This writ petition seeks a declaration from this Court to the effect that the amendments made in section 100B.A read with Rule I-A of the 10th Schedule introduced in the Income Tax Ordinance, 2001 (the Ordinance) through Finance Act, 2024 arc prospective in nature.
2. The petitioner is a statutory authority and is engaged in the development of real estate projects.
It is liable to pay advance tax/transitional advance tax under the provisions of the Ordinance. The grievance raised by the petitioner relates to the retrospective operation given to the new added provisions of the Ordinance with the result that the sale/purchase transactions carried out by the petitioner in the context of sections 236C and 236K entails higher rates of income tax as mentioned in the newly added Tenth Schedule. It is furthermore submitted that the newly added provisions have the effect of visiting consequences on the past and closed transactions which is not permissible under the law. The petitioner tiled tax return for tax years 2021 , 2023 beyond the due dates although it is stated that the tax return for the year 2022 was filed within the approved extended period and that penalty for late return the year 2023 was duly paid.
3. Learned counsel appearing on behalf of the respondents submits that legislature is wholly component to give retrospective operation to any statute. The respondents also place reliance on sub-section (2) of section 100BA of the Ordinance which gives the Tenth Schedule an overriding effect.
4. Section 100BA or the Ordinance reads as under 100BA. Special provisions relating to persons not appearing in active taxpayers' list.- (11 The collection or deduction of advance income tax, computation of Income and tax payable thereon in respect of a person not appearing on the active taxpayers' list or persons appearing on the active taxpayers' list who have not filed return by the due date specified in section '118 or by the due date as extended under section 119 or 214A shall be determined in accordance with the rules in the Tenth Schedule.
(2) The provisions of the Tenth Schedule shall have effect notwithstanding anything to the contrary contained in this Ordinance,
5. Rule 1 A of the Tenth Schedule in so far as it is relevant reads as follows '
1A. Rate of deduction or collection of tax from persons who are appearing on active taxpayers' list but have not filed return by the due date. -- Where tax is required to be collected in respect of persons appearing on the active taxpayers list who have not filed the return by the due date specified in section 118 or by the due date as extended under section 119 or 214A, the rate of tax shall be Tables omitted Provided that the provisions of this rule shall not apply to a person who has filed return by the due date specified in section 118 or by the due date as extended under section 119 or section 214A for all of the last three tax years preceding the tax year for which the return has not been filed by the due date specified in section 118 of by the due date as extended under section 119 or 214A,
6. Section 10013A as amended is applicable to persons who are not on active taxpayers' list and to persons who are on such list but have not filed their tax return by the due date or such date as has been extended under the Ordinance. It is apparent that this provision is intended to the regulate the behaviour of the taxpayers by the inducing them to file tax returns in a timely manner in as much as the taxpayers who do not fall in the two categories have been made liable to pay enhanced rate of tax as mentioned in Tenth Schedule, Rule 1A of the Tenth Schedule has been inserted for application of enhanced rates of lax for such filers who arc on active taxpayers list but who have not filed the tax return by the due date or the extended due date,
7. It is evident from the reading of section 100BA and the amendments made therein that it was made applicable to the tax year 2024. There is nothing in its text to suggest that it would apply to previous tax years, or to the return filed in those years. The contents of Tenth Schedule and rates mentioned in it are also not indicative of their applicability to any transaction for the previous years. Through circular No. 01 of 2024-25 doted 29.07.2024, the Federal Board of Revenue has issued various Clarifications regarding Finance Act, 2024. Paragraph No. 41.3 of the said circular relates to Rule 1A which states that Rule 1A of the Tenth Schedule has been inserted the rule enhanced rates of tax for such filers who have filed return for the current tax year after the due date." This clarification clinches the issue that section 100BA would operate prospectively.
8. The essential question requiring answer pm this Court is whether proviso to Rule 1A is attracted to the case of those taxpayers who did not file their tax returns within the stipulated period in the past three years, Another question which is no less important is whether the conduct for which no consequences were provided at the relevant time under the Ordinance could now be exposed to increase rate of tax even though they have become past closed transactions.
9. The petitioner submits that the purported retrospective operation of proviso to Rule 1 A impermissibly burdens it contrary to the Constitutional principles which forbid impairment of concluded transactions through a statutory provision when the intent to do so is not clear. For the reasons to follow, this contention should be accepted, and the questions requiring determination by the Court should be answered accordingly.
10. The language of the proviso is ambiguous which does not clearly express the intention of the legislature. Both the learned counsels, however, arc agreed that it covers the last three tax years preceding the current tax year. And this Court shall proceed on that premise.
11. The normal function of a proviso is to except something out of the main provision or to qualify something enacted therein. The first thing to note is that the proviso is attached to Rule 1A and not to the section 100BA. Section 100BA is the main charging provision which provides the taxation event and the categories of persons who shall bear the burden of tax. The only connection this provision has with the Tenth Schedule is that the rate of tax is to be determined with reference to Rule IA contained therein. The proviso to Rule 1 A is a curious provision in that it simply prescribes that the rates of taxes in Rule IA shall not apply to a person who has filed return by due dates in the last three years. It does not except anything from Rule I A which as an independent provision being part of the Tenth Schedule adds nothing except to replicate a part of what the charging provision (section 100BA) stipulates. However, simply reproducing what is stated in section 100BA does not make Rule 1A a charging provision. Other than that, substantively it incorporates the tables containing the rates at which tax is to be charged and collected under section 236C and 236K of the Ordinance. The draftsman instead of inserting the proviso in the main provision (section 100BA) appended it to Rule 1A. But as noted above, Rule 1A only provides the rate tax and thus whatever meaning the proviso holds it does not qualify anything contained in Rule1A.
12. The proviso is couched in negative language by, making the rates of tax mentioned in Rule IA not applicable to those taxpayers who tiled their tax returns within time/extended time. Nowhere in the proviso it is stated in clear terms that those persons who committed default in tiling their tax returns within time/extended time in the past three years are liable for payment of tax at the rates mentioned in Rule1A. Even if the proviso did that, it could not have any effect for burdening the petitioner with tax as Rule 1A to which it is a proviso is not the charging provision.
13. Section 100BA, as is apparent from the clarification issued by the Federal Board of Revenue, stipulates that it shall apply to tax returns for the current year. The respondents, however, argue that consequence or the proviso to Rule 1A is that the enhanced rates of tax are applicable on those taxpayers who did not file their tax returns within time for all the last three tax years preceding the tax year in which such default has been committed and that deduction or computation of tax from such persons shall be made in accordance with Rule 1A of the Tenth Schedule. Notwithstanding the draftsman's error of attaching the proviso to Rule 1A, this argument on constitutional plan must fail.
14. It is of vital importance to note that prior to finance Act, 2024 the Ordinance did not lay down any penalty for into tiling of tax return and according to the petitioner a meager penalty was levied for such conduct in the year 2023 and that the amount thereof was paid. The respondents do not dispute the stance of the petitioner. The tax returns for the period in question were accepted by the respondents and all the legal consequences that accrue from such acceptance of tax returns have now been established and confirmed. These tax returns have become past and closed transactions in so far as the levy of tax is concerned. If the construction placed on the proviso to Rule 1A by the respondents is accepted, it will increase the rate of advance income tax of the petitioner for the current tax year under sections 236C and 236K. In other words, the default by the petitioner in not tiling returns within the stipulated time in the past is being penalized by requiring it to pay increased rate of tax even though the Ordinance at the relevant time did not impose any tax for such conduct.
15. It is a settled principle of law that taxing statute must use clear and unambiguous language imposing the tax obligations. An equally settled principle of construction of a fiscal statute is that one has to look merely at what is clearly said and there is no room for any intendment, there is no equity about a tax, there is no presumption as to a tax and nothing is to be read in and nothing is to be implied and one has to look fairly at the language used (see West Pakistan and others v.
Messrs Jubees Limited PLD 1991 Suprem e Court 870). The proposition of law that amended laws generally will hose prospective operation, unless it is specifically mentioned that such amendment will have retrospective effect has been applied to often to be doubted. Put differently, a law which has the effect of impairing existing rights or duties, or which imposes now liabilities or obligations, or creates new disabilities cannot he given retrospective effect unless it states so expressly, or the retrospectivity can with utmost certainty be implied. In case of CIT, Dehli vs. Vatika Township Ltd (2015) 1 SCC I the Indian Supreme Court was dealing with the retrospective application of the proviso to section 113 introduced by the Finance Act of 2002 and held it to be prospective in its operation on account of the fact that it intended to create a charge or burden on the assessees. 'Use following observations of the Supreme Court are reproduced hereunder: The obvious basis of the principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal ruin as was observed in the decision reported in Office Cherifien des Phosphates v. Yamashlta-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose now duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or 10 explain a former legislation. [citation omitted)
16. In the case of Zila Council Jehlum through District Coordination Officer versus Messrs Pakistan 'Tobacco Company Ltd. and others PLD 2016 Suprem e Court 398, the Supreme Court expounded the principles for interpretation of fiscal statutes by holding as follows: Although the Legislature can legislate prospectively and retrospectively, such power is subject to certain constitutional and judicially recognized restrictions. According to the canons of construction, every statute including amendatory statues is prima facie prospective, based on the principle of nova constitution futuris forman imponere depet, non praeterities (which means 'a new law ought to regulate what is to follow, not the past' as per Osborn. Concise Law Dictionary) unless it is given retrospective effect either expressly or by necessary implication. In the other words, a statue is not to be applied retrospectively in the absence express enactment or necessary intendment, especially where the statue is to affect vested rights, past and closed transactions or facts or events that have already occurred. This principle(s) is attracted to fiscal statutes which have to be construed strictly, for they tend to imposed liability and are therefore burdensome (as opposed to beneficial legislation).
17. A similar view was taken in the CLOW of Chairman Federa Board or Revenue Islamabad v. Mrs A1-Technique Corporation or Pakistan Ltd. and others PLD 2017 SC 99. The following observations relevant to the issue involved in this ease were made: It is settled principle of law that tax cannot be charged and levied unless it falls squarely within the purview of the charging provisions. Taxing laws are not to be extended by implication beyond the clear import of the language used. To hold otherwise would violate another principle of interpretation of taxing statutes that tax laws should be construed in favour of the taxpayer and any substantial doubt resolved in favour of the citizen and against the government.
18. The Indian Supreme Court in the case of the Govinddas v. Income Tax Officer (1977 AIR SC 552) was dealing with a similar issue and stated that except in matters of procedure, retrospective operation should not be given to a provision in order to impair an existing, right, create a new obligation, or imposes a new liability unless it is specifically provided. If the statute is expressed in language which is fairly capable of either interpretation, it ought to be construed only prospective in operation. A prior assessm ent that is concluded cannot be disturbed by the retrospective application or the Act and that rights and liabilities that have attained finally cannot be altered by a new enactment unless expressly stated to be so.
19. The principles laid down in the judgments cited above make it abundantly clear that where an amendment is brought about in fiscal statutes it shall not be given a retrospective construction and cannot apply to past transactions unless such an intend is manifestly expressed. This rule is, however, not applicable to amendments concerning remedies or procedure which operate retrospectively provided vested rights and contractual obligations are not impaired. The settled rule of construction demands clear and unambiguous words before a statutory provision will be constructed as displaying a legislative intent to require a person to pay tax on past conduct. The Principal of legality favours a construction, if one be available, which avoids or minimizes the statute's encroachment upon fundamental principles, rights and freedoms at common law (see Saeed v. Minister for Immigration and Citizenship (2010) 241 CLR 252). The rational of this Presumption against the modification or abolition of fundamental rights or principles is to be found in the assumption that it is "in the last degree improvable that the legislation would overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistible clearness" ( See Bropho v. Western Australia (1990) 171 CLR 1 per Mason CJ, Deane, Dawson, Toohey, Gaudron and McHugh JJ), And in case of ambiguity or where the provision is open to two interpretations the interpretation which favour the taxpayer must be given preference particularly when vested rights created or transactions past and closed are being destroyed or a new disability or disqualification in respect of past transactions is being created. Put another way, if the enactment is expressed in language which is fairly capable of either interpretation, it ought to be constructed as prospective only. The rationale for adopting such a course, as rightly pointed out by Indian Supreme Court in the case of Vatika Township is that "Tax laws are clearly in derogation of personal rights and property interests and are, therefore, subject to strict construction, and any ambiguity must be resolved against imposition of tax."
20. On a proper construction of proviso to Rule 1A, it cannot be said that the legislature in categorical terms expressed its intention to apply it to returns filed in the past three years to make the taxpayers who were in default liable for tax on the rates mentioned in the Tenth Schedule. The principles laid down in the afore-mentioned judgments dictate the proviso to Rule 1A cannot be given retrospective effects so as to destroy or impair past and closed for concluded transactions.
21. Before parting with this judgment, it may be pointed out that the Federal Board of Revenue would be well advised to constitute a body of experts for rendering opinion on future legislation/Notifications in the light of legal and constitutional principles settled by the Courts in order to avoid such legislation being struck down. This puts unnecessary, burden on the Courts and impedes the revenue collection. The Federal Board of Revenue should also hire the services of expert draftsmen to frame the legislation/Notifications in a manner that the ordinary public understands it.
22. For what has been stated above, this writ petition is allowed and it is declared that Rule 1A and its proviso do not have any etrospective operation and that these provisions shall have no effect on the transactions/returns/assessments concluded and completed prior to the promulgation of Finance Act, 2024.