SHAHID JAMIL KHAN, J.---In this and connected Tax References (PTR Nos.313 of 2013 and 46 and 47 of 2014), the basic issue is development surcharge, as expense while computing income from business and expenditures under Section 20 of the Income Tax Ordinance, 2001 ("ITO 2001"). In returns for the tax years 2006, 2007, 2010 and 2012, payment of development surcharge, as required under Section 8(5) of the Oil and Gas Regulatory Authority Ordinance, 2002 ("OGRA Ordinance, 2002"), was claimed as expense, which attained status of an order under the Section 120.
2. The department disagreed with the treatment and disallowed/added back the expense after proceeding under Section 122(5A) of the Ordinance of 2001. The issue culminated into appeal before the Appellate Tribunal Inland Revenue ("Appellate Tribunal"), which was decided in favour of the respondent taxpayer for all tax years. This appellate order is assailed through Tax References, in hand, by proposing certain questions of law.
In our opinion, the proposition of law is not properly couched, therefore, the questions are resettled as under:-
(i) Whether proviso to subsection (5) of Section 8 of the OGRA Ordinance would be applicable for allowance of development surcharge, when the Ordinance of 2002 is a special law being later in time? and;
(ii) Whether any other Act, outside Income Tax Ordinance, 2001, can allow any payment to the government as expense while calculating business income under Section 20 of the Ordinance of 2001?
3. Learned counsel for the applicant department has argued for a negative answer of the proposition by submitting that the OGRA Ordinance, 2002 being a special law and later in time, would not prevail over the Ordinance of 2001. Also submits that Section 3 of the Ordinance of 2001 has overriding effect on other laws.
Conversely, learned counsel for the respondent-taxpayer submits that the interpretation offered by the applicant department is farfetched. He without conceding to the arguments of special law, submits that Ordinance of 2001 was promulgated on 13.09.2001, well before the OGRA Ordinance and was enforced on 01.07.2002 through a notification. He concludes that OGRA Ordinance is later in time, therefore, being a special law would prevail over Section 3 of the Ordinance of 2001.
To explain nature of the development surcharge, learned counsel has read following Auditor's note in financial statement for tax year 2006:- "Under the provisions of license for transmission and distribution of natural gas granted to the company by OGRA, the Company is required to earn an annual return of not less than 17.50% per annum of the value of its average fixed assets in operation (net of deferred credit), before corporate income taxes, interest and other charges on debt and after excluding interest, dividends and other non operating income. Any deficit or surplus on account of this is recoverable from or payable to the Government of Pakistan as differential margin or gas development surcharge."
4 Heard. Record perused.
5. Subsection (5) of Section 8 of the OGRA Ordinance is reproduced:- "(5). Each licensee for natural gas shall pay to the Federal Government the development surcharge in respect of each unit of natural gas sold during the calendar month within two months of the close of that month and any amount paid by a licensee under this subsection shall be an expenditure for which allowance shall be made in computing profits or gains under section 23 of the Income Tax Ordinance, 1979 (XXXI of 1979): Provided that when the Income Tax Ordinance, 2001 (XLIX of 2001), comes into force the provisions of the said Ordinance shall apply for the purposes of this subsection."
[emphasis supplied] The provision, ibid, itself reads that development surcharge is compulsory payment by the respondent taxpayer under the license.
On a specific query, learned counsel for the applicant department has not disputed treatment of the development surcharge, paid under the Section 8(5), as expenditure allowable under the repealed Income Tax Ordinance, 1979 ("Repealed Ordinance of 1979"). In presence of this admission, the interpretation offered by the department is not sustainable because department is itself accepting that an expense can be allowed by another statute, while computing profits and gain under Repealed Ordinance of 1979. If the expenditure is allowable under Section 8(5) of OGRA Ordinance for computing income under Repealed Ordinance of 1979, it can be allowable under the Ordinance of 2001 also.
6. The confused interpretation of the proviso is against very clear principle of interpretation as is expounded under Section 8 of the General Clauses Act, 1897 ("Act of 1897"), which envisages a situation, where a particular law referred in provision of law is repealed. Section 8 is reproduced: "8. Construction of references to repealed enactments - (1) Where this Act, or any Federal Act or regulation made after the commencement of this Act; repeals and re-enacts, with or without notification, any provision of a former enactment, then references in any other enactment or in any instrument to the provision so repealed shall, unless a different intention appears, be construed as references to the provision so re-enacted.
(2) (Where before the fifteenth day of August, 1947, any Act of the Parliament of the United Kingdom repealed and re-enacted), with or without modification, any provision of a former enactment, then reference in any Federal Act or in any Regulation or instrument to the provision so repealed shall, unless a different intention appears to be construed as reference to the provision so re-enacted."
[emphasis supplied] This section allows the existing law to be read instead of repealed enactment referred in a Central (Federal) Statute.
7. In our opinion, the proviso was placed under subsection (5) as a precaution because Ordinance of 2001 had been promulgated by that time but was not enforced through notification, as required under Section 1(3) of the Ordinance of 2001. Had this proviso been absent, the subsection (5) is ex facie complete and clear for the purposes of allowance. Subsection (5) refers to Section 23 of the Repealed Ordinance only for the purposes of computing profits and gains after declaring development surcharge as an allowance. The same would be the case if we read Section 20 of the Ordinance of 2001 instead of Section 23 of the Repealed Ordinance, as is permissible under Section 8 of the Act of 1897.
8. For what has been discussed, our answer to both the questions, resettled ibid, is in affirmative i.e. in favour of the respondent taxpayer.
9. This and connected Tax References are disposed of accordingly.
10. Office shall send a copy of this order under seal of the Court to the Appellate Tribunal as per Section 133(5) of the Income Tax Ordinance, 2001.