COMMISSIONER INLAND REVENUE, ZONE-I, LTU VS N.P. SPINNING MILLS LTD., 2017 PTD-KARACHI-HIGH-COURT-SINDH 1441 (2017)

Income Tax Ordinance (XLIX of 2001)---

----Ss.182(1), 137 & 133---Offences and penalties under the Income Tax Ordinance, 2001---Penalty for failure to furnish a return or statement---"Tax payable" meaning of---Explanation regarding meaning of expression "tax payable", inserted into S. 182(1) of the Income Tax Ordinance, 2001 could not have retrospective effect---Scope---Question before the High Court was whether explanation inserted in S. 182(1) by Finance Act, 2011, relating to meaning of the term "tax payable" was only applicable from tax year 2012---Validity---Per explanation inserted through the Finance Act, 2011 expression "tax payable" had been redefined in such a manner that it changed the purport of the said expression to the disadvantage of the taxpayer and the same could not be given retrospective effect, and would therefore apply to the tax year 2012 onwards---Reference was answered, accordingly.

Commissioner Inland Revenue, Zone-III v. Messrs General Tyre and Rubber Company of Pakistan Ltd., Karachi 2013 PTD 387; Commissioner Inland Revenue Legal Division, RTO, Karachi v. Messrs Munir Associates I.T.R.A. No.38 of 2010, dated 1.10.2010 and Kingcrete Builders through General Manager v. C.B.R. through Chairman CBR, Islamabad (2013) 108 Tax 363 (H.C. Isl) rel.

Altamash Faisal Arab for Appellant.

Iqbal Salman Pasha for Respondent.

ORDER

AQEEL AHMED ABBASI, J.---Through instant Reference Application, the applicant department has proposed following question, which according to learned counsel for the applicant, is a question of law arising from the impugned order dated 14.05.2012, passed by the Appellate Tribunal, Inland Revenue, Karachi in I.T.A. No.897/KB-2011 (Tax Year-2008):--

"Whether on the facts and circumstances of the case the learned Appellate Tribunal Inland Revenue was justified in holding that explanation inserted through Finance Act, 2011 in S.No.1 of the Table in subsection (1) of Section 182 of Income Tax Ordinance, 2001, is applicable from tax year 2012 and onwards"?

2.Learned counsel for the respondent, at the very outset, submits that the controversy agitated in the instant case and the question proposed through instant Reference Application has already been decided by this Court in the case of Commissioner Inland Revenue, Zone-III v. Messrs General Tyre and Rubber Company of Pakistan Ltd., Karachi, reported as 2013 PTD 387, (2013) 108 Tax Year 359 (SHC), wherein, according to learned counsel for the respondent, it has been held that since no tax was payable along with return at the relevant point of time, therefore, provisions of section 182 of the Income Tax Ordnance, 2001 could not be invoked. Learned counsel for the Respondent has referred to Paras 5 and 7 of the aforesaid reported judgment, which are reproduced as follows:--

5. Similarly, the appellate tribunal, after having examined the entire facts of the case and by applying the relevant provision of law has held as under:--

4. Sameer Khan, CA learned representative of the respondent/taxpayer has supported the order of the CIR(A) and contended that the DCIR erred in passing the order under Section 182(1) of the Income Tax Ordinance, 2001 without considering the reply of the tax payer which was filed within due time since proper opportunity of being heard was not given. He submitted that charging penalty amount to Rs.139,506/- is not leviable and is bad in law and facts of the case requires to be annulled. He further submitted that the taxpayer applied extension of time for filing the return on December, 31, 2008 which was rejected. After rejection the appellant approached to Director General, LTU, Karachi vide letter dated 2nd January, 2009 for extension of time. He further submitted that the term "tax payable" means the tax payable with the return, since the tax year had already been discharged by way of taxes paid and there was no tax payable under Section 137, therefore, question of penalty does not raise, hence the order passed by the DCIR is illegal and without giving any opportunity to the taxpayer to submit its point of view which is the right envisaged under the Constitution of the Islamic Republic of Pakistan.

6. In view of hereinabove facts and on examination of the legal provision as referred to hereinabove, it has come on record that since there was no tax payable along with return thus the provision of section 182 was not applicable to the facts of this case. While confronted with such factual and legal position, the learned counsel for the applicant has candidly conceded to the legal position as stated hereinabove.

7. Accordingly, we are of the opinion that both the forums below have correctly decided the case against the applicant and in favour of the assessee, hence the impugned order passed by the appellate tribunal does not require any interference by this Court. Instant reference application is devoid of any merits, which is hereby dismissed along with listed application and the question proposed is answered in affirmative against the applicant."

3.Learned counsel for the applicant could not controvert the above factual and legal position and candidly submits that subject controversy relating to applicability of Section 182 when no tax was payable along with return has already been decided in the aforesaid decision, therefore, instant Reference Application can also be disposed in similar terms. However, it has been contended by the learned counsel that the question proposed in the instant Reference Application is different from the question, which was proposed and answered by the Division Bench in the afore cited case. According to learned counsel, in the aforesaid decision it has been held that since no tax was payable along with return at the relevant point of time, therefore, provisions of Section 182 of the Income Tax Ordinance 2001 could not be invoked, whereas, in the instant case, the proposed question relates to interpretation of explanation added to Section 182 of the Income Tax Ordinance, 2001. It has been, however, contended that in the instant case, the facts, as recorded in Para-4 of the impugned order, are somewhat similar to the facts of the aforesaid case, whereas, in both the cases, it has been held by the Appellate Tribunal that there was no tax payable for the relevant tax year in terms of section 137 of the Income Tax Ordinance, 2001, therefore the penalty could not be imposed under Section 182(1) of the Income Tax Ordinance, 2001.

4.We have heard learned counsel for the parties, perused the record with their assistance and have also examined the decision of this Court in the case of Commissioner Inland Revenue, Zone-III v. Messrs General Tyre and Rubber Company of Pakistan Ltd., Karachi, reported as 2013 PTD 387. It appears that the fact of the instant case are somewhat similar to the facts of the cited decision as in both the cases it has been held by the Appellate Tribunal that since there was no tax payable under Section 137 of the Income Tax Ordinance, 2001, along with return, therefore, the provisions of Section 182(1) of the Income Tax Ordinance, 2001, could not be invoked. It will be advantageous to reproduce the question of law, which has been answered by this Court in the aforesaid decision, which reads as follows:--

"Whether on the facts and circumstances of the case the learned Appellate Tribunal Inland Revenue was justified in holding that tax payable as referred in Section 182(1) means "tax payable" with return despite the fact that the said section clearly states the tax payable in respect of that tax year"?

Whereas, in the instant Reference Application, following question has been proposed:--

"Whether on the facts and circumstances of the case the learned Appellate Tribunal Inland Revenue was justified in holding that explanation inserted through Finance Act, 2011 in S.No.1 of the Table in subsection (1) of Section 182 of Income Tax Ordinance, 2001, is applicable from tax year 2012 and onwards"?

5.From perusal of the aforesaid questions, it appears that in the instant Reference Application, the decision is required to examine the effect of explanation inserted through Finance Act, 2011 to section 182(1) of the Income Tax Ordinance, 2001. Whereas, from the findings, as recorded by the Appellate Tribunal in the instant case, it has been observed that the Application of Section 182 for the Tax Year 2008 prior to amendment by Finance Act, 2010 in Section 182(1), as well as the effect of explanation added to Section 182(1) through Finance Act, 2012 has been dealt with by the Appellate Tribunal, and it has been held that provisions of Section 182(1) of the Income Tax Ordinance, 2001, are applicable to tax year 2012.

6.It will be advantageous to reproduce the explanation added to section 182(1) of the Income Tax Ordinance, 2001, through Finance Act, 2011, which reads as follows:--

'---For the purposes of this entry, it is declared that the expression "tax payable" means tax chargeable on the taxable income on the basis of assessment made or treated to have been made under sections 120, 121, 122 or 122C.'

From perusal of hereinabove explanation added to Section 182(1) of the Income Tax Ordinance, 2001, it has been observed that the expression "tax payable" has been defined to mean tax chargeable on the taxable income on the basis of assessment made or treated to have been made under Sections 121, 122 or 122(c), whereas, in terms of provision of section 182(1) of the Income Tax Ordinance, 2001, the expression "tax payable" means the tax payable along with return for the relevant tax year in terms of Section 137 of the Income Tax Ordinance, 2001. Such legal position has been explained by this Court in the case of Commissioner Inland Revenue. Zone-III v. Messrs General Tyre and Rubber Company of Pakistan Ltd., Karachi, reported as 2013 PTD 387 (2013) 108, Tax Year 359 (SHC) as referred to hereinabove. Moreover, the explanation inserted through Finance Act, 2011, to Section 182(1) of the Income Tax Ordinance, 2001, intends to explain the provision of Section 182(1) as amended by Finance Act, 2010, therefore, the said explanation would otherwise not apply to the tax year 2008 as it cannot be given retrospective effect, to the disadvantage of a taxpayer. This aspect of the matter has been examined by the Appellate Tribunal in Paras. 6 and 7 of the impugned order passed by the Appellate Tribunal by placing reliance in a Division Bench judgment of this Court in the case of Commissioner Inland Revenue Legal Division, RTO, Karachi v. Messrs Munir Associates in I.T.R.A. No.38 of 2010 dated 01.10.2010, as referred to hereinabove, which reads as follows:--

"6. Since before substitution of section 182 by the Finance Act, 2010 and insertion of "Explanation" by the Finance Act, 2011 the word "tax payable" had a different meaning favouring the tax payer and by virtue of the "Explanation" the word "tax payable" has attained a meaning that is detrimental to the taxpayer therefore penalty on tax payable as envisaged in section 182(1) as amended by the Finance Act, 2010 read with "Explanation" as inserted by the Finance Act, 2011 would be applicable from tax year 2012 onwards. Hon'ble Sindh High Court in its judgement in I.T.R.A. No.38 of 2010 Dated 01.10.2010 (The Commissioner Inland Revenue Legal Division, RTO, Karachi v. Messrs Munir Associates) has been pleased to declare the insertion of subsection (10) in section of 177 of the Income Tax Ordinance, 2001 through Finance Act 2010 applicable from tax year 2011 being detrimental to the interest of the tax payers. The Hon'ble Court has been pleased to hold as under:--

'We have perused the records of the case including the impugned order and the provisions of law with the assistance of the learned counsel. We have seen that in 2010 vide Finance Act, 2010 a new subsection (10) has been inserted which now provides power to the officer or the Chartered Accountant conducting the audit to make assessment under section 121 in case of non-compliance of the notices issued for such audit and has also provided that in such a case the assessment treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect. We have seen that it is under this proviso that the impugned assessment has been completed by the Assessing officer. We are, however of the considered opinion that this provision, which is detrimental to the taxpayer, cannot be given retrospective effect and will apply for the Tax Year 2011 onwards and, therefore, there was no power vested in the assessment officer to pass an order under section 121 for the Tax Year 2005. We will therefore, answer the question proposed in affirmative, as a consequence of which this income Tax Reference Application is dismissed in limine."

7. Respectfully following the ratio settled in the above judgment and in view of the "Explanation" inserted to section 182(1) by the Finance Act, 2011 we are of the firm opinion that the provisions of section 182(1) of the Income Tax Ordinance, 2001 are applicable with effect from tax year 2012. The assessing officer misdirected himself in imposing the penalty in respect of return of income for the tax year 2008 by applying provisions of section 182(1) as amended by Finance Act 2010. Therefore, order of the CIR(A) deleting penalty under section 182(1) does not call for any interference. The same is upheld. Appeal filed by the Department fails."

7.Accordingly, since no tax was payable in the instant case under section 137 of the Income Tax Ordinance, 2001 along with Return, therefore, the provisions of section 182(1) could not be invoked, whereas, the explanation inserted through Finance Act, 2011, whereby, the expression "tax payable" has been re-defined in such a manner that it has changed the purport of the expression "tax payable" to the disadvantage of a tax payer, and the same is contrary to the legal position as determined by this Court in the above reported decision, the same otherwise, cannot be given retrospective effect i.e. prior to its insertion through Finance Act, 2011, and, therefore, would apply to the tax year 2012 onwards. In view of the facts and circumstance of the instant case, we are of the opinion that the order of the Appellate Tribunal does not suffer from any illegality or error, as it has been decided in view of the legal position as emerged from the decisions of the Division Benches of this Court in the case of Commissioner Inland Revenue Legal Division, RTO, Karachi v. Messrs Munir Associates in I.T.R.A. No.38 of 2010 dated 01.10.2010, as referred in the impugned order, and the reported case of Kingcrete Builders through General Manager v. C.B.R. through Chairman CBR, Islamabad [(2013) 108 Tax 363 (H.C. Isl). By respectfully following the above cited decisions on the subject, instant Reference Application is dismissed and the question proposed hereinabove is answered in affirmative against the applicant in favour of the respondent.

KMZ/C-8/Sindh Order accordingly.