MR. JUSTICE SYED MANSOOR ALI SHAH.-(1). This consolidated judgment shall also decide writ petitions mentioned in Schedule A to this Judgment as common questions of law and facts arise in these cases.
2. Brief facts are that the petitioners are taxpayers under the Income Tax Ordinance, 2001 ("the Ordinance") and are also liable to pay advance tax under section 147 of the Ordinance. They are also subject to transitional advance tax under section 235 of the Ordinance, being commercial or industrial consumers of electricity.
3. The main controversy in these cases revolves around the conflict between sections 147 and 235 of the Ordinance. The precise grievance is that when the taxpayers (petitioners) have paid advance tax for the Tax Year under section 147 of the Ordinance, can they be subjected to pay transitional advance tax under section 235 of the Ordinance, over and above, the advance tax paid under section 147 during the currency of the same Tax Year.
4. Messrs Ch. Anwaar-ul-Haq, Siraj-ud-Din Khalid, Javed Iqbal Qazi and Shahzad Ahmad Durrani Advocates appeared for the petitioners. It has been vehemently argued that the petitioners in some cases have paid their advance tax for the Tax Year, in others they have no liability of advance tax to start with at the beginning of the Tax Year and finally in some cases refund is outstanding in their favour. Therefore, further charge of advance tax under section 235 is confiscatory besides being against the legislative scheme and intent of the Ordinance.
5. Dr. Ikram-ul-Haq, Advocate Supreme Court of Pakistan and Asim Zulfiqar, Chartered Accountant and adjunct fatuity in tax laws at the School of Law and Policy, Lahore University of Management and Sciences (LUMS) were appointed/as amicus curiae to assist the court. Notice under Order XXVII-A of the C.P.C., was also issued on 5-4-2010 to the Attorney General of Pakistan as question involving interpretation of constitutional law was involved.
6. Dr. Ikram-ul-Haq, amicus curiae, argued that there are three regimes running through the Ordinance namely; tax on total income (direct tax); presumptive tax and minimum tax. He further submitted that under section 147 of the Ordinance a formula is provided and on the basis of said formula advance tax has to be worked out at the end of the quarter (first quarter starting from July till September and ending on 15 October, 2010). He then referred to sections 147(4)(A) and 147(4)
(AA) of the Ordinance and submitted that advance tax is based on the concept of "pay as you earn."
7. The Learned amicus curiae argued that the Ordinance already provides a mechanism to ensure that if advance tax is paid under section 147 of the Ordinance, the taxpayer is not saddled with additional advance tax under section 235 of the Ordinance.
8. Explaining the legislative scheme of the Ordinance that provides a solution to the current impasse, he submitted that the first component for such adjustment is provided in the formula itself as component "D" provided in section 147(4) i.e., (A x B/C)-D. All the tax paid during the quarter is deducted from rest of the formula thereby reducing the amount of tax to be paid. He then submitted that in case "D" is equal or more than the remaining part of the formula, assessee can approach the Commissioner concerned under section, 159(1) of the Ordinance for the issuance of a nil rate certificate. He also referred to Rule 40 and the form of the application for the certificate under section 159(1) of the Ordinance as specified in part VI of the First Schedule to the Rules, to contend that the said form clearly provides for such a situation.
9. It is submitted that subsequently the order of the Commissioner can be challenged before the Regional Commissioner/Chief Commissioner Inland Revenue under section 122(B) of Income Tax Ordinance, however, against the said order assessee can either approach the FTO or invoke the jurisdiction of this Court.
10. The Learned amicus curiae submitted that efforts should be made to harmonize the provisions of the Ordinance. He further submitted that at best section 235 can be read down in order to resolve the conflict created by the two provisions. Learned amicus curiae also argued that exemption provided under section 235(3) does not come to the rescue of the petitioners as exemption is a concept juxtaposed to income. In the present case the issue does not pertain to income but to advance tax, which is an estimated deposit made by the taxpayer. Exemption certificate will mean that the income of the taxpayer is not liable to tax which is not the case here.
In the present case, the Learned amicus curiae reiterated that the issuance of lower or nil tax rate certificate is the answer.
11. Mr. Asim Zulifqar, Chartered Accountant amicus curiae submitted that the other mechanism provided under the law is under section 159(3) of the Ordinance, where the Federal Board of Revenue can grant exemption. Thereafter, the parties can recourse to section 159(1) and obtain an exemption certificate. He also supported the contention of Dr. Ikram-ul-Haq, regarding issuance of nil rate certificate under section 159(1) of the Ordinance.
12. He further submitted that any payment under section 235 after the advance tax has been paid for the Tax Year is actually a refund, standing in favour of the taxpayer. To keep taxpayers' money for almost a year (from the date of collection till refund) is confiscatory and unconstitutional. It burdens the taxpayers with additional cost as the companies do business on borrowed finance and the financial cost of borrowing is to be paid by the taxpayer. He argued that advance tax charged under section 235, knowing well that it has to be refunded, amounts to double taxation and is therefore, patently confiscatory.
13. Mr. Muhammad Ilyas Khan, Advocate appearing for respondents submitted that the question raised in this petition has already been settled in an unreported case of Messrs Riaz Bottlers (Pvt.)
Ltd. Case (Writ Petition 38 of 2010) decided by this Court on 4-2-2010. He also placed reliance on Landus Jute Mills Ltd. v. Federation of Pakistan (PTCL 2010 CL. 898) and the leave granting order dated 1-3-2010 of the august Supreme Court of Pakistan passed in C.P. 149 to 154 of 2010 arising out of I.C.A. 462 of 2009 [reported as "Messrs Al-Khalil Cold Storage v. Federation of Pakistan through Secretary Finance, Islamabad and 3 others" (2010 PTD 1260)] arising out of the above mentioned Indus Jute Mills case. He also referred to an order of Learned Single Judge of this court passed in Writ Petition No.1583 of 2010 dated 4-3-2010 and contended that the present question cannot be re- agitated or re-opened by the petitioners in the light of the above judgments and order.
14. He, however, supported the submissions made by Dr. Ikram-ul-Haq, amicus curiae that under section 159(1) read with Rule 40, a nil tax certificate can be obtained by the petitioners and submitted that law should be protected as laid down in Elahi Cotton Mills Ltd. (PTCL 1997 CL. 260): He farther submitted that section 159(3) is not applicable to the present case.
15. Mr. Asif Hashmi, advocate for the respondent department also relied on the judgment of the unreported case of Messrs Riaz Bottlers (Pvt.) Ltd. (ibid). He pointed out that section 236A(2) provides that the said transitional advance tax at the time of sale by auction is subject to section 147 but sections 235 and 236 are not subject to section 147. His argument was that petitioner can always get refund and placed reliance on the judgment of this court given in Messrs Riaz Bottlers case (supra).
16. Arguments heard. Record perused.
17. The question that requires determination in this case is whether a taxpayer who has discharged his liability of advance tax under section 147 of the Ordinance can be subjected to transitional advance tax under section 235 of the Ordinance during the currency of the same Tax Year?
18. Before reviewing the legislative lay out of the Ordinance regarding advance tax and the scope of its chargeability sections 147 and 235 of the Ordinance, I would first like to address the preliminary objections of the respondents.
19. It has been argued by the respondents that the present issue has already been decided in Indus Jute Mills case (ibid). The issues for consideration before this Court in the aforesaid case are set out in paras. 4 to 9 of the said judgment in the following manner:- "(4) It was contended on behalf of the petitioners that section 235 of the Income Tax Ordinance, 2001 as amended offends against Article, 142(c) of the Constitution of Islamic Republic of Pakistan, 1973. It is the case of the petitioners that by virtue of the impugned provision purportedly the tax, which is levied and is being collected on electricity bills of the assessee in pith and substance is a tax imposed upon the consumption of electricity which is an expenditure incurred by the assessee for carrying on business, and such tax on expenditure does not fall within the pale of any of the items of the Federal Legislative List of the Constitution. Hence, Majlis-e-Shoora was not vested with the legislative competence to impose the said tax in view of Article 142(c) of the Constitution of Islamic Republic of Pakistan, 1973. It is contended that legislative competence in this behalf at best would vest in the Provincial Legislature subject to the other contentions raised on behalf of the petitioners. It is added that the said tax does not come within the parameters of item 47 of the Federal Legislative List of the Constitution, hence, cannot be levied thereunder or in lieu thereof under item 52 of the said Legislative List. In this behalf, it is further contended that it is not the nomenclature employed which is relevant but rather the pith and substance of the tax.
(5) In the alternative it was further contended that any expenditure incurred may at best be used as a measure for determining the capacity of an assessee to pay the income tax. However, in such circumstances there must necessarily be a direct nexus between the subject matter of tax, (in the instant case income) and the levy. And by virtue of section 235 of the Ordinance, the collection is effected in respect of the electricity consumption bill from a great variety of business concerns including both commercial and industrial (other than those exempted therefrom) and the cost of electricity as a proportion of the cost of production in case of industrial units and cost of business in case of commercial units is of incredible variation ranging from negligible to overwhelming, hence, no logical and rational nexus can be drawn between the cost of consumption of electricity and the income generated by consumers thereof.
(6) It is next contended on behalf of several of the petitioners that the cost of electricity consumption as a total cost of production is extremely high if industrial activity being undertaken is power intensive as for example foundries. While in other cases, the cost of electricity consumption as a total cost of business may be very low say for commercial activities, and the same rate of tax has been levied on both sets of consumers/assessee. Two assessee in an unequal situation have been treated equally which is the worst form of discrimination. Hence, section 235 of the Ordinance under challenge offends against Article 25 of the Constitution of Islamic Republic of Pakistan, 1973.
Furthermore, the said provision is also discriminatory inasmuch as the collection made from companies is refundable while in respect of persons other than companies, the same is only adjustable but not refundable. There is no rationale basis for such discrimination. It is added that there is no intelligible differentia to sustain the claim of valid classification in this behalf.
(7) It is also the case of the petitioners that in fact provision of section 235 of the Income Tax Ordinance, 2001 is confiscatory in nature, hence, offend against Article 24 of the Constitution of Islamic Republic of Pakistan, 1973. In this behalf it is contended that with reference to power intensive industrial concerns the tax levied and collected under section 235 of the Ordinance is in fact more than the normal profit/income that can be earned from such business, as a consequence whereof such business have not only become uneconomical, but also it is impossible to pay the tax liability from the income of the business necessitating disposal of its capital to pay such liability, hence the impugned levy is confiscatory and expropriatory, and thus, violative of Article 24 of the Constitution or Islamic Republic of Pakistan, 1973.
(8) It is further added that tax under Ordinance, 2001 can only be levied on income and not expenditures, in the instant case the cost of power or energy cannot be treated as income especially in the absence of any deeming clause or a charging section. It is further contended that even otherwise section 235 is vague and ambiguous.
(9) It is also contended that several of the petitioners are also being dealt with under various other presumptive tax regimes and deductions effected thereunder are a final discharge of their tax liability, hence provision of section 235 of the Ordinance cannot be pressed into service as it would constitute double taxation."
20. The question in hand is the constitutionality, legality, utility and equity of charging transitional advance tax under section 235 of the Ordinance when taxpayer has fully paid advance tax under section 147 of the Ordinance for the Tax Year. This question has not been dealt with in the above cited judgment of this Court. It is pointed out that para. 9 of Indus Jute Mills Case raises an issue regarding final discharge of tax under the presumptive tax regime under the Ordinance but does not take into account the question raised in this petition i.e., the effect of continued and constant chargeability under section 235 irrespective of the final discharge of liability of advance tax under section 147 of the Ordinance.
21. The counsel for the respondents also placed on record leave granting order of the august Supreme Court of Pakistan dated 1-3-2010 passed in C.P. Nos. 149 to 154 of 2010 which arises out of the order of the Intra Court appeal reported as "Messrs Al-Khalil Cold Storage v. Federation of Pakistan through Secretary Finance, Islamabad and 3 others " (2010 PTD 1260), which arises out of the Indus Jute Mills case (supra). Therefore, for the reasons given above, the matter pending before the august Supreme Court of Pakistan is not the one raised here.
22. Reference was made to another unreported Order dated 4-3-2010 passed in Writ Petition No.1583 of 2010 titled Flying Paper Industries v. Lesco. Similar question was raised in the said petition. From the Order it appears that the Court was not properly assisted as this was also noted in the said order:-- "Learned counsel for the petitioners have been unable to point out any Article of the Constitution or any principle of law, whereby, if Advance Tax required to be collected under a particular provision of the Income Tax Ordinance, the Legislature is barred or estopped from directing the collection of advance tax or levy withholding tax a different transaction under any other provision and that too through a latter section of the same statute."(emphasis supplied)
23.I am of the view that real gravity of the legal proposition advanced before this Court was neither canvassed before the Learned Judge in Chambers nor was the Court properly assisted besides the legal question was not considered in the said brief order. The present case pertains to fundamental rights of the petitioners pertaining to property and to carrying out a lawful business and requires deeper probe into the tax legislation. An order where the court has not been properly assisted and the main legal questions have not been raised, deliberated or discussed does not constitute a binding precedent.
24. My judgment in Messrs Riaz Bottlers (Pvt.) Ltd. v. Lesco (Writ Petition No. 38 of 2010) was also referred and submission made by the counsel for the respondents was that the instant issue has already been decided in the said case. The said case was an offshoot of an earlier litigation where during the pendency of the writ petitions interim relief was granted and recovery of advance tax under section 235 of the Ordinance was stayed. The said interim orders continued for a little more than a year and during the currency of the stay orders, the taxpayers paid their income tax for the tax year. The petitions were finally dismissed vide judgment reported as Indus Jute Mills Ltd., (supra), as a result LESCO billed the petitioners with the entire advance tax, accumulated due to the interim orders passed in the said case, for the period October, 2008 till December, 2009, Messrs Riaz Bottlers case (supra) allowed relief to the taxpayers against the advance tax for year ending 30th June, 2009. As the tax year ending 30th June, 2010 was still running it was held that the tax paid for the two quarters of the new tax year could be easily adjusted under sections 147 and 168 of the Ordinance against payments to be made against the next two quarters. The issue was about adjustment of advance tax paid in the first two quarters of the tax year and not about the continuous charge of advance tax under section 235 if the advance tax for the tax year stood paid.
The issue in hand is therefore totally different.
25. For the above reasons, the judgments and order cited by the respondents above does not address the question raised in the instant petition. The preliminary objection of the respondents is therefore rejected.
26. Now coming to the main question raised in this petition. Survey of sections 147, 159, 235 of the Ordinance (reproduced in Schedule B to this judgment for ready reference) reveals that section 147 provides the main scheme of advance tax under the Ordinance. The concept of advance tax has been explained in my judgment in M/s. Riaz Bottlers (supra) dated 4-2-2010 as hereunder:-
(18) ........... The concept of "advance tax" and the mechanism of its payment need to be understood before the issue in hand can be adjudicated. Advance tax as a concept has been explained in Kanga, Palkhivala and Vyas 's, The Law and Practice of Income Tax (Ninth Edition Volume-II page 2135) in the following manner:- "Under the basic scheme of this Act, the subject of charge is the income of the previous year and not the income of the assessm ent year; in other words, the tax is assessed and paid in the next succeeding year upon the results of the year before. These sections mark a departure from that basic scheme. They rest on the principle of 'pay as you earn', i.e. Paving tax bv installments in respect of the income of the very year in which the tax is paid." (Reliance Purshottamdas v. CIT 48 ITR (SC) 206, 211). (emphasis supplied)
(19) Provisions dealing with advance tax under the Ordinance are sections 4, 147, 168, 170, and 231A to 236 (relevant provisions are reproduced in Schedule A to this judgment for ready reference).
Section 4 is the charging section which imposes income tax, for each tax year, on every person who has a taxable income for the year. Section 4(6) provides that where by virtue of any provision of the Ordinance income tax has to be paid in advance, it shall as the case may be paid accordingly.
(20) Advance Tax is primarily a procedure of collection of tax. Under section 147 the amount of advance tax to be paid in four quarters is an estimated amount determined by the taxpayer himself for the tax year. As held in Call Tell and another v. Federation of Pakistan and others (2005 PTD 833) "the collection of advance tax does not amount to levy of tax. Advance tax is payment made merely on account to be adjusted against the charge of income tax as finally ascertained. It is not a tax but merely a provisional payment on an amount towards tax due. The said amount does not become the property of the Central Government but remains vested in the assessee".
While hearing the appeal in the same case the august Supreme Court of Pakistan held that: "Advance tax collected from buyers shall be merely credited with the Government which can be utilized and adjusted to the extent found necessary towards the ultimate liability of income tax due, after it has been determined and excess amount, if any, is to be refunded to the purchasers of the pre-paid telephone cards." Call Tell (Pvt.) Limited v. Federation of Pakistan (PTCL 2005 CL. 1).
(21) Advance tax due is to be computed by a tax payer according to the formula provided in section 147(4) of the Ordinance. Thereafter the tax payer is to estimate the tax payable for the relevant tax year at any time before the last installment of advance tax is due. After determining whether the estimated amount of tax payable by the taxpayer is more or less than the advance tax collected, the taxpayer is to move the Commissioner concerned with the estimated amount of the tax payable and pay such amount after making adjustment for the amount (if any) already paid under section 147(4). The payment of advance tax is split into four quarters and deposited by the tax payer accordingly as mentioned in section 147(5). Under section 147(8) taxpayer paying advance tax during the year is allowed tax credit in computing the tax due. Under section 147(10) in case advance tax is not able to be credited the taxpayer is entitled to refund in accordance with section 170. This shows that advance tax is a computed amount, which is paid through running installments in the current tax year and before its last installment is due the taxpayer has the facility to adjust it against the estimated amount of tax due and pay the balance amount. Advance tax, therefore, is a supplementary collection system, which is finally adjusted in the tax payable by the taxpayer.
(22) Advance tax is also collected through Chapter XII of the Ordinance which provides for Transitional Advance Tax, wherein advance tax is collected on the basis of the cash withdrawal from a bank (section 231A), purchase of motor cars and jeeps (section 23IB) brokerage and commission (section 233), collection of tax by a stock exchange registered in Pakistan (section 233A), tax on motor vehicles (section 234), CNG Stations (section 234A), Electricity consumption (section 235) and Telephone users (section 235). Under section 168 an amount of advance tax paid under the above provisions including section 235 is allowed tax credit in computing the tax due by the taxpayer on the taxable income for the tax year in which the tax was collected or deducted.
(23) The scheme of advance tax under sections 147 and under Chapter XII of the Ordinance clearly shows that the intention of the legislature is to ensure that a computed amount of advance tax [as per formula given in section 147(4)] is collected from the taxpayer during the subsistence of tax year. Payment of advance tax under the Ordinance is so scheduled that the last installment is to be paid on 15th June of the Tax Year which precedes the filing of the tax return for the same tax year.
Advance Tax, therefore, has a specific stage and timing in the tax year and is no more than a quarterly contribution towards the final payment of tax due/payable by the taxpayer. For the sake of argument, if for some reason the advance tax is not paid and the tax due/payable is duly paid by the taxpayer at the end of the Tax Year, the taxpayer and the collection agent may be penalized for the act of not paying or collecting the tax but are not bound under the law to pay advance tax for the tax year that has come to a close (reference section 161 (IB) and 205 of the Ordinance).
Obligation to pay advance tax, therefore, can survive only till the payment of the tax due for the tax year and not beyond. After the tax due has been paid, the provision of advance tax loses its purpose and legal force. In fact, advance tax has to be paid contemporaneously with the running tax year and cannot be demanded if tax due or tax payable for the tax year has been duly paid.
The liability of advance tax, therefore, ceases once the tax due has been paid. An irresistible conclusion is that if no tax is payable for the tax year it is but obvious that no advance tax for that tax year is payable. It might be handy to refer to Union Bank Ltd. v. Federation of Pakistan (1998 PTD 2116) wherein it was held: "if a person is not liable to pay a certain kind of tax he cannot be assessed to pay that tax in advance." "In Elahi Cotton Mills v. Federation of Pakistan (PTCL 1997 CL. 260) it is held that: "where there is exemption from the payment of tax it would equally apply to advance tax."
(24) Other than the estimated amount of advance tax under . Section 147, the Ordinance provides, inter alia, for collection or deduction of advance tax in the electric bills. The purpose remains the same i.e., collection of tax in advance during the year. Even in these cases, "if the said advance tax is not collected on the electric bills for any reason and finally the tax due is paid, the chargeability of tax under the said provision (section 235) loses its mischief."
27.In Indus Jute Mills case (supra) it has been held:- "The legal status of Advance tax has been held by the Hon'ble Supreme Court in the case reported as 1993 PTD 343 Commissioner of Income Tax v. Asbestos Cement Industries Ltd. And others to be; The said amount does not become the property of the Central Government but remains vested in the assessee company. Undoubtedly, it is an amount which must be paid in advance in respect of tax before it becomes due. But it (the tax) becomes due only after regular assessment and if on regular assessm ent nothing or a lesser amount is found due and payable, the Government in that even shall have to return the amount paid of the sum Paid in excess with interest from the date of payment to the date of such assessme nt.
Thus the amount of advance tax in fact and in law is the property of the assessee
28. Advance Tax is, therefore, an estimated amount of proposed income tax to be paid by the taxpayer at the close of the Tax Year. After the said estimation the law requires the taxpayer to pay the said estimated amount during the currency of the Tax Year in four quarters. The estimate is to be made by the taxpayer and is not for the tax authorities to question or object till the close of the Tax Year when the law authorizes the tax authorities to verify the advance tax paid and impose additional tax if the advance tax paid has been less than 90% of the total income tax liability of the taxpayer (section 205 of the Ordinance).
29. While the taxpayer pays the estimated amount of tax, section 235 provides for collection of transitional advance tax at the rates specified in Part-IV of the First Schedule in the manner electricity consumption charges are charged. Section 235 of the Ordinance further facilitates the payment/collection of advance tax by monthly deduction of the same in the electricity bills of the taxpayer. The said payment gets adjusted as component "D" in the formula, mentioned above, in section 147(4) of the Ordinance. All the calculations, assessment and adjustments of advance tax are made under section 147 of the Ordinance, even the payment made under section 235 is adjusted under section 147 read with section 168 of the Ordinance.
30. While, section 147 of the Ordinance deals with Advance Tax, section 235 deals with the Transitional Advance Tax. Section 235 is not an independent tax but a separate collection point for receiving Advance Tax that has been estimated for the Tax Year by the taxpayer under section 147.
The total payment/collection of Advance Tax cannot be more than the estimated amount of Advance Tax under section 147 for the Tax Year. The Ordinance guards against excess payment of advance tax under the head of advance tax in subsections (4), (5) and (6) of section 147.
Therefore, once liability of advance tax as estimated by the tax payer is discharged during the currency of the Tax Year, the transitional advance tax must also come to an end, however, the present legislative layout of the Ordinance does not provide this and the transitional advance tax under section 235 of the Ordinance continues subjecting the taxpayer/petitioner to Advance Tax in disregard of the fact that such a tax already stands paid.
31. Section 147 and its purpose comes to a naught if a taxpayer is asked to pay more advance tax once the liability of advance tax has been estimated and settled for the Tax Year. The formula under section 147(4) is as under:-- (A x B/C)-D Where D means tax paid in the quarter for which a tax credit is allowed under section 168 (which includes section 235). Therefore, the advance tax estimated for the Tax Year by the taxpayer factors in the transitional advance tax and if "D" is more than the rest of the formula the over all payment goes into negative i.e., over and above what a taxpayer is liable to pay, which does not appear to be the intention of the legislature.
32. The argument of the revenue that advance tax under section 235 can be refunded to the taxpayer at the end of the Tax Year and therefore it should be paid, confirms that no advance tax is actually due from the taxpayer. Why should a taxpayer or a citizen of this country part with his property or be deprived of holding property unless law creates such a liability?
33. On the face of it the constitutionality of section 235 of the Ordinance in the present situation when the taxpayer has no further liability under section 147 of the Ordinance is seriously suspect. It prima facie, appears that fundamental rights of the petitioners guaranteed under Articles 10A, 18, 23 and 24 read with the concept of economic justice provided in the Objectives Resolution read with Article 2A and Article 4 of the Constitution are under threat. However, instead of gauging the constitutionality of the aforesaid provision, there is another route available, sections 147 and 235 of the Ordinance can be harmonized. This harmonization can be effectively achieved through purposive interpretation of the Ordinance.
34. It is settled law that where literal construction or plain meaning causes hardship, futility, absurdity or uncertainty, purposive or contextual construction is preferred to arrive at a more just, reasonable and sensible result. "Every law is designed to further the ends of justice and not to frustrate it on mere technicalities. Though the function of the courts is only to expound the law and not to legislate, nonetheless the legislature cannot be asked to sit to resolve the difficulties in the implementation of its intention and the spirit of the law. In such circumstances, it is the duty of the court to mould or creatively interpret the legislation by liberally interpreting the statute. The statutes must be interpreted to advance the cause of statute and not to defeat it. "Reliance is placed on Introduction to Interpretation of Statues by Dr. Avtar Singh (Reprint Edition 2007).
35. Lord Denning in his book Discipline of Law wrote that "the literal approach is now completely out of date. Although Lord Denning did not have in mind taxing statutes when he made the observation, it may modify the rigour of the literal approach in interpreting taxing statutes.
36. In Kammins v. Zenith Investment Ltd. (1971) AC 850, Lord Diplock drew a distinction between the 'literal approach' and the 'purposive approach' of which the last-mentioned is the modern method of interpretation. "The Courts now increasingly tend to enquire into the intention of the legislature and seek to further that intention. As Maxwell on the Interpretation of Statutes says: 'The tendency of modem decisions upon the whole is to narrow materially the difference between what is called a strict and beneficial construction."
37. "The Court must proceed on the premise that the law making authority intended to make a valid law to confer power validly or which will be valid. The freedom therefore, to search the spirit of the enactment or what is intended to obtain or to find the intention of the Parliament gives the Court the power to supplant and supplement the expressions used to say what was left unsaid.
This is a power which is an important branch of judicial power, the concession of which if taken to the extreme is dangerous, but denial of that power would be ruinous and this is not contrary to the expressed intention of the legislature or the implied purpose of the legislation." Delhi Transport Corporation v. D.T.C. Mazdoor Congress (AIR 1991 SC 101).
38. Applying the purposive approach, the intention of the legislature does not appear to authorize or sanction continuous charge of advance tax under section 235, once it is paid under section 147, for any such interpretation would render the scheme of advance tax under section 147 meaningless, hollow and otiose.
39. Further, the word "transitional" employed in section 235 of the Ordinance means the process of change from one condition to another. The "transitional" nature of section 235 signifies the fluctuating chargeability under the said section. It means that when the liability to pay advance tax stands discharged, there is a transition in the chargeability under section 235, which in effect comes to nil. Such is the nature of transitional advance tax.
40. In order to resolve the conflict between the two provisions, after the purpose of the Ordinance is clear, is to rely on the interpretative tool of reading down. In Indus Jute Mills Case, Sh. Azmat Saeed, J speaking for this Court held:-- "(37) In view of above, this court is confronted with two possible options; either is to strike down impugned section 235, Income Tax Ordinance, 2001 being ultra vires the Constitution and fundamental rights of the citizens or in the alternate, to resort to the time honoured rule of interpretation of employing the theory of reacting down and looking beyond the literal meaning of the provision (see Elahi Cotton Mill's case supra).'"
41. Mittal in Interpretation of Taxing Statutes writes:- "The theory of reading down is a rule of interpretation resorted to by the Courts where a provision, read literally, seems to offend a fundamental right, or falls outside the competence of the particular legislature. In interpreting the provision of a statute the courts will presume that the legislation was intended to be inter vires and also reasonable."
42. Dr. Avtar Singh in Introduction to Interpretation of Statutes (Reprint Edition 2007) writes:-- "Similarly, for upholding any provision, if it could be saved by reading it down, it should be done, unless plain words are so clear as to be in defiance of the Constitution. These interpretations spring out because of the concern of courts to always let a legislation to achieve its objective and not to let it fall merely because of a possible ingenius interpretation. The words are not static but dynamic. This infuses fertility in the field of interpretation. This equally help to save an Act but also the cause of attack on the Act. Here the courts have to play a cautious role of needing out the wild from the crops, of course, without infringing the constitution. For doing this, courts have taken help from the Pre-amble, objects, the scheme of the Act, its historical background, the purpose for enacting such a provision, the mischief, if any which existed, which is sought to be eliminated. The principle of reading down, however, will not be available. Where the plain and literal meaning from a bare reading of any impugned provisions clearly shows that it confers arbitrary, uncanalised or unbridled power."
43. The Supreme Court of India in Delhi Transport Corporation v. D.T.C. Mazdoor Congress (AIR 1991 SC 101) held:- "...It was well-settled that the Court would sustain the presumption of constitutionality by considering matters of common knowledge and to assume every state of facts which could be conceived and could even read down the section, if it became necessary to uphold the validity of the provision, that the underlying rationale of this rule of interpretation, or the doctrine of reading down of a statute being that when a legislature, whose powers were not unlimited, enacted a statute, it was aware of its limitations, and in the absence of express intention or clear language to the contrary, it must be presumed to have implied into the statute the requisite limitations and conditions to immunise it from the virus of unconstitutionality* that since every legislature intended to act within its powers, in a limited Government, the legislature would attempt to function within its limited powers and it would not be expected to have intended to transgress its limits............ The doctrine of reading down or of recasting the statute can be applied in limited situations. It is essentially used, firstly, for saving a statute from being struck down on account of its unconstitutionality. It is an extension of the principle that when two interpretations are possible-one rendering it constitutional and the other making it constitutional the former should be preferred.
The unconstitutionality may spring from either the incompetence of the legislature to enact the statute or from its violation of any of the provisions of the Constitution. The second situation which summons its aid is where the provisions of the statute are vague and ambiguous and it is possible to gather the intention of the legislature from the object of the statute, the context in which the provision occurs and the purpose for which it is made. The Doctrine of Reading Down is, therefore, an internal aid to construe the word or phrase in a statute to give reasonable meaning, but not to detract, distort or emasculate the language so as to give the supposed purpose to avoid unconstitutionality. Thus, the object of reading down is to keep the operation of the statute within the purpose of the Act and constitutionally valid. It cannot be accepted that the Courts, in the process of interpretation of the Statute, would not make law but leave it to the legislature for necessary amendments. In an appropriate case, Judges would articulate the inarticulate major premise and would give life and force to a Statute by reading harmoniously all the provisions ironing out the creases. The object is to elongate the purpose of the Act.......... The Courts, though, have no power to amend the law by process of interpretation, but do have power to mend it so as to be in conformity with the intendment of the legislature. Doctrine of reading down is one of the principles of interpretation of statute in that process. But when the offending language used by the legislature is clear, precise and unambiguous, violating the relevant provisions in the constitution, resort cannot be had to the doctrine of reading down to blow life into the void law to save it from unconstitutionality or to confer jurisdiction on the legislature.. But where the statute is silent or not expressive or inarticulate, the Court must read down in the silence of the statute and in the in- articulation of its provisions, the Constitutional inhibitions and transmute the major inarticulate premise into a reality and read down the statute accordingly."
44. In Calcutta Guj. Education Society and another v. Calcutta Municipal Corporation and others (AIR 2003 SC 4278) the Indian Supreme Court held:~ "The rule of "reading down" a provision of law is now well recognised. It is a rule of harmonious construction in a different name. It is resorted to smoothen the crudities or ironing the creases found in a statute to make it workable. In the garb of 'reading down', however, it is not open to react words and expressions not found in it and thus venture into a kind of judicial legislation. The rule of reading down is to be used for the limited purpose of making a particular provision workable and to bring it in harmony with other provisions of the statute. It is to be used keeping in view the scheme of the statute and to fulfill its purposes."
45. In BR Enterprises v. State of UP [1999(9) SCC 700]: "First attempt should be made by the courts to uphold the provision and not to invalidate it merely because one of the possible interpretation leads to such a result, howsoever attractive it may be.
Thus, where there are two possible interpretations, one invalidating the law and the other upholding, the latter should be adopted. For this, the courts have been endeavouring, sometimes to give restrictive or expansive meaning keeping in view the nature of legislation, may be beneficial, penal or fiscal etc. Cumulatively, it is to sub-serve the object of the legislation. Old golden rule is of respecting the wisdom of legislature, that they are aware of the law and would never have intended for an invalid legislation. This also keeps courts within their track and checks individual zeal of going wayward. Yet in spite of this, if the impugned legislation cannot be saved the courts shall not hesitate to strike it down."
46. Under section 159(1) of the Ordinance (See Schedule-B) the Commissioner upon application in writing by the taxpayer can issue a lower rate certificate. The lower rate certificate in theory can also be a 0% rate certificate or a nil rate certificate. Rule 40 of the Income Tax Rules 2001, provides as under:- CERTIFICATES, STATEMENTS AND PROCEDURE FOR PAYMENT OF ADVANCE TAX PART I - SECTION 159 CERTIFICATE 40. Exemption or lower rate certificate under section 159.--(U An application for a certificate under subsection 159 shall be made in the form specified in Part-VII of the First Scheduled to these rules.
(2) A certificate issued by Commissioner under subsection (1) of section 159 shall be in the form specified in Part VIH of the First Schedule to these rules.
(3)--------------- (4)--------------- The form of application to be made to the Commissioner under section 159(1) of the Ordinance is specified in Part-VII of the Schedule of the Rules in the following manner:- PART VII OF THE FIRST SCHEDULE GOVERNMENT OF PAKISTAN DEPARTMENT OF INCOME TAX OFFICE OF THE- Application for Certificate of Exemption from deduction of tax or deduction at a lower rate under section 159(1). An application for a certificate under the section 159 shall be made in the following form, namely APPLICATION FOR CERTIFICATE UNDER SECTION 159 OF THE INCOME TAX ORDINANCE, 2001 The Commissioner, I_______of_______ hereby declare that I am entitled to nil/reduce rate withholding tax certificate, on the following basis, in accordance with the provisions of the Income Tax Ordinance, 2001 for the tax year
(i) was less than the minimum liable to tax;
(i) amounted to Rs._____on which tax is chargeable at the rate of____
(ii) is under the Agreement for Avoidance of Double Taxation signed by the Government of Pakistan with the Government of ________ the country of my residence, not liable to Pakistantax/chargeable to Pakistan at the rate of____
(iii) was held exempt under clause of_____the Second Schedule or is exempt under clause_____of the Second Schedule.
(iv)That income is not likely to be chargeable to tax in view of tax credits or unabsorbed losses, or
(v) Or, in any case, since advance tax under section 147 has been duly paid already, or
(vi) The goods imported are for manufacturing purposes at own factory/mills/unit.
(vii) For any other reasons (to be specified).
1, therefore, request that certificate may be issued to the person responsible for paying profit on securities/dividends/royalties/other amounts particulars which are given in the Schedule annexed thereto, or to a person responsible for collecting tax at source, authorizing him not to deduct tax at the rate of at the time of payment of such amount or to exempt from withholding tax at source.
Signature------------ Name------------ Nationality-------------------- Address------------ Date------------
47. The said application clearly shows that nil tax certificate can be issued for the taxpayer, in case where advance tax under section 147 had already been paid. Once the nil tax certificate is issued under section 235, the chargeability of section remains intact but the rate of tax is reduced resulting in reading down section 235 and making it ineffective when the advance tax has been fully paid. Nil rate tax certificate does not offend section 235(3) of the Ordinance and can easily co- exist with the same. This reconciles both the provisions and there is no need to declare section 235 unconstitutional.
48. For the above reasons petitioners are directed to approach the concerned Commissioners under section 159(1) of the Ordinance and the concerned Commissioners are directed to decide the said application for the issuance of NIL RATE CERTIFICATES within a period of ONE MONTH from the date of receipt of application of the petitioner(s) after verification of the payment of advance tax under section 147 of the Ordinance. The direction for expeditious disposal of the application of the taxpayer under section 159(1) of the Ordinance is because of the recurring and continuous nature of transitional advance tax under section 235 of the Ordinance. While deciding the application for nil tax rate certificate the concerned Commissioners will keef the ratio of this judgment in mind and will consider the chargeability of section 235 to be integrated and co- extensive with the liability under section 147 of the Ordinance rather than a stand alone liability in these circumstances.
49. Before parting with the judgment, respondent Federal Board of Revenue is directed to find a permanent solution to this issue by either issuing appropriate exemption under section 159(3) of the Ordinance or bring about necessary legislative amendment so that the taxpayer is not saddled with this liability. It is also expedient that in the larger interest of good and effective tax governance in the country, Federal Board of Revenue addresses this issue at its earliest.
50. This court is indebted to the valuable assistance rendered by the amicus curiae namely: Dr. Ikram-ul-Haq, Advocate and Asim Zulfiqar, Chartered Accountant. Their rich contribution is acknowledged.
51. For the above reasons, these writ petitions are allowed. In case Petitioners file applications under section 159(1) of the Ordinance before the concerned Commissioners for the issuance of nil tax rate certificate alongwith necessary documentation establishing the discharge of liability under section 147 of the Ordinance, the Commissioners concerned shall decide the said application within ONE MONTH of the receipt of the said application.
52. The amount and payment of transitional advance tax under section 235 which has been suspended through interim orders passed by this court shall remain suspended till such time that the concerned Commissioner decides the application under section 159(1) of the petitioner and other petitioners in the connected cases. In case applications of the petitioner(s) is rejected after verification by the Commissioner, the petitioner(s) shall be liable to pay advance tax, the concerned electricity company shall raise the said consolidated amount in the next electricity bill due to the petitioner(s). In case no application is received from the petitioner(s) within a fortnight from the date of the announcement of this decision, the said petitioner shall be liable to pay advance tax under section 235 and the amounts suspended by this court shall stand revived in the next electricity bills of the petitioner(s). In case the application succeeds the petitioner will not be liable to pay advance tax under section 235 and the amount stayed during the pendency of this case or a portion therefore, as the case may be, shall not be charged from the petitioner.
53. All these writ petitions are allowed in the above terms. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.