MUHAMMAD ILYAS QURESHI VS FEDERAL BOARD OF REVENUE, 2017 PTD-LAHORE-HIGH-COURT-LAHORE 1528 (2017)

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

----S. 236A---Constitution of Pakistan, Art. 199---Constitutional petition---Interpretation of S. 236A of the Income Tax Ordinance, 2001---Scope---Advance tax at time of sale by auction---Retrospective application of enhancement of advance tax on past and closed auction transactions---Relevant tax year for assessment of such tax---Question before the High Court was whether enhancement in the rate of advance tax under S. 236A of the Income Tax Ordinance, 2001 done via Finance Act, 2013 would apply to transactions completed prior to the date that such enhancement came into effect on 01.07.2013---Validity---Words "in that tax year" used in S. 236A(2) of the Income Tax Ordinance 2001 made it clear that said advance tax had to be computed and collected with reference to the tax year when the sale through auction was finalized and such transactions which were finalized before 01.07.2013 created vested rights in favour of the auction-purchasers and subsequent enhancement in the rate of the advance tax could not be applied retrospectively to such auctions which took place and were confirmed before 01.07.2013---Applicable rate of advance tax under S. 236A would be the one at the time of the sale by auction---While final liability to pay income tax would be on the last day of the relevant financial year, however if the advance tax had to be computed on basis of sale price of auctioned property in a particular tax year, then rate of advance tax applicable at time of sale through auction would apply and any subsequent amendment in the same could not be applied retrospectively---Constitutional petitions were disposed of, accordingly.

Government of Khyber Pakhtunkhwa and others v. Khalid Mehmood 2012 SCMR 619; Muhammad Tariq Badr and another v. National Bank of Pakistan and others 2013 SCMR 314 and Anoud Power Generation Limited and others v. Federation of Pakistan and others PLD 2001 SC 340 ref.

Commissioner of Income Tax, Peshawar v. Messrs Islamic Investment Bank Ltd. 2016 PTD 1339 distinguished.

(b) Interpretation of statutes---

----Statutory heading(s) and subheading(s)---Scope---Aids to interpretation---Headings prefixed to sections or entries could not control the plain words of the provision and could not also be referred to for purpose of construing provisions, when words used in the said provision were clear and unambiguous---However, in cases of ambiguity or doubt, heading or subheading(s) of such statutory provisions may be referred to as an aid in construing such provision of law.

(c) Interpretation of statutes---

----Taxation/fiscal statutes---Retrospective effect and interpretation of such statutes---Scope---Where a provision of law affected an accrued right of a taxpayer, said provision could not be applied retrospectively, unless the Legislature by express words or by necessary implication intended to give it such retrospective affect---In absence of a stipulation to the contrary, any change in law affecting substantive rights of taxpayers had to have prospective effect.

Commissioner of Income Tax v. Messrs Elli Lilly Pakistan (Pvt.) Ltd. 2009 PTD 1392; Commissioner Inland Revenue v. Messrs Ghausia Builders (Pvt.) Limited 2015 PTD 772; CIR v. Major General Retd. Dr. C.M. Anwar and others 2015 PTD 424; 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 Dada Adam Soomar 1968 SCMR 574; Garikapati v. Subbiah Chaudhry AIR 1957 SC 540; PIA 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 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. 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; 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.

Naveed Ahmad Khawaja and Sami Durrani for Petitioners.

Malik Abdullah Raza on behalf Sarfraz Ahmad Cheema for Respondents.

Mian Ghulam Rasul for Respondent.

Date of hearing: 6th March, 2017.

JUDGMENT

ABID AZIZ SHEIKH, J.---This consolidated judgment will also decide Writ Petitions Nos. 24672/2013, 26079/2013, 26087/2013, 3167/2014, 3168/2014, 3169/2014, 3170/2014, 3171/2014, 3172/2014, 5111/2014 and 6701/2014 as common questions of law and facts are raised in all these petitions.

2.Through these constitutional petitions, the petitioners have challenged the demand of advance sales tax @ 10% under section 236-A of the Income Tax Ordinance, 2001 ("Ordinance") and consequential impugned recovery notices.

3.Common facts in all these petitions are that petitioners are registered contractors under rule 15-A of the Local Government Ordinance, 2001 read with Auction Rules, 2003, therefore, competent to secure collection rights of cattle markets. The auctions for the collection rights of cattle market by different Tehsil Municipal Administrations ("TMAs") were held for year 2013-2014 and petitioners were declared successful bidders. After confirmation of auctions, the contracts for "collection rights of cattle market" for year 2013-2014 ("contracts") were executed and petitioners were required to deposit auction amount along with 5% advance income tax under section 236-A of the Ordinance. The grievance of the petitioners is that through Finance Act, 2013 dated 01.07.2013 ("Finance Act"), the rate of advance tax increased from 5% to 10% and accordingly petitioners were issued notices for deposit of remaining 5% advance income tax. For purpose of completion of facts, it is relevant to note that in W.Ps. Nos. 24672/2013, 26079/2013, 26087/2013, 3168/2014, 3172/2014, 6701/2014 and 1283/2015 (hereinafter referred to Category "A"), the auctions for collection rights were confirmed before Finance Act, 2013 dated 01.07.2013, whereas in W.Ps. Nos. 3167/2014, 3169/2014, 3170/2014, 3171/2014 and 5111/2014 (hereinafter referred to Category "B"), the date of confirmation of auction is after the Finance Act, 2013 dated 01.07.2013.

4.Learned counsel for the petitioners in Category "A" petitions, argued that auctions for collection rights of cattle market took place prior to 1st of July 2013 and schedule of payment was also agreed before Finance Act. Submits that at the relevant time, the advance income tax under section 236-A of the Ordinance was 5% of the auction price which was also paid by the petitioners, hence their case is of "past and closed transaction". Submits that increase in rate of advance tax from 5% to 10% for purpose of section 236-A of the Ordinance through Finance Act cannot be applied retrospectively to case of the petitioners. Reliance is placed on Government of Khyber Pakhtunkhwa and others v. Khalid Mehmood (2012 SCMR 619), Muhammad Tariq Badr and another v. National Bank of Pakistan and others (2013 SCMR 314) and Anoud Power Generation Limited and others v. Federation of Pakistan and others (PLD 2001 SC 340). Learned counsel for petitioners in Category "B" petitions argued that though auctions were confirmed after Finance Act promulgated, however, in contracts executed with TMAs rate of advance tax was determined at 5%, therefore, petitioners are not bound to pay advance tax @10% under the Finance Act.

5.Learned counsel for the respondents submits that under the Ordinance, liability to pay income tax on the tax payer accrued on the last day of the income/accounting year. Submits that as income year in respect of the petitioners was 2013-2014, therefore, the amendment made through Finance Act will apply retrospectively to advance income tax determined before Finance Act but payable by petitioners in tax years 2013 and 2014. The learned counsel submits that no vested rights have been accrued in favour of the petitioners. Reliance is placed on Commissioner of Income Tax, Peshawar v. Messrs Islamic Investment Bank Ltd. (2016 PTD 1339).

6.I have heard learned counsel for the parties and perused the record. There is no dispute between the parties that before 01.07.2013, the rate of advance income tax computed on the basis of sale price of property including collection of fee and other levies under section 236-A of the Ordinance was 5%. This rate was increased from 5% to 10% through Finance Act, 2013 by amending Division III Part IV of the First Schedule of the Ordinance ("Schedule"). The moot question is whether this amendment will apply to auctions already took place prior to Finance Act on 1st of July, 2013. To determine this question, it is expedient to reproduce section 236-A of the Ordinance as under:--

"236A. Advance tax at the time of sale by auction.- (1) Any person making sale by public auction [or auction by a tender], of any property or goods [(including property or goods confiscated or attached)] either belonging to or not belonging to the Government, local Government, any authority, a company, a foreign association declared to be a company under sub-clause (vi) of clause (b) of subsection (2) of section 80, or a foreign contractor or a consultant or a consortium or Collector of Customs or Commissioner of [Inland Revenue] or any other authority, shall collect advance tax, computed on the basis of sale price of such property and at the rate specified in Division VIII of Part IV of the First Schedule, from the person to whom such property or goods are being sold.

(2) The credit for the tax collected under subsection (1) in that tax year shall, subject to the provisions of section 147, be given in computing the tax payable by the person purchasing such property in the relevant tax year or in the case of a taxpayer to whom section 98B or section 145 applies, the tax year, in which the "said date" as referred to in that section, falls or whichever is later.

Explanation.---For the purposes of this section, sale of any property includes the awarding of any lease to any person, including a lease of the right to collect tolls, fees or other levies, by whatever name called.]"

(underlining by me to add emphasis).

The rate of advance tax given in the schedule before Finance Act, 2013 is reproduced hereunder:

Division VIII Advance tax at the time of sale by auction.

The rate of collection of tax under section 236A shall be [5] % of the gross sale price of any property or goods sold by auction.]

7.Plain reading of subsection (1) of section 236-A shows that any person making sale by public auction shall collect advance tax computed on the basis of sale price of such property at the rate specified in Division VIII Part IV of First Schedule of the Ordinance. Explanation in section 236-A of the Ordinance, postulates that property includes award of any lease of right to collect tolls, fee or other levies. The words "shall collect advance tax, computed on the basis of sale price of such property" mentioned in subsection (1) of section 236-A of the Ordinance leave no doubt that advance tax shall be computed on the basis of sale price of property by auction. Under sub-clause (2) of section 236-A of the Ordinance, the credit for the tax collected under subsection (1) in that tax year shall be given in computing the tax payable by the person purchasing such property in the relevant tax year. The words "in that tax year" in subsection (2) of section 236-A makes it abundantly clear that advance tax has to be computed and collected with reference to tax year when sale through auction was finalized. In category "A" cases, admittedly, auction took place before 01.07.2017 and advance tax @5% was also computed on the basis of sale price and thereafter the contracts between auction purchasers and TMAs were executed and consequently advance tax @5% was also paid. This transaction created vested right in favour of said auction purchasers and subsequent amendment made in Schedule through Finance Act, 2013 w.e.f. 01.07.2013, cannot be applied retrospectively to those auctions took place and confirmed before Finance Act, 2013.

8.The heading and title of section 236-A also specifically provides that advance tax is at the time of sale by auction. Though it is well-settled that the headings prefixed to sections or entries cannot control the plain word of the provision and they cannot also be referred to for the purpose of construing the provisions when the words used in the provision are clear and unambiguous. However in case of ambiguities or doubt, the heading or sub-heading may be referred to as an aid in construing the provision. Following the above principle of interpretation, when we look at heading and title of section 236-A of the Ordinance, it resolves doubt if any that applicable rate of advance tax shall be the one at the time of sale by auction.

9.Law is well settled that where provision of law affects an accrued right of a tax payer, said provision cannot be applied retrospectively unless the Legislature by express words or necessary implication intended to give it retrospective affect. In this regard, reliance is placed on Commissioner of Income Tax v. Messrs Elli Lilly Pakistan (Pvt.) Ltd. (2009 PTD 1392), Commissioner Inland Revenue v. Messrs Ghausia Builders (Pvt.) Limited (2015 PTD 772) and CIR v. Major General Retd. Dr. C.M. Anwar and others (2015 PTD 424). It is also 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 Dada Adam Soomar (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).

10.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."

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 & 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 Elli 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).

11.The above discussion leaves no manner of doubt that the amendment in Schedule through Finance Act cannot take away existing rights of the auction purchasers and rate of 10% advance tax cannot be applied retrospectively to auctions already confirmed before 01.07.2013. The argument of learned counsel for the respondents that liability to pay income tax accrues on the last day of income year is not applicable to advance tax in present case. No doubt that final liability to pay income tax will be on the last day of the relevant tax year, however, if the advance tax has to be computed on the basis of sale price of auctioned property in particular tax year, then the rate of advance tax applicable at time of sale through auction and happening of that taxable event will apply and any subsequent amendment cannot be applied retrospectively. The case law relied upon by the respondents is not applicable to the facts and circumstances of this case whereas the case law relied upon by the learned counsel for the petitioners are relevant and further support the above conclusion.

12.However, in cases of Category "B", admittedly auctions were confirmed after the Finance Act, 2013, therefore, the rate of 10% advance tax is not being applied retrospectively. In these cases, no vested right accrued in favour of the petitioners. Therefore, rate of 10% advance tax under Finance Act, will apply regardless of any stipulation to the contrary in contracts between TMA and auction purchasers. In this regard law is well settled that even with consent of parties, the provision of law cannot be made redundant.

13.In view of above discussion, the Writ Petitions in Category "A" i.e. No. 24672/2013, 26079/2013, 26087/2013, 3168/2014, 3172/2014, 6701/2014 and 1283/2015 are allowed and consequently the impugned notices are set aside being without lawful authority and of no legal effect. However, Writ Petitions in Category "B" i.e. Nos.3167/2014, 3169/2014, 3170/2014, 3171/2014 and 5111/2014 are dismissed with no order as to cost.

KMZ/M-73/L Order accordingly.