This judgment covers the following Writ Petitions Nos:--
(1) 7788 of 2003, (2) 7841 of 2003, (3) 7843 of 2003, (4) 7961 of 2003, (5) 8154 of 2003, (6) 8165 of 2003, (7) 8166 of 2003,
(8) 8167 of 2003, (9) 8184 of 2003, (10) 8258 of 2003, (11)
8314 of 2003, (12) 8332 of 2003, (13) 8333 of 2003, (14) 2802 of 2004, (15) 4168 of 2004 and (16) 4174 of 2004.
2. All the aforementioned Writ Petitions challenge assessments under the provisions of section 122 of the New Income Tax Ordinance, 2001 read with S.R.O. 633(I) of 2002 of 14-9-2002. On the ground simpliciter that the past assessm ent relating to the period before 1-7-2002 could not be opened for re-assessm ent.
3. It may be added that the Income Tax Ordinance, 1979 was replaced by the new Ordinance of 2001 on 1-7-2002. Section 238 of the new Ordinance read as follows:-- "Repeal: The Income Tax Ordinance, 1979 (XXXI of 1979), shall stand repealed on the date this Ordinance comes into force in pursuance of subsection (3) of section 1."
4. The legal proposition raised, covers the following sections of the old and the new law:-- Old Sections 65,66-A New Sections 2,122,239,240 Besides S.R.O. 633(1)/2002, dated 14-9-2002. This S.R.O. Has been issued under section 240 of the new Ordinance, 2001.
5. Section 240 of the new Ordinance reads as follows:-- "Removal of difficulties: (1) Subject to subsection (2), if any difficulty arises in 'giving effect to any of the provisions of this Ordinance, the Federal Government may, by notification in the official Gazette, make such order, not inconsistent with the provisions of this Ordinance, as may appear to it to be necessary for the purpose of removing the difficulty.
(2) No such power shall be exercised under subsection (1) after the 30th day of June, 2004."
S.R.O. 633(1)/2002, dated 14th September, 2002, referred to above, read as follows:-- 6"In exercise of the powers conferred by section 240 of the Income Tax Ordinance, 2001 (XLIX of 2001), the Federal Government is pleased to direct that in making any assessm ent for the year beginning on the fist day of July, 2002 or making any deduction or collection of tax for the year beginning on the first day of July, 2002, the said Ordinance shall have effect as if:--
(1) in section 114,--
(a) in subsection (3), clause (d), were omitted; and
(b) in subsection (5), for the words "only in respect of the" the words "in respect of one or more" were substituted.
(2) in section 121,
(a) in subsection (1), for the .Words and comma "under this Ordinance, or the repealed Ordnance" the words "by the Commissioner through a notice" were substituted; and
(b) in subsection (3), the words "and shall be an alternative to ,the application of in subsection (4) of section 114" were omitted.
(3) in section 122,---
(a) after subsection (4), the following new subsection were inserted, namely:- "(4A) An amended assessm ent shall only be made, within six years of the date of original assessm ent.";
(b) in subsection (5) in clause (a), after the word "Ordinance", the words "or the repealed Ordinance" were inserted;
(4) in section 137,--
(a) in subsection (1), after the word "taxpayer" occurring for the second time, the words "including tax payable under section 113" were inserted; and
(b) in subsection (3), after the brackets and figure "(2)" the word, brackets and figure "or (4)" were inserted.
(5) in section 147, in subsection (11), after the brackets, letter and comma "(b)" the brackets, letter and comma "(ba)" were inserted.
(6) in section 161, in subsection (1),--
(a) in clause (a), after the figure "XII", the words and figure "or as required under section 50 of the repealed Ordinance" were inserted; and
(b) in clause (b), after the figure and comma "160," the words, figures, brackets and comma "or having collected tax under section 50 of the repealed Ordinance pay to the credit of the Federal Government as required under subsection (8) of section 50 of the repealed Ordinance," were inserted,
(7) in section, 221, after subsection (1), the following new subsection was inserted, namely:-- "(1A) The Commissioner may amend by an order in writing, any order passed under the repealed Ordinance by the DCIT, or an Income Tax Panel, as defined in section 2 of the repealed Ordinance."
(8) in section 239,--
(a) in subsection (2), after The figure and letter "59A" the word and figure "or 61" were inserted; and
(b) subsection (18), was omitted.
7. According to Mr. Naveed A. Andrabi, Advocate for petitioners, the S.R.O. Under reference aims at enhancing through subordinate legislation the scope of the new Ordinance and beyond what has been enacted by the legislature. That the agony is that the powers were being misapplied through its use retrospectively.
8. He further argues that fiscal law 4 to be stringently interpreted and used and places reliance on the case of Messrs Mehran Associates Ltd. v. The Commissioner of Income Tax, Karachi (1993 SCM R 274).
9. That the fiscal law cannot be applied with retrospective effect and places reliance on the following case: Koh-e-Noor Textile Mills Ltd. v. Commissioner of Income Tax Lahore (PLD 1974 SC 284).
10. He next contended that what to talk of the S.R.O. Even the rules have a subordinate position and neither the S.R.O. Nor the rules can go beyond the powers given by the statute itself. In this connection he places reliance on the following cases: (1) Malik Muhammad Din and Sons v.
Trustees of the Port of Karachi (PLD 1966 W.P. Karachi 518); and (2) The Chairman, Railway Board, Lahore and others v. Messrs M. Wahabuddin and Sons (PLD 1990 SC 1034).
11. That even though the old Ordinance of 1979 was repealed but it remains operative -until the entire work conducted under the said Ordinance had become a closed and past transaction. He referred to section 6 of the General Clause Act in support of this contention.
12. It is next contended that an interpretation which is beneficial to the citizens is to be adopted in matters of fiscal laws and places reliance on the following cases: (1) Messrs Mehran Associates Ltd. v. The Commissioner of Income Tax, Karachi (1993) SCMR 274) and (2) Maple Leaf Cement Factory Ltd. v. Federation of Pakistan (1999 PTD 3907).
13. He further argues that section 122 was not borrowed from the old statute. The cases used to be opened under the provisions of sections 65 and 66-A of the old law which had a narrow scope within the framework of the old Ordinance. These were not initially saved by the new law. But later were adopted through an amendment which came about pursuant to Finance Ordinance, 2003 and effective from 1-7-2003 which corresponds to the date when the new law held in abeyance was also promulgated.
14. Recalling the historic background, it was said that prior to Ordinance of 1979, there was Income Tax Act of 1922 which had been repealed, in the new law re-opening powers were saved under its section 166(1)(c)(1). That this having not been done in the new amendment of 2001, the intention of the legislature was absolutely clear that it had no intention of re-opening the assessments completed under the old law by using the powers under 2001 law.
15. Learned counsel while creating a distinction with respect to the persons who exercise authority under the new and the old law, states that under the old law it was the Deputy Commissioner who acted under section 65 and under section 66 an Additional Commissioner.
16. Under section 122 of the new law, the Commissioner exercises those powers. That the orders under reference were passed by the Deputy Commissioners and the Additional Commissioners and not by the Commissioner. That therefore, under section 122(2) these were not openable.
17. According to the learned counsel for Revenue, between the interregnum period of the two laws and the transitional period for adaptation of the new law, difficulties Were envisaged, therefore, section 240 was therefor removal of these difficulties.
18. It was argued that even in the Constitution, Article 267 was enacted for meeting the difficulties.
Learned counsel referred to the case of Shankari Prasad v. Union of India (AIR 1951 SC 458) to support that in a transitional period the difficulties were bound to arise and their removal while taking an aberretion from any rigid procedure is desired.
19. His next argument was that S.R.O. Under reference tried to remove these difficulties and, therefore, was valid and correct.
20. It was further pointed out that the SRO under reference was no longer in existence and has now been replaced by the law promulgated through the Finance Act, 2003.
21. It may be pointed out here that sections 65 & .66-A of the repealed Ordinance of 1979 are in para materia with the new subsections 5 & 5A of section 122 enforced with effect from 1st of July, 2003 as these were not there prior to Finance Ordinance of 2003.
22. Learned counsel for the respondent was confronted with the question whether even if the old Ordinance had been repealed, actions pending or which were to be taken . Within the limitation prescribed by its sections 65 and 66-A could be taken because of the provisions of section 6 of the General Clauses Act. His answer was not in the negative.
23. Mr. Sajid Ijaz Hotiana, Advocate appearing on behalf of the petitioners' side prompted in to state that the cases which were only pending would be protected and not those where the matter had been closed and transaction ended. It was said that sections 65 and 66-A were independent sections giving jurisdiction for action when jurisdiction is assumed under the circumstances and, therefore, only in cases which were pending, the jurisdiction could have been assumed and not otherwise.
24. Learned counsel for the petitioners further stated that in section 122(2), the word "taxpayer" is used. This word is defined by section 2(66) of the Income Tax Ordinance, 2001 and means any person who derives an amount chargeable to tax under the current Ordinance i.e. 2001. It was thus contended that section 122 was never to have a retrospective effect.
25. Another argument advanced is that the SRO itself, whatever be its worth, speaks of its utility in a prospective way from 1-7-2002 to 1-7-2003. Whereas the assessments under reference all relate to a period before 1-7-2002.
26. The issue really pertains to the period of assessments made before 1-7-2002. The grievance of the petitioners is that the SRO under reference was being applied retrospectively to a period prior to this which was on the face of it illegal.
27. The real question is whether the SRO was at all a legal document? This SRO which is re- produced in para. 6 above, has been thoroughly read in the Court in the presence of the learned counsel from both sides.
28. The impression gathered after reading of the SRO is that the author of the SRO has tried to usurp the legislature powers by ordaining changes in different sections of the 2001 law and by extending meaningsk of words and phrases used in those sections.
29. Mr. Shahid Jamil Khan, Advocate for the Income Tax Department took pain in explaining that even if the other parts of the Notification appeared offending, the present controversy is confined to para. 3(c) of the Notification which relates to section 122 and which reads as follows:-- "In subsection (5), in clause (b), for the words "assessment is incorrect" the words "income has been concealed or inaccurate particulars of income have been furnished or the assessment is otherwise incorrect" were substituted."
And that this part of the Notification is more in the nature of a clarification/interpretation of the law to cover legal lacunas which were left in section 122 of the Ordinance itself. We have been informed that with effect from 1-7-2002 through curative legislation, section 122 was cured by Finance Act, 2003 through additions which appear in the section which now reads as follows:-- "(1) Subject to this section, the Commissioner may amend an assessment order treated as issued under section 120 or issued under section 121, (or issued under section 59, 59-A, 62, 63, of 65 of the repealed Ordinance,) by making such alterations or additions as the Commissioner considers necessary (.............. (2) An assessm ent order shall only be amended under subsection (1) within five years after the. Commissioner has issued or is treated as having issued the assessment order on the taxpayer.
(3) Where a taxpayer furnishes a revised return under subsection (6) of section 114---
(a) The Commissioner shall be treated as having made an amended assessment of the taxable income and tax payable thereon as set out in the revised return; and
(b) the taxpayer's revised return shall be taken for all purposes of this Ordinance to be an amended assessm ent order issued to the taxpayer by the Commissioner on the day on which the revised return was furnished.
(4) Where an assessm ent order (hereinafter referred to as the "original assessment") has been amended under subsection (1) or (3), 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 assessm ent order to the taxpayer; or
(b) one year after the Commissioner has issued or is treated as having issued the amended assessm ent order to the taxpayer.
[(4A) In respect of an assessm ent made under the repealed Ordinance, nothing contained in subsection (2) or, as the case may be, subsection (4) shall be so construed as to have extended or curtailed the time limit specified in section 65 of the aforesaid Ordinance in respect of an assessm ent order passed under that section the time-limit specified in that section shall apply accordingly.] [(5) An assessm ent order in respect of tax year, or an assessment year, shall only be amended under subsection (1) and an amended assessment for that year shall only be further amended under subsection (4) where, on the basis of definite information acquired from an audit or otherwise, the Commissioner is satisfied that-
(i) any income chargeable to tax has escaped assessment; or
(ii) total income has been under assessed, or assessed at too low a rate, or has been the subject of excessive relief for refund; or (i.e) any amount under a head of income has been misclassified.] [(5A) Subject to subsection (9), the Commissioner may amend, or further amend, an assessment order, if he considers that the assessme nt order is erroneous in so far it is prejudicial to the interests of Revenue.] [(5B) Any amended assessm ent order under subsection (5A) may be passed within the time-limit specified in subsection (2) or subsection (4), as the case may be.]
(6) As soon as possible after making an amended assessment under subsection (1), subsection (4) or subsection (5A)), the Commissioner shall issue an amended assessment order to the taxpayer stating--
(a) the amended taxable income of the taxpayer;
(b) the amended amount of tax due;
(c) the amount of tax paid, if any; and
(d) the time, place, and manner of appealing the amended assessment.
(7) An amended assessm ent order shall be treated in all respects as an assessment order for the purpose of this Ordinance, other than for the purpose of subsection (1).
(8) For the purpose of this section, "definite information" includes information on sales or purchases of any goods made by the taxpayer, (receipts of the taxpayer from services rendered or any other receipts that may be chargeable to tax under this Ordinance,) and on the acquisition, possession or disposal of any money, asset, valuable article or investment made or expenditure incurred by the taxpayer.
(9) No assessm ent shall be amended, or further amended, under this section unless the taxpayer has been provided with an opportunity of being heard."
30. A comparison of the relevant section of the repealed law and section 122 of the present law shows a difference. Whereas, under sections 65 and 66-A of the previous Ordinance, a lower grade official could re-open the assessm ent, whereas the new law has totally vested the Powers in the Commissioner. Its section 122(2) reveals that the amendment to be made within the period prescribed, is confined to a taxpayer. The taxpayer is defined in section 2(66) of the Ordinance and is confined to an assessee who can be assessed income tax under the new Ordinance. Whereas, the petitioners-assessee could only be assessed under the previous Ordinance and not the present Ordinance.
31. Coming back to the SRO and the amendment it is making in section 122, it aims at substituting the words "assessm ent is incorrect" with the words "income has been concealed or inaccurate particulars of income have been furnished or the assessment is otherwise incorrect". An assessm ent to be incorrect relates to an erroneous situation and where it has not been concealed.
Because the latter case involves heavier penalties, mens rea and wickedness instead of innocence and inadvertence.
32. The next question is whether the author of the SRO could amplify the meaning of the words "assessm ent is incorrect" in this manner and over write a phraseology which is given by the legislature itself. The answer is that this was not possible.
33. A general remark after reading the SRO would be that here is a classic case where the person sitting in a subordinate legislature has, under the excuse of removing difficulties, wrongly tried to usurp the powers of the legislature and passed an edict which aimed at overwhelming all intentions of the legislature in a fiscal matter which has always to be construed strictly.
34. In the passing it may be remarked that there was hardly any necessity for using the SRO under reference for re-opening the cases of the petitioners-assessee. Of course, the powers in valid cases and according to the prescribed limitations were available to be exercised according to the law read with the General Clauses Act even if the Ordinance had been repealed.
35. This Court in the case of: Home Service Syndicate v. Commissioner of Income Tax 2003 PTD 2109 has already defined the word "pending" which definition will also apply here.
36. The upshot of the above discussion is that the S.R.O. No.633(I)/2002, dated 14th September, 2002 is not a valid and legal document and, therefore, is of no consequence and it is so declared. These Writ Petitions stand disposed of with these observations and with no order as to costs, but of course, my thanks to learned counsel for the petitioners Mr. Naveed A. Andrabi, Mr. Sajid Ijaz Hotiana, Mr. Sirajud-Din, Mr. Irfan Ahmed Sheikh, Mr. Shahbaz Butt and the others as well as Mr. Shahid Jamil Khan, counsel for the Income Tax Department for able assistance.