MEMBER (TAXES) BOARD OF REVENUE PUNJAB, LAHORE VS QAISAR ABBAS, 2019 PTD-SUPREME-COURT 826 (2019)

(Against the judgments dated 26.12.2015, 27.10.2015, 3.11.2015, 11.11.2015, 16.11.2015, 19.11.2015, 20.11.2015, 22.10.2015, 14.1.2016, 3.2.2016, 9.2.2016, 16.3.2016, 5.5.2016, 18.5.2016, 19.5.2016, 11.5.2016, 13.5.2016, 16.5.2016, 17.5.2016, 20.5.2016, 10.5.2016, 31.1.2017, 30.1.2017, 6.2.2017, 8.2.2017, 1.2.2017 of the Lahore High Court, Lahore)

(a) Interpretation of statutes---

----Fiscal/tax statute---Retrospective effect---Scope---Tax/fiscal statutes operated prospectively and not retrospectively unless clearly indicated by the legislature---Retrospectivity could only be attributed to a statute where it was made explicit or could be inferred by necessary implication; it could not be presumed.

Zila Council Jhelum through District Coordination Officer v. Messrs Pakistan Tobacco Company Ltd. and others PLD 2016 SC 398 and Commissioner of Income Tax v. Messrs Eli Lilly Pakistan (Pvt.) Ltd. 2009 SCMR 1279 ref.

(b) Punjab Agricultural Income Tax Act (I of 1997)---

----Ss.3B & 4(4)---Punjab Agricultural Income Tax Rules, 2001, R. 14(3)---Agricultural income tax---Section 3B of the Punjab AgriculturalIncomeTaxAct, 1997 ("the Act") came into force on 01-07-2013---Question as to whether the tax authority could recoveragricultural income tax for the assessment years prior to such date---Held, that since S. 3B of the Act was effective from 01-07-2013, it was applicable to the assessment year beginning on 01-07-2014 as it was the assessmentyearfollowingtheincomeyear which commenced on 01-07-2013---While undoubtedly S. 3B inserted in the Act was to apply prospectively, however, S. 4(4) of the Act read with R. 14(3) of the Punjab Agricultural Income Rules, 2001, clearly allowed for the recovery of agricultural income tax for the two years (i.e. 2012 and 2013) prior to the assessment year in which the total agricultural incomewasfirstassessable, i.e. the assessment year beginning on 01-07-2014---Tax authority, therefore, could recover all amounts due withinaperiodoftwo years from which the total agricultural income was first assessable, i.e. the assessment years of 2012 and 2013.

(c) Punjab Agricultural Income Tax Act (I of 1997)---

----Ss. 3(1), 3B & 4(1)---Punjab Agricultural Income Tax Rules, 2001, R. 14(1)---Agricultural income tax---Recovery of agricultural income tax on basis of agricultural income declared in tax returns---Scope---Application of S. 3B of the Punjab Agricultural Income Tax Act, 1997 ("the Act") was predicated upon the agricultural income as declared by the assessee himself in his income tax return, therefore in cases where the assessee had himself filed his income tax return in which he had declared his agricultural income, by virtue of S. 3B of the Act, the tax department was not required to levy and assess agricultural income tax in terms of S. 3 and could recover the same by issuing recovery notices directly---However where an assessee had not filed his income tax return or had done so without disclosing his agricultural income, then the tax authorities were obliged to levy, assess and collect agricultural income tax (in spite of the presence of S. 3B) in terms of Ss. 3 & 4 of the Act and R. 14(1) of the Punjab Agricultural Income Rules, 2001.

Rana Shamshad Khan, Additional A.-G., Faisal FareedHussain,AdditionalA.-G.andM. Adnan Khan, Law Officer,BORforAppellants/Petitioners (inallcasesexceptC.A.No.2204of2016).

Nemo for Appellants/Petitioners (in C.A. No. 2204 of 2016).

M. Arshad Majeed Malik, Advocate Supreme Court and M.S. Khattak, Advocate-on-Record for Respondents (in C.As. Nos. 821, 836, 843, 881 and 895 of 2016).

Ch. Akhtar Ali for Respondents (in C.A. No. 826 of 2016).

Shakeel-ur-Rehman, Advocate Supreme Court and Raja Abdul Ghafoor, Advocate-on-Record for Respondents (in C.A. No. 831 of 2016).

Sh. Muhammad Akram, Advocate Supreme Court for Respondents (in C.As. Nos. 834, 835, 879, 880, 939, 1967, 1999, 2000, 2001, 1968, 887, 1957, 1958, 1959 and 1690 of 2016).

Nemo for Respondents (in C.As. Nos. 860, 1884, 1886, 1889, 1890, 1893, 1894, 1896, 1898, 1899, 1900, 1902, 1903, 1905, 1908, 1910, 1914, 1917, 1918, 1924, 1927, 1931, 1932, 1995, 2009, 2010 and 2012 of 2016).

Syed Ali Imran, Advocate Supreme Court for Respondents (in C.As. Nos. 955 to 963 and 970 to 974 of 2016).

Abdul Razzaq, Advocate Supreme Court and Syed Rifaqat Hussain Shah, Advocate-on-Record for Respondents (in C.As. Nos. 888, 889 and 893 of 2016).

Rana Zahid Khan, Advocate Supreme Court along with Rai Akhtar Saleem for Respondents (in C.A. No. 920 of 2016).

Mian Muhammad Ashfaq, Advocate Supreme Court for Respondents.

Respondent in person (in C.As. Nos. 923, 1926, 1962 and 1985 of 2016).

Rana Munir Hussain, Advocate Supreme Court for Respondents (in C.As. Nos. 967 and 968 of 2016).

Babar Bilal, Advocate Supreme Court for Respondents (in C.A. No.1729 of 2016).

Amjad Iqbal, Advocate Supreme Court for Respondents (in C.A. No. 1883 of 2016).

Hasan Raza Pasha, Advocate Supreme Court for Respondents(in C.As. Nos. 1721 to 1724 of 2016).

Respondent in person (in C.As. Nos. 2223 to 2229 of 2016).

Date of hearing: 8th January, 2019.

JUDGMENT

MIAN SAQIB NISAR, C.J.---The brief facts of the instant matters are that the respondents own agricultural land from which they derive agricultural income which is subject to agricultural income tax under the Punjab Agricultural Income Tax Act, 1997 (the Act) and the Punjab Agricultural Income Rules, 2001 (the Rules) framed thereunder. The petitioner-tax authority issued recovery notices to the respondents for the recovery of agricultural income tax for, inter alia, the assessment years of 2012, 2013 and 2014 (the years vary from case to case) under the Act. The respondents challenged such recovery notices by filing constitution petitions before the learned High Court(s) which (petitions) have been allowed vide impugned judgment(s), hence the instant petitions and appeals with the leave of the Court dated 24.03.2016 which reads as under:-

"Leave in this cases is granted, inter alia, to consider whether Section 3B of the Punjab Agricultural Income Tax Act, 1997 (the Act) inserted by the Punjab Finance Act, 2013 (the Finance Act) being a non-obstante clause has an overriding effect on section 3 of the Act; whether the learned Single Judge-in-Chambers has erred in law by relying upon the principle of retrospectivity and thus held that section 3B has no retrospective effect; whether the fact that under section 3B of the Act the tax to be paid is on the agricultural income for any assessment year as declared in the return filed under the Income Tax Ordinance, 2001 (the Ordinance), coupled with Rule 14(3) of the Punjab Agricultural Income Tax Rules, 2001 (the Rules) which provides for recovery of all amounts due within a period of two years from which the total agricultural income was first assessable, allows such tax to be recovered from assessment years prior to 1.7.2013, which is the date of coming into force of Section 3B of the Act; whether the interpretation by the learned Judge of certain provisions of the Rules is misplaced and have no nexus to the real issues involved in the matter; whether the declaration of agricultural income in the income tax return filed under the Ordinance is sufficient for purposes of recovery of agricultural income tax as contemplated by section 3B of the Act, and allows the authorities to dispense with the procedure for recovery of such tax as provided in the Act and the Rules, in that an assessment order vis-a-vis recovery of agricultural income tax disclosing the basis of calculation of such tax was to be passed before direct issuance of recovery notices; whether failure to pass an assessment order has deprived the respondents of the right to challenge such order under section 7 of the Act and if not, whether the respondents were required to avail the remedy under the said section before approaching the learned High Court in its constitutional jurisdiction."

2.We have heard the arguments of the learned counsel for the parties which are not being reproduced for the sake of brevity, rather shall be reflected in the course of this opinion. The key issues involved herein are twofold:-

i.Whether section 3B of the Act read with Rule 14(3) of the Rules applies retrospectively, allowing recovery of agricultural income tax for the assessment years prior to the date section 3B supra was inserted into the Act; and

ii.Whether the petitioner was required to follow the assessment, computation and collection procedure under the provisions of the Act and the Rules for the recovery of agricultural income tax under section 3B of the Act, thereby depriving the respondents of a right of appeal available under the Act?

3.In order to answer the foregoing questions, we find it expedient to reproduce below the relevant parts of section 3 of the Act which is the charging section:-

3. Charge of agricultural income-tax.-(1) Subject to the other provisions of this Act, there shall be levied, assessed and collected each year a tax in respect of agricultural income of a tax year of an owner at the rate specified inthe First Schedule to this Act.

Explanation.- For the purposes of this subsection, the cultivated land during a tax year shall be deemed to be agricultural income.

(2) .....................................................................

(3) .....................................................................

(4) .....................................................................

[Emphasis supplied]

By way of amendment, Section 3B was inserted in the Act through the Punjab Finance Act, 2013 (the Finance Act) which reads as follows:-

3B. Tax on the basis of income tax return.-Notwithstanding the provisions of section 3, where any person has declared agricultural income for any assessment year in the return filed under the Income Tax Ordinance, 2001 (XLIX of 2001), the person shall pay the tax on suchincome at the rate specified in the Second Schedule.

[Emphasis supplied]

While the Finance Act was notified on 29.06.2013, as per section 1 thereof, it (the Finance Act) came into force on 01.07.2013. Considering that section 3B supra came into force on 01.07.2013, a question arises as to whether the petitioner could recover agricultural income tax for the assessment years prior to such date. At this juncture it is pertinent to reiterate a cardinal principle of interpretation of statutes, particularly tax statutes, in that they (tax statutes) operate prospectively and not retrospectively unless clearly indicated by the legislature. In this regard, reference may be made to the judgments of this Court reported as Zila Council Jhelum through District Coordination Officer v. Messrs Pakistan Tobacco Company Ltd. and others (PLD 2016 SC 398) and Commissioner of Income Tax v. Messrs Eli Lilly Pakistan (Pvt.) Ltd. (2009 SCMR 1279). Retrospectivity can only be attributed to a statute where it is made explicit or can be inferred by necessary implication; it cannot be presumed. In this regard it is worth to note the relevant provisions of section 4 of the Act and Rule 14 of the Rules which are reproduced below respectively:-

"4. Assessment and collection of tax.---(1) The tax shall be assessed and collected by the Collector in such manner as may be prescribed.

(2) .....................................................................

(3) .....................................................................

(4) No assessment on the basis of return shall be made by the Collector after the expiration of two years from the end of the assessment year in which the total agricultural income was first assessable.

14. Additional assessment.-(1) If in any year for any reason-

(a) any agricultural income chargeable to tax under the Act has escaped assessment; or

(b) the total agricultural income of an assessee has been under assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund under the Act or these rules, the Collector of the Sub-Division may, at any time, subject to the provisions of sub-rules (2) and (3), issue a notice to the assessee containing all or any of the requirements of the notice under rule 6 and may proceed to assess or determine, by an order in writing, the total agricultural income of an assessee or the tax payable by him, as the case may be, and all the provisions of the Act and these rules shall, so far as may be, apply accordingly:

Provided that the tax shall be charged at the rate applicable to the assessment year for which assessment is made.

(2) .....................................................................

(3) No order under sub-rule (1) shall be made after the expiration of two years from the end of the assessment year in which the total agricultural income was first assessable."

[Emphasis supplied]

Furthermore, section 2(ac) of the Act defines "assessment year" as "the period of twelve months beginning on the first day of July next following the income year" whereas section 2(da) thereof defines "income year" as "the financial year next preceding the said assessment year." Accordingly, since section 3B of the Act was effective from 01.07.2013, it is applicable to the assessment year beginning on 01.07.2014 as it is the assessment year following the income year which commenced on 01.07.2013. While undoubtedly the provision(s) inserted in the Act by way of the Finance Act were to apply prospectively, section 4(4) of the Act read with Rule 14(3) of the Rules, albeit couched in negative terms, clearly allow for the recovery of agricultural income tax for the twoyears(i.e. 2012 and 2013) prior to the assessment year in which the total agricultural income was first assessable, i.e. the assessment year beginning on 01.07.2014. Hence the petitioner could recover all amounts due within a period of two years from which the total agricultural income was first assessable, i.e. the assessment years of 2012 and 2013.

4.As regard the second issue, it is the case of the respondents that there is a mandatory process under the Act to levy, assess and collect agricultural income tax for a given assessment year which has not been so done by the petitioner-tax authority, rather the latter has simply issued recovery notices demanding the recovery of agricultural income tax which it is not allowed to do under the law. In this regard, the precise wording of sections 3 and 3B of the Act are important and need to be considered. Section 3 ibid provides that there shall be levied, assessed and collected each year a tax in respect of agricultural income of a tax year of an owner at the rate specified in the First Schedule. This is the primary charging provision of the Act. However, according to section 3B ibid, notwithstanding the provisions of section 3 of the Act, where any person has declared agricultural income for any assessment year in the return filed under the Income Tax Ordinance, 2001 (the Ordinance) he shall pay tax on such income at the rate specified in the Second Schedule. The latter provision is a non obstante clause. The scope and effect of non obstante clauses have been elaborately discussed in the judgment of this Court reported as Syed Mushahid Shah and others v. Federal Investigation Agency and others (2017 SCMR 1218) and in light of the ratio contained therein, while section 3 of the Act requires agricultural income tax to be levied, assessed and collected, the non obstante clause of section 3B thereof has been used by the legislature to give the latter provision an overriding effect over the former, dispensing with the requirement to levy, assess and collect agricultural income tax when such tax is being collected on the basis of the declared agricultural income for any assessment year in the return filed under the Ordinance as per section 3B supra which is a self-contained and stand-alone provision. In other words, the application of section 3B of the Act is predicated upon the agricultural income as declared by the assessee himself in his income tax return under the Ordinance. Therefore in cases where the assessee has himself filed his income tax return in which he has declared his agricultural income, by virtue of section 3B of the Act, the tax department is not required to levy and assess agricultural income tax and can recover the same by issuing recovery notices directly. Therefore we find that the argument of the learned counsel for the respondents that failure to pass an assessment order has deprived the respondents of the right to challenge such order under section 7 of the Act is unfounded.

5.However, as mentioned above the application of section 3B of the Act is based upon the agricultural income as declared by the assessee himself in his income tax return under the Ordinance. In this context, it is worthy to reiterate section 3(1) of the Act which provides that subject to the other provisions of the Act, there shall be levied, assessed and collected each year a tax in respect of agricultural income of a tax year of an owner. Furthermore, according to section 4(1) of the Act, agricultural income shall be assessed and collected by the Collector in such manner as may be prescribed. "Prescribed" has been defined in section 2(g) of the Act to mean "prescribed by rules" and section 11 of the Act states that "The Government may frame rules to carry out the purposes of this Act". Pursuant to such power, the Rules were framed, Rule 14(1) whereof provides a certain procedure for the recovery of agricultural income tax under the Act. Therefore in the situation where an assessee has not filed his income tax return or has done so without disclosing his agricultural income, then the tax authorities are obliged to levy and assess and collect agricultural income tax (in spite of the presence of section 3B of the Act) in terms of the aforementioned provisions of the Act and the Rules.

5(sic). In light of the foregoing, the petitions are converted into appeals and all the appeals are partly allowed and the impugned judgment(s) is set aside to the extent mentioned above.

MWA/M-5/SCOrder accordingly.