COMMISSIONER INLAND REVENUE VS GHAUSIA BUILDERS (PVT.) LTD., 2015 PTD-LAHORE-HIGH-COURT-LAHORE 772 (2014)

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

----Ss. 122(4), 122(2), 120 & 133---Finance Act (I of 2009) S. 5(21)---Further amendment of assessment under S. 122(4) of the Income Tax Ordinance, 2001---Effect of change in the commencement of five year period of limitation for amendment of assessment provided in S. 122(4) of the Income Tax Ordinance, 2001; vide S. 5(21) of the Finance Act, 2009---Retrospective effect of such amendment---Taxpayer filed his tax return in the year 2006; and assessment order was amended under S.122 of the Income Tax Ordinance 2009 in the year 2012---At the time the taxpayer filed his tax return, period of commencement of limitation under S. 122(4) of the Income Tax Ordinance was to run from the date of original assessment order, however vide Finance Act, 2009, the same was amended to commence from the end of financial year (June, 2007)---Question before the High Court was "whether effect of the amendment which changed the commencement of the period of limitation in S. 122(4) was applicable to the case of the taxpayer"---Held, that the amendment made in S. 122(2) of the Income Tax Ordinance, 2001 through the Finance Act, 2009 could not be applied retrospectively and limitation as it stood at the time of filing of return, would be applicable to the case of the taxpayer---Section 122(4) of the Income Tax Ordinance, 2001 also prescribed a period of limitation of five years for further amendment and subsequently provisions were amended for counting period of limitation from the end of the financial year when the assessment order was passed---Pre and post amended provisions of S. 122(4) & S. 122(2) of the Income Tax Ordinance, 2001; being identical in nature; the ratio decidendi of the Superior Courts judgments applicable to S. 122(2) of the Income Tax Ordinance, 2001 would also apply to S. 122(4) of the Income Tax Ordinance, 2001---Amendments in Ss. 122(2) & 122(4) of the Income Tax Ordinance, 2001 were not a direct case of enlargement of limitation period by extending the terminal date of limitation but were a change in the date of commencement of the period of limitation; therefore argument that no vested right accrued to the taxpayer when amendment in S. 122(4) of the Income Tax Ordinance, 2001 was made, was misconceived as the commencement date had already been availed by the taxpayer by filing his returns which were an assessment order under S.120 of the Income Tax Ordinance, 2001 and said commencement date could not be changed by giving same a retrospective effect after amendments in Ss. 122(2) & 122(4) of the Income Tax Ordinance, 2001---Once the taxpayer triggered the date of commencement of the limitation period by filing returns, vested right already accrued in its favour through the statutory enactment that after afflux of five years, the assessment could not be opened or amended; and after passage of the said five years; the said date of commencement became a past and closed transaction; and therefore the amended provisions of Ss. 122(2) & 122(4) of the Income Tax Ordinance, 2001 could not be applied retrospectively merely by construction to change the date of commencement of limitation unless the legislature had by express words or necessary implication, had intended to give it such retrospective effect---Reference was answered, accordingly.

The Commissioner of Income Tax, Central Zone 'B' Karachi v. Messrs Asbestos Cement Industries Limited, Karachi 1993 PTD 459; Zeal Pak Industries (Pvt.) Ltd., Karachi v. Regional Commissioner, Income Tax, Karachi and 2 others 2009 PTD 712 and Nagina Silk Mill, Lyallpur v. The Income Tax Officer, A-Ward Layallpur and others 1963 PTD 633 ref.

CIR v. Major General Retd. Dr. C.M. Anwar and others PTCL 2014 CL 608; CIR v. Messrs D.S. Textile Mills Ltd. PTR No.277/2014; Commissioner of Income Tax v. Major General (R) Dr. C.M Anwar and others Civil Petition No.1306 of 2014; Commissioner of Income Tax v. Messrs Eli Lilly Pakistan Private Ltd. 2009 PTD 1392 and Nagina Silk Mill Layallpur v. The Income Tax Officer and others PLD 1963 SC 322 rel.

(b) Interpretation of statutes---

----Tax statute---Amendment in period of limitation---Retrospective effect of such amendment---Scope----Period of limitation was to be considered as procedural law and normally applied retrospectively; however, when a right had accrued to the taxpayer at the commencement of a period of limitation through a statutory enactment, then after afflux of a certain period of time, the assessment could not be opened or amended, and the procedural provision to impair said accrued vested right, could not be applied retrospectively, through mere construction, unless the Legislature had, by its express words or necessary implication, given it such retrospective effect---Proper approach to interpretation to determine whether an amendment had retrospective effect, was not by looking at the "label" applied to such an amendment that is, procedural or substantive; but it was to be seen whether the amendment in the statute, if applied respectively, would impair existing rights including rights protected by substantive provisions of law---Law, if it destroyed existing rights or even placed any restriction on it, could not be given retrospective effect unless the statute expressly was enacted to that effect.

Ch. Mukhtar Ahmad Gondal for Petitioner.

ORDER

ABID AZIZ SHEIKH, J.---This reference application is filed by the applicant department against the order of learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore (Tribunal) dated 2-6-2014 passed in I.T.As. Nos.216 and 217/LB/2013 relating to tax year 2006 arising out of two separate orders of even date 8-11-2012 passed by Commissioner Inland Revenue (Appeals-II), Lahore on the following questions of law:--

(1)"Whether on the facts and circumstances of the case, learned Appellate Tribunal Inland Revenue was justified to hold that limitation to pass the order under Section 122(5) of the Income Tax Ordinance, 2001, made on 30-6-2012, would run up to five years from the date of filing of return of income whereas, after introduction of the amendment in Section 122(4) through Finance Act, 2009, the limitation of time would run upto five years from the end of Financial Year in which the return of income was filed and order under Section 120 of the Ordinance was deemed to have been issued and therefore, the order under Section 122(5) passed on 30-6-2012 was within limitation?"

(2)"Whether on facts and in circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified in ignoring judgment of the Hon'ble Sindh High Court in the case of Zeal Pak Industries (Pvt.) Ltd., Karachi v. Regional Commissioner Income Tax Karachi reported as 2009 PTD 712 wherein it has been categorically decided that procedural amendments relating to time limitation apply to all pending proceedings and to all cases which have not become past and closed transaction?"

2.Brief facts are that Income Tax return filed for the tax year 2006 declaring Nil income, which attained the status of an assessment order under section 120 of Income Tax Ordinance, 2001 (Ordinance). Subsequently, Deputy Commissioner Inland Revenue (DCIR) issued notice dated 22-6-2012 for amendment of assessment under section 122(9) read with sections 122(1) and 122(5) of the Ordinance. Being not satisfied with the reply DCIR amended the assessment on 30-6-2012. The said order was upheld by the Commissioner Inland Revenue Appeal (CIR (A). The respondent assessee being aggrieved filed appeal before the learned Tribunal. The case of the respondent taxpayer before learned Tribunal was that under Section 122(4) (as it stood in tax year 2006), the order for amendment of assessment order, could only be passed within five year from the date of assessment order i.e. till 31-12-2011. Therefore, the notice under sections 122(9), 122(1) and 122(5) of the Ordinance issued on 22-6-2012 and amended assessment order dated 30-6-2012 were barred by limitation. The learned Tribunal while accepting the appeal of the respondent taxpayer vacated the orders passed by the authorities below regarding tax year 2006, hence this reference application.

3.Learned counsel for the petitioner vehemently argued that amendment was brought in Section 122(4) through Finance Act, 2009 and the period of 05 years prescribed under Section 122(4) was extended by counting it from the end of financial year in which Commissioner has issued or treated to have issued the assessment order to the taxpayer. He submits that in present case, assessment order was in respect of tax year 2006, for which financial year ended on 1-7-2007, therefore, the show cause notice on 22-6-2012 and amended assessment order dated 30-6-2012 being within five years from the financial year, were not barred by time. Further argued that amendment through Finance Act, 2009, in limitation period under Section 122(4) being procedural law, will apply retrospectively. Adds that as amendment through Finance Act, 2009, in Section 122(4) of the Ordinance was introduced before expiry of five year limitation from assessment order, therefore, no vested right accrued to the respondent and it was not a case of past and closed transaction. Reliance is placed on The Commissioner of Income Tax, Central Zone 'B' Karachi v. Messrs Asbestos Cement Industries Limited, Karachi (1993 PTD 459), Zeal Pak Industries (Pvt.) Ltd., Karachi v. Regional Commissioner, Income Tax, Karachi and 2 others (2009 PTD 712) and Nagina Silk Mill, Lyallpur v. The Income Tax Officer, A-Ward Lyallpur and others (1963 PTD 633).

4.We have heard the arguments of learned counsel for the petitioner and gone through the record.

Questions Nos.1 and 2.

5.We have noted that show cause notice dated 22-6-2012 and amended assessment order dated 30-6-2012 were issued under section 122(1) read with sections 122(5) and 122(9) of the Ordinance for which limitation is prescribed under section 122(2) of the Ordinance whereas section 122(4) deals with further amendment of the assessment order. However as both provisions are similar and the questions of law arising out of the learned Tribunal order relates to section 122(4), we deem appropriate to examine legal effect of both these provisions simultaneously.

6.For the purpose of limitation to amend and further amend the assessment order under sections 122(2) and 122(4) respectively, both aforesaid provisions are more or less identical. Before amendment in year 2009, both these provisions provided limitation of five year for amendment or further amendment of assessment order, after the assessment order has issued or treated as having been issued by Commissioner. However, through Finance Act, 2009, both these provisions were amended in same fashion whereof limitation for amendment or further amendment of assessment order is to be reckoned from the end of the financial year when assessment order has been passed or treated to have been passed.

7.The moot question require determination is whether these amended provisions of sections 122(2) and 122(4) will apply retrospectively. As far as retrospective effect of amended section 122(2) is concerned, this Court has already authoritatively decided this question in negative in the judgment reported as CIR v. Major General Retd. Dr. C.M. Anwar and others (PTCL 2014 CL 608), which was also followed in PTR No.277/2014 titled CIR v. Messrs D.S. Textile Mills Ltd. and upheld vide order dated 3-9-2014 by the august Supreme Court in Civil Petition No.1306 of 2014 titled Commissioner of Income Tax v. Major General (R) Dr. C.M Anwar and others, wherein it has been held that amendment in section 122(2) of the Ordinance through Finance Act, 2009 could not be applied retrospectively and limitation as it stood at the time of filing of return, will be applicable to the case of the taxpayer assessee. Though the afore noted judgments are not strictly on section 122(4) of the Ordinance, however, perusal of pre and post amended provision of section 122(4) shows that it also prescribed period of five year limitation for further amendment from passing of assessment order and subsequently the provision was amended through Finance Act, 2009, for counting limitation period from end of financial year when assessment order was passed. The pre and post amended provision of section 122(4) being similar to provision of section 122(2), the Ratio Decidendi of aforesaid judgments is also applicable to amendment in section 122(4) of the Ordinance through Finance Act, 2009.

8.Admittedly, in the present case, income tax return was filed for tax year 2006 and the period of five years limitation in terms of section 122(2) and section 122(4) of the Ordinance, relating to tax year 2006 (as it then stood) expired on 31-12-2011, therefore, the notice dated 22-6-2012 and amendment of assessment order dated 30-6-2012 being after expiry of limitation of 05 years from the date of return were barred by time as per law laid down in judgments referred supra.

9.The learned counsel for the petitioner tried to distinguish his case from aforesaid judgments by arguing that as amendments in sections 122(2) and 122(4) of the Ordinance were introduced through Finance Act, 2009 before expiry of limitation period of five years for respondent/assessee in December, 2011, therefore, no vested right accrued to the respondent assessee and being not a case of past and closed transaction, procedural amendment of limitation will apply retrospectively. To examine this argument, it is expedient to reproduce pre and post amendment provisions of sections 122(2) and 122(4) of the Ordinance as under:--

Pre-amendment Section 122(2)

"An assessment order shall only be amended under sub-section (1) within five years after the Commissioner has issued or is treated as having issued the assessment order on the taxpayer"

Post amendment Section 122(2)

"No order under subsection (1) shall be amended by the Commissioner after the expiry of five years from the end of the financial year in which the Commissioner has issued or treated to have issued the assessment order to the taxpayer"

Pre-amendment Section 122(4)

"Where as assessment order (hereinafter referred to as the "original assessment") has been amended under subsec-tion (1)[,][or(5A)], the Commissioner may further amend [, as many times as may be necessary,] the original assessment within the later of-

(a) Five years after the Commissioner has issued or is treated as having issued the original assessment order to the taxpayer; or

Post amendment Section 122(4)

"Where as assessment order (hereinafter referred to as the "original assessment") has been amended under subsec-tion (1)[,][(or(5A)], the Commissioner may further amend [, as many times as may be necessary,] the original assessment within the later of-

(a) Five years [from the end of the financial year in which] the Commissioner has issued or is treated as having issued the original assessment order to the taxpayer; or

The bare reading of sections 122(2) and 122(4) of the Ordinance (pre and post amendment) reveals that the limitation period of five years remained unchanged and through amendment in sections 122(2) and 122(4) by Finance Act, 2009, only the date of commencement of the limitation has been changed, from the date of issuance of assessment order to the end of the financial year in which assessment order was issued or treated to have been issued. The aforesaid amendment in sections 122(2) and 122(4) of the Ordinance is not a direct case of enlargement of limitation period by extending the terminal date of limitation but the change is in the date of commencement of limitation period. If it was a direct case of enlargement of Limitation, the petitioner arguments that no vested right accrued as amendment was made before expiry of Limitation, may had force but as the amendment is to the change the commencement date of limitation, the argument is mis-conceived. The commencement date has already been availed by the respondent assessee by filing his returns which was treated as an assessment order under section 120 of the Ordinance from date of return and therefore, the said commencement date cannot be changed by giving retrospective effect to amended provisions of sections 122(2) and 122(4). Once, the respondent assessee triggered the date of commencement of limitation by filing return, vested right already accrued in its favour through statutory enactment that after afflux of five year, the assessment cannot be opened or amended. After availing date for commencement of limitation period, the said date of commencement become, "past and closed transaction" for the respondent assessee, and the provisions of sections 122(2) and 122(4) of the Ordinance, could not be applied retrospectively, merely by construction, to change the date of commencement of limitation, unless the legislature by express words or necessarily implication intended to give it retrospectively effect. The august Supreme Court in Commissioner of Income Tax v. Messrs Eli Lilly Pakistan Private Limited (2009 PTD 1392) held that where provision is impregnated with as essential attribute, which effects an accrued right of an assessee or taxpayer that after afflux of a certain period of time, his assessment would not be opened or amended, the provision cannot be applied retrospectively unless the legislature has by express word or necessary implication intended to give it retrospective effect. The august Supreme Court in Nagina Silk Mill Lyallpur v .The Income Tax Officer and others (PLD 1963 SC 322) case referred by the petitioner counsel himself held that once time begins to run from a specified date it cannot be interrupted or extended unless the legislature intervenes and makes express provision to the contrary and by mere process of construction it cannot be done. The case-law relied upon by the learned counsel for the petitioner are not strictly applicable to the facts and circumstances of this case.

10.So far as the argument of the learned counsel for the petitioner that amendment in limitation being procedural in nature will apply retrospectively is concerned, there is no cavil with the settled proposition of law, that period of limitation is to be considered as procedural law and normally applied retrospectively. However, when right is accrued to the tax payer at the commencement of limitation period through statutory enactment, that after afflux of certain period of time, the assessment cannot be opened or amended, the procedural provision to impair said accrued vested right, cannot be applied retrospectively through mere construction, unless the legislature by its express words or necessary implication intended to give it retrospective effect. The proper approach of interpretation to determine whether an amendment has retrospective effect is not by looking at the "Label" applied to such amendment i.e. procedural or substantive, but to see whether the amendment in statute if applied retrospectively would impair existing vested rights including rights protected by substantive provision of law. If a law destroys existing rights and even places any restriction on it, no retrospective effect would be given to it unless the statute is expressly enacted to that effect.

11.In nutshell, the questions under discussion are identical to the one already decided by this Court as well as august Supreme Court in the afore noted judgments. Accordingly, questions Nos.1 and 2 are answered in affirmative.

12.In view of above discussion, this reference application is decided against the petitioner department.

13.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 Ordinance.

KMZ/C-1/LOrder accordingly.