MR. JUSTICE IMTIAZ ALI.-(l). Through this Tax Reference, filed under section 133 of Income Tax Ordinance, 2001 Commissioner of Income Tax, Inland Revenue, Peshawar, has referred a number of questions of law arising out of order of Appellate Tribunal dated 27-4-2010 for consideration of this Court.
2. Briefly stated, facts of the case are that respondent is an assessee, deriving income from execution of carriage contracts. He filed statement under section 115(4) of the aforesaid Ordinance for assessm ent year 2005. Later on, he filed a revised return under section 14(6) of the Ordinance ibid and in consequence to such revised return, applied for issuance of refund to the tune of Rs.
5,87,349. His claim in the first instance was rejected by Taxation Officer but appeal filed by respondent before Commissioner Income Tax (Appeals) Peshawar was accepted vide order dated 11-9-2009 and he was found entitled to refund, as claimed, after due verification under the law.
3. Department objected to the aforesaid order of Commissioner Income Tax by preferring a further appeal to Appellate Tribunal, Peshawar Bench. The Tribunal, however, did not agree with the points raised by present petitioner and dismissed the appeal vide order dated 27-4-2010. Still not satisfied with the concurrent views of two forums below, instant Tax Reference has been filed for re- consideration of the Issues.
4. We have heard Learned counsel for petitioner and have gone through the available record.
5. Although as many as five (05) questions have been proposed in the Reference but these are variations of the same theme. The crux of their case is that:- (a)Providing of carriage under the contract is not included in services as defined in the Ordinance and because they are not rendering any services, therefore, tax deducted @ 2% at Rs. 6,30,370 was not refundable/adjustable.
(b)Even if by amendments in sections 153(1)(b) and (c) of the Ordinance, word "providing" was inserted, thus, enlarging the scope of services and assuming that after such amendments services of carriage contractors have been brought in the ambit of section 153(1 )(b), respondent was not entitled to its benefit because such amendment became effective from July, 2005 while case of respondent is of assessm ent year 2005.
6. So far as the first ground is concerned, it does not require any detailed discussion because it stands settled through various pronouncements of High Court and Income Tax Appellate Tribunals to which reference has been made in orders of Commissioner and also Appellate Tribunal that carriage contractors are providing services as envisaged in section 153(1 )(b) of the Ordinance ibid. Relevant portion of judgment of Hon'ble Lahore High Court reported as 2008 PTD (Trib.) 1897 referred to by the Tribunal in its judgment is reproduced below to bring home this fact:- "The provisions of section 153(1 )(b) of the Income Tax Ordinance relate to "rendering or providing" of services, deletion/omission of the word "professional" through Finance Ordinance, 2002 enlarges the scope of the enactment. The tax deducted under section 153(l)(b) by virtue of proviso to subsection (6) is not final to discharge of tax liability. It does not, therefore, fall within the presumptive tax regime. Section 153(1 )(b) has to be read in conjunctions with "sub-section (9) where the enactment has itself defined by the term services". Term includes has consciously been used to enlarge the scope of services to other services, i.e. Which have not specifically mentioned.
The provisions of section 153(l)(b) read with clause 2(a) of Division III of Part (iv) of the First Schedule to the Income Tax Ordinance, 2001, convey the intention of the legislature that the services of carriage contractor fall within the ambit and scope of section 153(l)(b)."
7. Besides, even Taxation Officer, who had declined to grant the respondent refund, had conceded this much but had refused the refund on the ground that amendment brought in July, 2005 had no retrospective effect, therefore, it was not applicable to tax year 2005. Since petitioner was satisfied by the findings of Taxation Officer, therefore, he cannot be allowed to now turn around and say that respondent was not providing/rendering services, moreso, when such ground was never raised before the Commissioner Income Tax (Appeals) or for that matter the Appellate Tribunal.
8. Retrospectivity of amendment brought about through Finance Act of 2005, however, requires some consideration. Before year 2002 clauses (b) and (c) of subsection (1), section 153 of Income Tax Ordinance, 2001 read as under:-- "(b) for the rendering of professional services;
(c) on the execution of a contract, other-than contract for the supply of goods or the rendering of professional services." Through Finance Ordinance, 2002 word "Professional" was omitted. The purpose behind such omission appeared to be to enlarge the scope of word "services" and not to curtail the same. However, such deletion/omission had the opposite effect and was interpreted as if the meaning of term "services" had been restricted. To remove such erroneous impression, an amendment was brought through Finance Act II of 2005, whereby, after the words rendering of words 'or providing of were inserted. After such amendment, clauses (b) and (c) aforesaid read as under:- "(b) for the rendering of or providing of services;
(c) on the execution of a contract other-than a contract for the sale of goods or the rendering of or providing of services." The stance of the Department itself is that it was a clarificatory amendment and that the purpose of the same was to remove an erroneous impression. Meaning thereby, that it was always meant to be as such but due to erroneous interpretation, created by deletion/omission of word "professional", the provisions were being given a restrictive meaning. A clarificatory amendment in a fiscal Statute by very definition operates retrospectively because it clarifies ambiguity. The Courts have always treated clarificatory amendments as retrospective amendments even in cases where the purpose behind such amendment was to nullify earlier judgments. The sole purpose behind such clarificatory amendment is to change the legal position after an inconvenient, improper or uncalled for interpretation is put on such provision. Unless it is a mere clarification and not a change in substance retrospectivity of such amendment cannot be questioned.
9. In this view of the matter, Learned Commissioner Income Tax (Appeals) was justified in observing that "the amendment of 2005 dated 5-7-2005 does not mean that such cases are excluded because they are previous to the amendment. Even in the previous period since 2002, the scope of services had been broadened to encompass these realities than mere professional reality in section, which had been amended in 2005".
10. The position explained above finds further support from F.B.R, clarification vide Circular No. 1 of 2005 which reads as under:- "Under section 153, withholding tax on payments to a resident person or a permanent establishment in Pakistan of a non-resident person, for rendering of services is adjustable.
However, similar payments or on the execution of contract attract a withholding tax which is the final tax on the income from such transactions. Prior to 2002, this provision applied to "Professional services" only. The term "professional services" was defined to include the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers other than an employee.
However, with the omission of the word "professional" from the law in 2002, an erroneous impression was created that the meaning of term "services" had been restricted, In order to dispel this impression, a clarificatory amendment has been made and sections 153(1 )(b) and 153( 1 )(c) the word "or providing of' have been inserted. The effect of this amendment shall be to make withholding tax on all types of services adjustable."
11. For the aforesaid reasons, the two forums below have rightly found respondent entitled to the claim of refund and questions posed in the present Reference stand decided by them which require no further rotation by this Court. This Tax Reference is, therefore, dismissed.