Commissioner Inland Revenue Corporate Zone, Peshawar vs M/s

SPED ARSHAD ALL J.- This consolidated judgment is aimed at deciding the instant Tax Reference as well as connected Tax References bearing No. 01-P, 02-P & 03-P/2023 as essentially adjudication of common questions of law and facts are involved in all these References.

2. The essential and necessary facts of the case are that show cause notices were issued to the respondent/PESCO wherein it is alleged that no deduction of withholding income tax was made as required under section 153 (1) (b) of the Ordinance on payment of UoSC to NTDC, however, the precise allegations were that the NTDC though had paid the entire tax liability but it had made the said payment with delay, therefore, for the delayed period, the PESCO was asked to pay default surcharge amounting to Rs. 252,471,958/- in terms of section 161 (1B) read with section 205 of the Ordinance. The Assessing Officer vide order dated 30.06.2019 has confirmed the allegations and passed an assessm ent order against PESCO. On appeal, the learned Commissioner Inland Revenue (Appeals), Peshawar has also confirmed the imposition of the default surcharge vide order dated 26.09.2019, however, since there was some dispute regarding the calculation of the amount, therefore, the learned Appellate Forum has modified the order of Assessing Officer directing the revenue to ascertain the amount correctly.

3. On second appeal filed by the PESCO, the impugned orders of both the lower fora were set aside vide impugned order dated 28.09.2022.

4. Before adverting to the main issue, let's have a look at the relevant law.

5. Section 153 of the Ordinance envisages that every prescribed person making a payment in full or part including a payment by way of advance to a resident person, inter alia, on execution of a contract for sale of goods or rendering or providing of service; shall at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division III of Part III of the first Schedule.^[1] However, through clause 46AA^[2] inserted in Second Schedule to the Part-1V of the Ordinance certain persons including the companies receiving payments for the supply of electricity and gas are exempt from the operation of section 153 of the Ordinance. Clause 46AA (v) ^[3] was amended through Finance Act, 2021.

6. Moving on to the merit of the case. The parties are not at dispute that the payment received by the NTDC from PESCO against supply of electricity are exempt from the operation of section 153 of the Ordinance, however, it is the case of the Revenue that since the payment against UoSC were not exempt from the operation of section 153 of the Ordinance, therefore, the PESCO being a withholding agent was required to pay default surcharge for the delayed payment of income tax by the NTDC in tern-is of section 161 (1B)^[4] of the Ordinance.

7. 'Supply of electricity' has not been defined in the Ordinance, however, UoSC has been defined through SRO 1130 (1)/2008 dated 30.10.2008 in the following manner: "(j) "use of System Charges (UoSC)" means any charge (fixed or variable) payable by a Distribution Company, BPC or any other use of the transmission system for Transportation of Power from Generator to delivery metering point and delivery to a distribution company, BPC or any other user and as required under Article 13 and 4 of the NTDC License".

8. Although we have not been provided the agreement between PESCO and NTDC explaining invoicing the supply of electricity as well as for UoSC separately, however, the record is clear that the payment by PESCO to NTDC against supply of electricity and UoSC are through different invoices and the amount against both heads are identifiable.

9. Admittedly, for the tax year under consideration, the amendment brought through Finance Act, 2021 whereby the word 'transmission' of electricity has been added to clause 46AA ibid was not available in the taxing statute at the relevant period for which the default surcharge has been claimed by the Revenue and we are mindful of the well established and fundamental principle of income tax law that each tax year is a separate unit of account and taxation and the law has to be applied as it stood in respect of that tax year alone.^[5]

10. In the present case, for the tax year concerned in terms of clause 46AA (v) ibid, the PESCO was not required to deduct advance tax from payment to NTDC, however, the essential question whether the said exemption is also available against the payment which the PESCO was making for UoSC. It is an admitted position that transmission system of NTDC placed a vital role in supply of electricity and indeed is a tool/instrument through which the energy/electrons passes through and probably for this ambiguity the PESCO has failed to deduct advance tax in terms of section 153 of the Ordinance as the supply of electricity was exempt from the operation of section 153 in terms of clause 46AA ibid. No doubt, as appears from the record the payment against UoSC was separately invoiced, however, the word 'supply of energy' is obviously susceptible to two interpretation; one, that under clause 46AA (v) the companies receiving the payment for supply of electricity only were exempt from the operation of section 153 and the other interpretation is that the supply of electricity include both payment against the electricity as well as the UoSC and it is settled law that fiscal statute, particularly the provisions creating a tax liability, must be interpreted strictly and any doubt arising therefrom must be resolved in favour of the taxpayer^[6] or another word, where a provision in a taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee has to be accepted^[7]. Also if two views are possible, the one favour to the assessee has to be accepted^[8].

11. There is yet another aspect of the case i.e. the object of the substitution of the word 'transmission' of electricity and gas for supply of electricity and gas manifests the intention of law maker to clear up an ambiguity or oversight in the then prevailing rules and was aimed to correct and modify the obvious mischief and ambiguity in clause-46AA ibid. No doubt, the Finance Act, 2021 was introduced at the time when the assessment order was already framed on 24.09.2019 and the matter was pending before the first appellate forum, however, the question arises whether the amendment brought through in clause-46AA was curative in nature and could be applied to the pending matter.

The concept of remedial and curative statute In construing remedial statutes, regard should be had to the former law, the defects or evils to be cured or abolished, or the mischief to be remedied, and the remedy provided, and they should be interpreted liberally to embrace all cases within their scope so as to accomplish the object of the legislature and to give effect to the purpose of the statute by suppressing the mischief and advancing the remedy, provided it can be done by reasonable construction in furtherance of the object.^[9] Remedial statutes are usually looked upon with favour by the Courts that they should be liberally construed. But there appears to be considerable confusion in the cases with reference to giving remedial Acts retrospective effect through construction. If the rule of liberal construction is to be applied, as it obviously should then any doubt should be resolved in favour of retrospective operation, if such operation does not destroy or disturb vested rights, impair the obligations of contracts, create new liabilities violate due process of law or contravene some other Constitutional provision, and if such operation will carry out the intention of the legislature as ascertained through the application of the principle of liberal construction. In other words, a statute relating to remedial law may properly, in several instances, be given retrospective operation.^[10] The concept of remedial law has been well explained in the Black's Law Dictionary-Ninth Edition at page- 1407 that "a law providing a means to enforce rights or redress injuries. A law that corrects or modifies an existing law; esp., a law providing a new or different remedy when the existing remedy, if any, is inadequate"; whereas concept of curative statute has been explained at page-1543 that a law providing a new or different remedy when the existing remedy, if any, is inadequate.

12. In the case of Shahnawaz Ltd^[11], the issue relating to the amendment in subsection (6) of section 18-A of the Income Tax Act, 1922 through Finance Act, 1973 relating to the liability of the assessee to pay tax in the manner provided under the said provision was explained in certain manner beneficial to the assessee/taxpayer; it was observed by the Apex Court that: "However, nothing has been adduced before us in support of the last-mentioned submission. As explained in Crawford's "Statutory Construction" a statute relating to remedial law may properly, in several instances, be given retrospective operation and we are of the opinion that as the amendment in the instant case was introduced to redress an injury which in the words of Circular No. 6 of 1973 (Income Tax) issued on 7 July, 1973 by the Central Board of Revenue itself was "designed to soften the law in favour of tax-payers who could previously be charged to additional tax up to the date of assessment even through the finalization of assessment was delayed due to no fault of theirs." This was a proper case in which retrospective operation, to the extent the High Court gave to it, could be given to the amending law".

13. The amendment brought about through Finance Act, 2021 in our opinion has neither created a different class of exemption but indeed has expanded the exemption from operation of section 153 through clause-46AA which was already available to PESCO for the supply of electricity and the said supply of electricity was given a broader sense by including transmission of electricity, which, thus, had remedied the narrow interpretation of supply of electricity to the transmission ofth electricity so as to expressly include the UoSC. This amendment is, thus, applicable to the present case as the matter was not past and close transaction but was a pending matter.

14. The matter can be viewed through another angle also as the issue at hand relating to the liability of withholding agent to deduct advance tax is indeed very complex and it cannot be said that the said non-deduction of tax was the intentional act of the PESCO, therefore, when the withholding agent under the bonafide intention belief holds an opinion that it was not liable to deduct the said tax in view of clause 46AA (v) ibid then the matter relating to the imposition of default surcharge can be considered in view of the law laid down by the Apex Court in the case of M's D.G. Khan Cement Company Ltd^[12] wherein it was held that:- "26. In the case reported as PTCL 1992 CL 23, this Court held that imposition of penalty was illegal where the evasion of duty was not willful. The Lahore High Court in the case reported as PTCL 1995 CL 415 held that where the petitioner did not act mala fide with the intention to evade the tax, the imposition of penalty of additional lax and surcharge was not justified. It was held by the Sales Tax Tribunal in the case of PTCL 2001 CL 627 that where the controversy between the department and the appellants related to interpretation of different legal provisions, the imposition of additional tax and penalty had no justification. In other case, the appellant's own Tribunal held that additional tax was punitive in nature as such unless default was willful or mala fide, the recovery of the same was unwarranted

27. In view of these decisions, it could not be argued by the appellants that imposition of penalty or additional tax under section 34 was mandatory and there was no discretion left with the authorities to allow any concession.

28. Each and every case has to be decided on its own merits as to whether the evasion of payment of tax was willful or mala fide, decision on which would depend upon the question of recovery of additional tax. In the facts and circumstances of this case, we find that non-payment of the sale tax within tax period was neither willful nor it could be construed to be mala fide evasion of payment of duty, therefore, the recovery of additional tax as penalty or otherwise was not justified in law".

15. In view of the above, the case of the respondent squarely falls within the law laid down by the Apex Court in D. G. Khan Cement Company Ltd 's case (supra), therefore, the imposition of default surcharge in terms of section 161 (1B) is not legally correct. Thus, the findings of the worthy Tribunal both legally as well as factually are not open to any exception. Resultantly, this Reference as well as the connected References are answered in Negative. Copy of this judgment be sent to the worthy Tribunal in terms of section 13.3-(5) of the Ordinance.

^[1]153. Payments for goods, services and contracts.- (1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person

(a) for the sale of goods including toll manufacturing except where payment is less than seventy- five thousand Rupees in aggregate, during a financial year;

(b) for the rendering of or providing of services except where payment is less than thirty thousand Rupees in aggregate, during a financial year;

(c) on the execution of a contract, including contract signed by a sportsperson but not including a contract for the safe of goods or the rendering of or providing of services: Provided that where the recipient of the payment under clause (b) receives the payment through an agent or any other third person and the agent or, as the case may be, the third person retains service charges or fee, by whatever name called, from the payment remitted to the recipient, the agent or the third person shall be treated to have been paid the service charges or fee by the recipient and the recipient shall collect tax along with the payment received. shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division III of Part III of the First Schedule.

^[2]46AA. The provisions of section 153 shall not apply to the following persons as recipients of payment, namely:- (i)....

(ii)....

(iii).....

(iv) ......

(v) Companies receiving payments for the supply of electricity and gas.

^[3]46AA (v). companies receiving payments for the supply of electricity and gas including companies receiving payments for the transmission of electricity and gas.

^[4]161. Failure to pay tax collected or deducted.--(1) Where a person (a).....

(b).....

(1B) Where at the time of recovery of tax under sub-section (1) it is established that the tax that was to be deducted from the payment made to a person or collected from a person has meanwhile been paid by that person, no recovery shall be made from the person who had failed to collect or deduct the tax but the said person shall be liable to pay default surcharge at the rate of twelve per cent per annum from the date he failed to collect or deduct the tax to the date the tax was paid.

^[5]Fawad Ahmad Mukhtar and others vs. Commissioner Inland Revenue (Zone-II), Regional Tax Office, Multan (2022 SCM R 426).

^[6]Messrs Pakistan Television Corporation Limited vs. Commissioner Inland Revenue (Legal), LTU, Islamabad and others (2017 PTD 1372); Commissioner Inland Revenue, (Legal), Islamabad vs. Messrs WI-TRIBE Pakistan Ltd, Islamabad (2020 SCM R 420); Pakistan through Secretary Finance and others vs. Messrs Lucky Cement and another (2007 SCM R 1367).