This reference application is directed against judgment dated 27.04.2010 of learned Appellate Tribunal Inland Revenue (Appellate Tribunal), whereby department's appeal was dismissed, while affirming order of 21.04.2009 of CIT/WT (Appeals).
2. Matter pertains to Tax year 2004. Following question of law is proposed for determination, statedly arising out of the judgment under reference.
"Whether under the facts and in the circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified in upholding the deletion of addition by the Commissioner (Appeals) observing that the provisions of clause (3A) of Part-IV of Second Schedule to the Income Tax Ordinance, 2001, when the said clause was enacted through Finance Act, 2004 and was applicable from tax year 2005 and onwards?
3. Facts are straightforward. Deemed assessment order of section 120 of the Income Tax Ordinance 2001 (Ordinance, 2001) was reviewed by the Taxation Officer in guise of rectification, invoking section 221 of the Ordinance 2001. Taxpayer's first appeal was allowed, and addition was deleted - addition made by the Taxation officer treating amount of loan, as income, waived under State Bank's Amnesty scheme in lieu of irrecoverable loans / debts while denying benefit of Clause-3A of Part-IV of Second Schedule to the Income Tax Ordinance, 2001 "Clause (3A)".
4. Learned counsel for Applicant department submits that both CIT(A) and Appellate Tribunal erred in law while extending the benefit of Clause-3A to the taxpayer against Tax year 2004, without appreciating that Clause (3A) was inserted through Finance Act 2004, hence, no benefit of the exemption allowed could be claimed for the Tax year 2004 - 1.07.2003 to 30.06.2004. Adds that legislative intent could not be stretched otherwise to extend retrospective effect to Clause (3A), when neither expressly nor impliedly any such intent was inferable. Further submits that Clause (3A) was erroneously treated as curative legislation, both by the Appellate Tribunal and CIT (Appeals). Learned counsel referred to decisions in the cases of "ARMY WELFARE SUGAR MILLS LTD and others. Vs. FEDERATION OF PAKISTAN and others (1992 SCMR 1652), "COMMISSIONER OF INCOME TAX. VS. SHAHNAWAZ LTD. And others (1993 SCMR 73), "MESSRS AL-HABIB FLOUR MILLS.
VS. COMMISSIONER OF INCOME TAX MEDIUM TAXPAYER'S UNIT, RAWALPINDI (2008 PTD 1715), "COMMISSIONER INLAND REVENUE ZONE-II REGIONAL TAX OFFICE, MULTAN. VS. MRS. AMBREEN FAWAD CO. PAK ARAB FERTILIZERS LIMITED, MULTAN (2014 PTD 320) and "CHINA HARBOUR ENGINEERING COMPANY LIMITED. VS. FEDERATION OF PAKISTAN through Secretary, Chairman and others" (2016 PTD 427).
5. Learned counsel for the taxpayer controverted the submissions and emphasized that Clause (3A) was a remedial and curative enactment, which was rightly so construed, concurrently, by Appellate Tribunal and CIT (Appeals), giving it retrospective effect. Reference is made to the case of "ARMY WELFARE SUGAR MILLS LTD and others. Vs. FEDERATION OF PAKISTAN".
6. Arguments heard. Before dilating upon the controversy, it is appropriate to reproduce Clause (3A), sub-section (5) 0f section 34 and section 70 of the Ordinance, 2001 - as appearing in the statute book at relevant time.
"Clause (3A) The provisions of sub sections (5) and (5A) of section 34 and section 70 shall not apply to any benefit derived by way of waiver of profit on debt or the debt itself under the State Bank of Pakistan, Banking Policy Department's Circular No.29 of 2002, dated the 15th October, 2002, to the extent not set off against the losses under Part VIII of Chapter III."
"Sub-Section (5) Where a person has been allowed a deduction for any expenditure incurred in deriving income chargeable to tax under the head "Income from Business" and the person has not paid the liability or a part of liability to which the deduction relates within three years of the end of tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head "Income from Business" in the first tax year following the end of the three years.
"Section 70. Recouped expenditure. - Where a person has been allowed a deduction for any expenditure or loss incurred in a tax year in the computation of the person's income chargeable to tax under a head of income and, subsequently, the person has received, in cash or in kind, any amount in respect of such expenditure or loss, the amount so received shall be included in the income chargeable under that head for the tax year in which it is received.
7.It is the case of the Applicant department that waiver of loan, by the ZTBL under State Bank of Pakistan Banking Policy Department's Circular No.29 dated 15.10.2002 (BPD Circular No.29), had to be treated as income of the taxpayer and no benefit could be extended or claimed in the garb of Clause (3A), which was not attracted retrospectively, to the Tax year 2004. Another limb of the argument was that exemption granted through Clause (3A) had to be construed strictly to the advantage of the department when no retrospective effect was given thereto.
8. Submissions are misconceived. It is clear upon bare textual reading that Clause (3A) ousts applicability of sub-section (5) of section 34 and section 70 of the Ordinance, 2001 and extends benefit(s), derived by way of waiver of debt(s) by the Banks, under State Bank's BPD Circular No.29 dated 15.10.2002.
The purpose of BPD Circular No.29 was to facilitate recovery of irrecoverable-cum-non-performing loans against payment of FSV of the properties / securities, determined according to the mechanism provided under the BPD Circular. It was a one-time opportunity, having cut-off date of 14.04.2003 - which was extended later, still extension has no consequence with respect to the issue at hand. And in terms of Clause (3A) benefit was extended to those debtors, who reached settlements under the BPD Circular No.29 - issue of benefit derived by way of waiver of profit on debt is not subject matter of this Reference Application. It is axiomatic that such benefit was available and effective from the date of BPD Circular No.29, i.e., 15.10.2002 and applicability whereof could not be denied for the purposes of Tax year 2004.
9. Clause (3A) was impregnated with retrospectivity, and any construction contrary to such plain and textual interpretation would render it superfluous. Reference to the date of effectiveness of BPD Circular, i.e., 25.10.2002 was a clear indication, let alone an explicit declaration. It is absurd to construe Clause (3A) in a manner as suggested by the department - to apply it prospectively and extend benefit to one set of debtors - post Finance Act 2004 - and deny benefit to other taxpayers, both benefactors of BPD Circular 29 - a distinctive class of persons. Clause (3A) possessed all the features and attributes of a curative, declaratory and beneficial enactment, affirming the spirit of the BPD Circular. Retrospectivity of Clause (3A) stood endorsed in terms of the clarification made, by the then CBR, through Circular No.14 of 2004 dated 17.07.2004 - reference was made in the order of CIT(A).
10. There is another aspect of the matter. Clause (3A) was deleted through Finance Act 2008. And lately such benefit, drawn by way of waiver of profit on debt or the debt itself under State Bank of Pakistan Banking Policy Department's Circular No.29 dated 15.10.2002, was declared as income upon adding Explanation to clause (d) sub-section (1) of section 18 of the Ordinance, 2001, by virtue of Finance Act, 2011, reproduced for reference.
"(d) the fair market value of any benefit or perquisite, whether convertible into money or not, derived by a person in the course of, or by virtue of, a past, present, or prospective business relationship.
[Explanation. - For the purposes of this clause, it is declared that the word "benefit" includes any benefit derived by way of waiver of profit on debt or the debt itself under the State Bank of Pakistan, Banking Policy Department's Circular No.29 of 2002 or in any other scheme issued by the State Bank of Pakistan;]
11. In the wake of deletion of Clause (3A), through Finance Act 2008 and addition of explanation to clause (d), it is evident that no exemption, in terms of sub-section (5) of section 34 and section 70 of the Ordinance, 2001 thereafter was available, but such benefit cannot be denied from the date of the effectiveness of BPD Circular No.29 till deletion of Clause (3A). Taxpayer, in this case is fully covered. In these circumstances, mere insertion of Clause (3A) through Finance Act, 2004 would not make its application prospective, denuding it of its curative and declaratory character. It is apt to refer to a decision from a neighbouring Country wherein the scope and effect of declaratory enactment was PTR No. 634 of 2010 discussed. The case is "The Commissioner of Income Tax, New Delhi. Vs. Ram Kishan Dass" [2019] 413 ITR 337 (SC), wherein while discussing the character of declaratory statutes, an excerpt from PRINCIPLES OF STATUTORY INTERPRETATION BY JUSTICE GP SINGH, was reproduced, iterated below, "The presumption against retrospective operation is not applicable to declaratory statutes. As stated in Craies and approved by the Supreme Court: 'For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word "declared" as well as the word "enacted".' But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new Rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' or 'shall be deemed never to have included' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect......
12. Retrospective effect was also extended to Clause (3A) in the case of "Messrs Khurdistan Trading Company (Partnership, firm) through Authorized Attorney Versus Commissioner Inland Revenue" (2014 PTD 339). [relating to Tax Year, 2004]
13. Nothing contrary is found in the ratio of the decisions, in the judgments referred, to hold otherwise, denying retrospective effect to Clause (3A), in view of the facts and circumstances of the case.
14. The question of law is answered in the affirmative, declaring that Clause (3A) was declaratory and had retrospective effect. Instant reference application is decided against the department.
15. Office shall send a copy of this order, under seal of the Court, to learned Appellate Tribunal, in terms of sub-section (5) of section 133 of the Ordinance, 2001.