The COMMISSIONER OF INCOME TAX, LAHORE VS CHAUDHARY DAIRIES LTD.
2019 P T D 452
[Lahore High Court]
Before Ayesha A. Malik and Muzamil Akhtar Shabir, JJ
The COMMISSIONER OF INCOME TAX, LAHORE
Versus
Messrs CHAUDHARY DAIRIES LTD.
P.T.Rs. Nos.63, 64 and 65 of 2002, heard on 05/11/2018.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.50(4) & First Sched.----SRO No.586(I)/91 dated 30.6.1991---SRO No.593(I)/94 dated 12.6.1994---Assessee deriving income from dairy products---Advance tax, deduction of---Scope---Under S.50(4) of the Income Tax Ordinance, 1979 the recipient of goods, who was to make payment for the goods supplied to him, was required to deduct the amount of advance tax from the payment to be made by him to the supplier at the rate specified in the First Schedule of the Ordinance---Notification No. SRO No.586(I)/91 dated June 30, 1991 exempted the recipients of payment from the assessee against the supply of agricultural produce from the application of S.50(4) of the Ordinance---Words "including fresh milk" were added after the words "agricultural produce" mentioned in the previous Notification by amendment through SRO No.593(I)/94 dated 12.6.1994 issued by the Federal Board of Revenue---Amendment by way of Notification SRO No. 593(I)/94 dated 12.6.1994 was clarificatory in nature and had retrospective effect and provision of S.50(4) of the Ordinance was not applicable to the assessee.
1997 PTD (Trib.) 2145 ref.
(b) Interpretation of statutes---
----Departmental construction---Consistency---Scope---Department, if it placed a particular construction on a provision of an enactment for a considerable period of time and acted upon it and followed such practice consistently without any interruption; then such Department could not depart from such construction/ practice in absence of any new development in the form of clarification by Legislature or by framing of new rules or issuance of binding instructions by competent authorities.
1997 PTD (Trib.) 2145 ref.
Nazir Ahmad v. Pakistan and others PLD 1970 SC 453 rel.
(c) Interpretation of statutes---
----Insertion of explanation in statutory instrument / delegated Legislation---Function, scope and effect---Explanations function to explain meaning and effect of main provisions and to clear up any doubt or ambiguity in the same and such explanation generally had retrospective application inasmuch it sought to explain and remove doubt existing in the mind of public functionaries as well as citizens.
Collective of Customs, Sambrial v. Custom, Excise and Sales Tax Appellate Tribunal 2002 MLD 127 and Messrs Hunza Asian Textile and Woolen Mills Limited v. Commissioner Sales Tax Rawalpindi Zone, Rawalpindi 1973 PTD 544 rel.
Malik Abdullah Raza and Sarfraz Ahmad Cheema for Applicants.
Mian Ashiq Hussain for Respondent.
Date of hearing: 5th November, 2018.
JUDGMENT
MUZAMIL AKHTER SHABIR, J.---This consolidated judgment shall decide the titled PTR No.63 of 2002 along with two connected PTR Nos.64 and 65 of 2002 filed by the Commissioner of Income Tax Companies Zone-II, Lahore on behalf of the Income Tax Department ('the Department') under Section 136(2) of the Income Tax Ordinance, 1979 ("the Ordinance") against order of the Income Tax Appellate Tribunal b, Lahore ('the Tribunal') dated 01.11.2001 passed in I.T.As. No.2387/LB, Nos.2388/LB and 2389/LB of 1997 relating to assessment Years 1991-1992, 1992-1993 and 1994-1995, as common questions of law and fact arising between the same parties are involved in these References.
2.As the titled Reference Application and the connected Reference Application (PTR No.65 of 2002) on the same subject are to be decided by this Court today, therefore, this Court deems it appropriate to condone the delay in filing of miscellaneous application (C.M.No.714/ 2016) for restoration of PTR No.64/2002 which was dismissed for non-prosecution on 10.06.2015.
For the reasons recorded in the miscellaneous applications (C.M.No.714/16 for restoration of Reference Application and C.M. No.715/16 for condonation of delay), both these applications are allowed. Resultantly, the Reference Application No.64/2002 is restored to its original number which is being decided today along with the afore-referred two connected Reference Applications.
3.In all the afore-referred references following question of law has been proposed for decision by this Court:--
"Whether on the facts and circumstances of the case, the amendmentmadebyNotificationNo. S.R.O. 593(I)/ 94dated 12.06.1994 issued by the Central Board of Revenue, inserting the words "including fresh milk" after the words "agricultural produce" in entry (v) of previous Notification No. S.R.O. 586(I)/91 dated 30.06.1991 is retrospective or not".
4.The brief facts of the case are that the respondent/assessee is a Public Limited Company ('the Assessee'), which derives income from sale of dairy products; the department claims that the paid up capital of the company/assessee was more than rupees 1.5 Million and it was obliged to deduct tax on the supplies made to it under Section 50(4) of the Ordinance; as no tax under the said Section was deducted by the Assessee/Company on account of payment made against supplies of fresh milk received by it, consequently it was held "assessee in default" under Section 52 of the Ordinance and the demand of tax at Rs.8,52,316/- and Rs.19,40,559/- for the assessment years 1991-1992 and 1992-1993 and Rs.64,90,563/- for the assessment years 1994-1995 was created against the assessee.
5.The assessee filed appeal before the Commissioner of Income Tax (Appeals), Zone-II, Lahore against the treatment meted out by the Assessing Officer, who vide order dated 27.02.1997 annulled the assessment against the assessee under Section 52 of the Ordinance by holding that the amendment made in the Notification No. S.R.O. 586(I)/91 clarifies the true intent of the said notification and the agriculture produce included fresh milk, consequently, the assessee/ Company was not obliged to make tax deductions under section 50(4) of the Ordinance. The department being aggrieved of the afore-referred order, filed an appeal before the Tribunal which was dismissed vide order dated 11.05.2001; thereafter, the Department filed R.As. Nos.454/LB, 455/LB, 456/LB of 2001 under Section 136(1) of the Ordinance, 1979 before the Tribunal who vide order dated 01.11.2001 refused to refer the question for authoritative pronouncement to the High Court, although according to the department it related to pure question of law arising out of the order of the Tribunal; hence the present References have directly been filed by the department under Section 136(2) of the Ordinance.
6.It has been argued by counsel for the department that the afore-referred amendment made in the SRO was prospective in nature and could not be given retrospective effect to exempt the assessee from provisions of section 50(4) of the Ordinance, whereas the assessee has supported the orders passed by the Tribunal by claiming that the amendment was in the shape of an explanation and clarification to already existing exemption permissible to the assessee not to deductadvancetaxonagriculturalproducesuppliedtoitunderthesaidsection.
7.We have heard the learned counsel for the parties and perused the record.
8.In accordance with Section 50(4) of the Ordinance, the recipient of goods, who is to make payment for the goods supplied to him, is required to deduct the amount of advance tax from the payment to be made by him to the supplier at the rate specified in the First Schedule of the said Ordinance. The S.R.O. No.586(I)/91 dated June 30, 1991 exempted the recipients of payment from the assessee/Company against the supply of agricultural produce from the application of Section 50(4) of the Ordinance. Subsequently, by amendment through S.R.O. No. 593(I)/94 dated 12.06.1994 issued by the Central Board of Revenue, the words "including fresh milk" were added after the words "agricultural produce" mentioned in the previous Notification No.S.R.O. 586(I)/91 dated 30.06.1991 and the amended notification provides as under:--
"S.R.O. No.586(I)/91. In exercise of the powers conferred by clause (ii) of the proviso to subsection (4) of section 50 of the Income Tax Ordinance, 1979 (XXXI of 1979), herein after referred to as the Ordinance, and in supersession of its Notification No. S.R.O. 659(I)/81 dated the 25th June, 1981, the Central Board of Revenue is pleased to specify the following to be the recipients, or the class of recipients, to who the said subsection shall not apply, namely:--
(i)
(ii)
(iii)
(iv)
(v)persons receiving payments from a company exclusively for the supply of agricultural produce, including fresh milk, which has not been subjected to any process other than that which is ordinarily performed to render such produce fit to be taken to market." (Emphasis supplied)
9.The question for determination by this Court is, Whether the addition of words 'including fresh milk' by way of amendment would have retrospective effect in the afore-referred clause of the SRO?
10.The Tribunal decided the matter by treating the said amendment as a clarification having retrospective effect by making reference to an order earlier passed by the Tribunal dated 24th August, 1995 in I.T.A. No.1038/LB of 1995 which is reported as (1997 PTD (Trib.) 2145) wherein the matter in dispute in these References has already been decided by observing that the amendment by way of Notification No.593(I)/94 dated 12.06.1994 issued by the Central Board of Revenue, inserting the words. "including fresh milk" after the words "agricultural produce" was clarificatory in nature, consequently had retrospective effect and the provision of Section 50(4) of the Ordinance shall not be applicable to the assessee/company.
11.Even otherwise, the aforesaid notification has been interpreted by the department and the Tribunal consistently as having retrospective effect after the case reported as (1997 PTD (Trib.) 2145) (supra) which had been decided immediately after the amending S.R.O. 593(I)/94 dated 12.06.1994 was issued. There cannot be any cavil to the proposition that if a department places a particular construction on a provision of an enactment for a considerable long time and acts upon it or that it follows a practice consistently without any interruption for a considerable period, it cannot depart from such construction or practice in the absence of new development in the form of clarification by the legislature or by framing of new rules or issuance of binding instructions by the competent authorities. Reliance in this behalf may be placed on Nazir Ahmad v. Pakistan and others (PLD 1970 SC 453) wherein it has been held as under:--
"The departmental practice has followed the right course in the implementation of the relevant rule but whether right or wrong, it will be extremely unfair to make a departure from it now after a lapse of so many years and to disturb rights that have been settled by a long and consistent course by this practice. In the case of the appellant, the seniority initially accorded to him has held the ground continuously for ten long years until it was disturbed by the impugned order. This, to say the least, is bound to weaken the faith of the employees in the attitude and behavior of the department. A passage from Crawford's Statutory Construction (1940 Edition at page 399) may be usefully reproduced to point out the effect of the `departmental constructions', that is to say, the construction which is
placed in practice on the provisions of a statute or rules
by the administrative authorities who are charged with the execution of the statute or the rules. The learned author observes: Where the executive construction has been followed for a long time an element of estoppel seems to be involved. Naturally many rights will grow up in reliance upon the interpretation placed upon a statute by those, whose duty it is to executive it. Often grave injustices would result should the Courts reject the construction adopted by the executive authorities."
12.Even otherwise the amendment is in the shape of explanation of the already existing provisions. Proper functioning of the explanation was either to make plain or elucidate a statutory provision. Such explanation only functions to explain the meaning and effect of the main provisions and to clear up any doubt or ambiguity in the same. Explanation generally is retrospective in nature inasmuch as it seeks to explain and to remove a doubt existing in the mind of the public functionaries as well as the citizens. Reliance in this regard is placed on the judgment reported as Collective of Customs, Sambrial v. Custom, Excise and Sales Tax Appellate Tribunal (2002 MLD 127).
13.In a case reported as Messrs Hunza Asian Textile and Woolen Mills Limited v. Commissioner Sales Tax, Rawalpindi Zone, Rawalpindi (1973 PTD 544), effect of similar amendment made through an SRO dated 11.12.1969 in the Sales Tax Notification No.9 dated 27.06.1951 was examined by the High Court. Through the aforementioned amendment, words 'including knitting wool' were inserted after the words 'Woolen Yarn of all Sorts'. On a question whether the amendment provision was applicable w.e.f. the date of amendment i.e. 11.12.1969 or was applicable retrospectively to the year 1964-65, this Court held that the word 'including' was equivalent to 'mean and include' and the words 'including knitting wool' after the words 'Woolen Yarn of all Sorts' were inserted with a view to resolve the controversy whether woolen yarn and knitting wool were the same commodities. The High Court further held that amendment in 1969 having been made to clarify that the woolen yarn means and includes knitting wool as well, was applicable to the year 1964-65 with retrospective effect.
14.For what has been discussed above, it is held that the amendment made in the afore-referred SRO by addition of the words `including fresh milk' is merely by way of a clarification and explanation of exemption from operation of Section 50(4) of the Ordinance already existing in favour of the assessee and has retrospective effect and the same would be applicable not from 12.06.1994, the date when the amending Notification S.R.O. 593(I)/94 was issued but from 30.06.1991, when the original S.R.O. 586(I)/91 was issued.
15.In view of what has been discussed above, the afore-referred proposed question in Reference Applications (PTR Nos.63, 64 and 65 of 2002) is answered in AFFIRMATIVE. Resultantly, these Reference Applications are decided against the applicant-department anddismissed.
16.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 the Income Tax Ordinance, 2001.
KMZ/C-9/LOrder accordingl