Through these two appeals, the consolidated impugned orders of the learned CIR(A) dated 10-1- 2011 for tax years 2006 and 2007 have been agitated.
2. For the year 2006, the following grounds have been framed by the appellant:- -(2) That proceedings under section 122(1) read with section 122(5) of the Income Tax Ordinance, 2001 have wrongly been initiated and confirmed by the Commissioner Inland Revenue (Appeals-Ill) hence order is liable to cancelled.
(3) That Commissioner Inland Revenue (Appeals-III) is not justified to confirm the tax charged amounting to Rs.107,710,620 on account of minimum tax under section 113 of the Income Tax Ordinance, 2001 which is liable to be deleted.
(4) That appellant being a company owned and controlled by the Federal Government hence its income is exempt and not liable to tax upto tax year 2007 as provided in section 49(4) of Income Tax Ordinance, 2001.
(5) That order under section 122(1) read with section 122(5) is also liable to be cancelled as no amended taxable income has been mentioned in the amended order.
(6) That order under section 122(1) read with section 122(5)- is also liable to be cancelled as the original order has already been amended under section 221 of the Income Tax Ordinance and the appeal has also been decided on the same point in favour of the appellant.
(7) That tax amounting to Rs.107,710,620 has wrongly been charged as the appellant was not required to pay tax under section 113 of the Income Tax Ordinance, 2001 as per Clause 11A(XV) of 2nd Schedule Part-IV, of the Income Tax Ordinance, 2001."
While for the tax year 2007, the impugned order has been objected on the following two grounds:-- "(2) That proceedings under section 205 of the Income Tax Ordinance, 2001 have wrongly been initiated and confirmed by the Commissioner Inland Revenue (Appeals-III) hence order is liable to be cancelled.
(3) That Commissioner Inland Revenue (Appeals-III) is not justified to confirm the additional tax charged amounting to Rs.351,050 which is liable to be deleted."
3. We have heard the learned representatives from both the sides and have also perused the impugned order of the learned CIR(A) and the order passed by the Taxation Officer under section 122(1) read with section 122(5) of the Income Tax Ordinance, 2001 for the tax year 2006 and the order passed under section 205 of the Income Tax Ordinance, 2001 for the tax year, 2007.
4. The learned counsel for the appellant has contended that the tax payer in this case is a company owned and controlled by the Federal Government deriving income from sale of electricity. During the tax year 2006, the return was filed declaring nil income which was deemed to be an assessm ent order under section 120(1) of the Income Tax Ordinance, 2001. Proceedings for rectification of the order were initiated by the Taxation Officer on the basis that turnover tax under section 113 was not paid along with the return. As a result of these proceedings, order under section 221 was passed on 12-9-2008 against which the taxpayer filed first appeal before the learned CIR(A) and the above referred order was cancelled vide order dated 26-6-2009. After the cancellation of that order of learned CIR(A), fresh proceedings were initiated by the Taxation Officer under sections 122(1)/122(5) and subsequently order in this respect creating the demand of turnover tax was passed against which first appeal was filed before the learned CIR(A) but the order passed by the taxation office has been upheld, hence this appeal has been filed before this Tribunal.
5. The learned counsel for the appellant has contended that the appellant company is owned and controlled by the Federal Government, therefore, the income is not liable to tax up to tax year 2007 as section 49(4) in the Income Tax Ordinance, 2001 has been inserted through Finance Act, 2007 which made the income of the government owned entities as taxable. 'He is of the view that the tax under section 113 of the Income Tax Ordinance, 2001 before the insertion of the above referred section in the statue is against the law and is liable to be deleted. According to the learned counsel, the insertion of the said section 49(4) being brought in the statue through Finance Act, 2007 makes it clear that amendment was made to tax the income of government owned and controlled companies etc. He has contended that it is a settled law that the amendment brought to change the existing position, if the same is not clarificatory in nature will have no retrospective effect. In this respect, reliance is placed on the case-law reported as 1997 PTD 603 wherein it has been held that:-- "It is well-settled principle of interpretation that generally an amendment is made to bring out change in the state of law unless the amendment is clarificatory or declaratory in nature. See K.G.
Old Principal 'Christian Technical Training Centre Gujranwala v. Presiding Officer Punjab Labour Court, Northern Zone and 6 others (PLD 1976 Lahore 1097). There is nothing in the amending Act to lead to inference that the amendment was brought about to clarify the provision already existing and not to bring a change in it especially when the amendment had not been given any retrospective effect as is the case in a clarificatory or declaratory amendment. Another legal principle, which stands attracted in the present: case is that even if the two interpretations of a taxing provision are possible, the one favourable to the subject has to be adopted."
The issue of taxability of companies owned and controlled by the Federal Government has also been decided by this Tribunal in the case of Messrs Zarai Taraqqiati Bank Limited vide its order dated 9-6-2010 on the cross appeals bearing I.T.As. Nos.778 to 781 and 891/LB/2010 (Tax years 2003 to 2007) filed by the taxpayer and I.T.As. Nos.905, 906 and 782 to 784/LB/2010 (Tax years 2003 to 2005) holding therein that:-- "The examination of subsection (4) of section 49 reveals the clear intention of the legislature. Head it meant to apply the provision from same back date, it could have been so provided in the law itself which the legislation has not done. We thus hold that the provision is substantive in nature therefore, it has no retrospective effect. Moreover this legislation i.e., section 49(4) creates liability on the company by bringing it into the tax net it cannot be retrospective in operation. It has been observed in many cases that the legislature has the power to legislate law even with retrospective effect but no liability can be created With retrospective effect. The following case-law goes to support this view:-- 1997 SCMR 03, 2001 SCMR 1012 and 2001 PTD 814.
6. The learned counsel for the appellant in this respect has also referred to the decision of the Hon'ble Lahore High Court in Writ Petition No.6512 of 2008 in the case of Defence Housing Authority holding therein that the income became taxable i.e.f. Tax year 2008 by amendment through Finance Act, 2007. The relevant portion in this respect is reproduced hereunder:- "22. I, therefore, hold that DHA is a "local authority" and, therefore, is exempted from tax under section 49 of the Income Tax Ordinance, 2001 (as the said section was prior to the Finance Act.
2008) for Tax Years 2003-2005. As a result, letter dated 7-4-2008 issued by respondent No.1, as well as, notices issued under section 122(1)(5)(5-A) of the Income Tax Ordinance, 2001 dated 19-5-2008 for Tax Year 2003-2005 are set aside being illegal and without lawful authority."
7. The learned counsel has contended that the statue has to be read as organic whore. The Taxation Officer has charged turnover tax under sections 122(1)/122(5) of the Ordinance. According to learned counsel, as per subsection (6) of section 122 of the Income Tax Ordinance, 2001 after making an amendment in the assessment under subsections (1), (4) or (5A), the Commissioner shall issue an amended assessm ent order to the taxpayer stating therein: (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. He has contended that the plain reading of the above subsection (6) shows that the consequence of amendment under section 122(1) is that amended taxable income is to be indicated to the taxpayer. He has argued that in this case no taxable income could, be indicated therefore, the order under appeal is beyond the scope of section 122(1) of the Income Tax Ordinance, 2001 and is not maintainable. He has in this respect referred to the decision of the Hon'ble Supreme Court of Pakistan reported as PLD 1993 (SC) 473 in the case of Mian Muhammad Nawaz Sharif v. President of Pakistan wherein it has been held that the statue must be read as organic whole. Reliance in this respect is also placed on the decision of the Hon'ble Supreme Court of Pakistan reported as PLD 2009 (SC) 367 wherein it has been held that the intention of the law maker is always gathered by reading the statue as a whole and meanings are given to each and every word of the whole statue by adopting the harmonies construction.
8. In another decision referred to by the learned counsel, this tribunal in a case reported as 2010 PTD (Trib.) 12 has upheld the settle principle of interpretation of law that no provision of law can cane be presumed to be redundant and the superfluous. Further the principle of harmonious construction requires that the provisions of law should be construed and interpreted in such a way that the different provisions of law dovetail into each other in such a way that the entire statue remained a well knit, integrated and workable piece of legislation.
9. The learned counsel for the appellant in this respect has also referred to subsection (64) of section 2 of the Income Tax Ordinance, 2001, according to which a "taxable income" means taxable income as defined in section 9 and according to section 9 of the Ordinance, the taxable income of a person for a tax year shall be the total income of the person for the year reduced (but not below zero) by the total of any, deductible allowances under Part IX of this Chapter of the person for year.
The learned counsel has contended that in turnover tax no deductions are to be allowed as the turnover cannot be treated or equated with taxable income. According to learned counsel. The rate of taxable income has been given in Part I of the First Schedule which is 35% whereas turnover tax is charged at the rate of 0.5%`. He has contended that the return for the year under consideration was filed declaring nil income. The assessment for the tax year was deemed to have been made under section 120(1) of the Income Tax Ordinance, 2001 at nil income. The deemed order under section 120 has been rectified invoking the provision of section 221 by the Taxation Officer vide order dated 12- 9-2008 and the demand of turnover tax has been created against which the taxpayer filed first appeal and that order passed by the Taxation Officer under section 221 of the Income Tax Ordinance, 2001 has been cancelled by the learned CIR(A) vide, order dated 25-6-2009 with the following observation:-- "The action of Taxation Officer tantamount to amendment of orders deemed to have been passed under section 120 of the Income Tax Ordinance, 2001, the receipts headed and the subjected to tax under the head 'scrap sales and miscellaneous sales' is not a mistake apparent from the record.
Therefore, the impugned order passed under section 221 of the Income Tax Ordinance, 2001 for both the years under appeal can not be allowed to sustain legally and are here by cancelled."
10. The learned counsel for the appellant has contended that after the decision of the above referred orders passed by the first appellate authority i.e. The learned CIR(A), the only order in the field is the order passed under section 129 of the Income Tax Ordinance, 2001 as has been held by the Hon'ble Supreme Court of Pakistan in the case of Messrs Glaxo Laboratories v. IAC reported as PLD 1992 SC 549 = 1992 PTD 932 wherein it has been held that the order passed by the appellate/authority cannot be amended by the lower authority. Though the order is regarding repealed Ordinance 1979 but the relevant sections being para materia the order is applicable in this case also. The relevant paragraph of the order is reproduced hereunder:- "It is a well settled principle that on appeal the original order merges in the appellate order. The Commissioner of Income Tax v. Farrokh Chemical Industries, 1992 SCMR 523 it was observed that the order of the ITO upon appeal merged in the order of the Income,Tax Appellate Tribunal. Here the assessm ent order made by ITO was reopened under section 65 and a revised assessment was framed which has been set aside by the Tribunal. Thus, the order of the ITO has merged the order of the Tribunal which holds the field." . It is finally held by the Hon'ble Supreme Court in this order that: "the result is that the order of the Income Tax- Officer merged. Into the order of the Tribunal and, therefore. The IAC did not have the jurisdiction to initiate action under section 66A. Of the Income Tax Ordinance for reopening the matter'
10-A. The learned counsel has submitted that this Tribunal, in a case reported as 2009 PTD (Trib.)
1536 has followed the above said order of the Hon'ble Supreme Court of Pakistan and has cancelled the order in the similar circumstances passed by the Taxation Officer under section 122(5A) of the Income Tax Ordinance, 2001..
11. He has contended that the Hon'ble Lahore High Court in a case reported as 2008 PTD 1525 has held that the IAC by virtue of provisions of section 66A(1A)(B) of the repealed Income Tax Ordinance 1979 was not competent to reopen such assessment which had merged into the appellate order.
12. The learned counsel for the appellant has argued that the notice under section 120 of the Income Tax Ordinance, 2001 dated 7-12-2009 issued by the DCIR is vague as no specific clause/reason was ticked in the notice. He has in this respect placed reliance on the decision of the Hon'ble Lahore High. Court reported as 1997 PTD 47 wherein it has been held that "the notice, issued to the petitioner does not indicate under what subsection of the Section has been issued and even when confronted, the learned counsel for the department contended that as already show cause notices were issued to the petitioner to which the petitioner had submitted explanation, is understood that the notice has been issued under sub-para (c) of section 65(1) of the Ordinance, which is misconceived, as under the law, the assessing officer is required to apply his mind cautiously and to indicate the assessee under section 65(1) under what reason his assessment is sought to be reopened, as reopening of a case to some extend is a penal action, so the assessee be prepared to meet the consequences of reopening of an assessment. As the notice prima facie is defective and the error is not curable as it does not indicate the reasons, the said income is already, assessed in the hands of the petitioner." The Hon'ble High Court has finally held that: "without discussing the merits of the case, as the notice itself being .Illegal ab initio the proceedings initiated on the basis of the said notice are set aside, and the petition is accepted accordingly".
13. On the other hand, the learned DR is supporting impugned orders of the officers below. He has contended that both the officers below have given full justification for the treatment meted out by them and no interference in the matter is required. He has in this respect argued the points which are already reproduced in the impugned orders of the officers below,
14. We have heard the learned representatives from both the sides and have also perused the consolidated impugned order and both the orders passed by the Taxation Officer.
15. We have found that in this case the appellant company is owned and controlled by the Federal Government and the income was not liable to tax up to tax year 2007 as section 49(4) has been inserted through Finance Act, 2007 making the government owned entities as taxable. We are, therefore, of the view that in this case there was no justification for charging tax under section 113 of the Income Tax Ordinance, 2001 for the tax year 2006. The learned counsel for the appellant in this respect has referred to the cases decided by this Tribunal as well as the Hon'ble High Courts and the Hon'ble Supreme Court of Pakistan, which have been discussed in the above paras of this order.
We find force in the contentions of the learned counsel that the income of the appellant has become taxable i.e.f tax year 2008 and not for the tax year under review. In this regard, the case decided by the Hon'ble High Court in the case of the Defence Housing Authority vide order dated 8- 9-2010 in Writ Petition No.6512 of 2008 has been referred wherein it has been clearly held that DHA is a local authority and therefore, is exempted from tax under section 49 of the Income Tax Ordinance, 2001, as the said section was prior to the Finance Act, 2008 and consequently the letter dated 7-4-2008 issued by the DCIR as well as notices issued under section 122(1)(5)(5A) of the Income Tax Ordinance, 2001 were set aside being illegal and without lawful authority. We are of the view that keeping in view the above referred decisions of this Tribunal as well as the decisions of the Hon'ble Higher Courts, there was no justification for invoking the provision of section 122(1) read with section 122(5) of the Income Tax Ordinance, 2001 in this case. The impugned order of learned CIR(A) is therefore, vacated and the order passed by the Taxation Officer under section 122(1) read with section 122(5) is cancelled. The appeal filed by the assessee is allowed.
16. Regarding the appeal filed by the taxpayer for the tax year 2007, we are of the view that the learned CIR(A) has rightly upheld the order of the DCIR challenging the additional tax under section 205 of the Income Tax 'Ordinance, 2001. We have found that the appellant has failed to discharge his legal obligation to pay due tax under section 137 within the prescribed time limit which was dated 31-12-2007. An extension of 15 days was granted to the taxpayer by the Commissioner vide letter dated 6-2-2008 only for filing of return. Whereas subsection (6) of section 119 of the Income Tax Ordinance, 2001 explicitly read that: "an extension of time granted under subsection (3) shall not (for the purpose of charge of additional tax under subsection (1) of section 205) change the due date for payment of income tax under section 137". The Taxation Officer, therefore, passed the order for levy of additional tax under section 205 which has rightly been upheld by the learned CIR(A) and the same requires no interference on our part. Therefore, the appeal filed by the taxpayer for the tax year 2007 regarding additional tax is dismissed.
17. The appeal filed by the assessee for the tax year 2006 is allowed while the appeal filed for the tax year 2007 is dismissed with the above referred observations. .