beneficial legislation it is important to understand the scope and meaning of beneficial, remedial and curative legislation.

10."Beneficial legislation" has been explained by Bindra¹ in the following manner:--

"A statute which purports to confer a benefit on individuals or a class of persons, by reliving them of onerous obligations under contracts entered into by them or which tend to protect persons against oppressive act from individuals with whom they stand in certain relations, is called a beneficial legislation. In interpreting such a statute, the principle established is that there is no room for taking a narrow view but that the court is entitled to be generous towards the persons on whom the benefit has been conferred. It is the duty of the court to interpret a provision, especially a beneficial provision, liberally so as to give it a wider meaning rather than a restrictive meaning which would negate the very object of the rule. It is a well-settled canon of construction that in constructing the provision of beneficent enactments, the court should adopt that construction which advances, fulfils, and furthers the object of the Act rather than the one which would defeat the same and render the protection illusory Beneficial provisions call for liberal and broad interpretation so that the real purpose, underlying such enactments, is achieved and full effect is given to the principles underlying such legislation."

Remedial or Curative statutes on the other hand have been explainedas:--

"A remedial statute is one which remedies defect in the pre-existing law, statutory or otherwise. Their purpose is to keep pace with the views of society. They serve to keep our system of jurisprudence up to date and in harmony with new ideas or conceptions of what constitute just and proper human conduct. Their legitimate purpose is to advance human rights and relationships. Unless they do this, they are not entitled to be known as remedial legislation nor to be liberally construed. Manifestly a construction that promotes improvements in the administration of justice and the eradication of defects in the system of jurisprudence should be favoured over one that perpetuates a wrong."²

Justice Antonin Scalia of the U.S. Supreme Court in his book on Interpretation of Statutes3³ states that:

"Remedial statutes are those which are made to supply such defects, and abridge such superfluities, in the common law, as arise from either the general imperfection of all human law, from change of time and circumstances, from the mistakes and unadvised determinations of unlearned (or even learned) judges, or from any other cause whatsoever."

The question is whether beneficial, remedial or curative legislation has a retrospective effect? Retroactive legislation is looked upon with disfavor, as a general rule, and properly so because of its tendency to be unjust and oppressive... Consequently, in the absence of any indication in the statute that the legislature intended for it to operate retroactively, it must not be given retrospective effect.⁴ However, where an Act is procedural, declaratory or explanatory or where a statute is passed for the purpose of supplying an obvious omission in a former statute, it is to operate retrospectively obviously because it does not affect vested rights⁵. August Supreme Court of Pakistan relied on the following passage from Statutory Construction by Crawford⁶:

"282, Remedial statutes.---Even remedial statutes may be subject to the principles hereinto force discussed, opposing any construction which will give the enactment retrospective operation. Yet, since remedial statutes are usually looked upon with favour by the Courts, they should be liberally construed. But there appears to be considerable confusion in the cases with reference to giving remedial Acts retrospective effect through construction. If the rule of liberal construction is to be applied, as it obviously should then any doubt should be resolved in favour of retrospective operation, if such operation does not destroy or disturb vested rights, impair the obligations of contracts, create new liabilities violate due process of law or contravene some other Constitutional provision, and if such operation will carry out the intention of the legislature as ascertained through the application of the principle of liberal construction. In other words, a statute relating to remedial law may properly, in several instances, be given retrospective operation."

In the above case the august Supreme Court of Pakistan held as follows:⁷

"However, nothing has been adduced before us in support of the last-mentioned submission. As explained in Crawford's "Statutory Construction" a statute relating to remedial law may properly, in several instances, be given retrospective operation and we are of the opinion that as the amendment in the instant case was introduced to redress an injury which in the words of Circular No.6 of 1973 (Income Tax) issued on 7th July, 1973 by the Central Board of Revenue itself was "designed to soften the law in favour of tax-payers who could previously be charged to additional tax up to the date of assessment even though the finalization of assessment was delayed due to no fault of theirs." This was a proper case in which retrospective operation, to the extent the High Court gave to it, could be given to the amending law."

11.The legal position that emerges is that generally beneficial legislation is to be given liberal interpretation, however for the said legislation to have a retrospective effect, the beneficial legislation must carry curative or remedial content. Such legislation must, therefore, either clarify an ambiguity or an omission in the existing law and must therefore be explanatory or clarificatory in nature. While beneficial legislation is to be liberally interpreted, in order to advance the beneficent object of the statute, it in no manner means that "beneficial legislation" or "liberal interpretation" necessarily includes or interchangeably means retrospective application of the statute. Unless the legislation is remedial, curative, explanatory or clarificatory, it cannot be interpreted retrospectively merely on the ground that the legislation is generically beneficial in nature. Reliance with advantage is placed on "COMMISSIONER OF INCOME TAX v. SHAHNAWAZ LTD. and others" (1993 SCMR 73) and "STATE BANK OF PAKISTAN v. Messrs FAISAL SPINNING MILLS LIMITED" (1997 SCMR 1244).

12.In the present case there was no ambiguity or anomaly existing in the law, as it stood prior to Finance Act, 2010. Section 5 of the Ordinance was and is the charging section for the imposition of tax on dividends. Clause 103B of Part-I of the Second Schedule to the Ordinance simply introduced a conditional exemption in the year 2010 which does not remedy or cure any ambiguity or omission in the law. On the contrary, it provides an exemption from tax for the first time, which was not in existence in the year 2008. Hence to label Clause 103B as remedial or curative legislation is misconceived. The case-law relied upon by the learned counsel for the respondent assessee on beneficial legislation supports the view taken by us. For the above reasons we are of the view that Clause 103B does not have a retrospective effect and has no application to the Tax Year 2008. In this view of the matter, the question of law raised in the instant reference along with references mentioned in Schedule A is decided in favour of the Tax Department.

13.The above decision warrants that we address the legal question raised in T.R. 48 of 2009. Learned counsel for the respondent assessee argued that the said section states that the tax has to be 'deducted' from the gross amount of dividend paid. He submits that there is no cash being paid to the respondent assessee and as a consequence the question of deduction of tax does not arise. He submits that if the intention of the legislature is that a separate amount of tax has to be collected from the recipient of the dividend by the Company, the legislature is to provide for it. The same have been so provided for in the law and has referred to sections 156 and 233(2) of the Ordinance. He submits that in the absence of any legislative framework section 150 has no application to the dividend in specie and therefore in such an eventuality the tax under section 5 had to be charged from respondent assessee.

14.Learned counsel for the petitioner department submits that section 150 clearly provides that the tax shall be deducted from the "Gross Amount" of the dividend paid and the said amount is identifiable and mentioned in the financial statements of the Company hence the tax could have been determined and deducted by the Company.

15.We have gone through section 150 of the Ordinance, which is reproduced hereunder:--

Section 150 provides that every person paying a dividend, shall "deduct" tax from the gross amount of the dividend paid.

16.The word "deduct" means: to take away money, points, etc. from a total amount⁸, to take away, separate, or remove, in numbering or estimating, to subtract often with from or out of⁹, to take away (an amount) from a total¹⁰, to take away or subtract from a sum.¹¹ Section 150 implies that dividend should be in such a form that deduction of tax therefrom is possible from the person paying the dividend. In the case of dividend in specie such a deduction is not practically possible. Reference is made to section 156(2), which states that in case the prize is not in cash the person while giving the prize "shall collect tax on the fair market value of the prize". Similar is the case in the Brokerage and Commission under section 233(2). Therefore unless section 150 separately provided for collection of tax from the assessee at the time of deduction of tax, the said section cannot be applied to "dividend in specie".

17.For the above reasons, the instant reference along with connected references mentioned in SCHEDULE-A are decided in favour of the Department, while T.R. No.48/2009 is decided against the department and in favour of the respondent assessee.

18.Office shall send a copy of this order under the seal of the Court to the learned Appellate Tribunal Inland Revenue as per section 133(5) of the Income Tax Ordinance, 2001.

19.Disposed of.

Schedule A.

KMZ/C-24/LOrder accordingly.