COMMISSIONER INLAND REVENUE VS AZGARD NINE LTD., 2015 PTD-LAHORE-HIGH-COURT-LAHORE 1068 (2015)

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

----Ss. 124(2) & 133----Interpretation of S.124(2) of the Income Tax Ordinance, 2001---Assessment giving effect to an order---Period of limitation for making new assessment order under S.124(2) of the Income Tax Ordinance, 2001---Nature scope and object of the limitation period provided in S.124(2) of the Income Tax Ordinance, 2001---Use of the word "shall"---Import---Mandatory nature of limitation prescribed in S.124(2) of the Income Tax Ordinance, 2001---Scope---Question before the High Court was "whether period of limitation prescribed in S.124(2) of the Income Tax Ordinance, 2001 was mandatory or directory"---Held, that reading of S.124(2) of the Income Tax Ordinance, 2001 revealed that where an assessment order was set aside by the Appellant Tribunal and Commissioner was directed to make a new assessment, the same shall be made within one year from the end of the financial year in which the Commissioner was served with the remand order---Use of the word "shall" in S.124(2) of the Income Tax Ordinance, 2001 was not an accidental omission but was a deliberate and conscious insertion by the lawmakers who were aware about the implication of the words "shall" or "may"---Customary usage of the terms "may" and "shall" when they appear in a statute was that word "may" involved a choice and the word "shall" involved an order---In certain situations, when the object of the power vested with an authority was to effectuate a legal right as in the present case, even an enabling word like "may" may become mandatory---Import of the word "shall" in S.124(2) of the Income Tax Ordinance, 2001 was that the Commissioner was bound to make a new assessment order from the end of the financial year when the remand order was served---Obvious rationale behind providing limitation under S.124(2) of the Income Tax Ordinance, 2001 was that as limitation periods were provided for various kinds of assessment orders, therefore, once matter was remanded back for a new assessment, it could not be left open to the authority to pass a fresh assessment order at any time on its sweet will---Section 124(2) was also mandatory for the reason that on one hand it restricted the discretionary powers of the authority to pass new assessment order within prescribed period of time but on the other hand also conferred powers with the authority to pass new assessment order after remand of case, regardless whether limitation prescribed for passing of different assessment orders under various provisions of the Income Tax Ordinance, 2001 had expired or not---High Court observed that the time limit/limitation prescribed under S.124(2) of the Income Tax Ordinance, 2001 was therefore, mandatory in nature---Reference was answered, accordingly.

Fatima Sharif and others's case 2009 SCMR 344 = 2009 PTD 37 ref.

Muhammad Sadiq and others v. University of Sindh and others PLD 1996 SC 182; Dr. Haq Nawaz v. Balochistan Public Service Commissioner and others 1996 CLC 58 and Messrs's VN Lakhani and Company v. M.V. Lakatoi and 2 others PLD 1994 SC 894 rel.

(b) Interpretation of statutes---

----Court, under the rule of "litera legis"; when called upon to interpret any provision of a statute, needed to ascertain the intention of the lawmakers from the words used which may receive their literal, natural and ordinary meaning where such words are not defined in the statue itself.

(c) Interpretation of statutes---

----Statutes prescribing period of limitation---Settled principle of interpretation of statutes that where time was of the essence to do a particular thing, and on the basis whereof a right had been claimed, the said provision(s) would be of a mandatory nature and if no right was claimed, the provisions would be non-mandatory---Where public functionaries were empowered to create a liability against a citizen only within the prescribed time, the said time became mandatory which is all the more so, when the prescribed time limit was beneficial to the citizen and restricted the power of the executive/revenue.

Dr. Haq Nawaz v. Balochistan Public Service Commission and others 1996 CLC 58 rel.

(d) Interpretation of statutes---

----Use of the words "may" or "shall"---Nature of the meanings attributable to words "may" or "shall"---Customary usage of terms of "may" and "shall" when they appear in a statute is that the word "may" involved a choice and the word "shall" involved an order---In certain situations when the object of the power vested with an authority was to effectuate a legal right, even an enabling word like "may" may become mandatory.

Muhammad Sadiq and others v. University of Sindh and others PLD 1996 SC 182 rel.

(e) Public Functionary---

----Duties of---Where public functionaries were empowered to create a liability against a citizen only within the prescribed time, the said time became mandatory which is all the more so, when the prescribed time limit was beneficial to the citizen and restricted the power of the executive/revenue.

(f) Interpretation of statutes---

----Each and every word of a statute had to be given its meaning and no redundancy or superfluity was attributable to an act of Parliament.

Messrs's VN Lakhani and Company v. M.V. Lakatoi and 2 others PLD 1994 SC 894 rel.

(g) Words and phrases---

----"May and "Shall"---Distinction.

Syed Sajjad Haider Rizvi for Applicant.

Shahbaz Butt for Respondent.

Date of hearing: 8th January, 2015.

JUDGMENT

ABID AZIZ SHEIKH, J.---Through this Reference Application under section 133 of the Income Tax Ordinance, 2001 (Ordinance), the applicant department has assailed the order dated 6-2-2010 passed by Appellate Tribunal Inland Revenue Lahore Bench, Lahore (Tribunal) in I.T.A. No.936/LB/2009 regarding tax year 2003.

2.Following questions of law have been raised in the instant reference application:--

(i)"Keeping in view the fact that no consequences have been mentioned in section 124(2) of the Income Tax Ordinance, 2001 for not adhering to the time limitation specified therein, is the said time limitation mandatory or directory only?"

(ii)"Was the learned Appellate Tribunal Inland Revenue justified to affirm the findings of the Commissioner (Appeals) to the extent that the order under section 122(1)/122(5) is void ab-initio without giving any direction regarding the fate of the Income Tax proceedings for the year?"

3.Brief facts are that return was filed declaring net income at Rs.23,370,910. Since respondent taxpayer (Nafees Cotton Mills Limited as it then was) merged with Legler Nafees Denim Mills Limited (a sister concern) w.e.f. 1-4-2002, the return was filed for six months only. The assessment was amended under section 122(1) of the Ordinance, against which order, appeal was preferred before the Commissioner Appeal who vide order dated 7-9-2005 declared the assessment order to be illegal and un-justified. The department being aggrieved preferred an appeal before learned Tribunal who vide order dated 7-6-2007 set aside the assessment in view of judgment in Fatima Sharif and others reported as 2009 SCMR 344 = 2009 PTD 37 and remitting the matter back to Assessing Officer for de novo proceedings. The new assessment under sections 121(1)/ 122(5) was made on 27-9-2008. Aggrieved with the fresh assessment, taxpayer filed appeal before Commissioner Appeal who cancelled the assessment being barred by limitation prescribed under subsection (2) of section 124 of the Ordinance, which order was upheld by the learned Tribunal, hence this reference application.

4.Learned counsel for the applicant argued that time limitation prescribed under subsection (2) of section 124 of the Ordinance is not mandatory requirement as no consequence has been prescribed for not adhering the same. He further submits that learned Tribunal as well as Commissioner Appeal were not justified to annual the assessment order under sections 122(1)/122(5) of the Ordinance, just because fresh assessment order was not passed within time limit given under sub-section (2) of section 124.

5.Conversely, learned counsel for the respondent argued that provision of subsection (2) of section 124 of the Ordinance is mandatory in nature. Adds that after remand of case by the learned Tribunal, Assessing Officer was bound to pass fresh assessment order within time prescribed under aforesaid provisions and for failure to adhere the time prescribed therein, fresh assessment order was lawfully annulled by the fora-below.

6.We have heard the arguments of learned counsel for the parties and perused the record.

7.Facts are not disputed before us that learned Tribunal vide order dated 7-6-2007 set aside the order of Commissioner Appeal and matter was remanded back to the Assessing Officer for fresh assessment. As per findings recorded by fora-below, the said remand order of learned Tribunal dated 7-6-2007 was served on the Commissioner of Income Tax Legal Zone-C, Lahore on 28-6-2007 and was received by him on said date. As the learned Tribunal order was received by the Commissioner Legal on 28-6-2007, new assessment order under subsection (2) of Section 124 of the Ordinance was to be passed within one year from the end of financial year i.e. by 30-6-2008. Admittedly, the fresh assessment order was passed on 27-9-2008 which was after lapse of three months of maximum limitation period prescribed under subsection (2) of section 124 of the Ordinance.

8.Having penned down the facts and circumstances of this case, the pivotal issue which now requires expression of opinion by this Court is whether time limitation prescribed under subsection (2) of section 124 of the Ordinance is mandatory or directory. To resolve this controversy, it is expedient to reproduce subsection (2) of Section 124 of the Ordinance, prevailing at the relevant tax year as under:--

"Where by an order made under Part-III of this Chapter by the Commissioner (Appeals), Appellate Tribunal, High Court, or Supreme Court, an assessment order is set aside (wholly or partly) and the Commissioner is directed to make a new assessment order the Commissioner shall make the new order within (one year from the end of the financial year in which) the Commissioner is served with the order".

Bare reading of provision of subsection (2) of Section 124 of the Ordinance in the context of present case shows that where the assessment order is set aside by the Appellate Tribunal and Commissioner is directed to make a new assessment order, Commissioner shall make the new order within one year from the end of financial year in which the Commissioner is served with order.

9.It is an elementary rule of construction that the Court called upon to interpret any provision of statute needs to ascertain the intention of law-makers from the words used which may receive their literal, natural and ordinary meaning where the words are not defined in that statute. This is known as 'rule of litra legis'. Applying the aforesaid rule of construction, the use of the word Shall in subsection (2) of Section 124 of the Ordinance was not an accidental omission but was a deliberate and conscious insertion by the law makers who were aware about implication of word "shall" or "may". The customary usage of terms of art "may" and "shall" when they appear in a statute is that "may" involves a choice and "shall" an order. In certain situations when the object of the power vested with the authority is to effectuate a legal right as in the present case, even an enabling word like "may" may become mandatory. Reliance is placed on Muhammad Sadiq and others v. University of Sindh and others (PLD 1996 SC 182).

10.The import of word "shall" in subsection (2) of section 124 of the Ordinance is that Commissioner is bound to make new assessment order within one year from the end of financial year when remand order is served. It is a settled principle of interpretation that where time is essence to do a particular thing and on the basis whereof, a right has been claimed, the provisions would be of mandatory nature and if no right is claimed the provisions would be non-mandatory. Reliance is placed on Dr. Haq Nawaz v. Balochistan Public Service Commission and others (1996 CLC 58). The new adverse assessment order indeed create liability against taxpayer. It is trite law that where the public functionaries are empowered to create liability against citizen only within the prescribed time, the said time become mandatory. This is all more so when the prescribed limit is beneficial for the citizen and restrict Executive power of the revenue.

11.If contention of the applicant department is accepted, that provision in question is directory, it will not only make the provision of subsection (2) of Section 124 of the Ordinance redundant but will also tantamount to circumvent the intention of legislature. The intention of the law maker can be ascertained from looking at the scheme of the Ordinance as a whole. Perusal of Ordinance with this angle shows that it provides different period of limitation for passing of various orders in respect of taxpayer including assessment order, amended assessment order, further assessment order, rectification of order. In this context, the obvious rational behind providing limitation under subsection (2) of Section 124 is that as limitation period is provided for various kind of assessment orders referred ibid, therefore once the matter is remanded back for new assessment, it cannot be left open to the authority to pass fresh assessment order at any time in its sweet will.

12.The provision of subsection (2) of Section 124 is also mandatory for the reason that on one hand it restricts the discretionary power of the authority to pass new assessment order within prescribed time but on the other hand, it confers powers with the authority to pass new assessment order after remand of case, regardless whether limitation prescribed for passing of different assessment orders under various provisions of the Ordinance have already been expired. The intention of the legislation gathered from scheme of Ordinance discussed above, is that limitation under subsection (2) of section 124 is mandatory and the word "shall" used therein is not meaningless. Each and every word of a statute has to be given its meaning and no redundancy or superfluity is attributable to act of a parliament. Reliance is placed on Messer's VN Lakhani and Company v. M.V. Lakato and 2 others (PLD 1994 SC 894).

13.For reasons recorded above, we have no manner of doubt that time limit prescribed under subsection (2) of Section 124 of the Ordinance is mandatory for new assessment order. The question No.1 is answered accordingly.

14.So far as question No.2 is concerned, once the new assessment order was passed beyond time prescribed under subsection (2) of section 124 of the Ordinance, the learned Tribunal was justified to declare the new assessment order being barred by limitation, hence void ab initio. Accordingly, question No.2 is answered in affirmative.

15.Reference Application is decided against the applicant department.

16.Office shall send copy of this judgment under the seal of the Court to the learned Appellate Tribunal Inland Revenue as per section 133(5) of the Ordinance, 2001.

HBT/C-7/LOrder accordingly.