COMMISSIONER INLAND REVENUE VS SHAH SPINNING MILLS LTD., 2015 PTD-LAHORE-HIGH-COURT-LAHORE 2368 (2015)

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

----Ss. 113(2)(c) las re-enacted by Finance Act (I of 200911 & 133---Minimum tax on income of certain persons---Carry forward and adjustment of excess tax under S. 133(2)(c) against tax liability in subsequent years---Amendments in S. 113(2)(c) of the Income Tax Ordinance, 2001 to apply prospectively---Scope---Question before the High Court was whether adjustment of tax under S. 113(2)(c) claimed for the years 200.5 to 2008 was to be governed by S. 113(2)(c) of the Income Tax Ordinance, 2001 as it stood during the years 2005 to 2008 or was the same to be governed by S. 113(2)(c) as it stood in the years 2010 and 2011 in which years the said tax amount was carried forward and adjusted---Held, that S. 113(2)(c) of the Income Tax Ordinance, 2001 prevailing in the years 2005 to 2008 was repealed in 2008 and was reenacted through the Finance Act, 2009 and was to apply prospectively---High Court observed that the claim of carry-forward adjustment made by the taxpayer for both the tax years (2010 and 2011) was to be governed under (now repealed) S. 113(2)(c) of the Income Tax Ordinance, 2001 prevailing in the years 2005 to 2008 when excess amount was carried forward and not under the re-enacted S. 113 in the years 201,0 and 2011 when the said amount was actually adjusted by the taxpayer---Reference was answered, accordingly.

(b) Interpretation of statutes---

----Amendment/repeal---Effect---Retrospective application of repealed/ amended statutes---Scope---Change in substantive law which divested and adversely affected vested rights of parties shall always have prospective application unless by express words of the legislation or by necessary intendment or implication such law had been made applicable retrospectively---In absence of a stipulation to the contrary, any change in law affecting substantive rights had to have a prospective effect.

(c) Constitution of Pakistan--

---Art. 264-General Clauses Act (X of 1897) S. 6----Repeal of law-- Effect---Scope and purpose of Art. 264 of the Constitution---Once a vested right accrued in favour of a party under a statute, and if that statute was subsequently repealed, such right could not be disregarded---Purpose of Art. 264 of the Constitution and S. 6 of the General Clauses Act, 1897 was to provide protection to rights and liabilities accrued and penalties incurred under repealed enactment---In absence of a stipulation to the contrary, any change in law affecting substantive rights had to have a prospective effect.

The Colonial Sugar Refining Co. Ltd. v. Irving LR (1905) AC 369; F.B. Ali v. State PLD 1975 SC 506; Sutlej Cotton Mills Ltd. v. Industrial Court PLD 1966 SC 472; Shohrat Bano v. Imsail 1968 SCMR 574; Garikapati v. Subbiah Chaudhry AIR 1957 SC 540; P.I.A. Corporation v. Pak Saaf Dry Cleaners PLD 1981 SC 553; Nazir Begum v. Qamarunnisa 1982 CLC 2271; Muhammad Ibrahim v. Surrayiaun Nisa PLD 1992 SC 637; Mian Rafiud Din v. Chief Settlement and Rehabilitation Commissioner PLD 1971 SC 252; Nagina Silk Mill, Lyallpur v. The Income Tax Officer, A-Ward Lyallpur and another PLD 1963 SC 322; Adnan Afzan v. Capt. Sher Afzal PLD 1969 SC 187; Nabi ,Ahmed and another v. Home Secretary, Government of West Pakistan, Lahore and 4 others PLD 1969 SQ.'. 599; Province of East Pakistan v. Sharafatullah and 87 others PLD 1970 SC 514; Sona and another v. The State and others PLD 1970 SC 264; Hassan and others v. Fancy Foundation PLD 1975 SC 1; The Collector, Customs and Central Excise, Peshawar and others v. Messrs Rais Khan Limited through Muhammad Hashim 1996 SCMR 83; Malik Gul Hasan and Co. and 5 others v. Allied Bank of Pakistan 1996 SCMR 237; Manzoor Ali and 39 others v. United Bank Limited through President 2005 SCMR 1785; Commissioner of Income Tax v. Messrs Eli Lilly Pakistan (Pvt.) Ltd. 2009 PTD 1392; Muhammad Tariq Badr and another v. National Bank of Pakistan and others 2013 SCMR 314 and Badshah Gul Wazir v. Government of Khyber Pakhtunkhwa through Chief Secretary and others 2015 SCMR 43 rel.

Mian Yusuf Umar for Applicant.

Rana Munir Hussain for 'Respondent.

Date of hearing: 19th March, 2015.

JUDGMENT

ABID AZIZ SHEIKH, J.---This judgment will decide instant Reference Application No.209 of 2014 as well as Reference Application No.211 of 2014 filed under section 133(1) of the Income Tax Ordinance, 2001 ("Ordinance") as identical questions of law and facts are involved therein, between the same parties' and against the same consolidated order dated 17-4-2014 ("impugned order") passed by the learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore ("Tribunal") for tax years 2010 and 2011.

2. The following common question of law has been pressed by learned counsel for the applicant:--

"Whether on the facts and circumstances of the matter, the learned ITAT was justified to hold that the law prevailing at the time of payment of minimum tax under section 113 of the Income Tax Ordinance, 2001, would be applicable and not the law existing at the time of adjustment of credit of minimum tax against tax liability of subsequent tax year for the purposes of proviso to subsection (2) of section 113 of the Income Tax Ordinance, 2001?

Learned counsel for the applicant did not urge any other question of law formulated in the references during course of arguments and thus shall be deemed to have been abandoned having not pressed.

3. Relevant facts are that respondent-assessee is a private limited company engaged in the business of manufacturing of textile fibers. The returns for the tax years, 2010 and 2011 filed under section 114 were treated as deemed assessment orders. Subsequently the said deemed assessment orders were amended under sections 122(1)/122(5A) of the Ordinance by making certain additions. The first appeals by the respondent-assessee were rejected by the Commissioner Appeals on all issues except additions under section 111 of the Ordinance for the tax year, 2010 which was set aside for reconsideration. On further appeals by the respondent-assessee before the learned Tribunal, it was urged by the respondent assessee that department has accepted all the pleas of the respondent-assessee except its claim of tax credit under section 113(2)(c) of the Ordinance. The learned Tribunal through impugned order allowed the appeals of the respondent-assessee regarding its claim of tax credit under section 113(2)(c) of the Ordinance for both the tax years, hence these reference applications by the applicant department.

4. The learned counsel for the applicant argued that though the excess amount of tax paid (which was carried forward for adjustment against tax liability) related to tax years, 2005 to 2008, however, the said amount was finally adjusted in years, 2010 and 2011. He, therefore, argued that the law prevailing in years, 2010 and 2011 will apply and not the law applicable in years, 2005 to 2008 when the excess amount was carried forward. To further elaborate, he submits that section 113(2)(c) of the Ordinance prevailing in years, 2005 to 2008 provided that amount carried forward could be adjusted against tax liability for five years immediately succeeding the tax year for which the amount was paid. However, the said section was repealed through Finance Act, 2008 and was re-promulgated through Finance Act, 2009 where the period for adjustment was reduced to three years. He contends that as three years have already expired, the excess amount of tax carried forward for tax years, 2005 to 2008, could not be adjusted in tax year, 2010-2011 in view of the prevailing provision of section 113(2)(c) of the Ordinance in year, 2010-2011.

5. Conversely the learned counsel for the respondent argued that in tax years, 2005 to 2008, when the minimum tax was paid and excess amount was carried forward for adjustment against tax liability, the prevailing law allowed the respondent-assessee to adjust excess amount carried forward against tax liability for five years immediately succeeding the tax years for which the amount was paid. He submits that the amount was duly adjusted as per the prevailing provision of section 113(2)(c) of the Ordinance in tax years, 2005 to 2008 and the subsequent change in law through Finance Act, 2009 will not affect the accrued vested rights in favour of the respondent-assessee retrospectively.

6. We have heard the arguments of learned counsel for the parties and perused the record with their able assistance.

7. It is admitted on all hands that the excess amount of tax which was carried forward for adjustment against the normal tax liability was for the tax years, 2005 to 2008 and was adjusted in tax years, 2010 and 2011. The moot question requires determination is whether said adjustment is to be governed under section 113 prevailing in years, 2005 to 2008 when tax amount was carried forward or in years, 2010 and 2011, when adjustment was made. In order to comprehend an easy analysis, the brief history of section 113 of the Ordinance and the provisions of section 113 prevailing in relevant tax years are juxtaposed.

8. The provision of section 113(2)(c) of the Ordinance was firstly enacted by the Finance Act, 2004 and subsequently repealed by the Finance Act, 2008 (hereinafter will be referred as "repealed section"). For ready reference, the repealed section 113(2)(c) which remained in field from 2004 to 2008 is reproduced hereunder:--

"113(2)(c) where tax paid under subsection (1) exceeds the actual tax payable under Part I, Division II of the First Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under Part I, Division II of the First Schedule of the subsequent tax year:

Provided that the amount under this clause shall be carried forward and adjusted against tax liability for five years immediately succeeding the tax year for which the amount was paid."

The provision of section 113 was repealed through Finance Act, 2008. This section 113 of the Ordinance was re-enacted through Finance Act, 2009 (hereinafter will be referred as "re-enacted section"). For convenience, the re-enacted section 113(2)(c) is reproduced hereunder:--

113(2)(c) where tax paid under subsection (1) exceeds the actual tax payable under Part I, Division II of, the First Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under the aforesaid Part of the subsequent tax year;

Provided that the amount under the clause shall be carried forward adjusted against tax liability for three years immediately succeeding the tax year for which the amount was paid.

The re-enacted section 113 was further amended through Finance Act, 2011 and the word "three" in the proviso was substituted with the word "five".

9. The net result of aforesaid repeal and amendment in section 113 of the Ordinance is that the period provided for carry forward of the tax credit was "five" years for tax years, 2005 to 2008 and 2011 onward, whereas it was "three" years for the tax years, 2010 and 2011. In the instant case, the excess amount of tax paid which was carried forward relates to tax years, 2005 to 2008 and under the repealed section 113(2)(0 prevailing at the relevant time, the said amount was adjustable against tax liability for five years immediately succeeding the tax year for which the amount was paid. The subsequent change in law through re-enacted section 113(2)(c) where period was reduced to three years, will not curtail the period for adjustment, as substantive and vested right already accrued in favour of the respondent-assessee to adjust carry forward excess amount against tax liability for five years under the repealed section 113(2)(c) prevailing at the relevant time. It is settled law that a change in substantive law which divests and adversely affect vested rights of the parties shall always have prospective application unless by express words of the legislation or by necessary intendment or implication such law has been made applicable retrospectively. This is not the position in present case as section 113(2)(c) of the Ordinance prevailing in years, 2005 to 2008 was simply repealed through Finance Act, 2008 and after gap of one year was re-enacted through Finance Act, 2009 and was to be applied prospectively.

10. Once vested right accrued in favour of a party under a statute and if that statute is subsequently repealed, such right cannot be disregarded. This principle is now found enshrined in Article 264 of the Constitution of Islamic Republic of Pakistan, 1973 ("Constitution") which is reproduce as under:--

264. Effect of repeal of law.---Where a law is repealed, or is deemed to have been repealed, by, under, or by virtue of the Constitution, the repeal shall not except as otherwise provided in the constitution,---

(b) affect the previous operation of the law or anything duly done or suffered under the law;

(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under the law;

Section 6 of the General Clauses Act, 1897 ("General Clauses Act") also prescribe similar affect regarding repeal of law which is reproduce hereunder:--

6. Effect of repeal.----Where this Act, or any Central Act or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not----

(a)

(b)

(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or

11. The purpose of Article 264 of the Constitution and section 6 of the General Clauses Act is to provide protection to rights, liabilities accrued and penalties incurred under repealed enactment under the Constitution or the Act. It is well settled principle of interpretation of statutes that in absence of a stipulation to the contrary any change in law affecting substantive rights has to have prospective effect. This doctrine of law appears to have been enunciated, for the first time, by the Privy Council in The Colonial Sugar Refining Co. Ltd. v. Irving LR (1905) AC 369. This was followed in F.B. Ali v. State (PLD 1975 SC 506); Sutlej Cotton Mills Ltd. v. Industrial Court (PLD 1966 SC 472); Shohrat Bano v. Imsail (1968 SCMR 574); Garikapati v. Subbiah Chaudhry (AIR 1957 SC 540); P.I.A. Corporation v. Pak Saaf Dry Cleaners (PLD 1981 SC 553); Nazir Begum v. Qamarunnisa (1982 CLC 2271) and Muhammad Ibrahim v. Surrayiaun Nisa (PLD 1992 SC 637).

12. The above view is in line with the law laid down by the august Supreme Court in Mian Rafiud Din v. Chief Settlement and Rehabilitation Commissioner (PLD 1971 SC 252) wherein it was observed as under:--

"It is well settled that when the law is altered during the pendency of an action, the rights of the parties are decided according to the law as it existed when the action was begun and not the law that existed at the date of the judgment or order. This is, however, subject to the exception that the new law shall apply if it is a mere rule of procedure or if it has been applied retrospectively to pending proceedings. This rule, as stated in Craies on Statute Law, Sixth Edition, page 400 is as follows: --

"It is general rule that when the Legislature alters the rights of parties by taking away or conferring any right of action, its enactments, unless in express terms they apply to pending actions, do not affect them. But there is an exception to this rule, namely, where enactments merely affect procedure and do not extend to rights of action."

13. Similar view was expressed by the august Supreme Court of Pakistan in Nagina Silk Mill, Lyallpur v. The Income Tax Officer, A-Ward Lyallpur and another (PLD 1963 SC 322), Adnan Afzan v. Capt. Sher Afzal (PLD 1969 SC 187), Nabi Ahmed and another v. Home Secretary, Government of West Pakistan, Lahore and 4 others (PLD 1969 SC 599), Province of East Pakistan v. Sharafatullah and 87 others (PLD 1970 SC 514), Sona and another v. The State and others (PLD 1970 SC 264), Hassan and others v. Fancy Foundation (PLD 1975 SC 1), The Collector, Customs and Central Excise, Peshawar and others v. M/s. Rais Khan Limited through Muhammad Hashim (1996 SCMR 83), Malik Gul. Hasan and Co. and 5 others v. Allied Bank of Pakistan (1996 SCMR 237), Manzoor All and 39 others v. United Bank Limited through President (2005 SCMR 1785), Commissioner of Income Tax v. Messrs Eli Lilly Pakistan (Pvt.) Ltd. (2009 PTD 1392), Muhammad Tariq Badr and another v. National Bank of Pakistan and others (2013 SCMR 314) and Badshah Gul Wazir v. Government of Khyber Pakhtunkhwa through Chief Secretary and others (2015 SCMR 43).

14. In view of above discussion and the law settled by the apex Court, we have no doubt in our mind that the claim of carry forward adjustment made by the tax payer for both the tax years was to be governed under the repealed section 113 of the Ordinance prevailing in years, 2005 to 2008 when excess amount was carried forward and not under re-enacted section 113 in years, 2010 and 2011 when the said amount was actually adjusted. Accordingly the question raised above is answered in affirmative against the applicant department, consequently, these reference applications are hereby dismissed.

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

KMZ/C-11/LReference answered.