Priniciples of Income Tax Law

Law Library Pakistan

HUZAIMA & IKRAM’S

PRINCIPLES

of

INCOME TAX LAW

Fourth Edition (2005-06)

AAP/LLP

(ii)

© 2005. All rights with authors All Rights Reserved. No part of this publication may be reproduced, stored in retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the written permission of the publisher. Case Law stated is up to May 2005 This book is constantly updated through website http://www.huzaimaikram.com International Tax Glossary is available on the above website.

Authors: Huzaima Bukhari Dr. Ikramul Haq Web version of the book is available at http://www.huzaimaikram.com & http://www.paktax.com.pk Fourth Edition Third Edition Second Edition First Edition

: : : :

November 2005 March 2003 January 2000 June 1993

Price:

Rs.300 - US$ 15 - UK£ 10 Published by: AAP/LLP # 14, (2nd Floor), Sadiq Plaza, 69, Shahrah-e Quaid-e-Azam, Lahore-54000, Pakistan. Tel: (92-42) 6280015; Fax: (92-42) 6365584 Email: [email protected] Website: http://www.paktax.com.pk ISBN No: 969-8403-42-6 Computer formatting: Abid Javed/Naveed Iqbal Printed by: Javed Printers Disclaimer: No responsibility is taken for any error or omission. The material contained in this publication is not intended to be advice in any particular matter. No reader should act on the basis of any matter contained in this publication without considering appropriate professional advice. The publisher, the authors and the editor, expressly disclaim all and any liability to any person in respect of anything and of the consequences of anything done or omitted to be done by any such person in reliance upon the contents of this publication. AA Publishers & Lahore Law Publications have exclusive rights of exporting this book outside Pakistan. No other person is authorised for its sale outside Pakistan without permission in writing of the Publisher.

For our sons

Abbas Askar & Ammar Askar

their love has always been a source of our creativity

(v)

Preface to the fourth edition The third edition, published in 2003, received tremendous applause and appreciation. Since then sizeable case law has emerged having significant implications for Income Tax practice in Pakistan, especially after the promulgation of Income Tax Ordinance, 2001 with effect from 1st July 2002. We have therefore decided to bring out a thoroughly revised edition, with the following new features: 

Rearrangement keeping in view changes introduced in conceptual characteristics of Income Tax Law through the promulgation of Income Tax Ordinance, 2001.



A brief review of the new law has been included for quick understanding and appreciation.



New “words and phrases” have been added to make the book further comprehensive and useful.



Comprehensive tables have been included which give comparative position of all the major Income Tax Laws in the Sub-continent since 1918.



The law cited is confined mainly to Pakistani courts including decisions pronounced by the courts in the Subcontinent prior to partition, which are binding on the Pakistani courts, if not overruled by any court of the country after independence - Ramkola Sugar Mills Ltd. vs. NWFP [1960] 2 Tax (Suppl.29).



A number of new chapters have been added to include some basic principles and doctrines relevant for interpretation of taxing statutes.



International Tax Glossary, which was part of Third Edition,

has

now

been

provided

at and continuous updating for the benefit of readers to find without any

http://www.huzaimaikram.com http://www.paktax.com.pk with

(vi)

hassle meanings and scope of different terms, phrases and technical abbreviations. 

Terminology of different forms of Islamic finance is included in International Tax Glossary for the benefit of readers [visit our websites http://www.huzaimaikram.com and http://www.paktax.com.pk for accessing this book].

Case law from 1886 to May 2005 has been analysed to deduce basic principles of taxation and interpretation of fiscal statutes. The book is unique as it gives a full view of the development of Income Tax Law since its inception in the Subcontinent. The preparation of this work was tedious and arduous. It involved intelligent scanning and careful perusal of thousands of judgements contained in numerous bounded volumes. A research work of this nature required strenuous efforts and long hours of continuous sittings. It could have not been accomplished without the cooperation of our sons, Abbas Askar and Ammar Askar, who showed immense patience in giving us the time that otherwise legitimately belonged to them. We are specially thankful to all the staff members of AAP/LLP, especially Mr. Mansoor Beg, Advocate, Mr. Naveed Iqbal, Mr. Abid Javed and Mr. Khurram Rauf Khan, for extending their wholehearted cooperation. We sincerely hope that advocates, chartered accountants, tax practitioners, judges, researchers, tax officials and academicians will find this work useful. We look forward to valuable suggestions from our ardent readers for improving this work in future. Lahore, November 1, 2005

Huzaima Bukhari Dr. Ikramul Haq

(vii)

CONTENTS PART - I Principles of Income Tax Law Dedication

(iii)

Preface

(v)

Arrangement of Chapters

(ix)

Table of Comparative Income Tax Laws Table of cases cited Subject Index

(xxxix) (xciii) 515

Arrangement of Chapters PART - I Principles of Income Tax Law

Chapter I 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Chapter II 1. 2. 3. 4. 5. 6. 7. 8.

Introduction

Basic Features of Income Tax Law Scheme of the Ordinance Definitions Role of certain expressions Proviso, object of Explanation, object of Rules of interpretation or construction of statutes “Deemed”, significance of Deeming provisions in the Ordinance Fiction upon fiction Reconstruction of sections and rules Technical words Legal fiction in one act does not extend to the other Income Tax does not apply to residents of non-taxable territories

1 2 8 16 17 20 21 27 30 33 33 33 34 35

Basic Principles

Distinction between direct and indirect taxes Income cannot be taxed twice Principle of equality in fiscal laws Statutory rules cannot enlarge the scope of the section under which the same has been framed Theory of reading down as a rule of interpretation Doctrine of unjustified enrichment is not attracted as incidence of indirect taxes is invariably transferred to consumers Material supplied by the department cannot be part of gross receipts taxable u/s 80C The Income Tax Law makes a distinction between actual liability in praesenti and a liability de futuro which, for the time being, is only contingent (ix)

39 39 40 41 42 42 43 44

(x) Principles of Income Tax Law

9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33.

Proviso cannot extend the meaning of the enacting part Assessing officer to apply correct law even if assessee fails to make a claim Rule cannot override the statutory law Rules cannot be called in aid to interpret sections of the Act. In case of discrepancy in language of section and rules, section is to prevail Exemptions can only be allowed if claimed Words in a statutory instrument should be construed in their ordinary sense In a Taxing Act there is no room for any intendment If an action is deemed illegal, the whole superstructure built upon it is also illegal “Resident” of taxable territories is liable to tax on total world income including any income accruing or arising in non-taxable territories of Pakistan Charging section and subsequent provisions enable the liability only to be quantified Principles governing interpretation of financial liabilities Provisions of earlier Act incorporated in the later Act became part and parcel of the later Act Department can go beyond a transaction Application of tax rates through a Finance Act explained Act is to be read as a whole Statute should be read as a whole Fiscal statutes should be interpreted according to their natural meanings Equitable construction is inadmissible in a fiscal statute Court cannot make up for any deficiency of Legislature Courts are not to be influenced by doctrine of hardship In dubio construction which imposes burden on taxpayer should be avoided Out of ambiguity of the provisions of the Act cannot be extracted a new and added obligation not formerly cast upon the taxpayer No taxation except by express words Avoidance of tax in legal manner is not evasion or mala fide action Fiscal statutes to be strained in favour of the subject, if at all

45 46 46 47 48 48 48 48 49 50 51 53 53 53 55 55 56 56 57 57 57 57 58 58 59

(xi) Arrangement of Chapters

34. 35. 36. 37. 38. 39.

40. 41. 42. 43. 44.

Fair and reasonable construction for taxing statutes No equitable construction in fiscal statutes Charging section cannot be overlooked on hypothesis of history of exemption Subsequent general enactment does not interfere with special provisions unless expressed clearly Modification of exemption from taxation must be express and not in general terms or by implication Long course of decisions determining construction of a repealed statute may be an aid in the construction of a new statute passed in the same terms as the former, but a single

60 60

decision not

61 62 62 63 63

Practice as a guide to construction Practice of Revenue Authorities as contemporanea expositio Principle of contemporary exposition Practice not a guide where language of statute is clear Practice under repealed Act as an aid for construction of later Act

45. 46. 47.

Presumption against double taxation Vested rights such as rights to appeal and to demand a reference already accrued, cannot be taken away by repeal of Act Non-revenue profit/losses are not covered in Income Tax unless specifically provided in statute

Chapter III 1. 2. 3. 4. 5. 6. 7. 8. 9.

60 61 61

65 66 67 68

Powers of Legislature

Powers of legislature while framing fiscal laws Legislature, particularly in economic activities, enjoys wide latitude in the matter of selection of person, subject-matters, events etc., for taxation Taxing rights of legislature are unlimited as long as these are not confiscatory Parliament is competent to levy presumptive taxation; broad principles relating to fiscal laws explained Levy of minimum tax held constitutional Restriction on power to levy tax When legislation is violative of fundamental rights Past and closed transactions can be reopened by giving retroactive effect to an amending provision Double Taxation is prerogative of legislature

71 71 80 81 83 86 87 88 89

(xii) Principles of Income Tax Law

10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

The powers of legislature to tax non-residents Levy of presumptive taxation Levy of Corporate Asset Tax is constitutionally valid Corporations created by provincial statutes are not “governments” Personal interest must yield to larger interest Powers of Federal Government to levy income tax on any property or income, including that of Provincial Government Parliament can introduce a new change of tax either by incorporating that change in the Income Tax Act or by Finance Act Words occurring in a constitutional provision relating to legislative power should be liberally construed Levy of super tax on free reserves which had already suffered tax held not to be ultra-vires of the powers of legislature under the Constitution Redundancy cannot be readily attributed to the legislature Legislature has the power to enact curative legislation Power to make and promulgate Ordinance includes the power to levy tax Rules cannot be made by subordinate delegate authority unless expressly permitted Subordinate legislation in the name of removing difficulties usurped the powers of legislature

Chapter IV 1. 2. 3. 4. 5. 6. 7.

89 90 90 90 92 95 96 97 97 97 98 99 99 99

Role of Deeming Provisions/Certain Expressions

Deeming provisions in respect of income Widest amplitude of an entry in legislative list does not extend to tax something which is not a citizen‟s income Scope of definition of „tax on income‟ under the Constitution Deeming provisions in a statute cannot spill over to other provisions in a statute and are to be construed strictly within the four corners of their objects Deeming provisions how to be construed Word “may” sometimes be construed as “shall” Scope of deemed income

101 102 102 103 103 104 104

(xiii) Arrangement of Chapters

8. 9.

“Include” and “shall be deemed to be included” meaning of Assessment and levy of super tax on total income of three months at the rate applicable to twelve months‟ notional income as a condition for permitting change of previous year by assessee was held without legal sanction

Chapter V 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.

104

106

Specific Words Explained

“Accrue” and “arise” “Accrue” and “arise” vis-a-vis effect of book entries „Adjudicate‟ necessarily implies settling a matter Adjudication requires passing of a speaking order “Agricultural Income” when remains to be such in the hands of recipient “Agriculture” and “agricultural purposes” “Annual value” “Approval” and “permission” are not synonymous “Artificial juridical person” “Assess” “Assessable income” “Assessment” “Agreed assessment” though framed outside the four comers of the Act is still an assessment at par with any other assessment Agreed assessment violative of Contract Act will be voidable “Assessment year”-- stable interpretation should be adopted “Best judgment” must reflect fair and proper estimate “Business” “Business connection” “Capital” and “dividend” - distinguished “Case” “Certified copy” “Charitable purposes” “Charity” and “charitable purposes” “Commercial” and “commerce” “Company” and “shareholders” relationship between “Company limited by guarantee”

109 110 110 111 112 112 113 113 114 114 115 115 116 117 117 117 118 118 118 119 119 119 120 122 122 123

(xiv) Principles of Income Tax Law

27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61.

“Complete” “Consultancy fee” falls under the term “industrial and commercial profits” “Debt”, “loan”, “owe” and “due” difference between “Deemed order” “Default” “Definite Information” “Discard” “Dividend” “Employee” “Enduring benefit” “Enemy”, “enemy territory” and “aggrieved party” “Erroneous” “Erroneous” – the scope of word explained “Evasion” and “Avoidance” - the difference “Evasion of Tax” “Execution of Contract” “Expenditure” & “reserves” “Failed” and “default” are not synonymous “Failure” “Fixed capital” “Fixed capital” and “circulating capital” “General Public” “Goods” do not include immovable property “Goodwill” “Guess work” vis-a-vis best judgement explained “Hearing” “Immunity” “Includes” “Including” “Income” “Income tax authority”-- ITAT is not covered in section 156(3) “Individual” & “association of persons” “Individual” and “such individual” “Industrial undertaking” – meaning of “Interest”

124 125 127 129 129 130 133 134 135 135 136 137 137 138 138 139 139 140 141 141 141 142 142 143 144 144 145 145 146 146 149 149 150 150 152

(xv) Arrangement of Chapters

62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93.

“Liable” “Life” “Manufacture” “Material” “May” “Merge” & “merger” “Mistake apparent from record” Scope of section 156 “Notice”, “give notice” and “opportunity” “Occupation” “Opinion” “Or” “Owners”, “ownership” and “own” “Paid” “Pay” or “paid” “Party in default” “Pay” “Penalty” “Permanent establishment” “Pending” vis-a-vis revision petition under repealed Income Tax Ordinance, 1979 “Pending” ordinarily means that the matter is not concluded “Pending” not only means actually pending but what is proposed to be filed within an unexpired periphery of time “Person” “Presumptive Tax Regime” “Previous year” “Processing” “Proceedings” and “pending proceedings” “Profit” “Property” “Receivable” u/s 17 means actually received and not “due” “Received” a person cannot receive a thing from himself “Repeal” & “amendment” “Reserve”

153 154 154 156 156 156 157 157 159 159 159 159 160 160 161 162 162 163 164 165 165 165 166 166 166 167 169 170 170 172 172 172

(xvi) Principles of Income Tax Law

94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106.

Unlawful action/order does not force any law of limitation for filing of appeal Law of limitation vis-à-vis rules of justice explained “Sales” and “supplies” “Shall” “Specify” “Supply” “Tax” “Tax” and “fee” “Tax paid” and “tax payable” “Turn-key project” “Turnover” “Working capital”, “current assets” and “current liability” “Year” - How to be understood

Chapter VI 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

173 174 175 175 175 176 177 177 177 178 181 183 185

Construction of Fiscal statutes

A fiscal statute has to be construed in its true perspective Exemption clauses, rules of interpretation Rule of interpretation regarding words and expressions used in fiscal statute An equitable construction of a fiscal statute is not permissible Fiscal rules are meant for good fiscal governance Literal approach, unless it leads to a manifest absurdity, has to be followed Machinery provision in a taxing statute to be liberally construed in order to effect recovery Principle of strict construction meant for taxing provisions and does not apply to machinery provisions When language is clear provisions are to be construed strictly Benefit of ambiguity should be given to the assessee Tax must be imposed by clear and unambiguous language Exemption cannot be allowed if not claimed In case of ambiguity/doubt, the benefit should be given to taxpayer and not the Revenue Benefit of doubt is the right of taxpayer

187 187 189 190 191 191 193 194 195 195 196 197 197 198

(xvii) Arrangement of Chapters

15. 16. 17. 18. 19. 20. 21. 22. 23. 24.

Courts while interpreting a statute must adhere to the plain meaning of the words Meaning of doubtful words to be gathered by reference to words associated with them Fiscal statutes should be strictly construed and no addition or omission therefrom permissible Construction of law should not lead to startling results Tax can only be imposed by clear words of the Act Strict rule of interpretation to tax a subject Subject can only be taxed if statute expressly so provides Subject taxable if within letter of law, not taxable if not within letter of law though within the spirit Burdening a subject with heavy taxation on personal views of any official is not sustainable Court must stick to the letter of the statute

Chapter VII 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

198 200 200 201 201 202 203 203 204 205

Language of Statute

If two views are possible from reading a provision of law, then one favouring the citizens is to be given preference Rule of benefit to subject where two interpretations are possible When two interpretations are possible in relation to any provision in the discipline of taxation, the one favourable to the assessee would prevail Doctrine of favourable interpretation applies to charging and not to machinery provisions Two equal possible interpretations of exemption clause one favouring the revenue to be adopted Rule of interpretation of ambiguous words If there was any doubt or ambiguity in language even then interpretation favourable to assessee had to be adopted In case of ambiguity in language, statement of objects and reason, can be relied upon Ambiguity in language should be resolved in the favour of taxpayer Literal rule can only be deviated in case of ambiguity in language; otherwise courts should adhere to plain words Plain words and patent meanings of law are to be applied and interpreted as they are and no latent meanings are to

207 208 208 210 210 211 211 212 212 212

(xviii) Principles of Income Tax Law

12. 13. 14. 15. 16. 17.

be attached to the patent words which convey the plain and obvious meaning Liability of withholding agent is restricted to plain language of statute Court must confine itself to language of law Statutes should be interpreted strictly in accordance with letter of law Inconsistencies are in-built in Income Tax General Language not infrequently intended sub modo It is inconceivable that a person can be saddled with responsibility/liability for non-compliance of law which is to be enacted somewhere in future

Chapter VIII 1. 2. 3. 4. 5. 6.

1. 2.

3. 4. 5. 6. 7.

213 215 216 216 216 217

Application of Statute

Application of rule generalibus specialia derogant Interpretation of charging and machinery provisions of a fiscal statute Interpretation of machinery provisions of a fiscal statute Law applicable on the first day of assessment year will apply and not the one in existence during the next year For the purposes of assessment of income the law applicable is that in force on the first day of the relevant assessment year Right accrued cannot be taken away by implication

Chapter IX

213

219 220 220 220 221 221

Interpretation of Statute

Statute must be intelligibly expressed and reasonably definite and certain While interpreting fiscal notifications the only guiding principle should be that no undue advantage could be taken on the basis of far-fetched or scholarly interpretation which the plain language does not imply nor intended to mean Exemption clauses provided under industrial incentives should be construed liberally Effect of non obstante clause Non obstante provision overrides conflicting provision Interpretation of statute is not CBR‟s domain Proceedings of the Legislature can be resorted to when the words of a provision are ambiguous

223

224 225 225 226 226 226

(xix) Arrangement of Chapters

8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.

General and specific words Words in statutes cannot be treated as surplusage or redundant Every word used in a statute has to be given effect to and no word of provisions of a statute is to be treated as surplusage and redundant Rule of harmonious construction of statutes Cautious approach is necessary when adopting foreign case-law Court cannot imply anything not expressed in statute Person sought to be taxed must come within the letter of law No words to be treated as surplusage Exemption clauses vis-a-vis rules of interpretation A fiscal statute should be construed strictly Abrogation of International Law While interpreting a fiscal statute, there is no room for any intendment, inference or presumption Hypothetical construction/interpretation is not permissible Fiction of law is restricted to the extent specified in statute and its scope is not to be extended

227 227 227 228 229 229 229 230 230 230 230 231 231 231

(xx) Principles of Income Tax Law

22. 23. 24. 25.

26. 27. 28.

29. 30. 31. 32. 33. 34. 35. 36. 37. 38.

Definitions given in a particular statute are meant strictly for the said law unless adopted by other statutes through legislation or reference Law is to be interpreted in the totality of the scheme contained in a particular statute and is not to be taken in isolation It is not for the Courts to supply for deficiency in the language of law as framed No provision of a statute should be considered in isolation, until and unless any section/provision thereof is a complete code in itself. Any Scheme contained in a statute or subordinate legislation should be considered in totality of the Scheme Where language of any statute or legal document is clear, then the same has to be acted upon accordingly If the words are not already defined in the statute, such words used in a section of the statute are to be given their ordinary meaning Words, “tax payable on the basis of such return” are to be interpreted on a reading of return of total income as a whole including the claim of exemption if any, and the assessment order is not to be read as part of return of total income under any principle of the interpretation of statutes Document is to be read as a whole and not in piece or in conjunction with any other material which is not be part of document Principles for determining mandatory or directory provision of law Correct interpretation of Rule 15 vis-a-vis right of appeal “Assessment consciously completed”, meaning of Parametric computer balloting held contrary to the law Machinery provisions cannot be construed to go beyond the spirit of law Claimant of an exemption has to prove the same without any ambiguity Machinery provisions of fiscal law should be construed so as not to destroy recovery mechanism Rule of liberal construction of machinery provisions Things should be done as required by law

232 233 235

235 236 236

236 237 237 238 239 240 240 241 241 243 244

(xxi) Arrangement of Chapters

39. 40. 41. 42. 43. 44.

45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57.

Redundancy should not be readily assigned by courts Strict rule of fiscal statutes emphasized Exemption clauses are to be construed strictly The scope of “Explanation” and its impact explained Explanation can be added to elaborate the meanings Object of adding an “Explanation” to a statutory provision is only to facilitate its proper interpretation and to remove any possible confusion or misunderstanding about its true meaning Harmonious construction is recommended Basic rules to construe charging and machinery provisions Speech of the Federal Minister has no legal consequences or effect Role of history of legislation in interpreting a provision of law/statute Inapt and inaccurate phraseology of draftsman cannot nullify a provision made by legislature Departmental construction can be used in aid of interpretation Interpretation leading to destructive ends should be avoided by Courts Marginal notes to the section of an Act cannot be referred to for the purpose of construing the Act Caution should be used while borrowing the meaning attached to terms and phrases used in one statute, while interpreting another statute Inclusive definitions enlarge the scope of a term/word Definitions given in a particular statute are restricted to the said statute unless any other statute adopts the same by incorporation or reference Defining a provision in one enactment by the help from other laws is never safe Terms and phrases used in a statute prima facie should be construed in their popular sense

244 244 245 246 247

248 251 251 252 252 253 254 255 257 258 258 259 259 260

(xxii) Principles of Income Tax Law

58. 59. 60. 61. 62. 63. 64.

While interpreting a statute - nothing is to be read in and nothing is to be implied Meaning of doubtful words should be interpreted by reference to meaning of words associated with it Provisions should be interpreted in accordance with the plain meaning of the language used therein Departmental instructions cannot be used in aid of interpretation Statute should be given its ordinary meaning Once intention of legislature is clear no extraneous principle of interpretation or construction of statute is to be employed Punctuation marks and construction of statutes

Chapter X 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

260 260 261 261 261 262 262

Retrospectivity

Fiscal laws and theory of retrospectivity Scope of retrospective legislation Retrospective application of law must be by explicit words Rule to determine retrospective effect Judgment of Supreme Court becomes operative from the date of announcement having no retroactive legal implication Authority to legislate includes authority to legislate with retrospective effect The authorities concerned can consider amendment brought in during the pendency of proceedings, and benefit if any can be provided to the assessee If retrospective operation of a provision results in injustice it should not be so applied Remedial and curative legislation has retrospective effect All provisions which come to cure/redress or to allow relief to assessees will always have effect retrospectively. Beneficial executive order/notification has retrospective effect A notification purports to impose a new liability or obligation cannot operate retrospectively

265 266 266 267 269 270 270 272 272 273 273 276

(xxiii) Arrangement of Chapters

13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31.

An amendment which is explanatory or clarificatory can be made to operate retrospectively Declaratory statutes generally apply retrospectively As a general principle the “Explanation” is clarificatory and declaratory in nature, therefore, it operates retrospectively. It reflects the true intent of the legislature Explanatory amendment is always applicable retrospectively to all relevant cases pending at the relevant time Explanation added to section 50(4) cannot be applied retrospectively Charging provision cannot operate retrospectively unless explicitly provided so by the legislature A penal provision cannot operate retrospectively Subordinate legislation can be applied retrospectively only if expressly mentioned Explanation inserted in section 52 of Income Tax Ordinance, 1979 has retrospective effect Retroactivity of the law upheld Retroactivity of the law upheld limitation period extended retrospectively by legislation held not valid Amendment in sub-clause (a) of rule 5 of the 5th Schedule to the Income Tax Ordinance held not retrospective Provisions of sub-clause (c) of section (2) of section 111 of the Income Tax Ordinance, 1979 are not retrospective in nature Amendments in machinery section being procedural are applicable to pending proceedings Retrospectivity even in a procedural law is to be avoided if it affects an existing right or causes injustice to anyone Omission of provision from statutes held not to operate retrospectively Any Act/Ordinance cannot cover any period prior to coming into force of the Act/Ordinance Rights conferred under statutes cannot be taken away by later legislation except by express words or by necessary implication No retrospectivity involving substantive right unless through explicit legislative intention

276 278 279 280 281 282 285 285 286 288 288 288 290 291 292 293 294 294 297

(xxiv) Principles of Income Tax Law

Chapter XI 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

Powers of Courts/Administrative Jurisdiction

Provisions in the Civil Procedure Code relating to appeals to the Supreme Court are contained in sections 109 to 112 read with Order XLV, C.P.C. Appeals rejected for want of non-observance of relevant provisions of law In granting leave to appeal rule of consistency is to be followed Judicial approach on constitutional issue should be dynamic Conditions under which courts can strike down a law High Court has only advisory jurisdiction under Income Tax Law Persons who are equally placed cannot be treated discriminately Two equally possible interpretation emerge leave to appeal granted CBR and the Federal Government has no power to resort to judicial interpretation of law CBR is not competent to issue instructions of judicial/quasi judicial nature CBR or any other authority cannot enlarge the scope of a provision. Transfer of jurisdiction Only question of law which has substance in it be referred to the High Court Constitutional petition dismissed as withdrawn second petition on the same issue is maintainable Anomaly in question of law framed and referred by the Tribunal to the High Court; High Court should refer the case back to Tribunal for clarification Effect of lack of jurisdiction Only Supreme Court is competent to adjudicate between the governments

299 300 300 301 302 302 305 307 307 308 308 310 311 311 311 312 312

(xxv) Arrangement of Chapters

18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38.

Appeal/Reference to Supreme Court governed by Income Tax Law In tax matters Supreme Court jurisdiction is limited Courts have to interpret the law as it stands and have no authority to add, delete or subtract any word in or from the language used in the statute Court is not empowered to deviate from the definition given in the statute Main function of the definition of a term is to remove vagueness, ambiguity or complication Disputed questions of fact cannot be resolved in a writ petition Question declined lacking substance and being academic in nature High Court is competent to entertain writ where interpretation of law is involved Every order increasing tax obligation of an assessee or reducing the refund is appealable u/s 129 Objections to jurisdiction are to be decided before proceeding in the matter by adjudicating authority Ombudsman has no power to declare any legally issued notification as perverse, illegal, arbitrary or discriminatory CBR has no authority to file presentation against the orders of Wafaqi Mohtasib Objection as to jurisdiction can be raised at any stage Courts/Tribunals have inherent powers to recall orders independent of any statutory provisions Doctrine of exhaustion explained Constitutional powers of levying taxes by Federation and provinces CBR‟s circular holding compensation under Golden Handshake Scheme as taxable held unlawful CBR has no authority to place judicial interpretation on any provision of law Powers of Appellate Tribunal Interim stay should be given once writ is admitted CBR instructions are binding on tax authorities

313 313 314 314 315 316 317 318 318 319 319 320 320 320 321 321 322 322 324 325 325

(xxvi) Principles of Income Tax Law

39. 40. 41. 42. 43. 44. 45. 46.

47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57.

CBR‟s beneficial circulars relating to section 12(18) are held not ultra vires Courts cannot question the wisdom of legislature in enacting provision of any law Presumption of irregularity with regard to official act cannot be challenge on vague allegation of mala fide A question not raised before the Appellate Tribunal cannot be raised before the High Court Provisions of the Income Tax Act can be challenged on Constitutional grounds A legal plea going to the roots of the case was allowed to be raised at belated stage Courts have inherent jurisdiction in the interest of orderly dispensation of justice Courts have no concern with disputable questions of distributive justice General Rules in respect of writ petition Petition challenging order u/s 53 held to be maintainable Conditions for maintainability of writ petitions explained The assessee has other options like filing a complaint with Ombudsman Order passed without giving opportunity of being heard is not sustainable No time limitation for illegal orders Remedies not availed disentitles the party from relief if constitutional petition also fails Writ cannot be converted into appeal u/s 136 Where a finding of fact not based on evidence or where material evidence ignored, reference u/s 136 of repealed Ordinance, 1979 is maintainable Interim relief in the form of release of goods on furnishing of indemnity bond held reasonable Constitutional jurisdiction cannot be invoked to enforce the rights which were not in existence at the time when the offending enactments were passed Writs disposed of by consent of parties to avoid delay in finalisation of cases as per law

326 328 329 331 331 332 332 333 333 333 334 334 335 335 335 336 336 338 338

(xxvii) Arrangement of Chapters

58.

59. 60. 61. 62.

63. 64.

65. 66. 67. 68.

69.

70. 71.

Respondent‟s contention that stay shall not be granted unless the prescribed Law Officer has been given notice of the application and an opportunity of being heard. Whether argument was without merit - Held yes Extra-ordinary jurisdiction of the High Court could not be invoked without first availing the remedies available under the relevant law Stay granted could not be given beyond six months Exercise of jurisdiction of high Court is confined only to consideration whether authority had acted with or without jurisdiction Where alternate and equally efficacious remedy is available, the petitioner is not entitled to invoke extraordinary jurisdiction of the High Court by way of writ petition In writ court cannot assume jurisdiction of income tax department Where there has been suppression of material/acts, writ of prohibition cannot be issued Writs when held to be maintainable Writs held maintainable and exhaustion being no bar Writ is the appropriate remedy where order is void and without lawful authority In case of writ, political victimization, petition is maintainable In cases involving fiscal rights even alternate, adequate and effective remedies available to the petitioner, High Court can step in to prevent excess, if any, committed by public functionaries Writ held maintainable even during the pendency of appeals when demand of taxes was huge and ran into millions and the department was pressing hard for its recovery but orders passed were against the law as held earlier by courts, though for different years Writ maintainable provided order is unlawful even if an alternate remedy available to the petition Reference application pending disposal before the High Court held not a bar to maintainability of constitutional petition challenging vires of law taxing “free reserve” to Income Tax

339 340 340 340

341 341 342 343 352 354

356

357 358

359

(xxviii) Principles of Income Tax Law

72.

73.

74.

75.

76.

77. 78. 79.

80. 81. 82.

Constitutional petition before High Court challenging vires of taxing “free reserves” to Income Tax held cannot be dismissed on ground of latches in view of nature of relief claimed and the circumstances of the case Where alternate remedy available but not efficacious and statutory functionary acting mala-fide or in a partial, unjust and oppressive manner, High Court in exercise of its writ jurisdiction has power to grant relief to the aggrieved party Order passed without lawful authority, partial, unjust and mala-fide held assessee can invoke the extra-ordinary jurisdiction of the High Court even if alternate remedy is available by way of appeal, etc. In the presence of assessee‟s objection to exercise of jurisdiction on ground of bias assessment was made without taking decision on the specific objection held that even existence of alternate remedy would not operate to debar the assessee from invoking extraordinary jurisdiction of High Court Where fact for determination was whether receipts supported by payment certificates produced by assessee were genuine and correct and claim was rejected without application of mind to this aspect, held High Court competent to interfere in its constitutional jurisdiction If impugned action is patently without jurisdiction, writ jurisdiction of the High Court can be invoked even if alternate remedy is available If assessment is suffering from lack of jurisdiction, writ jurisdiction of the High Court can be invoked, without availing remedies available under the law Writ admitted during the pendency of appeals held maintainable Writs when held not maintainable Writ when not maintainable Writ petition is not maintainable in the presence of adequate alternate remedy under the statute In presence of arbitration clause in the agreement executed between the parties, the writ petition is not maintainable

360

361

362

362

363 364 364 365 365 374 378

(xxix) Arrangement of Chapters

83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99.

Writ held not maintainable where disputed question of fact involved Writ is not maintainable where parties themselves agreed for arbitration in bilateral contracts Writ not maintainable in case where no right to appeal or reference is provided in law itself Selection of return for audit challenged through constitutional jurisdiction held not maintainable Writ is not maintainable where facts are controversial Legality and correctness of a factual controversy could not be resolved in the constitutional jurisdiction High Court cannot go in the domain of factual controversy Writ petition not maintainable where adequate and alternate remedy available Factual inquiry involving controversial facts cannot be undertaken by the High Court in exercise of its constitutional jurisdiction Writ cannot be entertained where adequate remedy is available If Income Tax Officer‟s action is jurisdictional, writ jurisdiction of the High Court cannot be invoked Issue being controversial involving inquiry into - held not a fit case to be determined under supervisory constitutional jurisdiction of High Court Assessee cannot avail remedy of constitutional petition before High Court being dissatisfied with the notices High Court cannot examine the question of controversial facts in constitutional jurisdiction Remedies available under the law should be exhausted before invoking the extraordinary jurisdiction of the High Court If question of jurisdiction of the assessing officer is not challenged, writ petition is not maintainable Where appeal was dismissed by appellate authorities on ground of limitation and this order was in accordance with law, held writ petition against such order was not competent

378 379 380 380 381 381 382 382 383 384 385 385 387 388 388 389

390

(xxx) Principles of Income Tax Law

100. Writ not maintainable in the presence of adequate and efficacious alternate remedy 101. Constitutional petition does not become competent for the mere fact that order-in-original has become final 102. Writ is converted into appeal u/s 136 103. Constitutional jurisdiction cannot be invoked for mere fact that no further remedy by way of appeal/revision is available

Chapter XII 1. 2. 3. 4. 5. 6. 7.

1.

2. 3. 4. 5. 6.

391 391 392

Rule of Evidence

Income Tax Authorities to establish by positive evidence that assessees accounts are unreliable Standard of proof Qanoon-e-Shahadat Ordinance is applicable to Income Tax Ordinance, 1979 A judge cannot be compelled to accept a piece of evidence Provisions of Evidence Act not applicable to proceedings under Income Tax Act Fresh evidence cannot be admitted in appeal unless requirements of section 131(4) are fulfilled Statement in power of attorney not proof in itself

Chapter XIII

390

393 393 394 394 394 395 395

Doctrine of Binding Precedent (Stare decisis)

Division Bench of a High Court cannot disagree with another Division Bench without reference to a larger bench or should leave the matter to be decided by Supreme Court In case of difference of opinion between benches of equal strength, larger bench should be formed All judges of a High Court sitting together much less to say of a Judge in Chambers cannot declare a judgment of the apex Court to be per incuriam Pre-partition judgements are binding unless overruled by Pakistani courts Where judgments of the Pakistani Courts are available they will prevail over the Indian judgments. Per incuriam judgement of even the highest court is not binding

397 398 399 400 400 402

(xxxi) Arrangement of Chapters

7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

Deviation from an earlier finding without reference to the same also makes a judgment per incuriam. Reliance on foreign cases in the presence of contrary view taken by Pakistani courts is strongly disapproved Principles of “stare decisis” Binding judgements and conduct of different Benches Controversy prevailing between two Division Benches resolved “Stare decisis”, meaning of Even obiter dictum of Supreme Court is binding on all courts in Pakistan Decisions of Income Tax Appellate Tribunal are binding on all subordinate authorities English decisions in pari materia and their binding value Difference of opinion vis-à-vis controversy explained A case is only an authority for what it actually decides and cannot be relied on for a proposition that may logically arise from it

Chapter XIV 1. 2.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

403 404 405 406 406 406 406 407 408 408

Doctrine of Merger

Doctrine of merger On appeal original order ceases to exists and merges itself in the appellate order

Chapter XV

402

411 412

Legal Maxims

Audi alteram partem Approbate and reprobate Casus Omissus Ejusdem generic “Expressio unius est exclusio alterius” “Expressio unius est exclusio alterius” (express mention of one thing implies the exclusion of another) was neither absolute nor was of universal application Ex abundanti cautela Generalia specialibus non derogant Mens rea Noscitur a sociis No one can be judge in his own cause Things should be done as per law as not to be done at all Ut res valeat quam pereat

413 414 415 415 417 417 418 418 418 419 419 420 420

(xxxii) Principles of Income Tax Law

Chapter XVI 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Chapter XVII 1.

Doctrine of Res Judicata/Estoppel

Principle of res judicata - not applicable Doctrine of res judicata not applicable to income tax proceedings Income tax officer when not bound by res judicata Doctrine of promissory estoppel and legitimate expectation applies to SAS Principles of waiver or estoppel do not apply against a provision of law Doctrine of promissory estoppel could not be invoked against the legislature and the laws framed by it Executive actions are not excluded from the operation of promissory estoppel Equitable doctrine of estoppel Principle of res judicata and estoppel “Res judicata” and “merger” explained

421 421 422 423 424 424 426 426 426 427

Doctrine of mutuality

Five-point criteria for applying “doctrine of mutuality”

429

Chapter XVIII Natural Justice/Duties of Court 1. 2. 3. 4. 5. 6.

True meaning of statute vis-a-vis duty of court Opportunity of being heard is a must even in quasijudicial proceedings Article 4 of Constitution of Pakistan 1973 vis-a-vis “due process of law” Affording of an opportunity is a prerequisite for taking penal action An order affecting the rights of a party cannot be passed without an opportunity of hearing to that party Mere technicalities should not be allowed to defeat the ends of justice

431 432 432 433 433 433

(xxxiii) Arrangement of Chapters

7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

If a person charged with a simple crime to felony can be the most favourite child of law then why an assessee should not be facilitated in his defence against revenue Rules must not take away a right conferred by the relevant statute and should be struck down if found to be arbitrary or unreasonable Departmental instructions in conflict with the statutory law or tends to undo any such law have no legal effect In presence of a specific provision of law applicable to the situation, the Assessing Officer could not have resort to any other provision of law Public power and administrative discretion ought to be exercised fairly Duties of courts in administration of justice Public functionaries are duty bound to decide controversies between parties after application of independent mind, supported with reasons Public functionaries must act justly, fairly and honestly and cannot seek refuge in irrational and arbitrary classification No adverse order should be passed against a party without affording an opportunity to meet the case Justice should not only be done but must also appear to have been done Principles of natural justice should be read in all statutes unless the same are expressly excluded The court must consider the intention and not merely the form, while examining a document Judicious exercise of discretion Discretion in law exercised by competent authority is not open to any exception Once an authority has jurisdiction, an irregularity in exercising it will not vitiate the decision Principles of natural justice are part and parcel of every statute unless there is specific provision in a particular statute to the contrary Principles of natural justice cannot be invoked in deciding a legal issue with reference to the statutory provision

Chapter XIX

Rule of Limitation

434 435 436 437 437 437 438 440 441 441 442 442 442 442 443 444 445

(xxxiv) Principles of Income Tax Law

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Where a judgment has not been conveyed to a party limitation starts running from the date of knowledge Time limitation for filing appeal u/s 136 vis-a-vis section 5 of Limitation Act The provisions of Limitation Act are mandatory and cannot be waived Period of Limitation - factors to be considered while computing period of limitation A reference application made beyond the prescribed time should be dismissed Where a matter is barred by limitation each and every day‟s delay must be explained Delay of each day must be explained Time spent in obtaining a certified copy should be excluded while computing period of limitation Application of provisions of Limitation Act to proceedings under Income Tax Law Court holidays falling on the day of expiry of the prescribed period of limitation should be excluded in counting the period of limitation Time required for obtaining certified copy should extend the period of limitation

Chapter XX 1. 2. 3. 4. 5. 6. 7. 8.

447 447 448 448 449 449 449 449 450 450 450

Miscellaneous

Claim for refund of money paid under mistake is not barred by time Power to levy taxes is an attribute of sovereignty of a state Legislature, particularly in economic activities, enjoys wide latitude in the matter of selection of person, subject-matters, events etc., for taxation Assessment order passed by ITO can‟t be called a final order IT-30 cannot be a substituted for an assessment order Islamic jurisprudence and rules of law are equally applicable to fiscal laws Remedy to be sought within four corners of Act Realistic approach should be applied for determination of value of property

451 452 453 462 463 463 466 466

(xxxv) Arrangement of Chapters

9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.

Payments (golden handshake etc.) on termination of services held taxable Scope of protection under the Economic Reforms Protection Act of 1992 - Special Law vs. Income Tax Civil suit in the absence of mala fide order is not maintainable Power to make rules is subject to certain limitations Discrimination in rule-making is ultra vires Civil suit does not lie against tax authorities unless order is mala fide or illegal Basis of taxation in Islam Provisions of Economic Reforms Act, 1992 overrides Income Tax Law to the extent protections are provided in the former enactment If notice is prima facie defective and error is incurable, the entire proceedings are null and void Powers of CBR - territorial & administrative jurisdiction Budget speech has no legal sanctity Duty of Government employees working in non-taxable territories to pay income tax The de facto doctrine Proceedings taken subsequent to grant of stay order are nullity in the eyes of law Appeal is continuation of original proceedings Only natural/legal persons have the vested rights and not the government/state It is the duty of the legislature to save income from escaping assessment Caption given to a particular provision of law would not change purport of the provision Inordinate delay in seeking discretionary relief under Article 199 of the Constitution - hit by laches Proceedings under the Income Tax Act are judicial proceedings General Act - whether overrides the provisions of Specific Act - held no Where a withholding agent fails to deposit tax in the Treasury, the department instead of penalizing the taxpayer should take action against the defaulting withholding agent

467 468 469 470 470 471 471 472 474 475 476 477 478 478 478 479 479 479 480 480 480

482

(xxxvi) Principles of Income Tax Law

31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47.

Right of appeal is a creature of statute and there can be no right of appeal unless the statute confers it Once the assessee had supported the claim on the basis of a receipt issued by the Postal Authorities burden of proof shifted on the Department to rebut In the presumptive tax regime notice under section 61/62 of the Income Tax Ordinance, 1979 cannot be issued Presumption as to service by post is available only where posting by registered post is proved Legality of service through Postal Certificate cannot be challenged after compliance as section 154(6) Legal formalities for proper services of notice are to be fulfilled Issuance of a notice under postal certificate is neither illegal nor improper SAS and maxim ubi jus ibi remendium explained Selection of SAS cases for total audit remanded back to a three-member committee for de novo action Compensation not for an injury to the capital asset is not capital receipt Justice cannot be denied on technicalities Prosecution proceedings can be taken under the repealed ITO 1979 in view of section 239(6) of ITO, 2001 Impositions of additional tax or prosecution for an offence are independent actions Proper and regularly-employed method of accounting cannot be rejected on mere surmises and conjectures Miscellaneous application can only be filed if the final order has been passed by the bench and there arises a mistake, which is apparent from the record ITAT is fully competent to adjudicate upon the point or points stated by the dissenting members after having taken regard to the real controversy of the case In the absence of final order by ITAT, provisions of section 135(2) read with section 156 do not come into play

482 484 485 486 487 487 488 488 489 490 491 493 494 495 497 498 498

(xxxvii) Arrangement of Chapters

48. 49. 50. 51.

Tribunal is competent to grant stay of demand created as a result of reassessment order provided the main appeal is pending before it Order passed consequent to proceedings under section 66A unless reaches ITAT cannot be taken cognizance of for granting stay by the Tribunal Agreement between parties cannot overrule the law Statutory order must be speaking and judicial

Chapter XXI 1. 2. 3. 4. 5. 6.

1. 2. 3. 4. 5. 6. 7.

500 501 501

Workers’ Welfare Fund

Workers‟ Welfare Fund Ordinance authorises the Income Tax officer to levy WWF Appeal does lie against the WWF as if levy under the Income Tax No Workers‟ Welfare Fund on income exempt under any provision of the Income Tax Ordinance Assessees not required to file return relating to presumptive tax regime cannot be subjected to the charge/levy of Workers‟ Welfare Fund Issue relating to non-levy or wrong levy of WWF fall within the ambit of mistakes apparent from record WWF is not leviable on incomes covered under presumptive tax regime

Chapter XXII

499

503 504 504 505 505 508

Income Tax Appellate Tribunal

Tribunal has powers and jurisdiction to remand the case to assessing officer Tribunal is not empowered to award damages decree against the assessing officer Appeals and judicial process explained Duty of the registrar to return appeal if deficient Rule 11-Dispensation of justice Rule 11 of ITAT Rules, 1981 – Scope of Tribunal must pass speaking order

511 511 512 513 513 513 514

Comparative Table of Income Tax Ordinance, 2001, Income Tax Ordinance, 1979, Income-tax Act, XI of 1922 and Income-tax Act, VII of 1918. © Mrs. Huzaima Bukhari I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

I.T.Act, 1918

1

1

1

1(1)

1(1)

1(1)

1

1(2)

1(2)

1(2)

1(2)

1(3)

1(3)

1(3)

1(3)

2(1)

2(20)Exp.

2(1A)

---

2(2)

2(3)

2(3)

2(4)

2(4)

2(5)

2(5)

2(7)

2(5A)

2(8)

2(5B)

---

2(6)

---

2(7)

2(10)

2(8)

---

2(9)

2(11)

2(4)

2(10)

2(12)

2(4A)

2(11)

2(13)

2(4B)

2(11A)

2(14)

15D(4)

2(12)

2(16)

2(5A)

2(13)

2(15)

2(5)

2(13A)

---

2(14)

2(17)

2(15)

---

2(16)

---

2(17)

---

2(18)

---

2(19)

2(20)

2(17)

2(5B)

2(6A)

(xxxix)

2(3)

(xl) Principles of Income Tax Law I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

2(20)

16(2)(e)

2(21)

16(2)(d)

2(22)

---

2(23)

12(5) Exp.

2(24)

---

2(25)

2(21A)

2(26)

2(22)

2(27)

---

2(28)

---

2(29)

2(24)

2(6C)

2(29A)

2(26)

2(11)

2(30)

---

2(31)

---

2(31A)

---

2(32)

---

2(33)

83(5)(c)

2(34)

2(29A)

2(35)

2(29A)

2(35A)

---

2(36)

---

2(37)

2(30)

2(38)

---

2(39)

23(1)(viidd)

2(40)

12

2(41)

---

2(42)

2(32)

2(43)

---

2(44)

2(33)

2(45)

---

2(46)

2(29)

2(47)

Para B(2), Pt-IV, 1st Sch.

2(48)

2(37)

2(48A)

2(37A)

2(49)

---

2(49A)

---

2(50)

2(40)

I.T.Act, 1918

2(6B)

2(11)

16(3)(a)(iv)

4 2(9)

2(9)

2(10)

2(10)

4A

(xli) Table of Comparative Income Tax Laws I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

2(51)

2(40)

4A

2(52)

2(40)

4A

2(53)

2(40)

4A

2(54)

12(4) Exp.

2(55)

16(1)(a)(b)

2(56)

---

2(57)

23(1)(viidd)

2(58)

---

2(59)

2(42)

2(60)

23(1)(viidd)Exp.

2(61)

36(2) Exp.

2(62)

---

2(63)

2(43)

2(64)

---

2(65)

2(17A)

2(66)

2(6)

2(67)

---

2(68)

2(26)

2(11)

2(69)

2(44)

2(15)

2(70)

---

2(71)

---

2(72)

---

2(73)

---

2(74)

---

3

---

4(1)

9(1)

3

4(2)

9(1)

3

4(3)

---

4(4)

---

4(5)

---

5(1)

80B(2)(a) read with 50(6A)

5(2)

---

5(3)

---

6(1)

80AA & 80AAA

6(2)

80AA & 80AAA

6(3)

80AA & 80AAA

24(2) Exp. 1 2(14)

2(2)

I.T.Act, 1918

(xlii) Principles of Income Tax Law I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

6(4)

80AA & 80AAA

7(1)

80 & 80A

7

7(2)

80 & 80A

7

7(3)

80 & 80A

7

8

80B(3)

9

2(44)

2(15)

10

2(44)

2(15)

11(1)

15

6

11(2)

---

11(3)

---

11(4)

34

56

11(5)

11(1)(a)

4

11(6)

11(1)(b)

4

12(1)

16(1)

7

12(2)

16(2)

7

12(3)

---

12(4)

---

12(5)

---

12(6)

---

12(7)

98(a)

60(2)

12(8)

98(a)

60(2)

13(1)

R. 3 of 1982 Rules

39 of 1962Rules

13(2)

---

13(3)

---

13(4)

---

13(5)

---

13(6)

---

13(7)

---

13(8)

---

13(9)

---

13(10)

---

13(11)

---

13(12)

---

13(13)

---

13(14)

---

14

---

15(1)

19(1)

9(1)

I.T.Act, 1918

5

(xliii) Table of Comparative Income Tax Laws I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

15(2)

19(2)

15(3)

30(2)(a)

15(4)

19(2)(b)

15(5)

19(3) Exp.

16(1)

12(13)

16(2)

12(14)

16(3)

12(15)

17(1)

20(1)

17(2)

---

17(3)

20(4)

17(4)

---

17(5)

20(2)

17(6)

20(3)

18(1)

22

18(2)

---

19(1)

22 Exp.

19(2)

36 Exp.

20(1)

23

20(2)

---

20(3)

---

21

24

10(4)

22(1)

23(1)(v), read with Rule 1 of the 3rd Sch.

10(2)(iii)

22(2)

23(1)(v), read with Rule 1 of the 3rd Sch.

10(2)(iii)

22(3)

---

22(4)

---

22(5)

3rd Sch. Rule 8(7)

22(6)

---

22(7)

3rd Sch. Rule 6

22(8)

3rd Sch. Rule 7

22(9)

---

22(10)

3rd Sch. 2nd Pro. to Rule 8(5)(j)

22(11)

---

22(12)

23(1)(v), 3rd Sch.

22(13)

3rd Sch. Rule 8

22(14)

3rd Sch. Rule 8

I.T.Act, 1918

9(1)

9(1)(i)

9(1)(vii) Pr. 10(1), 10(6)

22

10(1)(vii)

10(1)(vi)

9

(xliv) Principles of Income Tax Law I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

22(15)

3rd Sch. Rule 8

23(1)

3rd Sch. Rule 5

23(2)

---

23(3)

---

23(4)

---

23(5)

---

24

---

25

---

26(1)

23(1)(xi) & (xii)

10(2)(xii), (iv)

27

23(1)(xiii), (xiv) & (xv)

10(2)(xv)

28

23(1)(via), (vib), (viic), (viicc) & (viidd)

29

23(1)(x)

30

23(1)(xxi) & (xxii)

31

23(1)(xix)

32(1)

32(1)

32(2)

---

32(3)

32(2)

32(4)

---

32(5)

---

33

---

34(1)

---

34(2)

---

34(3)

---

34(4)

---

34(5)

25(c)

10(2A)

34(6)

25 Proviso

10(2A) Pro.

35

---

36

---

37(1)

27(1)

12B(1)

37(2)

28(1)

12B(2)

37(3)

1st Sch. Pt-IV Para A(4)

37(4)

---

37(5)

27(2)(b)

38(1)

37

38(2)

37

26(2)

13 13 Pro.

12B(1) Pro. 1

I.T.Act, 1918

(xlv) Table of Comparative Income Tax Laws I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

38(3)

37

39(1)

30(1)

39(2)

12(16)

39(3)

12(18)

39(4)

12(18)

39(5)

31(1)

39(6)

---

40(1)

31(1)

40(2)

---

40(3)

31(1)

40(4)

31(2)

40(5)

31(3)

41(1)

2nd Sch., Pt-I Cl. (1)

2(1)(a),

41(2)

2(1)

4(3)(viii)

42

2nd Sch., Pt-I Cl. (16)

43

2nd Sch., Pt-I Cl. (2)

44(1)

166

44(2)

2nd Sch. Pt-I Cl. (12)

44(3)

2nd Sch. Pt-I Cl. (12A)

45

2nd Sch. Pt-I Cl. (40)

46

---

47

2nd Sch. Pt-I Cl. (87)

48

---

49

2nd Sch. Pt-I Cl. (88)

50

---

51

2nd Sch. Pt-I Cl. (130A)

52 [Omitted]

2nd Sch. Pt-I Cl. (141)

53(1)

14(1)

53(2)

14(2)

53(3)

Proviso to 14(2)

54

---

55

151

56(1)(2)(3)

34

24(1), 24(2A)

57

35

24(2)

57A

---

58(1)(2)(3)

36

12(1)

4(3)

24(1) Pr. 1

I.T.Act, 1918 11

(xlvi) Principles of Income Tax Law I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

59(1)(2)(3)

37

60(1)

---

24(2B)

60(2)

---

60(3)

---

61(1)

47

61(2)

1st Sch. Pt-I Para A(e)

61(3) & (4)

---

62

41A

63

44 to 44AA

64

44AAA

65

---

66

21

67

---

68

29(3)

69

---

70

25(a)

71

---

72

12(8) & 71

4(1) Exp. 7

72(b)

12(7)

4(1) Exp. 8

73(1)

11(2)

4(1) Pro. 1

73(2)

---

74

2(26)

75 to 79

27(2), 3rd Sch. Rule 8(5)

80(1)

2(32)

2(9)

80(2)(a)

2(32)

2(9)

80(2)(b)

2(16)

2(5A)

80(2)(c)

2(22)

2(6B)

80(2)(d)

2(16)(bb)

80(2)(e)

---

81,82 & 83

2(40) & 2(30)

84

2(40)(b)

85

---

86

---

87

74

88

2nd Sch. Pt-I Cl. (110)

89

33

15D

58W

9(3)

10(2)(xi) Pro. 3

2(11)

4A

24B 12AA

I.T.Act, 1918

(xlvii) Table of Comparative Income Tax Laws I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

90(1)

83(1)

90(2)

83(2)

90(3)

83(3)

90(4)

83(4)

90(5)(6)&(7)

83(4)

90(8)

83(5)

91(1)

83A

91(2)

---

92(1)

2nd Sch. Pt-I Cl. (110)

92(2)

1st Sch. Pt-IV Para A(2B)

92(3)

2nd Sch. Pt-I Cl. (110)

92(4) & (5)

55 & 80D

93

69

93(2)

38

93(6)

69(4)

94

38

95

---

96

---

97

---

98

73

26(2)

99

26 read with 4th Sch.

10(7) to 10(9)

100

26 read with 5th Sch.

10(7) to 10(9)

101(1)

12(1)

4(1) Ex. 2

101(2)

12(2)

42(1)

101(3)

12(2)

42(1)

101(4)

---

101(5)

12(2)

42(1)

101(6)

12(10)

4(1) Ex. 3

101(7)

---

101(8)

12(4)

101(9)

---

101(10)

---

101(11)

---

101(12)

12(5)

101(13)

---

101(14)

---

I.T.Act, 1918

16(1)(c) 16(1)(c)

16(1)(c) Pro.

22

16

(xlviii) Principles of Income Tax Law I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

101(15)

---

101(16)

---

102 & 103

164 read with Rules 209 & 210 of IT Rules, 1982

104

---

105 & 106

---

107

163

49AA

108

79

42(2)

109

---

110

---

111(1)

13(1)

111(2)

1st Proviso to 13(1)

111(3)

---

111(4)

13(2A)

111(5)

13(3)

112

84

113(1)

80D(1)

113(2)

---

114(1)

55(1)

22(1)

114(2)

55(1)

22(1)

114(3)

72, 74, 81

25(2), 24B, 24A

114(4)

56

22(2)

114(5)

56 Proviso

114(6)

57

114(7)

---

115(1)

55(1) 1st Pro.

115(2)

58 Pro.

115(3)

55(1) 3rd Pro.

115(4)

55(1) 2nd Pro.

116(1)

58(1)

116(2)

55 2nd Pro.

117(1)

72(1)

25(2)

117(2)

72(2)

25(1)

117(3)

72(3)

25(6)

117(4)

72(2)

25(1)

118(1)

55(1)

22(1)

118(2)

55(2)

22(1A)

49D(1)

4(2A)

44E

22(3)

22(4A)

I.T.Act, 1918

(xlix) Table of Comparative Income Tax Laws I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

I.T.Act, 1918

118(3)

55(2)

118(4)

55(2) Exp.

22(1A)

118(5)

72(3)

118(6)

55 4th Proviso

119(1) to (4)

55(3)

119(5)

---

119(6)

---

120

59(1)

23(1)

17

121(1)

63

23(4) & 24

18

121(2)

63

121(3)

64(1)

34(2)

122(1)

65 read with 62 or 63

34(1)

122(2)

65(3) Pro.

34(1A)

122(3)

---

122(4)

---

122(5)

65(2)

122(6)

---

122(7)

---

122(8)

65(2) Exp.

123

60A

124(1)

66(1)

34(2) Pr. (iv)

124(2)

66(1)

34(2) Pr. (iv)

124(3)

62A

124(4)

---

124(5)

66(2)

124(6)

---

124A

62BB

125

66(3)

126(1)

---

126(2)

155

66B

127(1)

129(1)

30(1)

127(2)

129(2)

30(1) Pr. 1

127(3)

130(1)

30(3)

127(4)

130(1)

30(3)

127(5)

130(2)

30(2)

127(6)

130(3)

30(2)

128(1)

131(1)

31(1)

25(6) 22(1A) Pro.1&2

34(1) Pro. 2

34(2) Ex. 1 & 2

21

22

(l) Principles of Income Tax Law I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

128(2)

131(1)

31(1)

128(3)

131(2)

31(3)

128(4)

131(3)

31(2)

128(5)

131(4)

31(4)

129(1)

132(1)

31(6)

129(2)

132(2)

31(6)

129(3)

132(3)

31(7)

129(4)

132(4)

31(8)

129(5)

132(5)

129(6)

132(5) Pro.

129(7)

132(6)

130(1)

133(1)

130(2)

133(2)

130(3)

133(3)

130(4)

133(3A)

130(5)

133(4)

130(6)

133(5)

130(7)

133(6)

130(8)

133(6) Pro.

130(9)

133(7)

130(10)

133(7)

130(11)

133(7) Pro.

130(12)

133(8)

131(1)

134(1)

33(1)(a)

131(2)

134(5)

33(3)

131(3)

134(5)

33(3)

131(4)

134(4)

33(2A)

132(1)

135(1)

33(3A)

132(2)

135(2)

33(4)(a),(b)

132(3)

135(4)

33(4)(c),(d),(e)

132(4)

135(6)

132(5)

135(7)

33(5)

132(6)

135(5)

33(4)(f)

132(7)

135(8)

33(4)(g)

132(8)

135(7A)

132(9)

135(7A) 1st Pro.

132(10)

135(9)

I.T.Act, 1918

5A

33(6)

24

(li) Table of Comparative Income Tax Laws I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

133(1)

136(1)

66(1)

133(2)

136(1)

66(1)

133(3)

136(1)

66(1)

133(4)

136(2)

66(2)

133(5)

136(2)

66(2)

133(6)

---

133(7)

136(3)

66(4)

133(8)

136(3)

66(4)

133(9)

136(4)

66A(1)

133(10)

136(5)

66(5)

133(11)

136(6)

66(6)

133(12)

136(6)

66(6)

133(13)

136(7)

66(7)

133(14)

136(8)

66(7A)

133(15)

136(9)

133(16)

136(10)

134(1)

137(1)

66A(2)

134(2)

137(2)

66A(3)

134(3)

137(3)

66A(4)

134(4)

137(4)

135(1)

138(1)

33A(1)

135(2)

138(1)

33A(1)

135(3)

138(1)

33A(1)

135(4)

138(2)

33A(2)

135(5)

138(3)

33A(2A)

135(6)

138(4)

33A(3)

135(7)

138(5)(a)

33A(2) Pr. 2

136

---

137

54, 85

22A, 29, 45, 47

137(1)

54

22A

137(2)

85(1)

29

137(3)

---

137(4)

85(2)

137(5)

---

137(6)

85(2)

137(7)

---

138

93(3)

29 29 46A(1)

I.T.Act, 1918 51

36, 37

(lii) Principles of Income Tax Law I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

138A

94

46(2)

139(1)

77(1)

43B

139(2)

77(1)

43B

139(3)

77(1)

43B

139(4)

77(3)

43A

139(5)

---

140(1)

92(1)

140(2)

---

140(3)

92(1)

140(4)

---

140(5)

92(1) & (2A)

140(6)

92(2)

140(7)

---

140(8)

---

140(9)

---

140(10)

92(3)

141(1)

76(1)

43C(1)

141(2)

76(2)

43C(2)

141(3)

76(3)

43C(3)

141(4)

76(3)

43C(3)

141(5)

76(4)

43C(4)

141(6)

---

141(7)

76(5)

141(8)

---

142

78

40 to 43

143(1)

80(2)

44B(1)

143(2)

80(3)

44B(2)

143(3)

80(1)

44A

143(4)

80(4)

143(5)

80(5)

143(6)

---

144(1)

80A(2)

144(2)

80A(3)

144(3)

80A(1)

144(4)

80A(4)

144(5)

80A(4)

145

81 & 82

I.T.Act, 1918

46(5A)

43C(6)

44B(3)

24A, 44G

31 to 34

(liii) Table of Comparative Income Tax Laws I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

146

93A

146A

95

147(1)

---

147(2)

53(1)

18A(1)

147(3)

53(1)

18A(1)

147(4)

53(1)

18A(1)

147(5)

53(2)

18A(2)

147(6)

53(2)

18A(2)

147(7)

---

147(8)

53(5)

147(9)

---

147(10)

---

147(11)

---

148(1)

50(5)(a)

18(3CC)

148(2)

50(5)(b)(i)

18(3CC)

148(3)

50(5)(b) Pro.

18(3CC)

148(4)

50(5)(b) Pro.

18(3CC)

148(5)

50(5)(b)

18(3CC)

148(6)

50(5)(b)

18(3CC)

148(7)

50(5)(b) Pro.

18(3CC)

148(8)

50(5)(a)

18(3CC)

148(9)

50(5) Exp.

18(3CC)

149(1)

50(1)

18

149(2)

---

150

50(6A)

151

50(2A)

152(1)

50(3A)

152(2)

50(3)

18(2B)

152(3)

50(3)

18(2B)

152(4)

50(3.1)

152(5)

50(3.2)

152(6)

50(3.3)

152(7)

---

153(1)

50(4)(a)

153(2)

---

153(3)

50(4)(a) Pro.

153(4)

50(4)(b)

I.T.Act, 1918

46C

18(3BB)

14

(liv) Principles of Income Tax Law I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

153(5)

---

153(6)

80C(1) read with 50(9)(b)

153(7)

80C(1) read with 50(9)(b)

153(8)

50(4)(b) Pro (i)

153(9)

50(4)(a) Exp.

154(1) to (3)

50(5A), (5AA) & 80CC

155(1)

50(7B)

155(2)

50(7B)

155(3)

50(9)(a)

156(1)

50(7C)

156(2)

50(7C)

156(3)

50(7C)

157(1)

50(7H)

157(2)

80C(2)(iv)

158

50(8)(c)

159(1) & (2)

---

160

50(8)(c)

18(6)

161

52

18(7)

162

52A

163

---

164

51

18(9)

165

139 to 143B

20A

166(1)

---

166(2)

---

166(3)

---

167

161

65

168(1)(a)

50(8)(a)

18(4)

168(1)(b)

50(8)(b)

18(5)

168(2)

---

168(3)

---

168(4)

---

168(5)

---

169(1) to (3)

80(6) & (7),80B,80C,80CC

170(1)

96(1)

I.T.Act, 1918

18(9) Ex.

18(9) Ex.

18(6)

48(1)

48

(lv) Table of Comparative Income Tax Laws I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

170(2)

99(1) & (2)

170(3)

99(3) & 104

50

170(4)

99(3)

170(5)

---

171(1)

102(1)

171(2)

102(2)

172 & 173

78, 107

40, 15GG

174

32 & 32A read with Rules 27 to 33 of RR, 1982

13A

175(1)

146(1)

38A(2)

175(2)

146(3)

38B(2)

175(3)

---

175(4)

---

175(5)

---

175(6)

---

175(7)

---

175(8)

---

176(1)

144(a) & 148

176(2)

---

176(3)

---

176(4)

148(1)

176(5)

---

177

4A

178

147

179

---

180

164A

181

143D

182

108

182(1)

108(a)(i)

182(2)

108(b)(ii)

182(3)

---

183

91

46

184(1)

111(1)

28(1A)

184(2)

111(2)

28(1A) Ex.

184(3)

111(2A)

184(4)

111(3)

28(5)

185

109

28(1A)

I.T.Act, 1918 39

49G

38

31

28

37(1)

66BB

28

20

(lvi) Principles of Income Tax Law I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

186

110

187

---

188

112 & 114

25(2)

189

115

51(3)

190(1)

116(b)

28(3)

190(2)

116

190(3)

---

190(4)

---

190(5)

---

190(6)

---

191(1)

117

191(2)

---

192

118

193

---

194

---

195

118

196

117(e)

197 198

I.T.Act, 1918

28(1)(b)

51

40

52

41

52

41

121

51(4)

40

122

54(2)

199

120

52A

200

123

201

124

53(1A)

202

126

53(2)

203(1)

127(1)

54A(1)

203(2)

127(2)

54A(2)

204(1)

128(1)

204(2)

128(2)

204(3)

128(3)

205(1)

87, 88 & 89

205(2)

87, 88 & 89

205(3)

86

18(7)

205(4)

86

18(7)

205(5)

---

205(6)

---

206(1)

8

206(2)

---

18A(6), 45A(b) 45A Pr.1, 45A(a)

5(8)

42

(lvii) Table of Comparative Income Tax Laws I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

I.T.Act, 1918

206(3)

---

207(1)

3(1)

207(2)

3(1A)

208

4

5(1A)

209

5

5(1A)

210(1)

5(1)(c)

5(5)

211

---

212

165A

213

7

5(7B)

214

8

5(8)

215

144

38

216(1)

150(1)

54(1)

216(2)

150(2)

54(1)

216(3)

150(3)

54(3)

216(4)

150(4)

54(4)

216(5)

150(5)

54(4A)

216(6)

150(5A)

216(7)

150(6)

216(8)

150(7)

217

---

218(1)

154(1)

63(1)

218(2)

154(2)

63(2)

218(3)

154(3)

218(4)

154(4)

218(5)

154(6)

63(3)

219

152

36

220

153

62

46

221(1)

156(1)

35

26

221(2)

156(2)

35(1) Pr.

221(3)

156(3)

221(4)

156(4)

222

4A

223(1)

157(1)(a)

61(1)

223(2)

157(2)

61(2)

223(3)

157(3)

61(3)

223(4)

157(4)

61(3)

223(5)

157(5)

61(3)

5(1)

28

54(5)

35(1) 45

(lviii) Principles of Income Tax Law I.T.Ord., 2001

I.T. Ord., 1979

I.T. Act, 1922

223(6)

157(6)

223(7)

157(7)

223(8)

157(8)

223(9)

157(9)

223(10)

157(10)

223(11)

157(1)(b)

224

158

37

225

159

67AA

226

160

67A

227

162

67

228(1)

138L(1)

228(2)

138L(2)

229

138N

230

138O

231

139P

232(1)[Omitted]

50(2B)

232(2)[Omitted]

50(2B) Pro.

233(1)

50(4A)

233(2)

50(4A) Pro.

234(1)

50(6)

234(2)

50(6) 1st Pro.

234(3)

50(6) 2nd Pro.

234(4)

---

234(5)

---

235(1)

50(7E)

235(2)

50(7E)

235(3)

---

236(1)

50(7F)

236(2)

50(7F)

236(3)

50(7F)

236(4)

50(7F) Pro.

237(1)

165(1)

237(2)

165(2)

237(3)

165(4)

237(4)

---

238

166(1)

239(1)

---

18(3BBB)

44G(4)

I.T.Act, 1918

27

(lix) Table of Comparative Income Tax Laws I.T.Ord., 2001

I.T. Ord., 1979

239(2)

61 & 166(2)(a)

239(3)

166(2)(b)

239(4)

166(2)(i)

239(5)

166(2)(j)

239(6)

166(2)(g)

239(7)

166(2)(k)

239(8)

166(2)(n)

239(9)

166(2)(o)

239(10)

166(2)(p)

239(11)

166(2)(q)

239(12)

---

239(13)

---

239(14)

---

239(15)

---

239(16)

---

239(17)

---

239(18)

---

240(1)

167(1)

240(2)

167(2)

I.T. Act, 1922

I.T.Act, 1918

Comparative Table of exemption clauses in Second Schedule to the Income Tax Ordinances, 2001 & 1979 © Mrs. Huzaima Bukhari I.T. Ord., 2001

I.T. Ord., 1979

Part I (1) [Omitted]

(7B)

(2) (3) (4) (5)

(7D) (7E) (7F) (9)

(6) (7) [Omitted] (8) (9)

(13) (Omitted) (17) (17A)

(10) (11) (12) (13) (14)

(18) (19) (26) (27) (48)

(15) (16) (17) (18)

(49) (50) (51) (51A)

(19) (20) (21) (22) (23)

(17AA) (22) (22A) (23) (24)

(24) (25)

(23A) (25) [Sub-clauses (i) to (iv) are incorrectly included as these relate to gratuity and not superannuation fund.]

(26) (27) [Omitted]

(28) [Omitted] (29) [Omitted]

I.T. Ord., 1979 -----

------(33A)

(34) [Omitted] (35) (36) [Omitted] (37) [Omitted]

(33B) (37) (38) ---

(38) (39) (40) (41) [Omitted] (42)

(54A)(b),(54B)(b) (39) (39A) (42) (39B)

(43) (44) (45) (46)

(42A) (42B) (42D) (42C)

(47) (48) (49) (50) [Omitted]

(43) (44) (45) (46)

(51) (52) (53) (53A) (54) [Omitted] (55) (56) (57)

(52) (53) (54) ----(55) (55A) (56) Shaukat

I.T. Ord., 2001

I.T. Ord., 1979

Khanum & Overseas Pakistani‟s Pension Trusts have been removed.

(28) ---

I.T. Ord., 2001

(30) [Omitted] (31) [Omitted] (32) [Omitted] (33) [Omitted]

(58) (59)

(62) (93)

(60) (61)

(94) (91)

(lxii)

(lxiii) Table of Comparative Income Tax Laws (62)

(147B)

(98)

(90)

(63) (64) [Omitted] (65) (66)

----(93A) (133A)

(99) (100) (101) (102)

(102D) (102E) (102G) (107A)

(67) (68) (69) (70) (71)

(135B) (135C) (135D) (135E) ---

(103) (104) (105) (106) (106A)

(112) (152) (153) (115A) ---

(71A) (72) (73) (74)

--(75) (75A) (76A)

(107) (108) [Omitted] (109) [Omitted] (110)

(148) (174) (183) (116)

(75) (76) (77) (78)

(77) (77A) (77B) (78)

(111) (112) [Omitted] (113) (114)

(116A) --(116C) (117)

(79) (80) (81) [Omitted] (81A) (82)

(78A) (78B) (78C) --(78D)

(115) [Omitted] (116) [Omitted] (117) (118) [Omitted] (119) [Omitted]

(118) --(115) -----

(83) (84) [Omitted] (85) [Omitted] (86) [Omitted]

(78E) (79) -----

(120) (121) [Omitted]

(125C) ---

(87) [Omitted] (88) [Omitted] (88A)

(79C) (80) ---

(122) [Omitted] (123) [Omitted] (124) [Omitted] (125) [Omitted] (126)

--------(126C)

I.T. Ord., 2001

I.T. Ord., 1979

I.T. Ord., 2001

I.T. Ord., 1979

(89)[Omitted] (90) (91) (92)

--(76) (85A) (86)

(127) [Omitted] (128) [Omitted] (129) [Omitted] (130) [Omitted]

----(134A) ---

(93) (93A) (94) [Omitted] (95)

(86B) ----(154)

(131) (132) (132A) (133)

(139) (176) --(179)

(96) (97)

(168) (133)

(133A) (134) [Omitted]

--(171A)

(lxiv) Principles of Income Tax Law (135) (136)

(171B) (184)

(137) (177) (138) (182) (139)(a) Rule 17 (139)(b) (129A) The following exemptions, previously contained in the Second Schedule to the repealed Ordinance of 1979, have now been included in Part VII of Chapter III of the Income Tax Ordinance, 2001. S. 41 S. 43 S. 44(2)

(1) (2) (12)

S. 44(3) S. 42(3) S. 45 S. 47

(12A) (16) (40) (87)

S. 49(2) S. 51

(88) (130A)

Part II (1) [Omitted]

(1)

I.T. Ord., 2001

I.T. Ord., 1979

(2) (3) (4) [Omitted]

(3) (2AB) (2)

(5) (6) (7) [Omitted] (8) [Omitted]

(2A) (4A) (5AA) (6)

(9) (10) (11) (12) (13)

(6A) (9) (10) (13) (6AA)

(13A) (13B) (13C) (13D) [Omitted]

-------

(13E) (13F)

-----

(13G) (14)

--(6AB)

(15) (16) (17) (18)

(6AC) (11) (12) 1st Sch., Pt V, Para B

(19) (20)

--1st Sch., Pt-V, Para D(c) Pro.

(21) (22) (23) (24)

(14) -------

Part III (1) [Omitted] (1A) (2)

(1B) --(2)

I.T. Ord., 2001 (3) (4)

I.T. Ord., 1979 (11) ---

Part IV (1) [Omitted] (2) (3) (3A)

(3) (1) -----

(4) [Omitted] (5) (6) [Omitted] (7) [Omitted] (8) [Omitted]

(5) (6A) (6B) (6C) (6D)

(9) [Omitted] (10) (11) (12) [Omitted]

(6G) (6HA) --(14)

(13) [Omitted] (13A) [Omitted] (14) (15) [Omitted]

(14)

(16) (17) [Omitted]

(21) (27)

(16) (20)

(lxv) Table of Comparative Income Tax Laws (18) [Omitted]

(29)

(43E) [Omitted]

---

(19) (20) [Omitted] (21) [Omitted] (22) [Omitted]

(30) (32A) (32B) (32C)

(44) [Omitted] (45) (46) (46A) [Omitted]

(37) (9B) (56) ---

(22A) [Omitted] (23) [Omitted] (24) [Omitted] (25) [Omitted] (26) [Omitted]

--(32E) (32F) (32G) (17)

(46B) [Omitted] (46C) [Omitted] (47) (47A) (47B)

-----------

(27) [Omitted] (28) [Omitted] (29)

(17B) (17C) (38)

(47C) (48) [Omitted]

--(49)

I.T. Ord., 2001

I.T. Ord., 1979

I.T. Ord., 2001

I.T. Ord., 1979

(30) [Omitted] (31) [Omitted] (31A) [Omitted]

(54) (54B) ---

(49) [Omitted] (50) [Omitted] (51) [Omitted] (52)

(32B) (45) (48) ---

(31B) [Omitted] (32) [Omitted] (33) (34) [Omitted] (35) [Omitted]

--(50) (2A) (10B) (10D)

(53) [Omitted] (54) [Omitted] (55) [Omitted] (56) (57)

-----------

(36) (36A) (37) [Omitted] (38)

(39) --(40) (32)

(38A) (38B) (39) [Omitted] (40) [Omitted] (41)

----(47) (9) (9A)

(42) (43) [Omitted] (43A) (43B) [Omitted]

(9C) (33A) (33B) ---

(43C) [Omitted] (43D) [Omitted]

-----

I.T. Ord., 2001 (58) (59)

I.T. Ord., 1979 -----

Third Sch Part I

Rule 2(1)

Part II

Rule 5 & 5A

Fourth Sch Fifth Sch. Sixth Sch. Seventh Sch.

Fourth Sch Fifth Sch. Sixth Sch. Eighth Sch.

Comparative Table of Income-tax Act, VII of 1918, Income-tax Act, XI of 1922, Income Tax Ordinance, 1979 and Income Tax Ordinance, 2001 Following is a comparative list of sections and provisions of Income Tax Act, 1918, Income Tax Act, 1922, Income Tax Ordinance, 1979 and Income Tax Ordinance, 2001. I.T. Act, 1918 1

2(1)(2)

2(3)

2(4)

I.T. Act, 1922

I.T. Ord., 1979

I.T. Ord., 2001

1 1(1)

1(1)

1(1)

1(2)

1(2)

1(2)

1(3)

1(3)

1(3)

2(1)

2(1)

41(2)

2(3)

2(2)

2(4)

2(3)

2(5)

2(4)

2(2)

2(6)

2(66)

2(3)

2(2)

2(3A)

Omitted

2(1)(2)

2(7)

2(5)

2(8)

2, (5A), 2(68) read with 2(26)

2(10)

2(7)

2(4)

2(11)

2(9)

2(4A)

2(12)

2(10) read with 37(5)

2(4B)

2(13)

2(11)

2(14)

2(11A)

2(5)

2(15)

2(13) read with 209

2(5A)

2(16)

2(12) read with 80

2(5B)

2(17)

2(14)

2(17A)

2(65)

2(18)

2(22)(a)

2(6)

2(19)

2(6A)

2(20)

2(19)

2(20) Exp.

2(1)

2(6AA)

Omitted

(lxvii)

(lxviii) Principles of Income Tax Law I.T.Act, 1918

I.T. Act, 1922 2(6AAA)

I.T.Ord., 1979

I.T.Ord., 2001

Otiose 2(21A)

2(25)

2(6B)

2(22)

2(26) read with 80

2(6BB)

Otiose

2(6C)

2(24), 12(12)

2(29)

2(26)

2, (29A), 2(68) & 74

2(6D)

2(27)

2(6E)

2(28)

2(5)

2(3) and 63(1) & (2)

2(6)

2(4)

2(7) to (13)

2(7) to (13) 2(7)

2(25) 2(29)

2(46)

2(29A)

2(34), (35)

2(30)

2(37) read with 81

2(9)

2(32)

2(42) read with 80

2(10)

2(33)

2(44)

2(11)

2(26) Rev.

2(12)

2(34)

2(13)

2(36)

2(44A)

2(37)

2(48)

2(37A)

2(48A)

2(13A)

2(38)

2(13AA)

Omitted 2(40)

2(50) to (53) read with 81, 82 & 83

2(42)

2(59)

2(14)

2(43)

2(63)

2(14A)

Omitted

2(15)

2(44)

2(16)

2(45)

2(16A)

2(46)

2(17)

2(8) Rev.

2(69), 9, 10

3(1A)

207(2)

4A

177, 222

(lxix) Comparative Index I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

[

3

5

209

5(3)

210(3)

3

9(1) Rev.

3 Pr. (a)

Omitted

3 Pr. (b)

9(2)

3A

Otiose

3B(1)

10(1)

3B(2)

10(3)

4 4(1)

11(1)

11(5) & (6)

4(1) Pr. 1

11(2), 16(1) Pr.

11(5), (6), 73(1)

4(1) Pr. 2

Omitted

4(1) Ex. 1

Omitted 12

2(40)

12(1)

101(1)

12(4)

101(8)

12(4) Exp.

2(54)

12(5)

101(12)

12(5) Exp.

2(23)

4(1) Ex. 3

12(10)

101(6)

4(1) Ex. 4

12(9)

4(1) Ex. 6

Otiose

4(1) Ex. 7

12(8)

72

4(1) Ex. 8

12(7)

72(b)

12(13)

16(1)

12(14)

16(2)

12(15)

16(3)

12(16)

39(2)

12(18)

39(3), (4)

4(2A)

13(1)(a)

111(1), (2)

4(2B)

13(1)(b)

111(1), (2)

4(2C)

13(1)(c)

111(1), (2)

4(2D)

13(1)(d)

111(1), (2)

4(2E)

13(1)(e)

111(1), (2)

4(2F)

13(2)

4(1) Ex. 2

13(2A)

111(4)

(lxx) Principles of Income Tax Law I.T.Act, 1918

I.T. Act, 1922 4(3)

4

I.T.Ord., 1979

I.T.Ord., 2001

13(3)

111(5)

14(1) & II Sch.

53(1)

4(3)(viii) 4A

2(40)

4B

Omitted

5(1)

3(1)

5(1A)

4(1), 5(1)(a)

5(2)

4(1), 5(1)(b)

5(3)

4(1)

208(1)

5(3A)

4(2), 4(4)

208(2)

5(4)

5(1)(b) Rev.

5(5)

5(1)(c), 5(2)

5(5A)

5(1)(c), (d) & 3(3), (4)

5(6)

5(1)(b), (c)

5(7)

3(2), 3(3)

5(7A)

5(1)

210(1)

5(7B)

7

213

5(7C)

Omitted

5(7D)

Omitted

5(8)

8

5(8) Pr.

8 Pr.

207(1)

210(2)

206(1), 214

5A

133

130

5

6

15

11(1)

6

7 16(1)

12(1)

16(1)(a), (b)

2(55)

7(1) 7(1) Pr. 1

40(a)

7(1) Pr. 2

Otiose

7(1) Pr. 3

46

7(1) Pr. 4

Omitted

7(1) Ex. 1

16(2)(b)(i)

12(2)

7(1) Ex. 2

16(2)(c)

12(2)

16(2)(e)

2(21)

16(2)(e)

2(20)

7(1) Ex. 2 Pr.

2nd Sch

(lxxi) Comparative Index I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

[

7

8

8

17(1)

8 Pr. 1

18(1)

8 Pr. 2

17(2)(a)

8 Pr. 3

17(2)(b)

9 9(1)

19(1), (2)(a)

4(1) & 15(1),(2)

9(1)(i)

20(1)(a)

17(1), 23

9(1)(ii)

Omitted

9(1)(iii)

20(1)(b)

17(1), 23

9(1)(iv)

20(1)(c), (d), (f)

17(1), 23

9(1)(iv) Pr.

Omitted

9(1)(iv) Ex.

20(1)(c)

17(1), 23

9(1)(v)

20(1)(e)

17(1), 23

9(1)(vi)

20(1)(g)

17(1), 23

9(1)(vii)

20(1)(h)

17(1), 23

9(1)(vii) Pr.

20(2)

17(5)

20(3)

17(6)

20(4)

17(3)

19(2)(b)

15(4)

19(3) Exp.

15(5)

9(2)

9

9(2) Pr. 1

Omitted

9(2) Pr. 2

Omitted

9(3)

21

66

10 10(1)

22(a) 22(1)

18(1)

22 Exp.

19(1)

10(2)(i)

23(1)(i)

10(2)(ii)

23(1)(iii)

10(2)(iii)

23(1)(v)

10(2)(iii) Pr. 1

Omitted

10(2)(iii) Pr. 2

Omitted

10(2)(iiia)

23(1)(ix)

10(2)(iiia) Pr.

23(1)(vii) Pr.

10(2)(iv)

23(1)(iv)

10(2)(v)

23(1)(iii)

22(1), (2), (11)

(lxxii) Principles of Income Tax Law I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

10(2)(va)

Omitted

10(2)(vi)

23(1)(v) & 3rd Sch.

10(2)(via)

Otiose

10(2)(vii)

3rd Sch.

10(2)(viii)

23(1)(vi)

10(2)(ix)

23(1)(ii)

10(2)(x)

23(1)(viii)

10(2)(xi) Pr. 1

Omitted

10(2)(xi) Pr. 2

Omitted

10(2)(xi) Pr. 3

25(a)

34(5A) & 70

25(b)

34(5A)

25(c)

34(5)

25 proviso

34(6)

23(1)(x)

29

10(2)(xii)

23(1)(xii)

26(1)

10(2)(xiii)

23(1)(xi)

10(2)(xiv)

23(1)(xii) 23(1)(xiii), (xiv)

10(2)(xiv) Pr. 1

Omitted

10(2)(xiv) Pr. 2

Omitted

10(2)(xiv) Ex.

Omitted

10(2)(xiva)

23(1)(xvii)

27

23(1)(xxi), (xxii)

30

23(1)(xix)

31

10(2)(xivb) Pr. 1-4

Omitted

10(2)(xv)

23(1)(xv)

10(2)(xvi)

23(1)(vii)

10(2)(xviii)

28

27

23(1)(viidd)

2(39), (57)

23(1)(viidd) Exp.

2(60)

23(1)(xvi) 23

10(2A)

25

10(2A) Pr.

25 Pr.

10(3)

23(2)

10(3A)

3rd Sch.

10(3B)

Omitted

20

(lxxiii) Comparative Index I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

[

10(3BB)

3rd Sch, Rule 8(8)(b)

10(4)

24(a)

21

10(4)(a)

24(c)

21

10(4)(b)

24(d)

21

10(4)(bb)

24(b)

21

10(4)(c)

24(h)

21

10(4)(d)

24(i)

21

10(4)(d) Ex. 1

24(1) Ex. (i)

21

10(4)(d) Ex. 2

24(1) Ex. (ii)

21

10(4)(e)

24(f)

21

10(5)

23(1) Ex. (b) and 3rd Sch. Rule 8(7)

10(5A)

Omitted

10(6)

22(b)

10(7)

26(a)

99 & 100

10(8)

26(b)

99 & 100

10(8) Pr.

26(b) Pr.

99 & 100

10(9)

26(c)

99 & 100

10(9) Pr.

Otiose

10(10)

Omitted

10

11

11

12 12(1)

30(1) and (2)

39(1)

12(2)

30(1) and (2)

39

31(1)

39(5), 40(1),(3)

31(2)

40(4)

31(3)

40(5)

12(2A)

Otiose

12(3)

3rd Sch.

12(4)

3rd Sch. 30(2)(a)

15(3)

12(5)

30(2)(e)

39

12(6)

Omitted

12A

Omitted

12AA

33

89

12B(1)

27(1)

37(1)

(lxxiv) Principles of Income Tax Law I.T.Act, 1918

12

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

12B(1) Pr. 1

27(2)(b)

12B(1) Pr. 2

Omitted

37(5), 75 to 79

12B(2)

28(1)

37(2)

12B(2) Pr. 1

29(2)

37(4A)

12B(2) Pr. 2-4

Omitted

12B(3)

29(1)

37(4A)

29(3)

68

12B(4)

Omitted

13

32(1)(Rev.)

32(1), 174

13 Pr.

32(3)

174

13 Pr. 2

32(2)

32(3), 174

13 Ex.

Omitted

13A

32A

14

2nd Sch. Cl. (103) & (109) to (111)

174, 177

14 and 15 15(1)

39(1)(a), 40(b)

15(1) Pr.

39(2)(b)

15(2A)

39(2)(a)

15(3)

45

15(3) Pr. 1 & 2

Omitted

15(5)

39(3)

15A

Omitted

15AA(1)

41(1)(a), (b), (d)

15AA(3)

41(2)

15AA(3) Pr. 1

41(2) Rev.

15AA(3) Pr. 2

Omitted

15AA(4)

41(3) 41A

62

44

63

44A

63

44AA

63

44AAA

64

15B(1)

48(1)

15B(2)

48(2)

15B(3)

48(3)

(lxxv) Comparative Index I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

[

13

15B(4)

48(5)

15B(5)

48(6)

15B(6)

Omitted

15B(7)

48(7)

15BB

Omitted

15C(1)

41(1)(f)

15C(2)

Omitted

15C(2A)

Omitted

15C(3)

41(1)(f) Ex.

15C(5)

41(5)

15CC(1)

41(1)(e)

15CC(2)

Omitted

15CC(2) Ex.

Omitted

15CCC

43

15D(1)(a)

47(1)(a)

61

15D(1)(b)

47(1)(b)

61

15D(1)(c)

47(1)(c)

61

15D(1)(d)

47(1)(d)

61

15D(1)(e)

Omitted

15D(1) Pr. 1

Omitted

15D(2)

47(3)

61

15D(2) Pr.

47(4) Rev.

61

15D(4)

2(14)

15D(5)

47(4)

15E

Omitted

15F

42

15FF

106

15G(1) to (5)

105(1) to (5)

15GG

107 Rev.

61

172 & 173

16 16(1)(a)

49

16(1)(b)

69(4)

16(1)(b) Pr.

Omitted

16(1)(c)

83(1) & (3)

90(1) & (3)

83(2)

90(2)

83(4)

90(4),(5),(6),(7)

93(6)

(lxxvi) Principles of Income Tax Law I.T.Act, 1918

14

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

16(1)(c) Pr. 1

83(5)(a)

90(8)

16(1)(c) Pr. 2

83(5)(b)

90(8)

83(5)(e)

2(33)

16(2)

12(11)

16(2) Pr. 1 & 2

Otiose

16(3)(a)(i)

69(3)(a)

16(3)(a)(ii)

69(3)(a)

16(3)(a)(iii)

83(4)(a)

16(3)(a)(iv)

83(4)(b) & 83(5)(c)

90(4)

16(3)(b)

83(4)(c)

90(4)

16(3)(b) Pr.

83(4)(a), (b)

90(4)

3 and 17 17(1)

1st Sch. Pt. IV(3)

17(2)

1st Sch. Pt I, Para A. Pr. (d)

17(5)

1st Sch. Pt IV, Para A. (4)

17(6) 14A

Otiose

18 18(2)

50(1)

149(1)

18(2) Pr.

50(1)

149(1)

18(2A)

Omitted

18(2B)

50(3)

152(2), (3)

18(2B) Pr.

50(3)

152(2), (3)

18(3)

50(2) 50(2A)

151

18(3) Pr.

50(3) Pr.

152(2), (3)

18(3A)

50(3)

152(2), (3)

18(3A) Pr.

Omitted

18(3B)

50(3)

152(2), (3)

50(3.1)

152(4)

50(3.2)

152(5)

50(3.3)

152(6)

50(3A)

152(1)

18(3B) Pr. 1

Omitted

18(3B) Pr. 2

Omitted

(lxxvii) Comparative Index I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

[

18(3BB)

50(4)

153

50(4A)

233

18(3BBB)

50(6)

234

18(3C)

Otiose

18(3CC)

50(5)

148

50(5A), (5AA)

154(1) to (3)

50(6A)

150

18(3D)

50(7) 50(7B)

155(1), (2)

50(7C)

156

50(7E)

235(1), (2)

50(7F)

236

50(7H)

157(1)

18(3F)

Otiose

18(4)

50(8)(a)

168(1)(a)

18(5)

50(8)(b)

168(1)(b)

18(5) Pr. 1

Omitted

18(5) Pr. 2

Omitted

18(6)

50(8)(c)

158, 160

18(7)

52, 86

161

18(8)

Omitted

18(9)

51

164

18(9) Ex.

50(9)

155(3)

18(10)

Omitted 52A

162

18A(1)

53(1)

147(2), (3) & (4)

18A(1) Pr. 1 to 3

Omitted

18A(2)

53(2)

18A(2) Pr.

Omitted

18A(3) & (4)

Omitted

18A(5)

53(4) 53(5)

18A(5A)

18A(6)

147(5) & (6)

147(8), (9), (10) & (11)

Omitted 83A

91

86

205(3), (4)

87(2)

205(1) & (2)

(lxxviii) Principles of Income Tax Law I.T.Act, 1918

15

16

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

18A(7)

87(1)(b)

18A(7) Pr.

Omitted

205(1) & (2)

18A(8)

87(2)

205(1) & (2)

18A(9)(a)

87(1)(a), (b)

205(1) & (2)

18A(9)(b)

87(1)(a)

205(1) & (2)

18A(9) Pr.

Omitted

18A(10)

53(3)

18A(11)

53(1)

147(2), (3) & (4)

19 and 20 19

Omitted

19A

140

20

Otiose

20A

139

21 Pr.

Omitted

21A

Omitted

165 165

22 22(1)

55(1)

114(1),(2) & 118(1)

55(1) 1st Pr.

115(1)

55(1) 3rd Pr.

115(3)

55(1) 2nd Pr. & 143B

115(4)

55 2nd Pr.

116(2)

55 4th Pr.

118(6)

22(1) Pr.

Omitted

22(1A)

55(2)

118(2), (3)

55(2) Exp.

118(4)

55(3)

119(1) to (4)

55A

118

22(2)

56

114(5)

22(3)

57

114(6)

22(4)

61

176 & 239(2)

22(4) Pr.

61 Pr.

176 & 239(2)

22(4A)

58(1)

116(1)

22(4A) Pr.

58(2)

36

58 Proviso

115(2)

22(1A) Pr. 1 & 2

22(5)

Omitted

(lxxix) Comparative Index I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

[

17

18

22A

54

137(1)

23(1)

59(1), (2)

120

23(2)

61

176 & 239(2)

23(2A)

67(1)

23(3)

62 62A

124(3)

62BB

124A

23(4) and 24

63

121

23(4) Pr. 1

Otiose

23(4) Pr. 2

Otiose

23(5)

69(1)

23(6)

69(2)

23(7)

7

23B

60 60A

123

24(1)

34

11(4), 56

24(1) Pr. 1

36(1)

58

24(1) Pr. 2

38(4)

59A, 93(2), 94

24(2)

35, 36(2)

58

36(2) Exp.

2(61)

36 Exp.

19(2)

24(2) Pr. (b)

38(7)

59A, 93(2), 94

24(2) Pr. (c)

38(2) & (5)(a)

59A, 93(2), 94

24(2) Pr. (d)

38(3)

59A, 93(2), 94

24(2) Pr. (e)

38(5)(b)(c)

59A, 93(2), 94

24(2) Ex. 1

36(2) Ex.

58

24(2) Ex. 2

Omitted

24(2A)

34

56

24(2B)

37

38, 59

24(2B) Pr. 1 & 2

37 Pr. 1 & 2

59

24(2C)

Otiose

24(3)

Omitted

24A(1)

81(3)

24A(1) Pr.

Omitted

24A(2)

81(2)

114(3), 145

24B(1)

74(1), (3), (4), (5)

87, 114(3)

114(3)(c)

(lxxx) Principles of Income Tax Law I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

24B(2)

74(2)(b)

87, 114(3)

24B(3)

74(2)(a)

87, 114(3)

25(1)

72(2)

114(3), 117(2) & (4)

25(2)

72(1), 112

114(3), 117(1)

25(3) to (5)

Omitted

25(6)

72(3)

25A(1)

75(1)

25A(2)

75(2)

25A(3)

Omitted

26(1) Pr. 1&2

70

98A

26(2)

73(1)

98C

26(2) Pr.

73(2), (3)

98C, 118(5)

26A(1)

68(1)

26A(2)

68(3)

26A(3)

68(4)

26A(4)

68(5)

26A(5)

68(2) 81(1), (4)

26A(5) Pr. 19

Omitted

20

28

114(3), 117(3), 118(5)

114(3), 145

Omitted

28(1)(a)

108(a), (b)

182(1), (2)

28(1)(b)

110

186

28(1)(c)

Omitted

28(1) Pr.

Omitted

28(1A)

109, 111(1) 109

28(1A) Pr. 1

112 28(1A) Pr. 2 28(1A) Ex. 28(1B), (2), (2A) 28(3)

185

Otiose 188

113 111(1)

184(1)

111(2)

184(2)

111(2A)

184(3)

Omitted 114

188

116(b)

190(2)

(lxxxi) Comparative Index I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

[

21

22

28(5)

111(3)

184(4)

28(6)

116(a)

190(1), (2)

29

85

29 and 30 30(1)

129(1)

127(1)

30(1) Pr. 1

129(2)

127(2)

30(1) Pr. 2&3

Omitted

30(1A)

Omitted

30(2)

130(2), (3)

127(5), (6)

30(3)

130(1)

127(3), (4)

30A

Omitted

31 31(1)

131(1)

128(1), (2)

31(2)

131(3)

128(4)

31(3)

131(2)

128(3)

31(4)

131(4)

128(5)

31(5)

132(1)(a)(ii)

129(1)

31(6)

132(1), (2)

129(1), (2)

31(7)

132(3)

129(3)

31(8)

132(4)

129(4)

132(5)

129(5), (6)

132(6)

129(7)

132(7)

130(1)

23

32

24

33 33(1)(a)

134(1), (3)

33(1)(b) & (c)

Omitted

33(1)

134(1)

33(2)

134(2), (3)

33(2A)

134(4)

131(4)

33(3)

134(5)

131(2), (3)

33(3A)

135(1)

132(1)

33(4)(a)

135(2)

132(2)

33(4)(b)

135(3)

33(4)(c)

135(4)(a)

132(3)

33(4)(d)

135(4)(b)

132(3)

131(1)

(lxxxii) Principles of Income Tax Law I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 2001

33(4)(e)

135(4)(c)

132(3)

33(4)(f)

135(5)

132(6)

33(4)(g)

135(8)

132(4)

33(5)

135(7)

132(5)

135(7A)

132(8), (9)

135(8)

132(7)

33(6)

135(9)

132(10)

33(7)

Otiose

33A(1)

138(1)

122A

33A(2)

138(2)

122A

33A(2) Pr. 1

138(2)

122A

33A(2) Pr. 2

138(5)(a)

122A

33A(2A)

138(3)

122A

33A(3)

138(4)

122A

138L

228

138N

229

138O

230

138P

231

33A(4) 25

I.T.Ord., 1979

Omitted

34 34(1)

65(1)

122(1)

34(1) Pr. 1

65(1) Pr. 1

122(1)

34(1) Pr. 2

65(2) Rev.

122(5)

65(2) Exp.

122(8)

34(1A)

65(1) Pr., 65(3)

122(2)

34(2)

64, 65(3)

34(2) Pr. (i)

Otiose

34(2) Pr. (ii)

64 Pr. Rev.

34(2) Pr. (iv)

66(1) Rev.

34(2) Pr. (v)

Omitted

34(2) Ex. 1

66(2)(i)

124(5)

34(2) Ex. 2

66(2)(ii)

124(5)

66(3)

125

34(2A) & (2B)

Otiose

34(2C), (2D)

Omitted

34A

66A

124(1) & (2)

122(5)(a)

(lxxxiii) Comparative Index I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

[

26

27

35 35(1), (2)

156(1), (4)

221(1), (4)

35(1) Pr.

156(2)

221(2)

156(3)

221(3)

35(3), (4)

Otiose

35(5)

Omitted

35(6)

Otiose

35(8)

Omitted

36

152

37(1)

148(1) & 158 148(1)

37(1) Pr.

Omitted

37(2)

149

38

144

38A(1)

146(2)

38A(2)

146(1)

38A(2) Pr.

144(c) Pr.

38B(1)

145

38B(2)

146(3)

29

39

Omitted

30

Omitted.

31

40

32

41

28

33

34

219

37 176(1) & (4)

215 & 176(1) 175(1)

175(2)

78 Rev.

172 & 173

41(1)

78 Rev.

142

41(1) Pr. 1 & 2

Omitted

41(2)

78(4)

42 42(1)

12(2)

42(1) Pr. 1

Omitted

42(1) Pr. 2

78(3)

42(1) Pr. 3

Omitted

42(2)

79

42(3)

12(2) Pr.

43

78(3) Ex.(4)(a)

43 Pr. 1

78(3) Pr. (a)

101(2), (3), (5)

108

(lxxxiv) Principles of Income Tax Law I.T.Act, 1918

35

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

43 Pr. 2

78(3) Pr. (b)

43 Ex.

Otiose

43A

77(3)

139(4)

43B

77(1), (2)

139(1),(2) & (3)

43C(1)

76(1)

141(1)

43C(2)

76(2)

141(2)

43C(3)

76(3)

141(3)

43C(4)

76(4)

141(5)

43C(5)

Omitted

43C(6)

76(5)

141(7)

44

71

98B

44A

80(1)

7, 143(3)

44B(1)

80(2)

7, 143(1)

44B(2)

80(3)

7, 143(2)

44B(3)

80(3), (5)

7, 143(3), (5)

80(4)

143(4)

80(6) Rev.

7

80A(1)

144(3)

80A(2)

144(1)

80A(3)

144(2)

80A(4)

144(4), (5)

80AA

6

80AAA

6

80B

5, 8 & 169

80C

153(6),(7) 169

80C(2)(iv)

157(2)

80CC

154(1) to (3), 169

80D(1)

113(1)

44C

44D

Omitted

44E

84 Rev.

44F

Omitted

44G

82(1)

145

44G(1) Pr.

82(2)

145

44G(2)

82(3)

145

44G(3)

82(3)

145

44G(4)

165

(lxxxv) Comparative Index I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

[

44G(4) Ex. 36

37

45

82(4)

145

84(1)

112(1)

85 85(1)

137(2)

85(2)

137(4)

45 Pr. & Ex.

Omitted

45A(a)

89 Rev.

205(1) & (2)

45A(b)

88 Rev.

205(1) & (2)

45A Pr. 1

89

205(1) & (2)

45A Pr. 2

90

205A

46(1)

91(1)

183, 205A

46(1A)

91(2)

183, 205A

46(2)

94

46(2) Pr.

94 Pr.

46(2A), (3) to (5)

Omitted

46(5A)

92(1), (2), (3)

140(1), (3), (6) & (10)

92(4), (5)

55 & 80D

92(2A)

140(5)

46(5A) Ex. 1 & 2

Omitted

46(8) to (10)

Omitted

46A(1)

93(1), (2), (5)

138

93A

146

46A(1A), (2)

Omitted

46B

Omitted

46C(1)

95(c)

146A

46C(2)

95(d)

146A

46C(3)

Omitted

46D

Omitted

47

85

48(1)

96

48(2)

100

48(3)

97(1) 98(a), (b)

48(4) 38

170(1)

12(7), (8)

101

49 142, 143, 143A &

115(4), 118 & 165

(lxxxvi) Principles of Income Tax Law I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

143B 143D

181

49AA(1)

163(1)

107

49AA(2)

163(2)

107

49AA(3)

163(3)

107

49AA(4)

Otiose

49AA(5)

163(4)

49B & C

Otiose

49D(1)

164

49D(1) Pr. 1

Otiose

49D(1) Pr. 2

Omitted

49D Ex.

Omitted

49E

104

49F

97(2)

49G

102

170(3)

171(1)

102(2)

171(2)

99

170(2), (3), (4)

51(1)(a)

117(a)

191(1)

51(1)(aa)

117(b)

191(1)

51(1)(b)

117(c)

191(1)

51(1)(c)

Omitted

51(1)(d)

117(d)

191(1)

117(e)

196

50

40

51

42

102 & 103

102(1) 39

41

107

51(1A)

Omitted

51(2)

119

51(3)

115 (Rev.)

189

51(4)

121

197

52

118

192, 195

52A

120

199

53 53(1)

125

53(1A)

124 (Rev.)

201

53(2)

126

202

53(3)

Omitted

(lxxxvii) Comparative Index I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

[

54(1)

150(1), (2)

216(1), (2)

54(2)

122

198

123

200

54(3)

150(3)

216(3)

54(4)

150(4)

216(4)

54(4A)

150(5) Rev.

216(5)

150(5A)

216(6)

150(6)

216(7)

54(5)

150(7) Rev.

216(8)

54A(1)

127(1)

203(1)

54A(2)

127(2)

203(2)

54A(3)

Otiose

55(1)

10(1)

55(1) Pr. 1 & 2

Omitted

55(1) Pr. 3

1st Sch. Pt. IV, 2B

55(1) Pr. 4

Omitted

56

10(2)

43

58

44

58 58(1)

10(3)

58(2)

Omitted

58A-58V

6th Sch.

58W

44

63

59(1)

165(1)

237(1)

59(2)

165(2)

237(2)

59(3)

165(3)

59(4)

165(4)

59(5)

Omitted

60(1)

14(2)

53(2)

14(2) Proviso

53(3)

60(2) 45

237(3)

98

61

61(1)

128(1)

204(1)

128(2)

204(2)

128(3)

204(3)

157(1)

223(1), (11)

(lxxxviii) Principles of Income Tax Law I.T.Act, 1918

46

47

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

61(2)

157(2)

223(2)

61(3)

157(3), (a), (b), 157(4), (5)

223(3), (4), (5)

61(4)

157(3)(b)

223(3)

157(6)

223(6)

157(7)

223(7)

157(8)

223(8)

157(9)

223(9)

157(10)

223(10)

62

153

220

63(1)

154(1)

218(1)

63(2)

154(2)

218(2)

63(3)

154(6)

218(3)

154(4)

218(4)

154(6)

218(5)

64(1)

5(3)(a)

64(2)

5(3)(b)

64(3)

5(4)

64(3) Pr. 1

Omitted

64(3) Pr. 2

5(5)

64(3) Pr. 3

Omitted

64(4)

5(6)

64(5)

Omitted

48

65

161

167

49

Omitted

50

Omitted

51

66 66(1)

136(1)

133(1),(2) & (3)

66(2)

136(2)

133(4), (5)

66(3)

Omitted

66(4)

136(3)

133(7), (8)

66(5)

136(5)

133(10)

66(6)

136(6)

133(11), (12)

66(7)

136(7)

133(13)

66(7) Pr.

Omitted

66(7A)

136(8)

210(4) 210(5) 210(6)

133(14)

(lxxxix) Comparative Index I.T.Act, 1918

I.T. Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

[

53

133(15)

136(10)

133(16)

66(8)

Otiose

66A(1)

136(4)

133(9)

66A(2)

137(1)

134(1)

66A(3)

137(2)

134(2)

66A(3) Pr. 1 & 2

Omitted

66A(4)

137(3)

134(3)

137(4)

134(4)

151

55

155

126(2)

158

50(8), 224

66BB

147

178

67

162

227

67A

160

226

67AA

159

225

67B

Otiose

66B

52

136(9)

68 164A

180

165A

212

166(1)

44(1), 238

166(2)

44(1), 239(2) to (11)

167

240

(xc) Principles of Income Tax Law

Schedules I.T.Act, 1922

I.T.Ord., 1979

I.T.Ord., 2001

1st Sch.

4th Sch.

4th Sch.

2nd Sch.

5th Sch. Pt. I

5th Sch.

3rd Sch.

5th Sch. Pt. II

5th Sch.

4th Sch.

7th Sch.

Following is a comparative list of rules of the Income Tax Rules, 1962, Income Tax Rules, 1982 and Income Tax Rules, 2002: I.T.Rules, 1962

I.T.Rules, 1982

I.T.Rules, 2002

1-2

1-2

1-2

3-5

204

6-7

Omitted

8

Omitted[now S.20(I)(g)]

9

III Sch.

10

Otiose

11

27, 29, 31 & 32

28, 29 & 30

11A

34

30

12

Otiose

13

49 & 50

14

52

15

53 & 54

50

16

55

41

17

57

18

59

19

58

20

50

21

203

22

62

48-49

23

62

48-49

24

63

48-49

25

Otiose

26

199

27

Otiose

42

42

(xc)

(xci) Comparative Index I.T.Rules, 1962

I.T.Rules, 1982

28

200

29(1)

56(2)

43

29(2)

20(2)

Sec.105(2) & (3)

29(3)

197

51A

29(4)

201

58

30

190

230

31

191

230

32

192

Pt.XI, of 1st Sch.

33

Otiose

34

194

76

35

195

77

36

196

78

37

25

11

38

Otiose

39

3-18

3-9

40

24

23

41

24

23

42

193

51A

43 & 44

209-210

Pt.I, of 1st Sch.-16

45

205(2) & 206

85-89

46

Otiose (Now S. 59)

47 & 48

Otiose

49

21

SRO 1041(K)/61, dated 31.10.1961

19

Notif No. 36, dated 22.6.1956

43

SRO 406 dated 22.8.1959

43

Notif. No. 4 dated 14.3.1952

37

SRO 884(I)/74 dated 1.7.1974

46

I.T.Rules, 2002

10

(xcii) Principles of Income Tax Law I.T.Rules, 1962

I.T.Rules, 1982

I.T.Rules, 2002

[

SRO 714(I)/72 dated 12.9.1972

211-215

Pt.V-VI of 1st Sch.

99-189

122-210

SRO 57(R)/69 dated 7.4.1969 Income Tax Recovery Rules, 1961 Notif. No. 6 dated 10.3.1950

Otiose

SRO 353(K)/62 & SRO 354(K)/62 dated 27.3.1962

69-84

91-107

41

211-220

SRO 982(I)/75 dated 12.9.1975 SRO 349(I)/76 dated 12.4.1976

39

(xciii) Table of Cases Cited

Table of cases cited Sr.#

Citation

at page

A 1. 2. 3. 4.

5.

6. 7.

8.

9. 10. 11. 12.

13.

14.

A&B Food Industries Ltd. v. CIT/CST, Karachi – [(1992) 65 Tax 281 (S.C.Pak)] .................................................................. 156, 226 A. Rehman alias Abdullah and another v. Federation of Pakistan and others – 2002 PTD 804 (H.C.Kar.) .......................... 235, 236 A.J. Hartshorn v. CIT, (West) Karachi – [(1984) 49 Tax 198 (H.C.Kar)] .............................................................................................128 Abbas S. Sharoff and another v. Income Tax Officer and others – [(1998) 78 Tax 119 (H.C.Kar.) = 1998 PTD 2884] .............................................................................................................471 Abdul Hameed Awan v. Tax Recovery Officer-04, Coys Zone, Income Tax Building at Rawalpindi and 3 others – [1997] 76 Tax 238 (H.C.Lah.) = 1998 PCTLR 440 = 1998 PTD 874 ..........................................................................335 Abdul Hamid & Others v. Deputy Collector Excise & Taxation – [(1988) 57 Tax 14 (H.C.A.J&K)] ............................................350 Abdul Majeed Awan v. IAC of Income Tax – [1999] 80 Tax 115 (H.C.Lah.) = 1999 PTD 2910 = 2000 PCTLR 1046 .........................................................................................................319 Abdul Rashid (c/o Union Traders Gole Cloth, Lyallpur) v. Special Judge (Central), Lahore and another – [1976] 34 Tax 199 (H.C.Lah.) ........................................................330 Abdul Rashid v. Special Judge (Central) Lahore & another – [(1976) 34 Tax 199 (H.C.Lah.)]......................................................119 Abdul Razzak v. The Collectors of Customs – [1995 CLC 1435 (Karachi High Court)] ....................................................................402 Abdul Rehman & Another v. ITO Mirpur & Another – [(1993) 68 Tax 132 (S.C.AJ&K)]...................................................................367 Adamjee Insurance Co. Ltd. & Others v. Pakistan through Secretary Ministry of Finance – [(1993) 68 Tax 176 (S.C.Pak)] ...............................................................................................366 Adeel-ur-Rehman and others v. Federation of Pakistan and others – 2005 PTR 1[S.C. Pak.] = 2005 PTD 172 (S.C. Pak.)] .............................................................................................................154 Aftab Medical Stores Dera Ghazi Khan v. CIT, Lahore – [(1976) 34 Tax 10 (H.C.Lah.)] .........................................................285

(xciii)

(xciv) Principles of Income Tax Law Sr.#

15. 16. 17.

18. 19.

20.

21. 22.

23.

24. 25.

26. 27.

28.

Citation

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Afzal Construction Co. (Pvt.) Ltd. v. Chairman CBR – [(1990) 62 Tax 91 (H.C.Lah.)] .......................................................................426 AG v. Aramago – [(1925) 9 TC 445 (HL) .....................................................418 Agha Ice Factory, Sheikhupura v. RCIT, Central Region, Lahore and 4 Others – [1996] 74 Tax 215 (H.C.Lah.) ..............................................................................................................380 Ahmed Maritime Breakers Ltd. v. Central Board of Revenue etc. – [(1992) 65 Tax 268 (H.C.Kar.)] ............................................426 Al-Khair Gadoon Ltd. vs. Commissioner of Income Tax – [(2004) 90 TAX 271 (H.C. Lah.) = 2004 PTD 2467(H.C. Lah.)] ..................................................................................................................... 176 Allied Bank of Pakistan Ltd., Azad Kashmir Branches, Mirpur through Inam Elahi Azhar, EVP and Provincial Chief, PHQ (Punjab) v. Income Tax Appellate Tribunal, AJK Council, Muzaffarabad and others – [2001] 83 Tax 404 (H.C.A&JK) = [2000] 82 Tax 417 ............................................................................................... 175, 209, 237, (H.C.AJ&K) = 2000 PTD 2872 .............................................................. 238, 513 Allied Cans v. Income Tax Officer, Circle-8, Multan and others – [1995] 71 Tax 216 (H.C.Lah.) ...................................................384 Allied Motors Ltd. through Manager Finance v. Commissioner of Income Tax and another – [2004 PTD 1173 (H.C. Kar.) = (2004) 90 Tax 24 (H.C. Kar.)] ........................ 55, 442 Alyani Cotton Ginning and Pressing Factory, Rahimyar Khan v. Assistant Income Tax Officer and another – [(1974) 29 Tax 238 (H.C.Lah.)]......................................................450 Amin Bricks Company v. CIT, (Revision) etc. – [(1996) 74 Tax 227 (H.C.Lah)]..........................................................................393 Amin Spinning Mills and another v. Deputy Collector Central Excise and others – [(2004) 90 TAX 191 (S.C. AJ&K) = 2004 PTD 2479 (S.C. AJ&K)] ...................................................................................................................207 Amin Textile Mills (Pvt.) Ltd. v. CIT, and 2 others – PTCL 2000 CL. 316 (S.C.Pak) ..........................................................................374 Amir Nawaz Khan, etc. v. Government of Pakistan, through Secretary Finance, Islamabad, etc. – [2001] 83 Tax 397 (H.C.Lah.) ........................................................................................378 Anisa Rehman v. PIAC – [1994 SCMR 2232] ..............................................413

(xcv) Principles of Income Tax Law Sr.#

29.

30. 31.

32.

33.

Citation

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Arafat Woollen Mills Ltd. v. Income Tax Officer, Companies Circles E-1, Karachi – [1986] 54 Tax 1 (H.C.Kar.) = 1986 PTD 316 .............................................................................251 Associated Cement Companies Ltd. v. Pakistan – [(1978) 38 Tax 132 (S.C.Pak)] ...........................................................................136 Attock Cement Pakistan Ltd. v. Collector of Customs, Collectorate of Customs and Central Excise, Quetta and 4 others – [(1999) 80 Tax 30 (S.C.Pak.) = 1999 PTD 1892] ...........................................................................343 Ayenbee (Pvt.) Ltd. v. Income Appellate Tribunal and others – [2002] 86 TAX 117 (H.C.Kar.) = 2002 PTD 407 ....................................................................................................... 117, 144 Azmat Farooq v. RCIT, Central Region Lahore and another – [1993] 68 Tax 74 (H.C.Lah.)...........................................................384

B 34.

B.P. Biscuit Factory Ltd., Karachi v. Wealth Tax Officer, II-Circle, Karachi & another – [1982] 45 Tax 17 (H.C.Kar.) = 1981 PTD 217 .......................................................................388

35. 36. 37.

Baby-own v. Income Tax Officer – [1997 PTD 47]....................................474 Balkishan Nathani v. CIT – [1 ITC 248 (Nagpur)] ........................................ 59 Bank Al-Habib and another v. Central Board of Revenue – [(2004) 90 TAX 9 (H.C. Lah.)] ............................................ 305, 440 Bank of Punjab v. Federation of Pakistan – [2000] 81 Tax 390 (H.C.Lah.) ..............................................................................................318 Barnala Commission Shop, Chak-Jhumra v. Income Tax Officer, B-Ward, Lyallpur – [1963] 7 Tax 153 (H.C.Lah.) = 1963 PTD 534 = 1963 PLD 311 ................................... 210, 365 Basharat Ali & Other v. Deputy Superintendent C&E and Sales Tax – [(1995) 72 Tax 218 (H.C.Lah.)]...........................................348 Bashir Ahmad v. State – [PLD 1960 Lahore 687]........................................405 Bashir Sons (Pvt.) Ltd. v. CBR – [(1993) 67 Tax 395 (H.C.Lah.)].............................................................................................................276 Batala Engineering Ltd. v. ITO Lahore – [(1974) 29 Tax 190 (S.C.Pak)] ...............................................................................................466

38. 39.

40. 41. 42. 43.

(xcvi) Principles of Income Tax Law Sr.#

44. 45. 46. 47. 48. 49. 50.

51.

Citation

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Beach Luxury Hotel Ltd. v. CIT, (Central), Karachi – [(1981) 44 Tax 40 (S.C.Pak.)] ............................................................................229 Begum Nusrat Bhutto v. ITO Circle V, Rawalpindi – [(1980) 42 Tax 59 (H.C.Lah.)] ........................................................... 50, 165, 351 Beli Ram & Bros. v. CIT – [(1935) 3 ITR 103 (Lah) ...................................418 Biafo Industries v. Federation of Pakistan – PTCL 2000 CL. 384.........................................................................................................177 Board of Intermediate & Secondary Education v. CBR, etc. – [1999] 79 Tax 28 (H.C.Lah.) .......................................................353 Board of Revenue v. Ramanathan Cheltian – [1 ITC 244 (Madras)] ........................................................................................................262 Brilliant Farbics & Silk Factory, Karachi v. Income Tax Officer, West Zone, Karachi & others – [1987] 56 Tax 24 (H.C.Kar.) ..........................................................................................385 Burma Railway Co. v. Secretary of State – [1 ITC 140 (Burma)] .......................................................................................................... 60, 159

C 52.

53. 54. 55. 56. 57. 58. 59.

Call Tell (Pvt.) Limited through Authorized Representative and another v. Federation of Pakistan through Secretary, Ministry of Law Justice and Human Rights Division, Islamabad and others – [2004 PTD 3032 (S.C. Pak.) = (2005) 91 TAX 1 (S.C. Pak.)] ................................................................................................................ 71, 453 Car Tunes v. ITO etc. – [(1989) 59 Tax 115 (H.C.Kar)]..............................................................................................................350 CBR & others v. Chanda Motors – [(1992) 66 Tax 132 (S.C.Pak.) = 1992 PTD 1681] ...................................................................462 Cement Agencies Ltd. v. ITO, Central Circle II, Karachi – [(1969) 20 Tax 33 (S.C.Pak)] ..........................................................109 Central Insurance Co. & other v. CBR Islamabad – [(1993) 68 Tax 86 (S.C.Pak)] ........................................................... 132, 226, 308 Central Insurance Co. Ltd. v. CIT – [(1999) 79 Tax 1 (S.C.Pak.)] ..............................................................................................................300 Chairman, Central Board of Revenue v. Pak-Saudi Fertilizer Ltd. – [2001] 83 Tax 119 (S.C.Pak.) ...............................................333 Chanda Motors, Karachi v. CBR – [(1990) 62 Tax 67 (H.C.Kar.)].............................................................................................................478

(xcvii) Principles of Income Tax Law Sr.#

60. 61.

62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74.

75. 76. 77.

78.

*

Citation

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Chemitex Industries Ltd. v. Superintendent of Sales Tax and 3 others – [1999 PTD 1184] .............................................................469 Chief Secretary, Govt. of Punjab, Lahore v. CIT, Lahore – [(1976) 33 Tax 176 (H.C.Lah.) = PLD 1976 Lah. 258] ................................................................................................................332 CIT v. Adamji Sons – [(1966) 14 Tax 174 (H.C.Kar.)] ................................. 99 CIT v. Dharamchand Dalchand – [1 ITC 264 (Nagpur)] ................................................................................................................. 67 CIT v. Farrokh Chemical Industries – [(1992) 65 Tax 239 (S.C.Pak) = 1992 SCMR 523 = 1992 PTD 523]................. 302, 411, 421 CIT v. Faysal Islamic Bank of Bahrain, Karachi – [(2001) 83 Tax 376 (H.C.Kar.)=PTCL 2001 CL. 410] ................................147 CIT v. Hoosen Kasam Dada Karachi – 1960 PTD 574 (H.C.Dacca)..................................................................................................... 55 CIT v. Kathiawar Coopperative Housing Society – [(1985) 51 Tax 5 (H.C.Kar)] ..............................................................................113 CIT v. Kesar Sugar Works Ltd. – 2001 PTD 744 .......................................... 44 CIT v. Kamran Model Factory – [2002] 86 Tax 39 .................. 114, 115, 227, (H.C.Kar.) = 2002 PTD 14 .................................................... 236, 503, 504, 505 CIT v. Mahaliram Ramjidas – [1940) 8 ITR 442 (PC)] ...............................420 CIT v. Muhammad Kassim – [(2000) 81 Tax 229 (H.C.Kar.) = 2000 PTD 280] ........................................................... 212, 215,244 CIT v. Nagina Talkies (property) Karachi – [(1974) 29 Tax 115 (H.C.Kar.)] .......................................................................................260 CIT v. Nasir Ali and another – [(1999) 79 Tax 428 (S.C.Pak.)] ................................................................................................................ 45 CIT v. National Agriculture Ltd., Karachi – [2000] 82 Tax 73 (H.C.Kar.) = [2000] 81 Tax 249 (H.C.Kar.) = 2000 PTD 254 ......................................................................................................226 CIT v. Nishat Cinema, Lyallpur – [1979] 39 Tax 140 (H.C.Lah.) ..............................................................................................................106 CIT v. Olympia – [(1988) 57 Tax 71* (H.C.Kar)]....................... 267, 268, 479 CIT v. Pakistan Industrial Engineering Agencies Ltd. – [(1992) 65 Tax 84 (S.C.Pak.) = 1992 PTD 576 = PLD 1992 SC 562]...............................................................................................421 CIT v. Pakistan Insurance Corporation & Other – [(1997) 75 Tax 113 (S.C.Pak)] ...........................................................................118

Wrongly appeared as “46” in the Journal.

(xcviii) Principles of Income Tax Law Sr.#

79. 80. 81. 82. 83. 84. 85.

86. 87. 88. 89. 90.

91. 92. 93. 94.

95.

Citation

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CIT v. Pakistan Tobacco Company Ltd. – [(1988) 57 Tax 118 (H.C.Kar.) = 1988 PTD 66] ..................................................... 183, 220 CIT v. Paskin (Pvt.) Ltd. – 2003 PTD 2073 (H.C.Kar.) ..............................................................................................................154 CIT v. Prasad Film Laboratories (P.) Ltd. – [1999 PTD 325] ................................................................................................................. 46 CIT v. Prime Dairies Ice Cream Limited – [(1999) 80 Tax 282 (H.C.Lah.)] ............................................................................................175 CIT, Sargodha v. Irshad Anwar & Co. Kamalia – [2002] 85 TAX 470 (H.C.Lah.) = 2002 PTD 750 ............................... 116, 117 CIT v. Shahnawaz Ltd. and others – [1992] 66 Tax 125 (S.C.Pak.) .......................................................................................................272 CIT, Companies Zone-II, Karachi v. Sindh Engineering (Pvt.) Limited, Karachi – [2002] 85 TAX 386 (S.C.Pak) = 2002 PTD 419 ........................................................................130 CIT v. Surridge & Beecham – [(1968) 18 Tax 72 (H.C.Kar.)].................................................................................................... 156, 445 CIT v. Syed Akhtar Ali – [1994] 69 Tax 38 (H.C.Kar.) ..............................104 CIT v. Venkatachalapathi – [1 ITC 185 (Madras)]......................................... 61 CIT v. Zamindar of Singampalli – [1 ITC 181 (Madras)] .................................................................................................................. 61 CIT, (AJ&K Council), Muzaffarabad and another v. Asian D. Enterprises through Eijaz Qureshi, Managing Director and 5 others & CIT, (AJ&K Council), Muzaffarabad and 2 others v. Messrs Cade Creets Associates through Managing Partner, Diwan Ali Khan Ghughtai and another – [2000] 81 Tax 371 (S.C.AJ&K.) = 2000 PTD SC 892;CIT, AJK and another v. Asian D. Enterprises and other – [2000] 82 Tax 518 ((S.C.AJ&K.) ......................................................................... 265, 288 CIT, (Central) Karachi v. Habib Insurance Co. Ltd. Karachi – [(1969) 19 Tax 222 (H.C.Kar.)] .....................................................148 CIT, (Central) Karachi v. New Jubilee Insurance Co. Ltd. – [(1982) 46 Tax 125 (H.C.Kar)] .............................................................139 CIT, (East) Karachi v. Ebrahim D. Ahmad & others – [(1982) 45 Tax 232 (H.C.Kar)] ........................................................................ 98 CIT, B-Zone, Lahore v. Lahore Cantonment Cooperative Housing Society, Lahore – [2002] 85 Tax 25 (H.C.Lah.) = 2002 PTD 629 ...............................................................195 CIT, Central Zone A Karachi v. S.M. Naseem Allahwala – [(1991) 64 Tax 31 (H.C.Kar.)] ....................................................449

(xcix) Principles of Income Tax Law Sr.#

96. 97. 98. 99.

100. 101. 102. 103. 104.

105.

106. 107. 108. 109. 110.

111. 112. 113.

Citation

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CIT, Central Zone B, Karachi v. Zakia Siddiqui – [(1989) 59 Tax 79 (H.C.Kar)] ............................................................................210 CIT, Central Zone Karachi v. United Liner Agencies, Karachi – [(1990) 62 Tax 31 (H.C.Kar)].........................................................172 CIT, Central Zone Lahore v. Gauher Ayub – [(1995) 71 Tax 271 (H.C.Lah)] ........................................................................................303 CIT, Central Zone, Lahore v. National Security Insurance Co. Ltd., Lahore – [(2001) 84 Tax 500 (H.C. Lah.)] ...........................................................................................................288 CIT, Companies II, Karachi v. Sultan Ali Jeoffery & others – [(1993) 67 Tax 51 (S.C.Pak)] .............................................................138 CIT, Companies Zone Lahore v. Mst. Khursheed Begum – [(1995) 71 Tax 280 (H.C.Kar.)]] .....................................................448 CIT, Companies Zone Lahore v. Naveed A. Sheikh – [(1992) 65 Tax 80 (H.C.Lah)] .............................................................................. 48 CIT, Companies, Lahore v. Locus Traders Shan (Pvt.) Ltd., Lahore – [(2001) 84 Tax 516 (H.C.Lah.)]................................................317 CIT, Companies-I, Karachi v. Messrs National Investment Trust Ltd., Karachi – 2003 PTD 589 (H.C.Kar.) ..............................................................................................................231 CIT, Companies-II, Karachi v. Messrs Muhammad Usman Hajrabai Trust Imperial Courts, Karachi – 2003 PTD 577 (H.C.Kar.) ........................................................................ 232, 259 CIT, East Bengal v. Kumar Narayan Roy Choudhry and others – [(1959) 1-TAX (III-207) (S.C.Pak.)] ...................... 112, 190, 230 CIT v. Eastern Federal Union Insurance Company – [1982] 46 TAX 6 (S.C.Pak.) ................................................................................. 88 CIT, East Pakistan & 2 others v. Aswab Ali & others – [(1975) 31 Tax 101 (S.C.Pak)]........................................................................433 CIT, East Pakistan Dacca v. Wahiduzzaman – [(1965) 11 Tax 296 (S.C.Pak.) = PLD 1965 SC 171] .................................................422 CIT, East Pakistan v. Aizuddin Gazi and others – [1960] 2-TAX (III-474) (H.C.Dacca) = 1960 PTD 727 = 1960 PLD 535 ............................................................................................ 55 CIT, East Pakistan v. Fazlur Rahman & Saeedur Rahman – [(1964) 10 Tax 49 (S.C.Pak)] .........................................................433 CIT, East Pakistan, Dacca v. Engineers Limited, Dacca – [1967] 16 Tax 81 (S.C.Pak.) ...................................................... 219, 418 CIT, East Pakistan, Dacca v. Wahidur Rahman, ITO, Companies Circle IV, Chittagong – [1961] 4 Tax 135 (H.C.Dacca) = 1961 PTD 1110 = 1962 PLD 104 ......................................... 53

(c) Principles of Income Tax Law Sr.#

114. 115. 116.

117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127.

128. 129. 130. 131. 132.

Citation

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CIT, East Zone, Karachi v. Merchant Navy Club – [2004 PTD 1304 (H.C. Kar.)] ...........................................................................119 CIT, Faisalabad v. Chief Glass House – [(1992) 65 Tax 205 (H.C.Lah.)] ............................................................................................412 CIT, Karachi & other v. N.V. Philip‟s Gloelampenfabriaken, Karachi – [1993] 68 Tax 35 (S.C.Pak.) ...............................................................................................................333 CIT, Karachi (West), Karachi v. S. A. Rehman – [1980] 42 Tax 147 (H.C.Kar.) = 1980 PTD 314...........................................277 CIT, Karachi v. Ashfaq Ahmad Khan & 10 others – [(1974) 29 Tax 149 (S.C.Pak.)] ..........................................................................311 CIT, Karachi v. Khatija Begum, partner Shakil Impex Karachi – [(1965) 12 Tax 95 (S.C.Pak)] ..........................................................228 CIT, Karachi v. Messrs Civil Aviation Authority – 2002 PTD 388 (H.C.Lah.) ............................................................... 213, 236, 237 CIT, Karachi v. Nisar Ahmad – [(1984) 50 Tax 187 (H.C.Kar)]..............................................................................................................285 CIT, Karachi v. Paracha Textile Mills Karachi – [(1973) 28 Tax 155 (H.C.Kar.)].........................................................................169 CIT, Karachi v. Sadruddin – [(1985) 51 Tax 83 (H.C.Kar.)].............................................................................................................412 CIT, Lahore v. Aziz Din – [1976] 33 Tax 258 (H.C.Lah.) ..............................................................................................................257 CIT, Lahore v. Govt. Jallo Rosin and Turpentine Factory, Lahore – [(1976) 34 Tax 71 (H.C.Lah.)] .........................................313 CIT, Lahore v. Kohinoor Industries Ltd. Lahore – [(1977) 35 Tax 42 (H.C.Lah.)] ............................................................................. 53 CIT, Lahore v. The Lyallpur Central Co-operative Bank Ltd., Lyallpur – [1959] 1-TAX (III-150) (H.C.West Pakistan, Lahore Bench) = 1959 PTD 639 = 1959 PLD 627 ..................................................................................................429 CIT, Lahore v. Umar Saigal – [(1976) 33 Tax 245 (H.C.Lah.)].............................................................................................................305 CIT, Lahore Zone Lahore v. Malik & Co. Lahore – [(1974) 29 Tax 165 (H.C.Lah)]..........................................................................229 CIT, Lahore Zone v. Sh. Muhammad Ismail & Co. Ltd. Lyallpur – [(1986) 53 Tax 122 (S.C.Pak)]...............................................302 CIT, Lahore Zone, Lahore v. Badar Ice Factory, Lahore – [1981] 43 Tax 100 (H.C.Lah.) .........................................................404 CIT, Lahore Zone, Lahore v. Muhammad Allah Bux – [(1977) 35 Tax 74 (H.C.Lah)] ........................................................................118

(ci) Principles of Income Tax Law Sr.#

133.

134. 135. 136.

137. 138. 139.

140. 141. 142.

143. 144. 145. 146. 147. 148. 149.

Citation

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CIT, Madras v. Sri Krishna Chandra Gajapathi Narayan Deo, Raja of Parlakimedi – [2 ITC 104 (Madras)] ................................................................................................................159 CIT v. New China Glassware Company – [(1974) 30 Tax 158 (H.C.Kar.)] ............................................................................................118 CIT v. Unilever P.L.C., U.K. – 2002 PTD 44 (H.C.Kar.) ..................................................................................................... 125, 163 CIT, North Zone, Lahore v. Lahore Central Iron and Hardware Machinery, Merchants – [(1973) 27 Tax 40 (H.C.Lah.)].............................................................................................................175 CIT, North Zone, Lahore v. Mst. Wazirunissa Begum – [(1974) 29 Tax 188 (S.C.Pak.)].............................................................. 162, 229 CIT, North Zone, Lahore v. Owen Roberts & Co. Ltd. Lahore – [(1973) 27 Tax 95 (H.C.Lah.)] ................................................135 CIT, North Zone, Lahore v. Waris Silk Weaving and Knitting Mills, Gujranwala – [(1973) 28 Tax 181 (H.C.Lah.)].............................................................................................................141 CIT, Pakistan v. Fazlur Rehman & Sayeedur Rehman – [(1964) 10 Tax 49 (S.C.Pak) ...........................................................................413 CIT, Peshawar Zone, Peshawar v. Siemen A.G. – [(1991) 63 Tax 130 (S.C.Pak.) = PLD 1991 SC 368] .......................... 134, 463 CIT Peshawar v. Gull Cooking Oil and Vegetable Ghee (Pvt.) Ltd. through the Chief Executive and 6 others – [2003 PTD 1913 (S.C. Pak).] ............................................................................... 35 CIT, Punjab, NWFP & Bahawalpur v. Mrs. E.V. Miller – [(1959) 1 Tax (III-1) (S.C.Pak)] ....................................... 112, 122, 134 CIT, Rawalpindi v. K.K. & Co. Ltd. – [(1980) 42 Tax 81 (H.C.Lah)] ........................................................................................................160 CIT, Rawalpindi v. Noor Sugar Mills – [(1975) 32 Tax 273 (H.C.Lah.)] ................................................................................... 153, 258 CIT, Rawalpindi v. Wolf Gang Matzke – [(1975) 32 Tax 176 (H.C.Pesh.)] ...........................................................................................332 CIT, Rawalpindi Zone, Rawalpindi v. Lyallpur Cold Storage, Lyallpur – [1976] 34 Tax 14 (S.C.Pak.) ...........................................266 CIT, Rawalpindi Zone, Rawalpindi v. New Afza Hotel Rawalpindi – [(1973) 27 Tax 212 (H.C.Lah.)]....................................442 Commissioner of Income-Tax v. Messrs Rehman Traders – 2005 PTR 110 [H.C. Lah.] = 2005 PTD 116 (H.C. Lah.)] ...................................................................................................513

(cii) Principles of Income Tax Law Sr.#

150.

151. 152. 153. 154. 155. 156. 157.

158.

159.

160.

161. 162.

163.

164.

Citation

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CIT, South Zone, Karachi v. Radio Hotel, Karachi – [1959] 1-TAX (III-407) (H.C.West Pakistan, Karachi) = 1959 PTD 707 = 1959 PLD 539 ................................................................... 47 CIT, Sukkur Zone, Sukkur, through DCIT v. Gatron (Industries) Ltd. – [(1999) 79 Tax 161 (H.C.Qut.)]......................................447 CIT, Zone-A, Lahore v. Sohaib Nasir – [PTCL 2001 CL. 405] .................................................................................................................437 CIT, Zone-B, Lahore v. Muhammad Sarwar Khan – [PTCL 2001 CL. 383]..........................................................................................290 CIT, Zone-B, Lahore v. Sardar Muhammad – [2001 PTD 2877] .............................................................................................................279 CIT/CST (Central Karachi) v. A.B. Food Industries Ltd. Karachi – [(1984) 50 Tax 158 (H.C.Kar)] ..............................................252 CIT/CST Rawalpindi v. Pakistan Television Corp. Ltd. Rawalpindi – [(1978) 38 Tax 181 (H.C.Lah.)]..................... 119, 394, 449 CIT/WT, Companies Zone, Faisalabad v. Rana Asif Tauseef C/o Rana Hosiery & Textile Mills (Pvt.) Ltd., Faisalabad – [2000] 81 Tax 7 (H.C.Lah.) = 2000 PTD 497 ....................................................................................................... 244, 245 CIT/WT, Multan Zone, Multan v. Allah Yar Cotton Ginning & Pressing Mills (Pvt.) Limited, Multan Road, Vehari – [2000] 82 Tax 433 (H.C.Lah.) = 2000 PTD 2958 ............................................................................................ 210, 241, 417 CIT/WT, Sialkot Zone, Sialkot v. Messrs Thapur (Pvt.), Sialkot – [2002] 86 Tax 274 (H.C.Lah.) = ...................... 103, 191, 193 2002 PTD 2112 ........................................................................................., 235, 508 CIT/WT, Zone-C, Lahore v. Haroon Medical Store, Sheikhupura – [2003] 88 TAX 50 (H.C.Lah.) = 2003 PTD 1530 ....................................................................................................... 34, 463 Citi Bank N.A. Karachi v. CIT, Central Zone C Karachi – [(1994) 70 Tax 159 (H.C.Kar)] ......................................................162 Collector of Central Excise and Sales Tax v. Rupali Polyester Ltd. and others – [2003] 87 Tax 49 (S.C.Pak.) ...................................................................................................... 224, 262 Collector of Sales Tax and others v. Shabhbaz & Co. and others – 2005 PTR 72 [S.C. Pak.] = (2005) 91 Tax 107 (S.C. Pak.)] .............................................................................................174 Collector of Customs, Lahore and others v. Universal Gateway Trading Corporation and another – 2005 PTR 45 [S.C. Pak.] = 2005 PTD 123 (S.C. Pak.) = PTCl 2005 CL. 270] ............................................................................................365

(ciii) Principles of Income Tax Law Sr.#

165.

166. 167. 168.

169. 170.

171. 172. 173.

174.

175. 176. 177. 178. 179. 180. 181. 182.

Citation

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Colony Textile Mills Ltd. Lahore v. Income Tax Appellate Tribunal (Pak) & another – [(1972) 25 Tax 140 (H.C.Lah.)].....................................................................................................373 Colony Textile Mills Ltd. v. CST, Lahore Zone, Lahore – [(1975) 32 Tax 282 (H.C.Lah.)] .......................................................105 Commissioner of Agricultural Income Tax v. BWM Abdur Rehman – [(1974) 29 Tax 212 (S.C.Pak.)] .........................................109 Commissioner of Income-Tax, Karachi v. Messrs Nazir Ahmed and Sons (Pvt.) Ltd., Karachi – [(2004) 89 TAX 385 (H.C. Kar.) = 2004 PTD 921 (H.C. Kar.)] ........... 198, 217, 246, 281 Commissioner of Sales Tax Lahore v. Lutfi & Co. Lahore – [(1973) 28 Tax 168 (H.C.Lah.)] .......................................................196 Commissioner of Sales Tax Rawalpindi Zone, Rawalpindi v. Rashid Burner, Sialkot – [(1974) 29 Tax 221 (H.C.Lah.)].....................................................................................................260 Commissioner Sales Tax v. Rizki Ink Company Ltd. – [(1991) 64 Tax 34 (H.C.Kar)] ........................................................................210 Commr. Income Tax v. Anantapur Gold Mines – [1 ITC 133 (Madras)] ...............................................................................................407 Continental Chemical Co. (Pvt.) Ltd. v. Pakistan and others – [(2001) 83 Tax 305 (H.C.Kar.) = PTCL 2001 CL. 454] ....................................................................................... 90, 213, 286 Controller of Estate Duty, Lahore v. Muhammad Bashir Muhammad Nazir & others – [(1974) 29 Tax 91 (H.C.Lah.)] .......................................................................................................143 Coronet Paints & Chemicals Ltd. Karachi v. CIT, (West) Karachi – [(1984) 50 Tax 115 (H.C.Kar.)] ........................................305 Crescent Sugar Mill. v. ITO – [(1999) 80 Tax 273 (H.C.Lah.) = NLR 1999 Tax 170] ...................................................................369 Crescent Sugar Mills & Distillery Ltd. Lahore v. CIT, Lahore Zone, Lahore – [(1981) 43 Tax 1 (H.C.Lah)] ......................... 167, 200 Crown Bus Service Ltd. Lahore v. CBR & others – [(1976) 34 Tax 54 (H.C.Lah.)] ......................................................... 201, 254, 442 CST v. Lever Brothers Pak Ltd. – [(1991) 64 Tax 124 (H.C.Kar)]..............................................................................................................104 CST Zone A Lahore v. Chenab Textile Mills Ltd., Lahore – [(1980) 42 Tax 140 (S.C.Pak.)] ........................................................449 CST, Rawalpindi Zone, Rawalpindi v. Abdul Razaq Zia-ul-Qamar – [(1973) 27 Tax 99 (H.C.Lah.)] .............................................146 CWT v. Noor Rai Ibrahim – [(1992) 65 Tax 262 (S.C.Pak)] ...............................................................................................................127

(civ) Principles of Income Tax Law Sr.#

183. 184.

Citation

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CWT, Lahore Zone, Lahore v. Mst. Fozia Mughis, Lahore – [(1975) 32 Tax 1 (H.C.Lah.)] ...........................................................128 CWT, Southern Region, Karachi v. Abid Hussain – [(1999) 80 Tax 89 (H.C.Kar.) = 1999 PTD 2895] ........................................424

D 185. 186. 187. 188. 189. 190.

Data Distribution Services v. DCIT, and another – [2000] 82 Tax 156 (H.C.Lah.) ...........................................................................375 Dawood Hercules Chemical Ltd. v. Collector of Sales Tax Lahore – [(1997) 76 Tax 242 (H.C.Lah)]................................................348 Deans Associates (Pvt.) Limited v. IAC of Income Tax – [2002] 86 Tax 138 (H.C.Kar.) = 2002 PTD 441 .... 194, 243, 316, 383 Dhanrajmal Mamnumal & Sons v. CIT, (West) Karachi – [(1985) 52 Tax 77 (H.C.Kar.)]........................................................304 Dreamland Cinema, Multan v. CIT, Lahore – [(1977) 35 Tax 169 (H.C.Lah)] ............................................................. 190, 195, 278, 280 Dr.Najibullah Khan v. Federation of Pakistan through the Secretary, Ministry of Finance, Government of Pakistan, Islamabad and 4 others – 2003 PTD 2083 (H.C.Pesh.) ............................................................................... 36

E 191.

192. 193. 194.

195.

E.F.U. General Insurance Company Ltd. and others v. Federation of Pakistan & others – [(1997) 76 Tax 213 (S.C.Pak) = 1997 PTD 1693 = PLD 1997 SC 700 .................................................................................................................. 131, 225 Eastern Federal Union Insurance Co. v. CIT – [(1966) 14 Tax 211 (H.C.Kar.)].........................................................................172 Eastern Poutry Services v. Govt. of Pakistan and others – [1993] 68 Tax 171 (H.C.Kar.) .................................................. 339, 448 Eastern Textile Mills Ltd., Chittagong and G.Merajuddin and another v. CIT, East Pakistan, Dacca – [1966] 13 Tax 145 (H.C.Dacca) ........................................................261 Elahi Cotton Mills Ltd. & others v. .............................................. 39, 40, 42, 71, Federation of Pakistan through Secretary ..........................................80, 81, 83, Finance, Islamabad – [(1997) 76 Tax 5 ............................................ 86, 87, 101,

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198.

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(S.C.Pak) = 1997 PTD 1555 = PTCL 1997 ............................... 102, 146, 273 CL 260 = PCTLR SC (Pak) 845] ................................................... 301, 302, 452 Emperor v. Probhat Chandra Barua – [1 ...................................60, 62, 66, 216 ITC 284 (Calcutta)]............................................................................ 294, 333, 418 Eruch Maneckji & others v. ITO Central Circle III, Karachi – [(1980) 41 Tax 25 (H.C.Kar.) = 1979 PTD 461] .........................................................................................................................351 Essential Industries, Dacca v. CIT, East Pakistan, Dacca – [1969] 19 Tax 3 (H.C.Dacca) ............................................................480

F 199.

200.

First National City Bank, Karachi v. Income Tax Officer, Karachi and another – [1976] 34 Tax 1 (H.C.Kar.) = PLD 1976 Kar. 552 ....................................................................364 Frontier Ceramics v. Government of Pakistan & others – [1999 PTD 4126 (H.C.Pesh.)] ................................................. 319, 320

G 201.

202.

203. 204.

205. 206.

207.

208.

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H 211. 212. 213.

214.

215. 216. 217.

218. 219. 220. 221. 222.

223.

H.M. Abdullah v. ITO Circle-V Karachi – [(1993) 68 Tax 29 (S.C.Pak)] .................................................................................................367 Hafiz Mohammad Arif Dar v. ITO – [(1989) 60 Tax 52 (S.C.Pak)=PLD 1989 SC 109].............................................................. 334, 368 Haji Gula Khan v. Special Officer, Income Tax and others – [(1997) 75 Tax 117 (H.C.Pesh.) = 1997 PTD 7] ..............................................................................................................................372 Haji Ibrahim Ishaq Johri v. CIT, (West), Karachi – [1982] 45 Tax 263 (H.C.Kar.) = 1982 PTD 46 = 1990 PTCL 954 = 1982 PLD 266 ..................................................................... 49 Haji Mehr Din, Lahore v. CIT, Zone-A, Lahore – [(2001) 84 Tax 471 (H.C.Lah.)]....................................................... 433, 434, 435 Haji Muhammad Shafi & Others v. Wealth Tax Officer & Others – [(1992) 65 Tax 315 (S.C.Pak)]........................................................ 89 Hamdard Dawakhana (Waqf) Pakistan v. CIT, Central Zone, „B‟ Karachi and another – [1990] 62 Tax 98 (H.C.Kar.) ................................................................................................357 Hamdard Dawakhana (Waqf) v. CIT, etc. – [(1987) 56 Tax 78 (H.C.Kar)] ..........................................................................................304 Hamdard Dawakhana v. CIT, Karachi – [(1980) 42 Tax 1 (S.C.Pak)] ...................................................................................................170 Hansraj Gupta v. Dhera Dun Mussorai Electric & Tramway Co. Ltd. – [AIR 1933 PC 63, 65] ...................................................415 Hari Krishna Das v. CIT, UP – [5 ITC 275 (Allahabad)] ...........................................................................................................197 Harjina & Company (Pak) Limited, Karachi v. CIT – [1964] 8 Tax 1 (H.C.Kar.) = 1963 PTD 867 = 1963 PLD 996 ................................................................................................................221 Hatz Trust of Simla v. CIT, Punjab & NWFP – [5 ITC 8 (High Court Lahore)]..............................................................................216

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I 231. 232. 233. 234.

235.

236.

237.

IAC & Another v. Pakistan Herald Ltd. – [(1997) 76 Tax 131 (S.C.Pak) = 1997 PTD 1485] ............................................................132 IAC of Income Tax and others v. Messrs Micro Pak (Pvt.) Limited and others – 2002 PTD 877 (S.C.Pak) .................................208 ICC Textiles Limited v. Federation of Pakistan and others – [(1999) 79 Tax 77 (H.C.Lah.)] ............................................................ 90 Iftikhar Ahmad Butt and 4 others v. Government of Islamic Republic of Pakistan through Secretary, Ministry of Finance, Economic Affairs and Statistics, Islamabad and 5 others – 2002 PTD 562 (H.C.Lah.) ..................................467 Iftikhar Hussain Alvi c/o Kaghan Ghee Mills (Pvt.) Ltd., Gadoon Amazai Industrial Estate, Swabi v. ITO/DC, Income Tax and others – PTCL 2003 CL. 213 (H.C.Pesh.) ........................................................................................... 270, 273 Ikhlaq Cloth House, Faisalabad v. ACIT, Circle-12, Faisalabad Zone, Faisalabad and 3 others – [2001 PTD 3121] .................................................................................................... 240, 423 Imperial Tobacco Co. of India Ltd. v. CIT, South Zone, Karachi – [(1959) 1-TAX (III-284) (S.C.Pak.)] .................................230

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K

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254.

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L 269.

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M 271. 272.

273. 274. 275. 276. 277.

278. 279.

280. 281.

M.Rehman, ITO & others v. Narayanganj Company (Pvt.) Ltd. – [(1971) 23 Tax 223 (S.C.Pak)]...................................................... 39 M/s. Dawlance (Pvt.) Limited v. Collector of Customs (Adjudication), Karachi-I – PTCL 2003 CL. 180 (CESTAT, Kar.) ............................................................................................. 46 M/s Kashmir Edible Oil Ltd. v. Federation of Pakistan – 2005 PTR 70 [H.C. Lah.] ................................................................. 99 M/s. Tariq Sultan & Co. v. Government of Pakistan, etc. – [(1999) 80 Tax 62 (H.C.Qta.)] .................................................................. 46 Maharaja of Darbhanga v. CIT – [1 ITC 303 (Patna)] .................................. 63 Maharani of Bardwan v. Krishna Kamini Dasi – [14 ILR PC 365] ..........................................................................................................262 Mahmood Barni vs. Inspecting Additional Commissioner of Income-Tax, Gujranwala and another – 2005 PTR 134 [H.C. Lah.] = 2005 PTD 165 (H.C. Lah.)] ...................................................................................................514 Mandviwalla Motors Limited, Karachi v. CIT, Central Zone „B‟, Karachi – [1991] 64 Tax 19 (H.C.Kar.) ........................................293 Masood Textile Mills Ltd. v. Commissioner of Income Tax, Companies Zone, Faisalabad and others – [(2004) 89 TAX 51 (H.C. Lah.)]....................................................................140 Mehran Associates Ltd. v. CIT, Karachi – [(1992) 66 Tax 246 (S.C.Pak)] ...............................................................................................208 Mehtab Industries Ltd. Sahiwal v. DCIT/WT and 3 others – [2002] 86 TAX 65 (H.C.Lah.) = 2002 PTD 324 ...........................................................................................................................392

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283. 284.

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304. 305.

306. 307. 308. 309.

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N 329. 330. 331.

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333.

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N.V. Philips Glocilin Peufabrikan v. ITO & Others – [(1990) 61 Tax 159 (H.C.Kar)]............................................................................ 50 Nagina Dal Factory v. ITO and others – [(1968) 18 Tax 1 (S.C.Pak) = (1968 SCMR 1035)] ...........................................................369 Nagina Silk Mills, Lyallpur v. Income Tax Officer, AWard, Lyallpur and another – [1963] 7 Tax 442 (S.C.Pak.) = PLD 1963 SC 322 ...................................................... 117, 185, 312 Nasir Mahmood Dar, etc. v. Federation of Pakistan and others – [(1998) 78 Tax 1 (H.C.Lah.) = 1998 PCLR 1382]...........................................................................................................322 National Beverages (Pvt.) Ltd. v. Federation of Pakistan and others – [(2001) 83 Tax 359 (H.C.Kar.) = PTCL 2001 CL. 250] ......................................................................................239 National Electric Co. (Pvt.) Ltd. Gujranwala v. CIT, Gujranwala Zone – [(1996) 74 Tax 89 (H.C.Lah.)] ......................................327 National Food v. CIT – [(1991) 64 Tax 60 (H.C.Kar.)]............................................................................................................... 48

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P 343.

344. 345. 346.

347.

348.

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Pakistan Hardcastle Wand (Pak) v. Federation of Pakistan etc. – [PLD 1967 SC 1] ......................................................................418 Pakistan Industrial Development Corporation v. ................................ 97, 148, Pakistan, through Secretary Ministry of................................................. 359, 360 Finance – [(1984) 49 Tax 76 (H.C.Kar)].........................................................388 Pakistan Lyallpur Samundri, Transport Co. Ltd. v. CIT, Lahore Zone, Lahore – [(1982) 46 Tax 143 (H.C.Lah)]................................................................................................................ 98 Pakistan Oxygen Ltd, Karachi v. CBR, Islamabad and 2 others – [2003 88 TAX 108 (H.C.Kar.) = 2003 PTD 1301 ..................................................................................................... 343, 352 Pakistan Seamen Contributory Welfare Fund Karachi v. Income Tax Appellate Tribunal & 2 Others – [(1993) 67 Tax 400 (H.C.Kar)]..........................................................................120 Pakistan Services Ltd., Karachi v. CIT, Central ZoneC (COS-1) – [(1999) 80 Tax 106 (H.C.Kar.) = 1999 PTD 2901] .............................................................................................................159 Pakistan through CIT, Karachi v. Majestic Cinema – [(1965) 12 Tax 15 (S.C.Pak.)] ............................................................................311 Pakistan through Secretary Finance, Islamabad & 5 others v. Aryan Petro Chemical Industries (Pvt.) Ltd. Peshawar & others – 2003 PTD 505 (S.C.Pak.) ....................................... 41, 470 Pakistan Tourism Development Corporation Ltd. and another v. Collector, Customs, Central Excise and Sales Tax, Lahore and others – 2005 PTR 14 [S.C. Pak] = 2005 PTD 104 (S.C. Pak) = (2005) 91 Tax 105 (S.C. Pak)] ..............................................................................................142 Pandit Pandurang v. CIT, Central Provinces – [2 ITC 69 (Nagpur)]..........................................................................................................110 Pfizer Laboratories Ltd. v. Federation of Pakistan – [(1998) 77 Tax 172 (S.C.Pak)] ...........................................................................451 Prime Commercial Bank and others v. ACIT – [(1997) 75 Tax 1 (H.C.Lah.) = 1997 PTD 605 = PTCL 1997 CL 29] ..............................................................................................416 Prime Dairies Ice Cream Ltd. Lahore v. CIT, Companies Zone – [2002] 85 Tax 509 (S.C.Pak) = 2002 PTD 430 ............................................................................................. 299, 300 Punjab Small Industries Ltd. v. DCIT, Lahore – [(1995) 71 Tax 220 (H.C.Lah)]............................................................................ 95

Q

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364.

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Qureshi Vegetable Ghee Mills Ltd. v. CIT, and 3 others – [2002] 85 Tax 397 (S.C.AJ&K) = 2002 PTD 399 ...........................................................................................................................447

R 365. 366. 367. 368. 369. 370. 371.

372. 373. 374. 375. 376. 377.

Rafhan Maize Products Co. Ltd. v. CIT – [1988 PTD 571 (S.C.Pak)] .......................................................................................................166 Rahmatullah and Sons v. CST, Lahore – [(1973) 27 Tax 256 (H.C.Lah.)] ............................................................................................196 Raja Habib Ahmad Khan v. Income Tax Officer – [(1974) 29 Tax 208 (S.C.Pak.)] ..........................................................................368 Raleigh Investment Co. Ltd. v. CIT, (East) Karachi – [(1983) 47 Tax 214 (H.C.Kar)]..........................................................................122 Ramkola Sugar Mills Ltd. v. CIT, Punjab & NWFP – [(1960) 2-Tax (Suppl.-29) (S.C.Pak)] ...............................................................400 Rashid Akhtar & Sons v. CIT, Lahore – [(1980) 42 Tax 168 (H.C.Lah)] .............................................................................................150 Rathan Singh, Proprietor, Rathan Singh Motor Service, Madura v. The CIT, Madras – [2 ITC 107 (Madras)] .................................................................................................................. 68 Rehmania Hospital v. Government of Pakistan etc. – [(1997) 76 Tax 138 (H.C.Pesh) = 1997 PTD 1805] .....................................372 Republic Motors Ltd. v. ITO & others – [(1990) 62 Tax 8 (H.C.Kar.) = 1990 PTD 889] ................................................................349 Rijaz (Pvt.) Ltd. v. Wealth Tax Officer Circle III Lahore – [(1996) 74 Tax 9 (H.C.Lah)] .......................................... 209, 247, 277 Roger Pyatt Shellac & Co., v. Secretary of State – [1 ITC 363 (Calcutta)]................................................................................................ 57 Rowe & Co. v. The Secretary of State for India – [1 ITC 161 (Burma)] ................................................................ 56, 57, 198, 203, 205 Rustam F. Cousjee & 2 others v. CBR & 2 others – [(1985) 52 Tax 123 (H.C.Kar)]................................................................. 211, 268

S 378. 379.

S. Muhammad Din & Sons Ltd. v. STO, Special Circle I, Lahore – [(1977) 36 Tax 74 (H.C.Lah.)] .........................................252 S.N.H. Industries (Pvt.) Ltd. v. Income Tax Department and another – [(2004) 89 TAX 252 (H.C. Kar.) = 2004 PTD 330 (H.C. Kar.)].....................................................344

(cxviii) Principles of Income Tax Law Sr.#

380. 381. 382.

383. 384. 385. 386. 387. 388. 389.

390. 391.

392. 393.

394. 395. 396. 397.

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S.M. Abdullah v. CIT – [(1966) 14 Tax 161 (H.C.Kar.)].............................................................................................................426 Sadar Anjuman-i-Ahmedia, Rabwa v. CIT, Rawalpindi – [(1977) 36 Tax 117 (H.C.Lah)] ................................................120 Saif Nadeem Electro Ltd. v. Collector of Customs and Central Excise/CST, Peshawar and 3 Others – [1995] 72 Tax 274 (H.C.Pesh.)..........................................................................382 Sainrapt & Et. Brice, Karachi v. CIT, (West), Karachi – [(1979) 40 Tax 116 (H.C.Kar.) = PLD 1979 591] ....................................252 Saitex Spinning Mills, Lahore v. CIT, Zone-3, Lahore – [2003 PTD 808 (H.C.Lah.)] ...........................................................................133 Saleem and Co. v. Income Tax Authorities – [1993] 68 Tax 173 (H.C.Lah.) ........................................................................................338 Saleem Automotive Industries (Pvt.) Ltd. v. Central Board of Revenue etc. – [(1999) 80 Tax 9 (H.C.Lah.)] ...............................369 Sameer Electronics v. ACIT, Circle-B, Zone-A, Lahore – [1996] 73 Tax 106 (H.C.Lah.) .........................................................381 Sanaullah Khan etc. v. Province of Balochistan etc. – [(1995) 71 Tax 45 (H.C.Quetta)] ......................................................................477 Sante International (Pvt.) Ltd. and Another v. CIT, Zone-B, Lahore and Another – [(1997) 75 Tax 1 (H.C.Lah.) = 1997 PTD 819] ............................................................................373 Sarwar & Co. v. CBR & others – [(1997) 76 Tax 1 (H.C.Lah)]..............................................................................................................139 Searle Pakistan (Pvt.) Ltd. v. Government of Pakistan through Secretary Ministry of Finance & Another – [(1994) 69 Tax 79 (H.C.Kar)] ............................................................................195 Secretary of State v. Seth Khemchand Thaoomal – [1 ITC 26 (Sind)] ................................................................................................ 60, 196 Secretary to the Board of Revenue (Income Tax) v. North Madras Mutual Befit & Co – [1 ITC 172 (Madras)] ................................................................................................................202 Secy. to Commr. Salt v. Ramanathan Chetti, minor by guardian – [1 ITC 37 (Madras)] ..............................................58, 62, 65, 203 Seth Gurmukh Singh v. CIT – [(1944) 12 ITR 393 (Lahore)] ................................................................................................................262 Sh. Abdul Hakeem v. Centeal Board of Revenue, etc. – [1975] 31 Tax 105 (H.C.Lah.) ........................................................................390 Sh. Diwan Mohammad Mushtaq Ahmad, Karachi v. CBR & others – [(1969) 19 Tax 198 (H.C.Kar.)] ................................ 444, 480

(cxix) Principles of Income Tax Law Sr.#

398. 399.

400.

401. 402. 403.

404. 405. 406. 407.

408.

409.

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Shagufta Begum v. ITO, Circle XI, Zone B Lahore – [(1989) 60 Tax 83 (S.C.Pak.)] ............................................................................368 Shahid Hameed, Gulberg, Lahore v. Income Tax Officer, Film Circle, Lahore and another – [1976] 34 Tax 31 (H.C.Lah.) ................................................................................................363 Shahtaj Sugar Mills Ltd. through Chief ......................................... 42, 191, 269 Executive v. G.A. Jahangir and 2 others – ................................. 391, 404, 408 [2004 PTD 1621 (H.C. Lah.)] Shamim Ali and others v. Govt. of Pakistan and another – [(1973) 27 Tax 51 (H.C.Lah.)] ........................................................373 Sheikh Akhtar Ali v. Federation of Pakistan and 4 others – [1980] 42 Tax 47 (H.C.Lah.) .................................................... 362, 441 Sheikh Miran Bux Karam Bux Ltd. Karachi v. ITO, Company Circle 12, Karachi – [(1976) 33 Tax 99 (H.C.Kar.)].............................................................................................................166 Shoaib Bilal Corp. Faisalabad v. CIT, Faisalabad & another – [(1993) 67 tax 233 (H.C.Lah.)] .......................................................478 Siddique Trust v. Income Tax Officer and another – [(1987) 56 Tax 120 (H.C.Kar.)].........................................................................340 Siemens A.G. & Halske v. CIT – [(1983) 47 Tax 132 (H.C.Pesh)] .......................................................................................... 134, 145, 152 Siemens Pakistan Engineering Ltd. v. Federation of Pakistan & other – [(1999) 79 Tax 605 (H.C.Kar.) = 1999 PTD 1358]...................................................................................................413 Sind Industrial Trading Estate Ltd., Karachi v. Central Board of Revenue and 3 others – [1975] 31 Tax 114 (H.C.Kar.) ..................................................................................... 123, 364 Sindh Trading Company v. CIT – [(1967) 15 Tax 53 (H.C.Kar.)].............................................................................................................135

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410. 411. 412. 413. 414.

415. 416. 417. 418. 419. 420.

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Singer Sewing Machine Co. v. CIT and others – [1964] 9 Tax 273 (H.C.Kar.) = 1964 PTD 554 .................................... 197, 341 Sitex Spinning Mills, Lahore v. CIT, Zone-3, Lahore – [2003 PTD 808 (H.C.Lah.)] .................................................................. 133, 466 Siva Pratab Bhattadua v. CIT – [1 ITC 323 (Madras)] ................................395 Star Rolling Mills v. CIT – [(1974) 30 Tax 27 (H.C.Kar.)].............................................................................................................159 State Cement Corporation of Pakistan (Pvt.) Ltd. v. CIT – [(1997) 76 Tax 110 (H.C.Lah.) = 1997 PTD 1104 = 1998 PCTLR 520] .................................................................................371 State Cement of Corporation (Pvt.) Ltd. v. Collector of Customs Karachi – [PTCL 1999 CL 1] .....................................................415 Steel Brothers and Company Ltd. v. CBR and others – [(1969) 19 Tax 97 (S.C.Pak.)] .........................................................................369 Sundar Das v. Collector of Gujrat – [1 ITC 189 (Lahore)] ................................................................................................ 57, 172, 201 Syed Akhtar Ali v. CIT, Hyderabad – [(1994) 69 Tax 38 (H.C.Kar)] ........................................................................................................393 Syed Bhaies Pvt. Ltd. v. Government of Punjab – [(NLR 1999 Tax 176] ..........................................................................................321 Syed Ghulam Abbass Shah v. ITO, Mirpur and 3 others – [1985] 51 Tax 157 (H.C.AJ&K) .......................................................358

T 421. 422. 423. 424.

425.

Taimur Shah v. CIT – [(1976) 34 Tax 151 (H.C.Kar.) = PLD 1976 Kar. 1030] ............................................................................ 128, 200 Taj Din Maula Bux Lahore v. Sales Tax Officer DCircle Lahore – [(1972) 25 Tax 145 (H.C.Lah.)] ...........................................374 Tapal Energy Ltd. v. Federation of Pakistan – [1999 PTD 4041 (H.C.Kar.)] ............................................................................... 320, 345 Tharparkar Sugar Mills Ltd. v. Federation of Pakistan through Secretary, Revenue Division and Chairman, CBR, Islamabad and another – [1996] 73 Tax 215 (H.C.Kar.) ............................................................................................ 325, 336, 354 The Bharat Insurance Company Ltd. v. CIT, Punjab & NWFP – [5 ITC 288 (High Court Lahore)] ..............................................169

(cxxi) Principles of Income Tax Law Sr.#

426. 427.

428. 429.

430. 431. 432. 433.

434.

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The Bhikanpur Sugar Concern – [1 ITC 29 (Patna)]..................................... 61 The CBR, Islamabad and others v. Sheikh Spinning Mills Limited, Lahore and others – [(1999) 80 Tax 79 (S.C.Pak) = 1999 PTD 2174] ............................................................................307 The CIT, Burma v. Messrs Steel Brothers and Co., Ltd. – [2 ITC 129 (Rangoon)] ...........................................................................155 The Imperial Tobacco Company of India Ltd. v. CIT, South Zone Karachi – [(1960) 2-Tax (Suppl.308) (S.C.Pak)] ........................................................................................................ 89 The Provincial Library & others v. CIT, East Pakistan – [(1959) 1-Tax (III-290) (S.C.Pak)]................................................313 The Punjab National Bank Ltd. v. CIT, Punjab & NWFP – [2 ITC 184 (Lahore)] .........................................................................141 The Punjab Province v. The Federation of Pakistan – [(1960) 2-Tax (Suppl. 3) (S.C.Pak)] ......................................................... 149, 312 Tri Star Industries (Pvt.) Ltd. & 8 others v. CIT, Companies-I, Karachi & 5 others – [(1999) 79 Tax 255 (H.C.Kar.) = 1998 PTD 3923]..................................................................346 Trustees of the Port of Karachi v. CBR & another – [(1990) 61 Tax 30 (H.C.Kar)] ............................................................................220

U 435. 436. 437. 438. 439. 440.

441.

U.C. Rekhi v. First Income Tax Officer – [1950] 18 ITR 618 (Punj.) ....................................................................................................342 Union Bank Ltd. v. Federation of Pakistan – [(1998) 77 Tax 127 (H.C.Lah.)] .......................................................................................322 Unique Enterprises, Lahore v. ACIT and 2 others – [(1995) 71 Tax 139 (H.C.Lah)]..........................................................................326 United Builders Corporation Mirpur v. CIT, Muzzafarabad – [(1984) 49 Tax 34 (H.C.AJ&K)] ........................................137 United Liner Agencies Ltd. Kar. v. CIT, Karachi – [(1988) 57 Tax (H.C.Kar)].................................................................................... 96 United Refrigeration Industries (Pvt.) Ltd. through General Manager v. Federation of Pakistan through Secretary, Ministry of Finance, Government of Pakistan, Islamabad and another – [PTCL 2001 CL. 423] .........................................................................................................................436 Utman Ghee Industries v. CIT – [2002] 85 TAX 354 (H.C.Pesh.) = 2002 PTD 63 = PTCL 2002 CL. 146.......................... 325, 326

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W 442. 443.

Wealth Tax Officer & Other v. Shaukat Afzal & 4 Others – [(1993) 68 Tax 145 (S.C.Pak)]..........................................................367 World Trade Corporation v. The Excise & Sales Tax, Appellate Tribunal (Lahore Bench), Lahore and 2 others – [1999 PTD 1179 = PCTLR (S.C.Pak) 524] ...................................187

Z 444. 445.

446. 447. 448. 449. 450. 451. 452. 453. 454. 455. 456. 457. 458. 459. 460. 461.

Zafar Usman v. Income Tax Officer etc. – [1989] 59 Tax 86 (H.C.Kar.) ................................................................................................385 Zahur Textile Mills Limited v. CBR through Chairman, Government of Pakistan, Islamabad and 2 others – [2000] 82 Tax 275 (H.C.Lah.) = 2000 PTD 303 ...........................................................................................................................468 Zam Zam Traders v. Income Tax Officer – [1996] 74 Tax 21 (H.C.Lah.) ................................................................................................381 [2004 PTD (Trib.) 2300] ....................................................................................408 [(2004) 90 TAX 128 (Trib.)] ..............................................................................400 [2004 PTD (Trib.) 151].......................................................................................308 [2004 PTD (Trib.) 1655] ........................................................................... 282, 292 [(2004) 90 TAX 39 (Trib.)] ................................................................................273 [2004 PTD (Trib.) 1104] ....................................................................................259 [2004 PTD (Trib.) 1029] ........................................................................... 258, 315 [2004 PTD (Trib.) 2749] ........................................................................... 231, 315 [(2004) 90 TAX 29 (Trib.)] ................................................................................204 [(2004) 89 TAX 480 (Trib.) = 2004 PTD (Trib.) 355] ................................181 [2004 PTD (Trib.) 2695] ....................................................................................178 [2004 PTD (Trib.) 1543 = (2004) 89 Tax 546 (Trib.)] ................................174 [2004 PTD (Trib.) 838].......................................................................................173 [2004 PTD (Trib.) 2786] ........................................................................... 166, 406 [2004 PTD (Trib.) 2087 = (2004) 90 Tax 240 (Trib.)] ................................160

(cxxiii) Principles of Income Tax Law Sr.#

462. 463. 464. 465. 466. 467. 468. 469. 470. 471. 472. 473. 474. 475. 476. 477. 478. 479. 480. 481. 482. 483. 484. 485. 486. 487. 488. 489.

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[(2004) 89 TAX 365 (Trib.) = 2004 PTD (Trib.) 441] ....................... 157, 482 [(2004) 89 TAX 461 (Trib.)] ..............................................................................150 [(2004) 89 TAX 316 (Trib.) = 2004 PTD (Trib.) 422] ................................137 [(2004) 89 TAX 418 (Trib.) = 2004 PTD (Trib.) 752] ....................... 129, 402 [2004 PTD (Trib.) 618].......................................................................................113 [2004 PTD (Trib.) 2494] ...................................................................................... 58 [2003] 87 TAX 156 (Trib.) = 2002 PTD (Trib.) 3006.................................182 [2003] 87 TAX 136 (Trib.) = 2003 PTD (Trib.) 1222.................................177 [2003] 87 TAX 148 (Trib.) = 2003 PTD (Trib.) 1146........................ 170, 495 [2003] 88 TAX 145 (Trib.) .................................................................................167 [2003] 88 TAX 9 (Trib.) = 2003 PTD (Trib.) 1708 .....................................149 [2003] 87 Tax 165 (Trib.) ...................................................................................332 [2003] 87 Tax 183 (Trib.) .......................................................................... 202, 248 [2003 PTD (Trib.) 835].......................................................................................406 [2003 PTD (Trib.) 307].............................................................................. 395, 414 [2003] 88 TAX 121 (Trib.) .................................................................................105 [(1999) 80 TAX 7 (Trib.)] ..................................................................................511 [(1999) 79 TAX 145 (Trib.)] ..............................................................................512 [(1999) 79 Tax 100 (Trib.)] ................................................................................406 [(1999) 79 Tax 1 (Trib.)] .....................................................................................402 [(1999) 79 Tax 153 (Trib.)] ................................................................................402 [(1998) 77 Tax 151 (Trib.)] ................................................................................157 [1998 PTD (Trib.) 1379] ....................................................................................114 [1998 PTD (Trib.) 44] ........................................................................................... 48 [(1996) 73 Tax 132 (Trib.)] ................................................................................406 [(1984) 49 Tax 34 (Trib.)]...................................................................................294 [(1983) 47 Tax 5 (Trib.)] .....................................................................................479 [(1983) 47 Tax 1 (Trib.)] .....................................................................................252

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Chapter I Introduction 1.

Basic Features of Income Tax Law

―The basic feature of income tax law is that various liabilities created by it arise only when the Finance Act/ Ordinance determines their extent. .... If there be no Finance Act, the Income Tax Act remains a dormant statute, but with the passing of the Finance Act it comes into activity and the machinery created by it immediately gets into gear to enforce the liabilities of different classes of assessees‖. Radhashyam Agarwala vs. CIT, East Pakistan (1960) 2 Tax (III-211). The Income Tax Law is a self-contained code exhaustive of the matters dealt with therein, and its provisions show, an intention to depart from the common rule, qui facit per allum facit per se1. Every enactment has a purpose for which the legislature decides to promulgate and enforce it. The main purpose of the Income Tax Ordinance, 2001 is to levy and collect tax on income of a person. The words ―income‖ and ―person‖ have been specifically defined in the Ordinance, though in respect of ―income‖ there always remains continuous battle between the Tax Department and taxpayers for determination of its quantum as well as scope of chargeability. Besides, the Ordinance has two other important roles: firstly, the redistribution of wealth through progressive taxation (the principle that the higher you earn the higher you pay is at the core of the Ordinance) and secondly, it serves as an instrument of fiscal policy, i.e., by granting exemption to a particular income or class of income, person or class of persons the intention is to promote a specific economic activity. The Income Tax Ordinance, 2001 has, therefore, been enacted for the following three purposes: 1

CIT vs. Tribune Trust, Lahore (1948) 16 ITR 214 (PC).

1

2 Principles of Income Tax Law

(i) Levy and collection of tax on income of a person. (ii) Redistribution of wealth. (iii) As an instrument of fiscal policy. It should be remembered that ―progressive taxation, i.e. taxation at rates which rise with income, is a sound principle of taxation so far as it corrects excessive economic inequality and precludes inordinate enduring differences among families or economic strata in wealth, power and opportunities. But it is not a sound principle of taxation when it reaches the point where initiative is hamstrung, work and ability are not allowed to earn security and well-being, and endeavour and energy are wasted on the slippery slope of tax avoidance invigorated and given a momentum in the direction of constructive work and increase in national wealth‖2. 2.

Scheme of the Ordinance:

A.

Chapters & Schedules.

Like any other enactment, the Ordinance is divided into chapters. Each chapter deals with a particular subject. The Income Tax Ordinance, 2001 has 13 chapters and seven schedules. The chapters and schedules are arranged as under: Chapter I Chapter II Chapter III Part I Part II Part III Part IV Division I Division II Division III Division IV Part V Part VI

2

: : : : : : : : : : : : :

Preliminary Charge to Tax Tax on Taxable Income Computation of taxable income Head of income: Salary Head of income: Income from property Head of income: Income from business Income from business Deductions: General Principles Deductions: Special Provisions Tax Accounting Head of income: Capital Gains Head of income: Income from other sources

N.A. Palkivala & B.A. Palkivala, The Law & Practice of Income Tax, Eighth Edition, Volume 1, N.M. Tripathi Private Limited, Bombay, 1990, page 16.

3 Introduction

Part VII Part VIII Part IX Part X Chapter IV Part I Part II Part III Chapter V Part I Division I Division II Division III Part II Division I Division II Division III Part III Part IV Part V

: : : : : : : : : : : : : : : : : : : :

Part VA Chapter VI Part I Part II Chapter VII Part I Part II Part III Part IV

: : : : : : : : :

Chapter VIII Chapter IX Chapter X Part I Part II Part III Part IV Part V

: : : : : : : :

Exemptions and tax concessions Losses Deductible allowances Tax credits Common Rules General Tax Year Assets Provisions Governing Persons Central concepts Persons Resident and non-resident persons Associates Individuals Taxation of individuals Provisions relating to averaging Income splitting Association of persons Companies Common provisions applicable to association of persons and companies Tax liability in certain cases Special Industries Insurance business Oil, natural gas and other mineral deposits International Geographical source of income Taxation of foreign-source income of residents Taxation of non-residents Agreements for the avoidance of double taxation and prevention of fiscal evasion Anti-avoidance Minimum Tax Procedure Returns Assessments Appeals Collection and recovery of tax Advance tax and deduction of tax at source

4 Principles of Income Tax Law

Division I Division II Division III Division IV

: : : :

Part VI : Part VII : Part VIII : Part IX : Part X : Part XI : Part XII : Part XIII : Chapter XI : Part I : Part II : Chapter XII : Chapter XIII : FIRST SCHEDULE Part I : Division I : Division IA : Division II : Division III : Division IV : Division V : Part II Part III Division I Division II Division III Division IV Division V Division VI Division VIA Division VII Part IV Division I

: : : : : : : : : : : :

Advance tax paid by the taxpayer Advance tax paid to a collection agent Deduction of tax at source General provisions relating to the advance payment of tax or the deduction of tax at source Refunds Representatives Records, information, collection and audit National tax number card Penalty Offences and prosecutions Additional tax Circulars Administration General Directorate-general of inspection Transitional Advance Tax Provisions Miscellaneous Rates of Tax Rates of tax for individuals and association of persons Rate of tax on certain persons Rates of tax for companies Rate of dividend tax Rate of tax on certain payments to non-residents Rate of tax on shipping or air transport income of a non-resident person Rates of Advance Tax Deduction of Tax at Source Profit on debt Payments to non-residents Payments for goods or services Exports Income from property Prizes and winnings Petroleum products [omitted] Deduction or Collection of Advance Tax [omitted]

5 Introduction

Division II Division IIA

: Brokerage commission : Rate for collection of tax by a stock exchange registered in Pakistan Division III : Transport business Division IV : Electricity consumption Division V : Telephone users SECOND SCHEDULE : Exemptions and Tax Concessions Part I : Exemptions from total income Part II : Reduction in Tax Rates Part III : Reduction in Tax Liability Part IV : Exemption from Specific Provisions THIRD SCHEDULE Part I : Depreciation Part II : Initial allowance Part III : Pre-commencement expenditure FOURTH SCHEDULE : Rules for the Computation of the Profits and Gains of Insurance Business FIFTH SCHEDULE Part I : Rules for computation of the profits and gains from the exploration and production of petroleum Part II : Rules for computation of profits and gains from the exploration and extraction of mineral deposits (other than petroleum) SIXTH SCHEDULE Part I : Recognised provident funds Part II : Approved superannuation funds Part III : Approved gratuity funds SEVENTH SCHEDULE : Exported Goods Part I : Specified goods manufactured in Pakistan Part II : Goods manufactured in Pakistan Part III : Goods not covered by Part I, II or IV Part IV : Goods not covered by Part I, II and III

It must be remembered that schedules are part of the Ordinance (these are as good statutory law as sections are) and the view that if any schedule conflicts with the main enacting

6 Principles of Income Tax Law

part, the latter prevails, is not a sound one because one part of a law does not abrogate the other. The principles of harmonious construction of a statute vis-a-vis the effect of a particular nonobstante provision are well-established3. The title given to a chapter cannot legitimately be used to restrict the plain terms of an enactment4 or to construe a section thereunder5. The title of a statute is, however, an important part of the Ordinance and may be referred to for the purpose of ascertaining its general scope and of throwing light on its construction, although it cannot override the clear meaning of the enactment6. However, it should be remembered that statute must be read and construed as a whole as Supreme Court of Pakistan held in PLD 1990 SC 827: ―Division of a statute into sections and chapters is a mere matter of convenience but sometimes, it is helpful in discovering the intention of the legislature and giving extended meanings to the provisions of statutes but there is no general rule that such division itself would be a determining factor for the interpretation of a provision‖. B.

Sections, sub-sections, clauses.

Every chapter of the Ordinance deals with a specific subject. The subject matter is usually arranged into further segments. For each subject matter a section is devised. For example Chapter II deals with the subject of ―Charge to Tax‖. It has five sections (starting from section 4 to section 8). Section 4 which is charging section provides the authority and basis for levy and collection of income tax. Section 5 deals with tax on dividend. Section 6 takes care of certain payments to nonresidents. Section 7 relates to tax on shipping and air transport business of non-residents. Section 8 caters for general provisions 3 4 5 6

Attorney General vs. Lamplugh, (1878) L.R. 3 Ex. D. 214. CIT vs. Azizuddin Ghazi & Others (1960) 2-Tax (III-474). Secretary of State vs. Mask SCO AIR (1940) PC 105. Dreamland Cinema Multan vs. CIT (1977) 35 Tax 169 (H.C.Lah.)

7 Introduction

related to sections 5, 6 and 7. It is a well-settled law that each section has to be interpreted as it is, a court cannot read it as if its language was different from what it actually is. It is not permissible for the Court to amend the section7. Sections are further divided into sub-sections because most of the time, it is not possible to narrate a subject in a single paragraph. Secondly, one subject has too many facets which need to be explained independently. For similar reasons, a subsection is then divided into clauses. For example section 11 deals with heads of income. Sub-section (1) of section 11 classifies the kinds of incomes that are chargeable under this Ordinance. Clauses (a), (b), (c), (d) and (e) of sub-section (1) of section 11 enumerate different heads of income under which total income is to be computed. It is clear from the above example that sections, subsections, clauses and sub-clauses are various divisions, subdivisions and further sub-divisions of the subject matter. These divisions, sub-divisions and further divisions of sub-divisions are designed to make reference to various aspects of a subject matter systematic, easy and precise e.g. (i) Section 14(2) - means sub-section (2) of section 14. (ii) Section 14(4)(c)-means clause (c) of sub-section (4) of section 14. (iii) Section 12(2)(e)(iv) - means sub-clause (iv) of clause (e) of sub-section (2) of section 12. The making of the various sections, sub-sections, clauses, and sub-clauses usually (though not always) follow a uniform pattern. Sections are denoted by ordinary numbers 1, 2, 3 .......240. Sub-sections are also denoted by ordinary numbers but within brackets e.g. (1), (2), (3) ... (18). Clauses are denoted by small alphabets a, b, c, d, and are always placed within brackets like (a), (d), (g) and (i). Sub-clauses are denoted by small Roman figures and are placed within brackets like (i), (iv), (xv) and (ix). 7

PLD 1956 FC 200.

8 Principles of Income Tax Law

There can be some deviation from the general scheme or uniformity of devising sub-sections, clauses and sub-clauses. For example, section 2 which deals with different definitions has no sub-section. Different definitions appearing as sub-sections thereunder are, in fact, clauses. Hence section 2(13) means clause (13) of section 2. 3.

Definitions.

It is a settled rule of interpretation that when a word is commonly used in various statutes, and has been the subject matter of judicial interpretation, and the word is used in new statute unless the context otherwise requires, the legislature would be deemed to have accepted the meaning ascribed to it by judicial pronouncements8. If a special definition of a word is given in any statute, it should be adopted if not repugnant to the context; failing this, the definition, if any, in the General Clauses Act of the same word would be adopted9. It is also a well-established principle of interpretation that the words which express a legal concept must have attributed to them their legal meaning. Technical words, when we find them in the Income Tax Ordinance, 2001, must have their technical sense ascribed and not their popular sense uti loquitor vulgus10. It is permissible to look at the dictionary meaning of the term in the absence of any definition thereof in the statute or General Clauses Act. When a language is plain and unambiguous and admits of only one meaning, no question of construing a statute arises, for the statute speaks for itself. Hardship or inconvenience cannot alter the meaning of the language

8

9 10

Hirijin Salt Chemicals Pak Ltd. vs. Union Council and Other PLJ 1982 SC 295. Reg. vs. Govind, ILR 16 Bom. 283. M/s. Hirjina & Co. (Pakistan) Ltd., Karachi vs. CST, Central Karachi 1971 SCMR 128; Noon Sugar Mills vs. CIT [1990] 62 TAX 74 (S.C.Pak.); CIT vs. Gaekwar Foam & Rubber Co. Ltd. (1959) 35 ITR 622, 667, Estate of Khan Sahib Mohammad Omar Sahib vs. CIT (1958) 33 ITR 767, 778 (Mad.).

9 Introduction

employed by the legislature if such meaning is clear on the face of statute11. The role of definition clauses is, therefore, very vital in interpreting the Ordinance. The words specifically defined in section 2 are to be given the meanings assigned to them by the Legislature unless the context otherwise requires. Hence, wherever the word appears in the Ordinance, it will have the same meaning as in section 2 unless the context requires otherwise. The following words have been defined in the Ordinance. 1. Accumulated profits 2(1); 2. Amalgamation 2(1A); 3. Appellate Tribunal 2(2); 4. Approved gratuity fund 2(3); 5. Approved annuity plan 2(3A); 6. Approved income payment plan 2(3B); 7. Approved pension fund 2(3C); 8. Approved superannuation fund 2(4); 9. Assessment 2(5); 10. Assessment year 2(5A); 11. Asset Management Company 2(5B); 12. Association of persons 2(6); 13. Banking company 2(7); 14. Bonus shares 2(8); 15. Business 2(9); 16. Capital asset 2(10); 17. Central Board of Revenue 2(11); 18. Charitable purpose 2(11A); 19. Company 2(12); 11

PLD 1961 SC 119; C. Ag IT vs. Keshab Chandra Mandal AIR (1950) SC 265, 270; (1950) 18 ITR 569 (SC).

10 Principles of Income Tax Law

20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48.

Commissioner 2(13); Commissioner (Appeals) 2(13A); Contribution to an Approved Pension Fund 2(13B); Co-operative society 2(14); Debt 2(15); Deductible allowance 2(16); Depreciable asset 2(17); Disposal 2(18); Dividend 2(19); Eligible person 2(19A); Employee 2(20); Employer 2(21); Employment 2(22); Fee for technical services 2(23); Financial institution 2(24); Finance society 2(25); Firm 2(26); Foreign source income 2(27); House Building Finance Corporation 2(28); Income 2(29); Income year 2(29A); Individual pension account 2(29B); Industrial undertaking 2(29C); Intangible 2(30); Leasing company 2(30A); Liquidation 2(31); Investment company 2(31A); Member 2(32); Minor child 2(33);

11 Introduction

49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77.

Modaraba 2(34); Modaraba certificate 2(35); Mutual fund 2(35A); Non-banking financial company 2(35B); Non-profit organization 2(36); Non-resident person 2(37); Non-resident taxpayer 2(38); Originator 2(39); Pakistan source income 2(40); Pension fund manager 2(40A); Permanent establishment 2(41); Person 2(42); Pre-commencement expenditure 2(43); Prescribed 2(44); Principal officer 2(44A) Private company 2(45); Profit on a debt 2(46); Public company 2(47); Recognised provident fund 2(48); Regional Commissioner 2(48A); Rent 2(49); Repealed Ordinance 2(49A); Resident company 2(50); Resident individual 2(51); Resident person 2(52); Resident taxpayer 2(53); Royalties 2(54); Salary 2(55); Schedule 2(56);

12 Principles of Income Tax Law

78. Securitization 2(57); 79. Share 2(58); 80. Shareholder 2(59); 81. Small company 2(59A); 82. Special Purpose Vehicle 2(60); 83. Speculation business 2(61); 84. Stock-in-trade 2(62); 85. Tax 2(63); 86. Taxable income 2(64); 87. Taxation officer 2(65); 88. Taxpayer 2(66); 89. Tax treaty 2(67); 90. Tax year 2(68); 91. Total income 2(69); 92. Trust 2(70); 93. Underlying ownership 2(71); 94. Units 2(72); 95. Unit trust 2(73); 96. Venture capital company 2(74). The Income Tax Ordinance, 2001, as amended by the Finance Ordinance, 2002, contains 96 words that have been defined vide clauses (1) to (74) of section 2. The Legislature may keep on adding new expressions in section 2 as and when the need so arises. These words and phrases have to be given the specific meanings assigned to them unless the context otherwise requires. The words ―unless there is anything repugnant in the subject or context‖ are generally used in all the statutes in the beginning of the definitional provisions. The normal rule is that whenever a term is defined in the Ordinance, it will strictly govern the said term wherever used in the statute. But sometimes the strict compliance of this rule may create difficulties. Hence, in order to

13 Introduction

safeguard against any such eventuality, the above phrase, generally precedes the definition clause. So where context demands that the expression should be read in its ordinary dictionary meanings, the definitive meanings of the said term will be ignored, although it is specifically defined. The words defined in section 2 of the Ordinance, except as discussed above, are applicable to the entire Ordinance. In addition to these words [as defined in section 2] sometimes, certain expressions are defined within a certain section, subsection or a clause. Such definitions indicate the area and scope of their applicability. In such cases, the special meaning of the word or term assigned to by virtue of that definition is restricted to that particular clause or section in which it is defined or other provisions specifically narrated therein. In other sections of the Ordinance the same term shall have its ordinary dictionary meanings. However, if the same expression is defined in another section, the second definition will override the general definition in respect of that section or sub-section for which that special definition is made operative. Thus the ordinary dictionary meanings of an expression are overruled by the general definitions given in section 2 of the Ordinance, and the general definitions are overruled by specific definitions. However, it may be noted that certain expressions are defined in such a manner in the Ordinance that they still retain their ordinary dictionary meanings. For example the word income is defined in section 2(29) in such a way that it only includes certain items and yet its broad and wide meanings are kept intact. This is called an inclusive definition. Definitions are of three types: 1. Exclusive or exhaustive; 2. Inclusive; and 3. Exclusive as well as inclusive definition. 1. Exclusive definition:

14 Principles of Income Tax Law

This type of definition gives definitive meaning to the word or term and therefore excludes the ordinary dictionary meaning of the said expression. For example, in ordinary sense the word agricultural income can be understood as income arising from all sorts of agricultural operations. But this term has been specifically defined in section 41(2) and by doing so the legislature excluded the ordinary meaning of this expression. In this definition land must be situated in Pakistan from which income is derived. Hence it can be seen that by assigning special meaning the ordinary meanings of the term has been overruled. Another example is that of the word resident. This expression has been exclusively defined in section 2(52). The precise and exclusive meaning assigned to it has excluded ordinary dictionary meanings. The exclusive definition starts with the expression‘ mean or means e.g. section 2(44) says: ―Prescribed means prescribed by rules made under the Ordinance‖. 2. Inclusive Definition: The example of this type of definition is that of the word ―business‖ in sub-section (9) of section 2 which reads as under: ―business includes any trade, commerce, manufacture, profession, vocation or adventure or concern in the nature of trade, commerce, manufacture, profession or vocation, but does not include employment‖. A word thus defined retains its ordinary dictionary meaning and also acquires the meaning assigned to it by the definition given in the statute. This type of definition begins with the word ―includes‖. 3. Exclusive as well as inclusive definition: Sometimes, a definition has both the elements. An example of such a definition is available in section

15 Introduction

2(7), which defines the term ―banking company‖ as under: ―banking company means a banking company as defined in the Banking Companies Ordinance, 1962 (LVII of 1962) and includes any body corporate which transacts the business of banking in Pakistan.‖ This definition is both exclusive and inclusive. All banking companies [as defined in the Banking Companies Ordinance, 1962 [(LVII of 1962] are banking companies, but another category covering any ―body corporate that transacts the business of banking in Pakistan‖ is included in the definition, thus making the definition both flexible as well as restrictive. Another example of this type of definition is available in clause (15) of section 2 which says: ―debt means any amount owing, including accounts payable and the amounts owing under promissory notes, bills of exchange, debentures, securities, bonds or other financial instruments‖. The first part of the definition represents an exclusive type, but by adding the word including, the legislature added another category which gives the expression greater flexibility; making it both exclusive and inclusive type. In section 2 of the Ordinance, majority of the words have been exclusively defined which, therefore, exclude their ordinary accepted meanings. A few examples are: 1. Appellate Tribunal; 2. approved gratuity fund; 3. assessment; 4. association of persons; 5. employee; 6. minor child etc. 4. Role of certain expressions:

16 Principles of Income Tax Law

i) “Subject to the provisions of.....” Where the provisions of any section are likely to come in conflict with that of another section, it is necessary to clarify which section is going to prevail over the other. In such cases the subordinate section starts with the expression subject to the provision of this Ordinance or subject to the provision of section.... For example section 4, which is known as the charging section, starts with the wordings ―Subject to the provisions of this Ordinance‖ meaning thereby that what is stated in this section is subservient to all other provisions of the Ordinance. Another example is that of sub-section (1) of 22 which has been made subordinate to the provisions of all the 14 sub-sections of section 22. ii) “Notwithstanding anything contained in” The role of the above expression is quite opposite to the expression at (i) above. This expression occurring in a section overrides the other provisions mentioned therein. Where a section starts with the expression ―Notwithstanding anything contained in this Ordinance‖, the expression enables the provision of that law to override the whole Ordinance. These provisions of law whenever in conflict with any other provision of Income Tax Ordinance, 2001 are to overrule those provisions. Sometimes the provisions of a section are made to override the provisions of other enactments. In such cases the expression usually is ―Notwithstanding anything contained in any law for the time being in force‖ [see section 139]. The provisions of section 139 override the provisions of the Companies Ordinance, 1984. Under the companies law, the liability of a shareholder is limited to the extent of amount invested by him in the company‘s capital. But section 139 overrules it by laying down that for recovery of any arrears, the shareholders‘ other assets can also be attached. Here the provisions of companies law stand overruled by section 139 of the Income Tax Ordinance, 2001. 5. Proviso, object of

17 Introduction

A proviso is generally something engrafted on the main enactment12. The role and function of a proviso is to create an exception out of a previous enactment in an earlier part of a section, something which but for the proviso would have fallen within the scope of enactment13. It must be considered only in relation to and harmoniously with, the principal matter to which it stands as a proviso and not as qualifying or modifying some other enactment14. It is a cardinal rule of interpretation that a proviso to a provision of a statute only embraces the field which is covered by the main provision15. The proper canon of constructing a section which has several provisos is to read the section and the provisos as a whole, try to reconcile them and give a meaning to the whole of the section along with the provisos with its comprehensive and logical meaning16. The territory of a proviso is to carve out an exception to the main enactment and to exclude that which otherwise would have been within the section; a proviso is not normally construed other than as a subtraction of the main section and as introducing a qualification or exception to the enacting part. Provisos are often added to allay fears17. In no circumstances, thereafter, can any proviso be construed in such a manner as to obliterate and swallow up the main provision to which it is a proviso. A proviso is inserted to guard against the particular case of which a particular person is apprehensive, although the enactment was never intended to apply to his case

12

13 14

15 16

17

CIT vs. Nasir Ali (1999) 79 Tax 428 (S.C.Pak); R. vs. Dibdini 1919 Probate 57, 125 (CA). Local Government Board vs. South Stoneham Union 1909 AC 57, 63. PLD 1971 SC (Pak) 252; Rijaz (Pvt.) Ltd. vs. Wealth Tax Officer (1996) 74 Tax 9 (H.C.Lah.); CIT vs. Indo Mercantile Bank Ltd. (1959) 36 ITR (SC). 1977 SCMR 371; Tahsildar Singh vs. State of UP AIR 1959 SC 1012, 1022. 1961 PLD SC 119; Ram Narani Sun Ltd. vs. Asstt. Commr. of Sales Tax (1955) 6 STC 627 (SC); Combatta & Co. Ltd. vs. CIT (1952) 21 ITR 121, 126, 127. Craies on Statutes Law, 6th Edition, page 221.

18 Principles of Income Tax Law

or to any other similar case at all18. A proviso cannot be construed without attributing to it that effect19. Further, if the language of the enacting part of the statute is plain and unambiguous and does not contain the provisions which are said to occur in it, one cannot derive those provisions by implication from a proviso20. The Lahore High Court in PLD 1990 Lah 4 held that proviso to any parent provision has to be read very cautiously and the intended whittling effect therefore cannot be extended so as to defeat the provision itself in as much as it is not to be presumed that the legislature intended to take away by one hand through a proviso what it has basically conferred through the other hand by the parent provision. it is further held in PLD 1990 Lah 461 that if the object of a statute is defeated by treating the provision as mandatory it must be construed as directory especially when non- compliance with the proviso is not visited by any penalty. The original Income Tax Ordinance, 2001 made negligible use of provisos except in the Second Schedule. Wherever deviation from the main subject was intended, a sub-section was added. One could say that the proviso to section 25 of the repealed Ordinance is pari materia to 34(6) of the new Ordinance. Perhaps the aim was to reduce the complexity of language. But in most instances the whole section (which in many cases comprises ten or more sub-sections) has to be read before the entire provision is properly comprehended. Hence, if a facility is provided in one sub-section, its conditionality is mentioned in another making the comprehension more tedious. However, subsequent amendments have liberally made use of provisos restoring the pre-2001 position to some extent. As mentioned above, in section 25 of the repealed Ordinance, the proviso annexed, immediately gave a remedial 18 19 20

CIT vs. Madurai Mills Co. Ltd. (1973) 89 ITR 45 (SC). Maxwells Interpretation of Statutes, 12th Edition, page 65. 1998 PTD 1945; CIT vs. Madan Lal Bhargava (1980) 122 ITR 545, 549, see also Maxwells Interpretation of Statutes, 12th Edition, page 217.

19 Introduction

situation where liability added under clause (c) of the subsection paid later, was to be deducted from the total income in the year in which it was paid making the intention of the legislature absolutely clear on the subject. Since it was in the form of a proviso in the section it instantly attracted one‘s attention. On the contrary, the new law lacks this perspective as in the absence of provisos it has become imperative to read the entire section before understanding its substance. 6. Explanation, object of. An Explanation is at times appended to a section to explain the meaning of words contained in the section. It becomes a part and parcel of the enactment21. If the language of the explanation shows a purpose and a construction consistent with that purpose can be reasonably placed upon it, that construction will be preferred as against any other construction which does not fit in with the description or the avowed purpose. The main purpose of an Explanation is, therefore, to specify the meaning of a word, term or a phrase used in any provision of law which ordinarily is capable of signifying more than one meaning or interpretation. An explanation is quite different in nature from a proviso, the latter excludes, excepts and restricts; which the former explains clarifies or subtracts or includes something by introducing a legal fiction22. However, it must be kept in mind that there is no general rule, nor there can be any, that an Explanation can, in no case, enlarge the scope of the section to which it is appended. Ordinarily, the purpose of an Explanation is not to limit the scope of the main section. An Explanation enacting a legal fiction, can add to the cases falling within the main provisions. Even where the explanation is concluded in negative form and 21

22

PLD 1991 SC (Pak) 596; Bengal Immunity Co. Ltd. vs. State of Bihar (1955) 6 STC (446(SC)); CIT vs. Warngal Industries (P) Ltd. (1977) 110 ITR 756 (AP). AIR 1931 Lahore 572; Sriramulu Naidu (G) vs. CTO (1975) 35 STC 531 (AP); Subhash Ganpatrao Buty vs. Maroti Krishany AIR 1975 Bom. 244.

20 Principles of Income Tax Law

excludes from its ambit a certain class or category for a certain period or purpose23, it may imply within the scope of the substantive provision that the same class or category may be included outside the excepted periods or purposes. An explanation cannot be so constructed as to widen the scope of the substantive provision, but can only be so read as to best harmonise with and clean up any ambiguity in the main provision24. Again, the new Ordinance avoids Explanations, except in the Second Schedule, as were widely available in the repealed Ordinance. Each section and its sub-sections are self-explanatory in a way that there appeared no need to add further explanations to clarify or elaborate certain provisions. 7. Rules of interpretation or construction of statutes. Acts and Rules are drafted by legal experts and it is expected that the language used will leave little room for interpretation or construction. But the experience of all dealing with tax laws has been different. It is quite often that we find courts and lawyers busy in unfolding meaning of ambiguous words and expressions and resolving inconsistencies. The age old process of application of the enacted law has led to formulation of certain rules of interpretation or construction. Besides, while interpreting or constructing a statute following two types of aids are available: (a) Internal aids, and (b) External aids. (a) Internal Aids.-Which are available in the Act itself in the form of Explanation to a section, marginal notes, punctuation marks, preamble, title of a chapter, nonobstante clause or a proviso, etc. 23

24

1998 PTD 1250; ITO vs. Short Bros (P) Ltd. AIR (1967) SC 81; (1966) 60 ITR 83 (SC). Elahi Cotton Mills Ltd. vs. Federation of Pakistan [1997] 76 TAX 5 (S.C.Pak.); Hiralal Ratan Lal vs. Sales Tax Officer AIR 1973 SC 1034; (1973) 31 STC 178 (SC).

21 Introduction

(i) Explanation: As discussed earlier an Explanation is at times appended to a section to explain the meaning of words contained in the section. It becomes a part and parcel of the enactment. (ii) Marginal Notes: The marginal note to a section cannot be referred to for the purpose of construing the section, it can be certainly relied upon as indicating the drift to the section and though it cannot control the interpretation of the section, it furnishes a clue to the meaning and purposes of the section. The marginal note or heading to a section is a relevant factor to be taken into consideration in construing the ambit of the section. (iii) Punctuation marks: The punctuation marks used in statutory provisions very often play a very important role and have to be taken careful note of. Thus, where two clauses are separated by a semicolon, they should be read distinctively. However, while weight should undoubtedly be given to punctuation when a statute is carefully punctuated it cannot be certainly regarded as a controlling element and allowed to control the plain meaning of a text. (iv) Preamble: The preamble of an Act sheds useful light as to what the statute intends to reach. Although the statement of the objects and reasons appended to a bill is not admissible as an aid to the construction of the Act as passed, yet it may be referred to only for the limited purpose of ascertaining the conditions prevailing at the time which necessitated the making of the law. (v) Title of a chapter: The title given to a chapter cannot legitimately be used to restrict the plain

22 Principles of Income Tax Law

terms of an enactment, or to construe a section hereunder. The nomenclature of an Act is not conclusive and for determining the true character and nature of a particular tax, with reference to legislative competence, the court will look into its pith and substance. The title of statute, however, is an important part of the Act and may be referred to for the purpose of ascertaining its general scope and of throwing light on its construction, although it cannot override the clear meaning of the enactment. (vi) Long title: Long title, however, has a different implication. It is well settled that the long title of legislation is an enacting part of the legislation and is legitimately admissible to aid its construction. It may not control, circumscribe or widen the scope of the legislation. (vii) Non-obstante clause: A non-obstante clause is usually used in a provision to indicate that the provision should prevail despite anything to the contrary in the provision mentioned in such non-obstante clause. In case there is any inconsistency or a departure between the nonaobstante clause and another provision, one of the object of such a clause is to indicate that it is the non-obstante clause which would prevail over the other clause. (viii) Proviso: As mentioned earlier a proviso is generally something engrafted on the main enactment. It cannot, normally, be so interpreted as to set at naught the real object of the main enactment. It must be considered only with relation to, and harmoniously with, the principal matter to which it stands as a proviso and not as qualifying or modifying some other enactment.

23 Introduction

A proviso for exemption or relief should be construed liberally or in favour of assessee. It is a cardinal rule of interpretation that a proviso to a provision of a statute only embraces the field which is covered by the main provision. (ix) Context: In construing words in a statute one must bear in mind the context in which they are used. If they are capable of being understood in two senses, that which accords with the context should be adopted. This normally means that an expression used in several sub-sections of the same section should receive the same interpretation in all those sub-sections normally, unless it is shown that the context calls for a different meaning to be given to the term used in the same section. (x) Ambiguity in amending legislation: There is no doubt that after a statute is amended, the statute thereafter is to be read and construed with reference to the new provisions, and not with reference to the provisions that originally existed. But when the terms of the enactment in the new shape are not clear or are ambiguous, a precise appreciation of its brief history culminating in the enactment in its new form is justified as a proper and logical course. (b) External Aids.-These are available in the form of dictionary, memoranda prefaced to a bill, Ministers speech, etc. (i) Dictionary: As discussed, the dictionary meaning of a word cannot be looked at where the word has been statutorily defined or judicially interpreted. But where there is no such definition or interpretation, the courts may take aid of dictionaries to ascertain different senses according to its context and a dictionary gives all

24 Principles of Income Tax Law

the meanings of a word and the court has, therefore, to select the particular meaning which is relevant to the context in which it has to interpret that word. (ii) Tax Committee Report: Reference to the views of the Tax Committee delivered when considering a clause of a bill is not a permissible consideration in interpreting a statute. (iii) Statement of objects and reasons appended to a Finance Bill: These may be referred to for the limited purposes of ascertaining the conditions prevailing at the time the bill was the urgency of the evils which were sought to be remedied. Where, however, the words in the statute are clear, it is not open to a court of law to fall back upon statement of objects and reasons and to construe the provisions of the Act in the light of the statement of objects and reasons. The statement of objects and reasons cannot control the plain and obvious meaning which the sections, obviously convey; if provisions of the Act are clear and unambiguous. (iv) Memoranda Prefixed to Bills: The explanatory memorandum of a Finance Bill is usually not an accurate guide of the final Act. In the explanatory memorandum explaining the provisions of the Bill, the headings are fairly wide and matters collected under the same heading may be diverse, not giving a true indication of the object of the legislation. (v) Minister’s speech: In interpreting a section of the Act, the speech of the Minister should not be looked into, except for the limited purpose of

25 Introduction

ascertaining the mischief which the Act seeks to remedy. The statement of the minister or parliament debate, explanatory notes on clauses of a bill cannot be used as aids to construction except in cases where the language is vague and capable of different interpretations. It is well settled that consideration stemming from legislative history must not be allowed to override the plain words of a statute. (vi) Contemporanea exposition: This rule permits the interpretation of a statute by reference to the exposition it has received from contemporary authority. CBR‘s circulars are not in the nature of contemporanea exposition furnishing legitimate aid in construction. The circular may be binding on the revenue in executing the provisions of the Act. But these are not binding either on the Tribunal or on the court. Similarly, instructions issued by the Ministry or Department for guidance of its officers are of no assistance in interpreting a tax statute. The principle is generally applied in interpreting ambiguous provisions in old statutes where a particular interpretation has gained practical adoption and application over a series of years and not to a modern statute. (vii) Definition from other statutes: It is well established that the words occurring in a statute have to be understood with reference to the objects of the Act and in the context in which they occur, in the absence of any definition in that statute. The definitions given for the terms in one statute cannot automatically be imported for the interpretation of the same words in another statute.

26 Principles of Income Tax Law

8.

But where the provisions in one Act are similar to the provisions in another Act, the decisions interpreting the provisions in one Act would apply to the corresponding provisions in the other Act. (viii) Departmental manuals: The interpretation placed by the Department in its Manuals has been held not to be proper guide when the construction of a statute is involved [PLD 1959 SC 29]. (ix) Legal opinions: It is not proper for an assessee to produce legal opinions before an Assessing Officer, nor is it proper for the officer to ask for the same. Where such opinions are appended to petitions, they must be expunged. “Deemed”, significance of

Sometimes (rather most of the times after the introduction of presumptive taxation in income tax law in 1991) the Income Tax Ordinance, 2001 artificially declares thing to be something which it actually is not. It may give a certain meaning to a word or a phrase which it ordinarily does not have. It may declare an event to have taken place when actually it had not taken place and vice versa. The term often used in bringing about this artificiality is ―deemed‖ or ―treated to be‖. The whole section 101 of the Ordinance creates such legal fictions. Sub-section (1) of section 101 says that salary shall be deemed to accrue or arise Pakistan source income, no matter wherever it is paid, if it is received from any employment exercised in Pakistan or paid by Government or a local authority of Pakistan to its employees. This provision of law creates artificiality in respect of place. Although a person is working abroad but since his salary is paid by the Government of Pakistan, it has deemed to accrue or arise to him in Pakistan, Usually these fictions fall into the following four categories: (a) fiction of income

27 Introduction

(b) fiction of person (c) fiction of place (d) fiction of time or period ―Deeming‖ has become increasingly common in modern statutes; and the word ―deemed‖ is used a great deal in different context25. Sometimes it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes, it is used to give a comprehensive description that includes what is obvious, what is uncertain and what is, in the ordinary sense, impossible26. It is, therefore, not possible to list the purposes for which legal fiction may be created by statute27. But the particular sense in which the word is employed has to be judged in the light of the scheme of the section and the context in which the ―deeming‖ is made28. It is not that a deeming provision is every time made for the purpose of creating a fiction: a deeming provision might be created to impose for the purpose of Ordinance an artificial construction of a word or phrase that would not otherwise prevail, but in each case it would be a question as for what purpose or object the Legislature made a deeming provision. It may be for the purpose of formulating a principle of general applicability, and may create no legal fiction29. The word ―deemed‖ may not always introduce a legal, fiction or a legal presumption, but may in certain special circumstances introduce a provision in the nature of glossary to the main provision, that is ―glossary provision‖ in which even the word ―deemed‖ would be equivalent to means30. 25

26 27 28 29 30

Elahi Cotton Mills Ltd. vs. Federation of Pakistan (1997) 76 Tax 5 (S.C.Pak); Consolidated Coffee Ltd. vs. Coffee Board (1980) 46 STC 164, 174 (SC). St. Aubyn vs. Attorney General (1952) 2 All FR 473, 498 (HL). New Shorroch Spg & Mfg Co. vs. ITO (1959) 37 ITR 41, 47 (Bom.). New Shorroch Spg & Mfg Co. vs. ITO (1959) 37 ITR 41, 47 (Bom.). Consolidated Coffee Ltd. vs. Coffee Board (1980) 46 STC 164, 174 (SC). Maftalal Gagalbhai & Co. (P) Ltd. vs. CIT (1980) 122 ITR 382, 397; Amrutanjan Ltd. vs. CIT (1961) ITR 21, 32, (Mad) affirmed by the Indian

28 Principles of Income Tax Law

As far as possible, a legal fiction should not be so interpreted as to illicit injustice, as even when the court steps into the world of large fantasy, the principle of equity and justice cannot be lost sight of31. Even so, deeming has its limits. It cannot, be stretched beyond imagination. The taxation officer has no authority under the law to give his own version of artificiality. The word ―deemed‖ wherever creates artificiality has to be restricted to that extent alone. It does not give a free hand to use it for other places where reality prevails. The Supreme Court of Pakistan in PLD 1970 SC 29 observed that while interpreting a deeming clause in a statute, the courts are bound to ascertain for what purpose and object that provision has been enacted. 9. Deeming provisions in the Ordinance The Income Tax Ordinance, 2001 enacts, amongst others, the following important deeming provisions: A. Fiction regarding the nature of receipt (i) The definition of income in section 2(29) is inclusive and not exhaustive. ―Income,‖ in this section, includes certain things which may not possibly be regarded as income but for the special definition assigned to it in that provision. For example in section 169, imports, and contractual receipts have been deemed to be income. That, however, does not limit the generality of its natural meaning except as qualified in the provision. (ii) 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

31

Supreme Court in (1964) 53 ITR 218 (SC). CIT vs. Nathimal Gaya Lal (1973) 89 LTR, 170, 197, 198 (AU).

29 Introduction

shall be included in the income chargeable under that head for the tax in which it is received [section 70]. B. Fiction regarding place of accrual (i) Salary wherever paid shall be Pakistan source income it is received from any employment exercised in Pakistan or paid by Government or local authority of Pakistan. [Section 101(1)] (ii) Income by way of profit on debt paid by a resident person, except where the profit is payable in respect of any debt used for the purposes of a business carried on by the resident outside Pakistan through a permanent established or the same is borne by a permanent establishment in Pakistan of a non-resident person shall be Pakistan source income [section 101(7) and 101(7)(b)]. (iii) Income by way of royalty paid by a resident person, except where the same is payable in respect of any right, profit or information used, or services utilized for the purposes of a business carried on by the resident outside Pakistan through a permanent established or the same is borne by a permanent establishment in Pakistan of a non-resident person shall be Pakistan source income [Section 101(8)(a) & 101(8)(b)]. C. Fiction regarding time in which the income should be deemed to have accrued or arisen (i) Where in any tax year, the taxpayer has made investments or is owner of money or valuable article which are not recorded in the books of accounts or declared in the wealth statement and the taxpayer offers no explanation about the nature and source of such investment, or explanation offered by him is unsatisfactory, the value of the investment or the money or valuable article shall be deemed to be the

30 Principles of Income Tax Law

income of the tax year in which such discovery is made [section 111]. (ii) That portion of the annual accretion in any year to the balance of the credit of an employee participating in a recognised provident fund as consists of(a) Contributions made by the employer in excess of ten per cent of the salary of the employee; and (b) Interest credited on the balance to the credit of the employee in so far as it exceeds one-third of the salary of the employee or is allowed at a rate exceeding such rate as may be fixed by the Federal Government in this behalf by notification in the official Gazette shall be deemed to have been received by the employee in that year and shall be included in his total income for that year and shall be liable to income tax [clause (3) of Sixth Schedule]. D.

Fiction regarding certain incomes deemed to be income of the transferor, despite the transfer

(i) Where the owner of any securities sells or transfers those securities, and buys back or reacquires the securities, then the interest payable shall be deemed to be the income of the transferor and not the transferee [Section 112]. (ii) All income arising to any persons by virtue of revocable transfer of assets shall be chargeable to tax as the income of the transferor [Section 90] E.

Fictions - Miscellaneous

(i) Any income of a minor child chargeable under the head ―Income from Business‖ for a tax year, except from a business acquired through inheritance, shall be chargeable to tax as the income of the parent of the child with the highest taxable income for that year [section 91].

31 Introduction

(ii) Where no tax is payable by a company, resident in Pakistan or tax payable is less than one-half per cent of the amount representing its turnover from all sources, the aggregate of the declared turnover shall be deemed to be income of the said company and tax thereon shall be charged at the rate of one-half per cent of the declared turnover [section 113]. (iii) If any person who is required to deduct tax at source fails to do so he shall be personally liable to pay that tax [section 161]. (iv) The legal representative of a deceased taxpayer shall, for the purposes of the Ordinance, be deemed to be taxpayer [section 87]. 10.

Fiction upon fiction

Legal fictions are created only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond their legitimate field32. Unless it is already and expressly provided it is not permissible to impose supposition on a supposition of law; it is not permissible to subjoin or tack a fiction upon fiction33. When is income deemed to accrue on arise in Pakistan? The only possibility is where it does not actually accrue or arise in Pakistan but the law requires it to be treated as if it were. The words, deem to accrue or arise, therefore, can only mean ―deem to accrue or arise by law‖; they cannot be construed by the stretch of imagination to mean anything else. The words must be restricted to situations specifically set out in the law itself. 11.

Reconstruction of sections and rules

It is not permissible to substitute one expression used by the legislature by another expression on the assumption that the 32

33

Elahi Cotton Mills Ltd. vs. Federation of Pakistan (1997) 76 Tax 5 (S.C.Pak); CIT vs. Elphinstone Spg & Wvg Mills Co. (1960) 40 ITR 142 (SC). Executor & Trustee of Sir Cawasji Jehangir vs. CIT (1959) 35 ITR 537 (Bom.).

32 Principles of Income Tax Law

legislation meant to use the other expression, and then to construe the provisions of the section as if the substituted expression has been used by the legislature. The proper way to construe the provision of the state is to give full effect to all the words of the relevant provisions to try to read them harmoniously, and then to give them a sensible meaning34. 12.

Technical words

Technical words used in the Ordinance must have their technical sense ascribed to them and not their popular sense uti loquitor vulgus. The principle is of cogency when the words in question represent legal conceptions35. Words having known legal import should be construed in the sense which they had at the time of enactment36. In the Income tax Ordinance, 2001 certain words have been used which are of technical nature for example the word ―minor child‖ which does not include married minor daughter. The words minor child and major child are thus to be interpreted in their technical sense as defined under the prevalent law of the land and not in the ordinary sense. 13.

Legal fiction in one act does not extend to the other

In the case of Elahi Cotton Mills Ltd. & others vs. Federation of Pakistan (1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845, the Honourable Supreme Court held that legal fictions are only for a definite purpose. They are limited to the purpose for which they are created and should not be extended beyond its legitimate field. A statutory fiction introduced in one enactment cannot be incorporated in all other Acts. Hence, a transaction treated as a gift by a legal

34

35

36

National Food vs. CIT (1991) 64 Tax 60 (H.C.Kar.) RC Mitter & Sons vs. CIT (1959) 36 ITR 194, 200 (SC). Abdul Hameed vs. Secretary, Government of Baluchistan PLD 1996 Quetta 21; CIT vs. Gaekwar Foam & Rubber Co. (1959) 35 ITR 662. J.A. Textile Mills Ltd. vs. CBR 1999 PTD 4138 (Hahore High Court); State of Madras vs. Gannon Dunkerley & Co. (1958) 9 STC 353 (SC) (Meaning well accepted in law is to be preferred to natural meaning).

33 Introduction

fiction enacted under the repealed Gift-tax Act cannot be regarded as a gift for purposes of the Income Tax Ordinance. CIT/WT, Zone-C, Lahore v. Haroon Medical Store, Sheikhupura [2003] 88 TAX 50 (H.C.Lah.) = 2003 PTD 1530 ―A deeming clause being necessarily a fiction of law cannot be taken to be a part of another provision, unless same is expressly so provided. The Legislature by employing legal fiction can deem a thing to be in existence, although same does not actually so exists. That fiction, however, cannot be transposed or read into another provision, unless such transposition is expressly so provided in the main provision.‖ 14.

Income Tax does not apply to residents of non-taxable territories.

Residents of non-table areas of Pakistan are not subjected to Income Tax Law by virtue of Article 247(3) of the Constitution of Pakistan. This has been elaborated in the following cases: CIT Peshawar v. Gull Cooking Oil and Vegetable Ghee (Pvt.) Ltd. through the Chief Executive and 6 others 2003 PTD 1913 (S.C. Pak) ―Undoubtedly, the Company is located in the Tribal Area where Ordinance has not been extended by virtue of Article 247 of the Constitution and as such it is not a resident of taxable area, hence it would not be amenable to the provisions of the Ordinance. Section 9 of the Ordinance is a charging section which provides that income tax shall be charged or levied for every assessment year in respect of the total income of the income year from every person at the rates specified in the First Schedule. Term ―person‖ as defined under section 2(32) of the Ordinance includes in its fold a Company besides an individual, a firm, a Hindu undivided family, a local authority, an association of person, and every other juridical person and its liability to pay tax on the total income is laid down in section 11 of the Ordinance, according to which a resident assessee had to declare all his/its income from whatever source derived, which is received or deemed to have been received in Pakistan or which

34 Principles of Income Tax Law

accrues or arises or is deemed to accrue or arise to him/it in Pakistan or accrues or arises to him/it outside Pakistan during the assessment year. Likewise it provides that in case of nonresident, total income would include all income from whatever source it is derived/received or deemed to have been received in Pakistan or accrues or arises or is deemed to accrue or arise to him/it in Pakistan during the assessment year. The income which is deemed to accrue or arise in Pakistan has been mentioned in section 12 of the Ordinance. It is thus manifest and clear from section 11 of the Ordinance that if a person, which includes a Company, is a non-resident and its income is neither received nor accrued or arisen in taxable territory of Pakistan during an income year, it would not be taxable as the same would not fall within the ambit of the Ordinance. The Company in the instant case being situated in Tribal Area where Ordinance has not been extended within the meaning of Article 247(3) of the Constitution, as such, would stand exempt from payment of income tax. The appellant himself has conceded this fact by issuing Exemption Certificates to the Company/respondent No. 1 from time to time, hence issuance of notices under section 56 and 61 of the Ordinance was without any lawful authority. Since the Ordinance has not been extended to Tribal Area, therefore, none of its provisions would apply thereto, and as such any action taken or purportedly to be taken under any provision of the Ordinance with regard to the business in the Tribal area would be without jurisdiction and without any lawful authority and in such circumstances the jurisdiction of the High Court under Art. 199 of the Constitution could be invoked. In view of the above discussion, we find no infirmity in the judgment of the learned High Court, hence no except thereto is taken, this appeal as such, is dismissed with no order as to costs. Dr.Najibullah Khan v. Federation of Pakistan through the Secretary, Ministry of Finance, Government of Pakistan, Islamabad and 4 others 2003 PTD 2083 (H.C.Pesh.)

35 Introduction

―Deduction of Income Tax/Withholding tax cannot be lawfully made by the National Saving Centre Mingora, on a mere observation/interpretation of the provisions of Income Tax Ordinance, 1979, by the Central Board of Revenue contained in impugned Letter, C.No.1(19)/WHT/91, dated May 4, 2000. It has been contended with justification that the petitioner is exempt from payment of Income tax/withholding tax because the very Income Tax Ordinance, 1979, is not at all applicable to PATA where the income is derived by the petitioner who, is a domiciled resident of PATA. In the instant case we find that since Income Tax Ordinance, 1979 has not been extended to PATA, none of the provisions of the said Ordinance can be made applicable by any force of argument or any stretch of imagination to the assessees in PATA. In other words no provision of the Ordinance could be invoked by or against the assessees thereat, and therefore, the question of availing alternate remedy does not arise at all in the first place. Since the dispute between the parties is fiscal in nature the aggrieved party could directly approach the superior Courts by invoking Constitutional jurisdiction as observed in Messrs Central Insurance Co. and others vs. The Central Board of Revenue, Islamabad and others (1993 SCMR 1232). Resultantly, we accept the writ petition and declare the impugned deduction, as against the provisions of the Constitution and being without lawful authority, would have no effect. The National Saving Centre Mingora, shall reverse the entries of deduction of withholding tax and the amount so far deducted shall be credited to the account of the customers. We make no order as to costs.‖ 15.

Interest/profit on deposit/account – Pakistani banks having branches in the tribal areas

Ghilaf Gull v. CIT/WT, Zone-B, Peshawar and 4 others [1997] 75 TAX 298 (H.C. Pesh) = 1997 PTD 849 (H.C.Pesh.) ―Deduction of withholding tax by Pakistani banks having branches in the Tribal areas is against the constitution and without lawful authority.‖

36 Principles of Income Tax Law

Chapter II Basic Principles 1.

Distinction between direct and indirect taxes

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad (1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845 ―That a direct tax is one which is demanded from the very person, who it is intended or desired should pay it, where as indirect taxes are those, which are demanded from one person in expectation and intention that he shall indemnify himself at the expense of another like custom duties, excise taxes and sales tax, which are borne by the consumers. That levying of building tax on the basis of covered area without taking into consideration, the class to which a particular building belongs, the nature of construction, the purpose for which it is used, its situation and its capacity for profitable use and relevant circumstances bearing on the matters of taxation is not sustainable in law for want of reasonable classification. That there is a clear distinction between the subject matter of a tax and the standard by which the amount of tax is measured keeping in view the practical difficulties, which are encountered by the Revenue to locate the persons and to collect the tax due in certain trades, if the legislature in its wisdom thought that it would facilitate the collection of tax due from specified traders on a presumptive basis, the same is not violative of the Fundamental Rights to equality.‖ 2.

Income cannot be taxed twice

M.Rehman, ITO & others v. Narayanganj Company (Pvt.) Ltd. (1971) 23 Tax 223 (S.C.Pak) ―The learned judges in the High Court relied on the following remarks of the Indian Supreme Court in the case 39

40 Principles of Income Tax Law

of Commissioners of Income Tax, U.P. vs. Kanpur Coal Syndication (1964) 10 Taxation 175: ―Section 3 imposes a tax upon a person in respect of his total income. The person on whom such tax can be imposed are particularised therein, namely, Hindu undivided family, company, local authority, firm, association of persons, partners of firm or members of association individually. The section, therefore, does not in term confer any power on any particular officer to assess one of the person described therein, but is only a charging section imposing the levying of tax on the total income of an assessable entity described therein. The section expressly treats as association of persons and the individual members of an association as two distinct and different assessable entities. On the terms of the section the tax can be levied on either on the said two entities according to the provisions of the Act.‖ The rule issued in the case was in this view made absolute by the Division Bench of the High Court and the impugned notice u/s 65 set aside, from which leave to appeal was generated to consider whether it was a case of double assessment or a case of rectification of assessment wrongly made upon individual partners in respect of the income of an unregistered firm.‖ 3.

Principle of equality in fiscal laws

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad (1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845 ―That the legislature is competent to classify persons or properties into different categories subject to different rate of tax. But if the same class of property similarly situated is subjected to an incidence of taxation, which results in inequality amongst, holders of the same kind of property, it is liable to be

41 Basic Principles

struck down on account of infringement of the fundamental right relating to equality. That a state does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably. That the tests of the vice of discrimination in a taxing law are less rigorous. If there is equality and uniformity within each group founded on intelligible differentia having a rational nexus with the object sought to be achieved by the law, the constitutional mandate that a law should not be discriminatory is fulfilled.‖ 4.

Statutory rules cannot enlarge the scope of the section under which the same has been framed

Pakistan through Secretary Finance, Islamabad & 5 others v. Aryan Petro Chemical Industries (Pvt.) Ltd. Peshawar & others 2003 PTD 505 (S.C.Pak.) = 2003 SCMR 370 ―A statutory rule cannot enlarge the scope of the section under which it is framed and if a rule goes beyond what the section contemplates, the rule must yield to the statute. The authority of executive to make rules and regulations in order to effectuate the intention and policy of the Legislature, must be exercised within the limits of mandate given to the rule making authority and the rules framed under an enactment must be consistent with the provisions of said enactment. The rules framed under a statute, if are inconsistent with the provisions of the statute and defeat the intention of Legislature expressed in the main statute, same shall be invalid. The rule-making authority cannot clothe itself with power which is not given to it under the statute and thus the rules made under a statute, neither enlarge the scope of the Act nor can go beyond the Act and must not be in conflict with the provisions of statute or repugnant to any other law in force.‖

42 Principles of Income Tax Law 5.

Theory of reading down as a rule of interpretation

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad (1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845 ―That denial of reliefs provided by sections 28 to 43C of the Indian Income Tax Act to the particular business or trades covered by section 44AC thereof without showing some basis fair and rational and without having nexus to the object sought to be achieved by the Legislature, held unfair, arbitrary disproportionate to the prevalent evil and constitutes denial of equal treatment. Consequently, the Indian Supreme Court did not press into service non-obstante clause of section 44AC by applying theory of reading down as a rule of interpretation. That it is an accepted canon of taxation to levy tax on the basis of ability to pay. The sections 115J and 115JA incorporated in Indian Income Tax Act, 1961, were intended and designed to bring within the tax net the companies, which though making huge profits and also declaring substantial dividends, but have been managing their affairs in such a way by availing of tax concessions etc. as to avoid payment of income tax. That the theory of reading down is a rule of interpretation which is resorted to by the Courts when they find a provision read literally seems to offend a fundamental right or falls outside the competence of the particular legislature.‖ 6.

Doctrine of unjustified enrichment is not attracted as incidence of indirect taxes is invariably transferred to consumers

Shahtaj Sugar Mills Ltd. through Chief Executive v. G.A. Jahangir and 2 others 2004 PTD 1621 (H.C. Lah.) ―The reliance of the learned counsel for the petitioner in the first petition on a number of judgments of Indian jurisdiction to support his proposition that doctrine of unjustified enrichment will not be attracted in this case is not

43 Basic Principles

relevant. As rightly pointed out by the learned counsel for the Revenue that these judgments cannot be accepted as a rule to be followed because the excise duty as well as Sales Tax being in direct levies their incidence is invariably transferred to the consumer. The claim of the learned counsel that the price of sugar manufactured by the petitioner is regulated by the Government is also not a good reason to hold that incidence of excise duty does not pass on to consumer. Obviously in fixing consumer price the Government does take into consideration the payment of excise duty by a manufacturer.‖ 7.

Material supplied by the department cannot be part of gross receipts taxable u/s 80C

Mian Contractors, Lahore v. CIT, Zone-A, Lahore (2001) 84 TAX 493 (H.C.Lah.) ―Having heard the learned counsel for the parties, we are absolutely certain in our minds that the approach of the Revenue was not only against the basic principles of accountancy but also those of the Income tax Law, equity and justice. From whatever angle seen, the inclusion of the value of the material supplied by the department in total receipts of the assessee appears absolutely illegal and un-lawful. The arguments of the assessee that on the aforesaid amount which was deducted by the Department out of total contract receipts, he did not earn any profit and therefore the same was not includable in his gross receipts was absolutely correct. Even otherwise, the amount being price of the supply made by the Department was an expense and therefore could not form part of the gross receipts. If the Department had not supplied the aforesaid material to the assessee, obviously he would have gone for its purchase from the market and obtained it on payment of its price. The question thus arises if that had happened could the assessing officer take the expense so made as part of the gross receipts. The answer is ―No‖ in capital words. Since the Tribunal decided the issue with reference to another decision we are not in a position to judge the soundness of the reasons assigned by them in that decision.

44 Principles of Income Tax Law

The concepts of gross receipts which are to be made subject to a certain pre-determined rate of profit cannot include a deduction made by the payer as price of a supply already made. That amount having never reached the hands of the assessee, he had all the justification in the world to reduce his receipts by that sum. The Gauhati High Court in a case reported as (1978) 38 Tax 57 Re: CIT vs. J.S. Serwarey, in an identical situation concluded ―that there was no element of profit so far as the value of the materials supplied by the M.E.S. Department to the assessee in performing the construction works were concerned‖. Therefore the Tribunal was found justified in holding that the cost of material supplied by the MES Department was not liable to be included in the total receipts of the assessee for estimating its net profit. We are in respectable agreement with this view adopted by the learned Division Bench.‖ 8.

The Income Tax Law makes a distinction between actual liability in praesenti and a liability de futuro which, for the time being, is only contingent

CIT v. Kesar Sugar Works Ltd. 2001 PTD 744 ―The Income Tax Law makes a distinction between actual liability in praesenti and a liability de futuro which, for the time being, is only contingent. The former is deductible but not the latter. The controversy to be decided in this case, therefore, whether the present liability accrued against the assessee in the assessment years under consideration. This has to be decided by taking into account all the facts and circumstances of the case. If the liability is an actual liability in praesenti in the year under consideration, it is deductible. If it is a contingent liability, it cannot be the subject-matter of deduction even under the mercantile system of accounting. There is no dispute in the present case that in the years under consideration the liability to pay interest was an actual liability. It was no more contingent. There is no dispute on this count. The only ground on which the claim of the assessee for deduction was denied by the Income Tax Officer was that the assessee was disputing the liability by

45 Basic Principles

filing an appeal to the Supreme Court. This view of the Income Tax Officer did not find favour with the Commissioner (Appeals) and the Tribunal. The law in this regard is well-settled by the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363, that if there is actual liability in praesenti, deduction cannot be denied on the ground that the assessee is disputing the liability. As a result, in the case of an assessee maintaining the mercantile system of accounting. The amount payable by the assessee would be deductible as an accrued liability even though the assessee objects to it and seeks to get the order of the concerned authority reversed, subject, however, to any statutory provision to the contrary (viz., section 43B of he Income Tax Act, 1961, as inserted by the Finance Act, 1983, with effect from April 1, 1984, which provides that certain liabilities can be deducted only on actual payment).‖ 9.

Proviso cannot extend the meaning of the enacting part

CIT v. Nasir Ali and another (1999) 79 Tax 428 (S.C.Pak.) ―It is a well-settled principle of interpretation that a proviso deals with the subject, which is covered by the enacting part of the provisions. The proviso only carves out an exception which, but for the proviso, would fall within the language and meaning of the enacting part. A proviso, therefore, has to be interpreted strictly, and where the language of main enacting part is clear and unambiguous, the proviso cannot by implication exclude from its purview what clearly falls within the express terms of the main enacting part. Accordingly, we hold that the export rebate contemplated u/s 3(4)(a) of the Ordinance is admissible both to the registered firm as well as its partners in respect of super tax and income tax payable by them, respectively.‖ 10.

Assessing officer to apply correct law even if assessee fails to make a claim

CIT v. Prasad Film Laboratories (P.) Ltd. 1999 PTD 325

46 Principles of Income Tax Law

―It is the duty of the assessing officer to correctly apply the law notwithstanding the fact that assessee failed to make a claim.‖ 11.

Rule cannot override the statutory law

M/s. Tariq Sultan & Co. v. Government of Pakistan, etc. (1999) 80 Tax 62 (H.C.Qta.) ―Rule 96ZZ [Central Excise Rules, 1944] being subordinate legislation cannot supersede to the provisions of Section 3-C of the Act; [Central Excise Act, 1944] secondly it mainly deals with special procedure in respect of certain manufactured goods as provided under Chapter-XV of the Central Excise Rules, 1944. This Chapter deals with regard to filing of the application and the revised procedure, maintenance of current account, deposit of goods in the store room, clearance of goods on payment of duty, clearance of goods exempted from duty etc. but does not deal in respect of the event when determination of tariff value and of rate of duty will be worked out, therefore, the argument put forth by the learned counsel has not substance.‖ M/s. Dawlance (Pvt.) Limited v. Collector of Customs (Adjudication), Karachi-I PTCL 2003 CL. 180 (CESTAT, Kar.) ―A rule cannot override the statutory requirement therefore, the presumption under a deeming clause has to be read within the parameters of subsection (1) of section 25 of the Customs Act, 1969.‖ 12.

Rules cannot be called in aid to interpret sections of the Act. In case of discrepancy in language of section and rules, section is to prevail

CIT, South Zone, Karachi v. Radio Hotel, Karachi [1959] 1-TAX (III-407) (H.C.West Pakistan, Karachi) = 1959 PTD 707 = 1959 PLD 539 ―Three references were simultaneously decided by a joint order. In all these references the partnership deeds were executed after the lapse of the relevant year of account and on this ground the Income Tax Officer had refused to allow

47 Basic Principles

registration u/s 26A of the Income Tax Act. The Tribunal in all these cases had allowed registration. At the instance of the Department the Tribunal referred the following question of law to the High Court ―Whether, in the facts and circumstances of the case, the assessee firm which came into existence by verbal agreement, long before the relevant year of account is entitled to be registered u/s 26A of the Income Tax Act, in respect of the assessment year 1951-52 relevant to the previous year ending the 31st March, 1951, when the instrument of partnership was drawn up on the 16th April, 1951, that is to say, after the expiry of the relevant ‗previous year‘.‖ Following the case of CIT vs. Rashid Motors [(1957) 32 ITR 101] it was held that it is not necessary to bring a partnership into existence, that such an instrument may legitimately record the previous history of the partnership and that what is being registered is not the instrument but the firm. Judicial analyses : FOLLOWED BY - CIT vs. Rashid Motors [1957] 32 ITR 101, wherein it was held that it not necessary to bring a partnership into existence, that such an instrument may legitimately record the previous history of the partnership and that what is being registered is not the instrument but the firm.”

48 Principles of Income Tax Law 13.

Exemptions can only be allowed if claimed

1998 PTD (Trib.) 44 ―Exemptions can only be allowed if claimed.‖ 14.

Words in a statutory instrument should be construed in their ordinary sense

CIT, Companies Zone Lahore v. Naveed A. Sheikh (1992) 65 Tax 80 (H.C.Lah) ―It is well settled and needs no authority that the words used in a statutory instrument are to be construed in their ordinary and natural sense and if different words are used by the legislature, the object is to convey different meaning, unless the context otherwise requires.‖ 15.

In a Taxing Act there is no room for any intendment

National Food v. CIT (1991) 64 Tax 60 (H.C.Kar.) ―No doubt, as has been observed by the learned Tribunal, in a taxing act there is no room for any intendment and there is no equity about a tax and there is no presumption as to a tax and nothing is to be implied but one can only look fairly at the language used. However, in case of a beneficial statute its provisions cannot be interpreted so as to bring about a result contrary to the object of the legislation. An interpretation likely to advance the remedy and suppress the mischief must be adopted in case of statutes which confer benefit on individuals or any class of persons.‖ 16.

If an action is deemed illegal, the whole superstructure built upon it is also illegal

Muhammad Azim v. CIT, East Zone Karachi (1991) 63 Tax 143 (H.C.Kar.) ―It is well settled principle that if the very foundation of an action is illegal or without jurisdiction the whole superstructure built upon it cannot validly and legally stand.‖ 17.

“Resident” of taxable territories is liable to tax on total world income including any income accruing or arising in non-taxable territories of Pakistan

49 Basic Principles

Haji Ibrahim Ishaq Johri v. CIT, (West), Karachi [1982] 45 TAX 263 (H.C.Kar.) = 1982 PTD 46 = 1990 PTCL 954 = 1982 PLD 266 ―We are not inclined to agree with this contention of learned counsel as we are of the view that an assessee, who was ordinarily resident in a place in Pakistan but outside Swat, would be subject to tax not only in respect of income accruing to him in Pakistan outside but Swat also income accruing to him from sources in Swat. Such an assessee being a resident of an area, to which the Income Tax Act applied would be subject to tax under the Income Tax Act and his income from Swat would also be taxable. However, if the assessee was not ordinarily resident of any in Pakistan but which Income Tax Act applied, any income accruing to him from sources in Swat would not be taxable as the Income Tax Act at that time was not applicable to Swat. In this connection reference may be made to section 4(1) of the Income Tax Act where under the total income of a person ordinarily resident of a place in Pakistan to which the Income Tax Act applies includes not only income accruing to him iii Pakistan but also in respect of income accruing to him from outside Pakistan. In the instant case, if instead of the income accruing from Swat, the assessee had derived income from sources outside Pakistan, for instance from Dubai or U.K., the assessee, if ordinarily resident of Pakistan, would have been taxed in respect of such income derived by him from sources in Dubai or U.K. In such a case, it would not have been open to the assessee to argue that as Income Tax Law is not applicable to Dubai or U.K., and admittedly the Pakistan Income Tax law is not applicable to such countries, income accruing from sources in, Dubai or U.K. would not be liable to tax. The appellant could not deny that at least the wife of the assessee maintains a dwelling house where a telephone is installed in the name of the appellant. This fact by itself shows that a part of the wife‘s residence is reserved as a dwelling place for the assessee appellant. Since this definitely gives him right to live in Pakistan and, therefore, within the meaning of section 4A(a)(ii) a residence is maintained for him in Pakistan for more

50 Principles of Income Tax Law

than 120 days, he becomes a resident of Pakistan and as his residence for the 9 years out of the 10 previous years is not denied, he automatically becomes resident and ordinarily resident of Pakistan. We would hold that the assessee was liable to tax for all his income in and outside Pakistan.‖ N.V. Philips Glocilin Peufabrikan v. ITO & Others (1990) 61 Tax 159 (H.C.Kar) ―Where any action is challenged as without jurisdiction and if it is so declared then all orders and proceedings taken on the basis of such illegal action shall also be vitiated. In 1970 Law Notes 28 (DB) Lah. it was held that if on the basis of void order subsequent orders have been passed either by the same authority or by other authorities, the whole services of such order, together with the superstructure of rights and obligations built upon them, must fall to the ground because such orders have as little legal foundation as the void order on which they are grounded.‖ 18.

Charging section and subsequent provisions enable the liability only to be quantified

Begum Nusrat Bhutto v. ITO, Circle V, Rawalpindi (1980) 42 Tax 59 (H.C.Lah.) ―It has, therefore, been accepted as a true principle of taxation that the liability imposed by the charging section and subsequent provisions enable the liability only to be quantified and when quantified to be enforced against the subject, but the liability is definitely and finally created by the charging section and all the materials for ascertaining it are available immediately.‖ 19.

Principles liabilities

governing

interpretation

of

financial

Highway Petroleum Service (Regd.) Lahore v. Islamic Republic of Pakistan & another (1977) 36 Tax 8 (H.C.Lah.) = 1977 PTD 183 = PLD 1977 Lah. 797

51 Basic Principles

―Before adverting to the contentions of the learned counsel for the petitioners on merits which he canvassed very ably, if I may say so with respect, it may be said straight-away, that he is quite right when he made the submissions about the principles governing interpretation of financial liabilities. The tax can be imposed on ―income‖ and not on any thing else much less on expenditure or tax, which is not an ―income‖ but a liability. But all this does not solve the problem and help the petitioners. They are not being imposed a tax. What is happening to them is that for non-compliance of the relevant provisions for paying the tax either in full or part they are being asked to pay an additional amount. In other words, for withholding the amount which they were liable to pay, they are being told that for user of that amount or depravation of the use of the same by the rightful owner i.e, the State, the person concerned must pay an additional amount. Now, it is quite common in Civil Law that a person withholding somebody else‘s money and using the same or depriving the rightful owner of used, the former may be liable to make good the gain derived by him, or, suffer the loss which the rightful owner had undergone for not getting his money. Therefore when the petitioners are asked to pay additional amount of tax for non payment of the tax contrary to law, they are not being imposed additional amount of tax on their income but are being asked to defray the liability for non-compliance of the law. The use of the phrase ―additional amount of tax‖ and since that is calculable with reference to the non paid or underpaid amount of the tax, gives an impression that the demand is of ―additional amount of tax‖ on the non paid or unpaid ―tax‖, and that, no additional amount of tax can be levied on. tax, the latter being not an income but an expenditure or liability, Though the phrase ―additional amount of tax‖ as a whole is loose and it would have sufficed to say that for non-payment or under payment. The defaulting persons would be liable to pay additional amount‖ without saying ―of tax‖, yet, for an inaccurate .r inapt phrase, the provision cannot be rendered nugatory....................an inapt and

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inaccurate phraseology of the draftsman cannot and should not nullify a provision made by the Legislature which is consistent with existing legal norms. On well based judgments, the proposition are stated in Maxwell, Rules of Interpretation, 12th Edition at page 257 as under:―It is well settled rule of law that all charge upon the subject must be imposed by clear and unambiguous language, because in some degree they operate as penalties (as in penal laws) the subject is not to be taxed unless the language of the statute clearly imposes the objection(s) and language must not be strained in order to tax a transaction which, had the legislature thought of it, would have been covered by appropriate words. In a taxing Act, said Rowlett, J., one has to look merely at what is clearly said. There is no room or any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in nothing is to be implied. One can only look fairly at the language used. But this strictness of interpretation may not always ensure to the subjects benefit, for if the person sought to be taxed comes within the latter of the law, he must be taxed, however, great hardship may appear to the judicial mind to be.‖ 20.

Provisions of earlier Act incorporated in the later Act became part and parcel of the later Act

CIT, Lahore v. Kohinoor Industries Ltd. Lahore [(1977) 35 Tax 42 (H.C.Lah.)] ―The learned counsel for the petitioner did not dispute the well established position of law that when some provisions of an earlier Act are incorporated in a later Act, the incorporated provisions, for all practical purposes, become part and parcel of the later Act unless the same had been made applicable express or by necessary intendment.‖ 21.

Department can go beyond a transaction

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Mian Muhammad Allah Buksh v. CIT 1962 PTD 603 (H.C.Lah.) ―In case of splitting into four subsidiary firms of partners of an existing firm. The deponent could make whether it constitutes ‗transaction‘ designed to evade tax liability. Burden of proof rests with the department, which can go behind transaction to find affirmatively whether there was intention to evade tax.‖ 22.

Application of tax rates through a Finance Act explained

CIT, East Pakistan, Dacca v. Wahidur Rahman, ITO, Companies Circle IV, Chittagong [1961] 4 TAX 135 (H.C.Dacca)=1961 PTD 1110 ―The assessee, an Income Tax Officer, received a sum of Rs.4,581 as his salary for the period from 1st April, 1956 to 3rd March, 1957. Under section 18(2) of the Income Tax Act was deducted at source from month to month at the rates laid down by the Finance Act, 1956. In making the assessment for the assessment year 1957-58 the assessing Income Tax Officer worked out the total income at Rs.4,585, including his income chargeable under the head ―salaries‖. The income was assessed to tax at the rates laid down by the Finance Act, 1956 and after giving credit for the tax deducted at source, provident fund contributions, etc., a net amount of Rs.4/2/- was found payable by the assessee. The assessee filed an appeal before the Appellate Assistant Commissioner contending that for the assessment year 1957-58 the minimum taxable income was fixed at an amount exceeding Rs.5,000 and as his income during the year 1956-57 was below the limit of Rs.5,000 he was not liable to be assessed and pay any tax at all. The Appellate Assistant Commissioner accepting the contention reversed the assessment order. The Department filed a second appeal and contended before the Tribunal that the proviso to the Schedule to the Finance Acts of 1956 and 1957, providing for exemption of income not exceeding Rs.4,200 and Rs.5,000 respectively, are inseparable parts of the rate structure and in the case of salary earner what

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should be considered to be immune from taxation for the taxing year 1957-58 is Rs.4,200 under the proviso to the Schedule to the Finance Act, 1956 and not Rs.5,000 under the proviso to the Schedule to the Finance Act, 1957. The Tribunal could not accept the contention of the Department and affirmed the order of the Appellate Assistant Commissioner. On a reference by the Department the High Court upholding the order of the Tribunal: Held, that: (i) sub-section (3) of section 17 of the Finance Act, 1957 is only applicable to those cases where the assessee himself is chargeable to Income Tax u/s 17 of the Finance Act of 1957. If he is not chargeable, there is no scope for application of sub-section (3) of section 17 of the Finance Act of 1957 ; and (ii) in section 17(3) of the Finance Act, 1957 the reference to the Finance Act, 1956 is only for the purpose of calculation of Income Tax on the salaried portion of the total income and in doing so it may be on the basis of the exemption amount of Rs.4,200, provided his total income is chargeable i.e., exceeding Rs.5,000.‖ 23.

Act is to be read as a whole

Allied Motors Ltd. through Manager Finance v. Commissioner of Income Tax and another [2004 PTD 1173 (H.C. Kar.) = (2004) 90 Tax 24 (H.C. Kar.)] ―From a bare perusal of the above provisions of law, we find substance and force in the contention of Mr. Aqeel Ahmed Abbasi. We agree with the proposition that, in order to arrive at the correct conclusion, a scheme of law is to be examined in its totality and no provision of law is to be considered in isolation.‖ CIT, East Pakistan v. Aizuddin Gazi and others [1960] 2-TAX (III-474) (H.C.Dacca) = 1960 PTD 727 = 1960 PLD 535

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―Act should be so construed as not to render other parts superfluous, void or insignificant. It should be construed as a whole. It is court‘s duty to reconcile different provision of law especially in case of taxing statute.‖ 24.

Statute should be read as a whole

CIT v. Hoosen Kasam Dada Karachi 1960 PTD 574 (H.C.Dacca) ―One section in statute should not be read independently of all others and should be given unreasonable interpretation. Judicial analyses : CONFIRMED by the Supreme Court of Pakistan in CIT, East Pakistan Dacca vs. Hossen Kasam Dada, Karachi [1961] 4 TAX 96 (S.C.Pak.) with the following observations: “Such a reading of the provisions of Business Profits Tax Act appears to us not only to be reasonable but also the one which produce a consistency with the various provisions thereof. To hold otherwise would produce the anomalous result that whilst a dishonest assessee would be protected from harassment after the lapse of four year, an hones assessee would remain exposed to the harassment for even 10 to 50 years. It is difficult to impute such an iniquitous intention to the Legislature.” 25.

Fiscal statutes should be interpreted according to their natural meanings

Rowe & Co. v. The Secretary of State for India [1 ITC 161 (Burma)] ―I am not at all sure that in a case of this kind - a fiscal case - form is not amply sufficient; because, as I understand the principle of all fiscal legislation, it is this: If the person sought to be taxed comes within the letter of the law he must be taxed, however, great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax cannot bring the subject within the letter of law the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible in any statute what is called an equitable construction, certainly such a construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute.‖ These

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observations were cited by Collins M.R. in Attorney General vs. Selborne [(1902) 1 K.B. 388 at p. 396] and the learned judge proceeded to say: “Therefore, the Crown fails, if the case is not-brought within the words of the statute interpreted according to their natural meaning; and if there is a case which is not covered by the statute so interpreted, that can only be cured by legislation, and not by an attempt to construe the statute benevolently in favour of the Crown.” 26.

Equitable construction is inadmissible in a fiscal statute

Rowe & Co. v. The Secretary of State for India [1 ITC 161 (Burma)] ―The High Court of Calcutta relying on those and other cases, in Killing Valley Tea Company, Limited vs. Secretary of State for India (1 ITC 54; 48 Cal. 161; 32 CLJ 421; 61 Ind. Cas. 107) said there is no room for controversy that the Crown seeking to recover the tax, must bring the subject within the letter of the law, otherwise the subject is free, however, much within the spirit of the law the case might appear to be. There can be no equitable construction admissible in a fiscal statute; the benefit of the doubt is the right of the subject.‖ 27.

Court cannot make up for any deficiency of Legislature

Rowe & Co. v. The Secretary of State for India [1 ITC 161 (Burma)] ―....if the legislature, from want of foresight or for any other cause, has omitted to provide for a case, it is the province of the legislature itself, and not of the Courts, to supply the omission.‖ 28.

Courts are not to be influenced by doctrine of hardship

Imperial Tobacco Company of India v. The Secretary of State for India in Council [1 ITC 169 (Calcutta)]

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―It is a well-established rule that Courts ought not to be influenced by any notion of hardship in exceptional or individual cases in interpreting a statute.‖ 29.

In dubio construction which imposes burden on taxpayer should be avoided

Sundar Das v. Collector of Gujrat [1 ITC 189 (Lahore)] ―It is a sound principle that the subject is not to be taxed without clear words to that effect and that in dubio you are always to lean against the construction which imposes a burden on the subject.‖ 30.

Out of ambiguity of the provisions of the Act cannot be extracted a new and added obligation not formerly cast upon the taxpayer

Roger Pyatt Shellac & Co., v. Secretary of State [1 ITC 363 (Calcutta)] ―It is, I think, important to remember the rule, which the Courts ought to obey, that, where it is desired to impose a new burden by way of taxation, it is essential that this intention should be stated in plain terms. The Courts cannot assent to the view that if a section in a taxing statute is of doubtful and ambiguous meaning, it is possible out of that ambiguity to extract a new and added obligation not formerly cast upon the taxpayer.‖ 31.

No taxation except by express words

Secy. to Commr. Salt v. Ramanathan Chetti, minor by guardian [1 ITC 37 (Madras)] ―Unless the words are clear, a fiscal enactment should not be construed as imposing tax by implication.‖ 32.

Avoidance of tax in legal manner is not evasion or mala fide action

[2004 PTD (Trib.) 2494] ―It was only w.e.f. assessment year, 1997-98 that the assessee declared such interest income not from account maintained with the company but from the demand pronotes on

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account of loans given to the companies. It was with the sole reason that due to the introduction of amendment in Finance Act, 1996 that the interest earned from loan advanced to the companies through account maintained with the Company were taken out of the ambit of section 80-B and the tax rate was revised through Finance Act, 1997 on such interest income. Learned counsel has also placed reliance on certain reported decision which are as under:– ―(1960) 20 Tax 51 (Trib.) In this case, it has been held by this Tribunal that the prejudicial to the interest of Revenue and erroneous are two independent conditions and, to reopen the case under section 66A two conditions are to be simultaneously fulfilled. (1984) 49 Tax 34 (H.C. AJ&K). In this case it has been held that the provisions of section 66A are supervisory in nature and it was incumbent upon IAC to determine that an order sought to be interfered was erroneous and prejudicial to the interest of the Revenue. Through this decision it has been explained that the erroneous means deviated from the law and it was a condition precedent to declare the order erroneous by reference to definite violation or deviation from law. In a case reported as 1997 PTD (Trib.) 2014 it has been held that merely on a change of opinion of the Higher Authority assessment framed could not be reopened. Learned counsel for the appellant in support of his contention has placed before us for consideration the following reported decisions also:(1) 1965 Taxation 87 (Trib.); (2) (1988) 75 Tax 50 (Trib.); (3) (1993) 67 Tax 51 (SC Pak). In these decisions it has been held that the legal avoidance of tax is permissible and its avoidance of tax is not evasion and it carries no ignominy with it. The avoidance of tax in legal manner

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is not evasion or mala fide, and that tax avoidance occurs when a person in any legitimate manner as provided by law adopts a course by which the tax liability is reduced or eliminated. In doing so the assessee seeks his remedy and mechanism within the provisions of law. In view of the above arguments, learned A.R. has prayed that the order framed by the learned IAC is in fact erroneous and is liable to be vacated.‖ 33.

Fiscal statutes to be strained in favour of the subject, if at all

Balkishan Nathani v. CIT [1 ITC 248 (Nagpur)] ―Technicalities in a fiscal statute must be strained in favour of the subject, if they are to be strained at all, and not against him‖. 34.

Fair and reasonable construction for taxing statutes

Burma Railway Co. v. Secretary of State [1 ITC 140 (Burma)] ―The rule for the interpretation of such statutes is laid down by Cotton L.J., in Gilbertson vs. Fergusson [(1881) 7 Q.B.D. 562 at p. 572]: I quite agree we ought not to put a strained construction upon that section in order to make liable to taxation that which would not otherwise be liable, but I think it is now settled that in construing these Revenue Acts, as well as other Acts, we ought to give a fair and reasonable construction, and not to lean in favor of one side or the other, on the ground that it is a tax imposed upon the subject, and, therefore, ought not to be enforced unless it comes clearly within the words. There is another rule of interpretation, which must also be borne in mind. Where the object and intention of the legislature is clear and undoubted, that meaning should be given when possible to the words used which will best carry out the clear object and intention.‖ 35.

No equitable construction in fiscal statutes

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Secretary of State v. Seth Khemchand Thaoomal [1 ITC 26 (Sind)] ―Again, the legislature may or may not be justified on moral or political grounds in cancelling or modifying the rights and privileges which were granted under the Permanent Settlement. Such problems are matters of policy with which the Court has not concern‖. 36.

Charging section cannot be overlooked on hypothesis of history of exemption

Emperor v. Probhat Chandra Barua [1 ITC 284 (Calcutta)] ―The fundamental fact for the purposes of construction is that the hypothesis, that the statute may have been enacted without attention to the broadest fact in Indian revenue history, is quite incredible. Again the purport of the charging sections if the express exemptions be disregarded as the reasoning requires - is radically altered if an exemption of all permanently settled estates is implied. Wide areas escape the purview of the charge.‖ 37.

Subsequent general enactment does not interfere with special provisions unless expressed clearly

CIT v. Zamindar of Singampalli [1 ITC 181 (Madras)] ―That this exemption applies to taxes which might be imposed thereafter, as well as to taxes in force at the time of sanad is clear from the judgment of the House of Lords in Associated Newspapers, Ltd. vs. City of London Corporation [1916) 2 A.C. 429] and it is not less clear from the same judgment that although it is competent to the legislature to withdraw or modify such an exemption by subsequent enactment, this can only be done expressly and not in general terms or by implication. For the latter proposition we may also refer to Maxwell on Interpretation of Statutes (6th Edition) Chapter VII, section 3.‖ 38.

Modification of exemption from taxation must be express and not in general terms or by implication

CIT v. Venkatachalapathi

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[1 ITC 185 (Madras)] ―In case of exemption from tax any modification made should be through express words and not in general terms or by implications.‖ 39.

Long course of decisions determining construction of a repealed statute may be an aid in the construction of a new statute passed in the same terms as the former, but a single decision is not

The Bhikanpur Sugar Concern [1 ITC 29 (Patna)] ―The provisions of the previous Acts in practically identical language and must, therefore, be taken to have concurred in the interpretation placed upon the Act by the Commissioner of Tirhut in 1912. It appears, however, that in 1914 the Board of Revenue were not satisfied with this decision and placed the matter before the Local Government and finally before the Government of India, with the result that the Bhikanpur factory was assessed on the whole of its profits for the year 1916-17. This assessment has been paid under protest and a suit is still pending in connection with it, which it has been agreed shall abide the result of the present reference. I agree where there has been a long course of decisions determining the construction of a statute, this may be taken into consideration in construing a new enactment passed in the same terms as pre-existing statutes, but a single decision such as that referred to cannot, in my opinion, from the basis of any presumption as to the intention of the legislature in the present case.‖ 40.

Practice as a guide to construction

Secy. to Commr. Salt v. Ramanathan Chetti, minor by guardian [1 ITC 37 (Madras)] ―We are justified in assuming that the legislature was aware of this practice, and if with that knowledge they repeated in the new enactment the same words on which the practice of the Government was founded, it gives rise to the presumption that they did not want to assess such incomes. If the legislature intended to tax these incomes - and it would have been a very

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substantial source of public revenue - they could have easily said, as in the English statute, that income accruing to a person in British India from any business wherever carried on is liable to be assessed.‖ 41.

Practice of Revenue Authorities as contemporanea expositio

Emperor v. Probhat Chandra Barua [1 ITC 284 (Calcutta)] ―Some reference was made at the bar to the practice of the Revenue Authorities since 1886 as regards fisheries in permanently settled estates, but there is no agreement as to what that practice - if there be a practice - has been. Assuming that it would have been open to us to place some degree of reliance upon an interpretation settled by practice as contemporanea expositio, we are in fact without any such assistance.‖ 42.

Principle of contemporary exposition

Maharaja of Darbhanga v. CIT [1 ITC 303 (Patna)] ―Therefore, in the absence of any clear and unambiguous declaration by the authors of the Permanent Settlement, I think it is permissible to invoke the aid of the principle of contemporary exposition. Here it is not a case of one or two stray statutes in the administration of which the strict rule of construction has been overlooked. On the contrary, a uniform course of dealing is disclosed which shows that profits from permanently settled estates have been taxed for the purposes of the State without express words revoking the exemption alleged to have been given by the Permanent Settlement Regulation; and I have been unable to discover a single statute in which any such exemption has expressly or by implication been recognized.‖ 43.

Practice not a guide where language of statute is clear

Killing Valley Tea Company v. Secretary of State [1 ITC 54 (Calcutta)] ―In great stress has naturally been laid by Sir Binod Mitter, who appeared on behalf of the Company, on the important fact that

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no attempt was ever made to assess the Company to income tax under the corresponding provisions of the Indian Income Tax Act, 1886, which have been, so far as the present question is concerned, reproduced with no substantial variation in the Indian Income Tax Act, 1918. This is no doubt a circumstance to be taken into consideration, for an interpretation which has long been acted on, will not be disregarded by a Court of law [Lancashir and Yorkshire Railway Co., vs. Sury Corporation [(1889) 14 App. Cas. 417 at p. 422], Tancred Arrol and Co., vs. Steel Co., of Scotland [(1890) 15 App. Cas. 125 at p. 141]] and the Court should have regard to the construction put upon a statute when it first came into force; Morgan vs. Crawshay [(1871) L.R. 5 H. L. 304 at p. 315], Fermoy Peerage Claim [(1856) 5 H.L.C. 716 at p. 747], Goldsmith Co., vs. Wyatt [(1905) 2 K.B. 586 at p. 596]. But as Channell J. observed in the case last mentioned, where the Court is called upon to construe an Act of Parliament expressed in unambiguous language, it ought to put its own construction upon it, regardless of the construction that has been commonly put upon it; the fact that a mistaken interpretation has been generally put upon it cannot alter the law. To the same effect are the observations in Baleshwar vs. Bhagirathi [(1908) I.L.R. 35 Cal. 701 at p. 713; 7 C.L.J. 563; 12 C.W.N. 657]. “It is a well-settled principle of interpretation that Courts, in construing a statute, will give much weight to the interpretation put upon it, at the time of its enactment and since, by those whose duty it has been to construe, execute and apply it. I do not suggest for a moment that such interpretation has by any means a controlling effect upon the Courts; such interpretation may, if occasion arises, have to be disregarded for cogent and persuasive reasons and, in a clear case of error, a Court would without hesitation refuse to follow such construction.” This view is supported by the dictum of Sir Robert Phillimore in Evanturel vs. Evanturel [(1869) L.R. 2 P.C 462 at p. 488] and has been applied in the case of Corporation of Calcutta vs. Benony Krishna Boos [(1919) 12 C.L.J. 476; 15 C.W.N. 84; 7 Ind. Cas. 890] and Mathura Mohan Saha vs. Ramkumar Saha [(1915) L.L.R. 43

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Cal. 790 at p. 816; 23 C.L.J. 26; 20 C.W.N. 370; 35 Ind. Cas. 305]. We may add that it was stated by the Advocate-General that there has been some divergence of opinion among successive legal advisers of the Crown and that the assessment has been made in this instance with a view to obtain a judicial determination of the true meaning of the legislative provisions on the subject. Clearly, we cannot, in such circumstances, allow our decision to be controlled by the conduct of the Revenue Authorities in the past. We have finally been pressed to apply the elementary rule that taxing statutes must be construed strictly; Manindra Chandra vs. Secretary of State for India [(1907) I.L.R. 34 Cal. 257; 5 C.L.J. 148], Mylapore Hindu Permanent Fund, Limited vs. Corporation of Madras [(1908) I.L.R. 31 Mad. 408; 3 M.L.T. 400; 18 M. L.J. 349], Tenant vs. Smith [(1892) A.C. 150 at 154], Lumsden vs. Inland Revenue Commissioners [(1914) A.C. 877 at p. 897], Attorney-General vs. Milne [(1914) A.C. 765]. Now, there is no room for controversy that the Crown, seeking to recover the tax, must bring the subject within the letter of the law, otherwise the subject is free, however much within the spirit of the law the case might appear to be. There can be no equitable construction admissible in a fiscal statute; the benefit of the doubt is the right of the subject; Partington vs. AttorneyGeneral [(1869) 4 E. & I. App. H. L. 100 at p. 122], Pryce vs. Monmouthshire Canal Company [(1879) L.R 4 H.L. 197 at p. 202].‖ 44.

Practice under repealed Act as an aid for construction of later Act

Secy. to Commr. Salt v. Ramanathan Chetti, minor by guardian [1 ITC 37 (Madras)] ―.... The language employed by some of the noble Lords in that case was very strongly relied on by the learned AdvocateGeneral. The observations of Lord Davey who subsequently explained the position in Commissioners of Taxation vs. Kirk [(1900) A.C. 588] do not support the view that by giving general instructions the business is carried on in the country from which these instructions issue. Moreover, the facts in De Beers Consolidated Mines, Limited vs. Howe [(1906) A.C. 455] and in

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Cesena Sulphur Company vs. Nicholson [(1876) I Fx. D., 428] and in Mitchell vs. Egyptian Hotels, Limited [(1915) A.C. 1022] were different from the facts on which we have been asked to give our opinion. I do not therefore think any good will be served by discussing these cases. In my opinion the facts to which our attention has been drawn are not specific enough to enable us to say that the business was really carried on in British India. There is only one other remark that need be made. It was elicited in the course of the argument that until the year 1914 or 1915 no income tax was levied in respect of foreign trades of principals residing in British India. The old Act of 1886 was repealed in 1918. So, for about 30 years at least, the executive Government in India did not levy income tax upon business of this kind. Mr. Krishnaswami Ayyar relied on this practice and quoted Commissioner for Special Purposes of Income Tax vs. Pemsel [(1891) A.C. 531] and Yewens vs. Noakes [(1880) 6 Q.B.D. 530] as enunciating that the practice under a repealed enactment can be looked into for construing the later enactment. Whatever may be the weight we may attach to it, it seems to me that Courts will not acting wrongly in referring to the practice in construing the Act. However, I do not invoke the aid of this practice as in my opinion there is nothing in the Act, which on the face of it imposes a duty upon income of this kind. As I started by saying, unless the words are clear, a fiscal enactment should not be construed as imposing a tax by implication. For these reasons I am of opinion that the assessee is not taxable.‖ 45.

Presumption against double taxation

Emperor v. Probhat Chandra Barua [1 ITC 284 (Calcutta)] ―Some reference was also made to what has been called a presumption against double taxation. In Manindra Chandra Nandi vs. Secretary of State [(1907) I.L.R. 34 Cal. 257 at p. 287; 5 C.L.J. 148], royalties from a coal mine were held liable both to cess under the Cess Act, 1880 and to income tax under the Act of 1886, but it was said that it may be conceded that Courts always

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look with disfavour upon double taxation and statutes will be construed, if possible, to avoid double taxes. Reference was made to certain dicta of American Courts and to the English case of Carr vs. Fowle [(1893) I.Q.B. 251]. But the only observation in this case was to the effect that the statute presumably did not intend that a vicar should in effect pay the same tax (land tax) twice on the same hereditament. This is plain enough. Thus the income tax is one tax, and income assessed under one Schedule cannot be assessed all over again under another. That there is any legal presumption of a general character against double taxation in any wider sense is a proposition to which I respectfully demur as a principle for the construction of a modern statute. In Maninra Chandra Nandi vs. Secretary of State [(1907) I.L.R. 34 Cal. 257; 5 C.L.J. 148], it did not avail to cut down clear, though absolutely general language.‖ 46.

Vested rights such as rights to appeal and to demand a reference already accrued, cannot be taken away by repeal of Act

CIT v. Dharamchand Dalchand [1 ITC 264 (Nagpur)] ―Under the ordinary law, vested rights including rights to appeal and to demand a reference that have already accrued are taken away by the repeal of any Act; but the procedure would be under the new Act. The rule regarding vested rights is not confined to substantive rights but extends equally to remedial rights or rights of action including rights of appeal: see Maxwell‘s Interpretation of Statutes, 6th Edition 401. In Gopeshwar Pal vs. Jiban Chandra [(1914) I.L.R. 41 Cal. 1125; 18 C.W.N. 804; 19 C.L.J. 549; 24 Ind. Cas. 37], it was held that, though procedure may be regulated by an Act for the time being in force, still the intention to take away a vested right without compensation or any saving, is not to be imputed to the legislature in any case unless it be expressed in unequivocal terms. [Cf. Chief Commissioner of Public Works vs. Logan (1903) A.C. 355]. This was a case of right to sue. In Ramakrishna Chetty v. Subbaraya Aiyar [(1915) I.L.R. 38 Mad. 101; 24 M. I. J. 54; (1913) M.WN. 303; 18 Ind. Cas. 64] which is a

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case of limitation, it was held that the rule regarding vested rights is not confined to substantive rights but extends equally to the remedial rights or rights of action including rights of appeal. At page 106 of the same ruling there is a quotation from an English case, In re Athlumney, Ex parte Wilson [(1898) 2 Q.B. 547], where wright J. observed; “Perhaps no rule of construction is more firmly established than this that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation, otherwise than as regards a matter of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment” And, further, their Lordships observe: “It is unreasonable to suppose that the Act intended to destroy a man‟s rights without giving him an opportunity to comply with its provisions. The Court, if asked to give retrospective effect to a statute, will bear in mind the consequences of doing so. See Ex parte Todd, In re Ashoroft [(1887) 10 Q.B.D. 186].” 47.

Non-revenue profit/losses are not covered in Income Tax unless specifically provided in statute

Rathan Singh, Proprietor, Rathan Singh Motor Service, Madura v. The CIT, Madras [2 ITC 107 (Madras)] ―It is one of the fundamental principles of income tax legislation both in India and in England that capital losses are never allowed in income tax assessment unless specifically provided for in the words of the statute. It is equally true that profits arising from capital transactions are not liable to be taxed. I am fortified in this conclusion by the remarks of Schwabe C. J., in Board of Revenue vs. Ramanathan Chettiar (I.T.C. 244 at p. 247) where he states: “It does not seem probable that the legislature meant to provide a deduction for losses on sales of machinery by manufacturing concerns without at the same time bringing into account any profits that might be made on such sales. Sales of machinery are sales of parts of the capital of a concern of this kind and the

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resulting profits or losses on such sales are dealt with quite apart from this section.”

Chapter III Powers of Legislature 1.

Powers of Legislature while framing fiscal laws

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad [(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845] ―That in view of wide variety of diverse economic criteria, which are to be considered for the formulation of a fiscal policy, legislature enjoys a wide latitude in the matter of selection of persons, subject matter, events, etc. for taxation. But with all this latitude certain irreducible desiderata of equality shall govern classification for differential treatment in taxation laws as well. That courts while interpreting laws relating to economic activities view the same with greater latitude than the laws relating to civil rights such as freedom of speech, religion etc. keeping in view the complexity of economic problems which do not admit of solution through any doctrinaire or strait jacket formula.‖ 2.

Legislature, particularly in economic activities, enjoys wide latitude in the matter of selection of person, subject-matters, events etc., for taxation

Call Tell (Pvt.) Limited through Authorized Representative and another v. Federation of Pakistan through Secretary, Ministry of Law Justice and Human Rights Division, Islamabad and others [2004 PTD 3032 (S.C. Pak.) = (2005) 91 TAX 1 (S.C. Pak.)] ―The learned counsel pointed out that the Chief Automation (D.T.), Data Processing Centre, Income Tax Department, Karachi, by letter dated 15.8.2002, had pointed out that it was not practicable or humanly possible to provide names and addresses, NTN etc., for the purpose of 71

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collection of income-tax. It was lastly contended that the Central Board of Revenue had failed to provide any structure for the workability and collection of tax. Therefore, this Court was required to lay down necessary guiding principles by applying doctrine of reading down a statute so as to make the provisions of section 236 of the Ordinance workable and practicable. Reliance was placed on the cases Elahi Cotton Mills Limited (supra), Rauf Bakhsh Qadri v. the State (2003 MLD 777) and Sunil Batra v. Delhi Administration (AIR 1978 SC 1675). On the other hand, Mr. Makhdoom Ali Khan, the learned Attorney General of Pakistan submitted that the other companies dealing with the pre-paid telephone cards were collecting and paying tax without any difficulty as required under section 236 of the Ordinance. It was pointed out that letter dated 15.8.2002 by the Chief Automation (D.T.), had nothing to do with the workability or otherwise of the provisions of section 236 of the Ordinance or the collection of advance tax on the pre-paid cards. The charging provisions of the tax did not suffer from any taint of invalidity. Therefore, the machinery provisions of the statute providing the manner and method for collection of such a tax were to be construed so that it would not defect a tax. In this regard, the learned Attorney General relied on the cases of Commissioner of Income Tax Bengal v. Mahaliram Ramjidas (AIR 1940 PC 12) and Khan Abdul Ghafoor Khan DAHA v. Controller of Estate Duty, Government of Pakistan (1969 PTD 128). It was brought to our notice that as against 4.6 million P.T.C.L. line phones and three million mobile phones there were only one million taxpayers in the country. As many as 279 companies had been authorized by the Pakistan Telecommunication Authority to extend the facility of Public Call Offices. The amount of advance tax deducted from the value of the pre-paid telephone cards was automatically collected by the petitioner and other companies for onward payment to the Income Tax Department. The inter-city telephone cards were used through the PTCL lines. It was argued that the plain duty of the Court was to ascertain the intention of the Legislature and to carry it out. It

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was not for the Courts to question the policy or motive of the Legislature or to refuse to give effect to a statute merely because it appeared to be harsh or unreasonable. Reference was made to the cases of the Punjab Province v. Malik Khizar Hayat Khan Tiwana (PLD 1956 Federal Court 200) and Air League of PIA Employees Union and another v. Federal of Pakistan/The President/Chief Executive and another 2003 PLC (C.S.) 145). It was lastly argued that the tax on ―deemed income‖ were examined and upheld by this Court in cases of Elahi Cotton Mills Limited (supra) and Commissioner of Income Tax v. Asbestos Cement Industries Limited and others 1993 PTD 343. The question of Constitutional validity of advance tax was exhaustively considered and upheld by this Court in the case of Elahi Cotton Mills Limited (supra) while interpreting the provisions of section 80C, 80CC and 80D of the Income Tax Ordinance, 1979. It will be useful to reproduce, in extensor, the relevant portions of the aforesaid judgments:―(17) We may now refer to the background which necessitated the enactment of the impugned sections. In this regard, it may be pertinent to refer to the final report of the National Taxation Reforms Commission, hereinafter referred to as the NTRC, or December, 1986, which mostly comprised the representatives of business community representing various trade associations. NTRC in the above report commented upon the corruption obtaining in the Government and semi-Government department as under:―So far as corruption is concerned, there is no doubt in the mind of the public that most Government and semi-Government departments are corrupt; many know it from personal experience, while others have just to look at the standard of living of the comparatively low-paid officials, their cars, their houses, the type of parties they give, the

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expensive schools their children attend and the clothes and jewelry their wives wear to realize that all this costs a lost of money and that such expenses could not be covered by the emoluments of the officials concerned. Inquiries, suspensions and periodic wholesale removals have been tried but the basic weapon against corruption is confiscation of the illgotten gains. This has not been practiced so far.‖ The menace of tax evasion is not a new discovery but it has been so since the imposition of the same but the degree of tax evasion has alarmingly increased and so also the malpractices in the Income Tax Department entrusted with the levy and collection of tax. Lord Green in the case of Lord De Walden VIR TC 134 (CA) (1942) 10 ITR Suppl 90, 94 touched upon the question of tax evasion as follows:―For years a battle of maneuver has been waged between the Legislature and those who are minded to throw the burden of taxation off their own shoulders on to those of their fellow subjects. In that battle the Legislature has often been worsted by the skill, determination and resourcefulness of its opponents, of whom the present appellant has not been the least successful. It would not shock us in the least to find that the Legislature has determined to put an end to the struggle by imposing the severest of penalties. It scarcely lies in the mouth of the taxpayer who plays with fire to complain of burnt figures.‖ From the above case-law and the treaties, inter alia the following principles of law deductible:(vii) That the policy of a tax, in its operation, may result in hardships or advantages or

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disadvantages to individual assessees which are accidental and inevitable. Simpliciter this fact will not constitute violation of any of the fundamental rights. (viii) That while interpreting Constitutional provisions Courts should keep in mind, social setting of the country, growing requirements of the society/nation, burning problems of the day and the complex issue facing the people which the Legislature in its wisdom through legislation seeks to solve. The judicial approach should be dynamic rather than static, pragmatic and not pedantic and elastic rather than rigid. (ix) That the law should be saved rather than be destroyed and the Court must lean in favour of upholding the constitutionality of a legislation keeping in view that the rule of Constitutional interpretation is that there is a presumption in favour of the constitutionality of the legislative enactments unless ex facie it is violative of a Constitutional provision. (xii) That what is not ―income‖ under the Income Tax Act can be made ―income‖ by a Finance Act. An exemption granted by the Income Tax Act can be withdrawn by the Finance Act or the efficacy of that exemption may be reduced by the imposition of a new charge, of course, subject to Constitutional limitations. (xvii) That generally the effect of a deeming provision in a taxing statute is that it brings within the tax net an amount which ordinarily would not have been treated as an income. In other words, it brings within the net of chargeability income not actually accrued but which supposed to have accrued notionally.

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(xviii) That when a statute enacts that something shall be deemed to have been done which in fact and in truth was not done, the Court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to. (xix) That where a person is deemed to be something the only meaning possible is that whereas he is not in reality that something, the Act requires him to be treated as he were with all inevitable corollaries of that state of affairs. (xxx) That the theory of reading down is a rule of interpretation which is resorted to by the Courts when they find a provision read literally seems to offend a fundamental right or falls outside the competence of the particular Legislature. (xxxi) That though the Legislature has the prerogative to decide the questions of quantum of tax, the conditions subject to which it is levied, the manner in which it is sought to be recovered, but if a taxing statute is plainly discriminatory or provides no procedural machinery for assessment and levy of the tax or that is confiscatory, the Court may strike down the impugned statute as unconstitutional. (xxxii) That the rule of interpretation that while interpreting an entry in a Legislative List it should be given widest possible meaning does not mean that Parliament can choose to tax as income as item which in no rational sense can be regarded as a citizen‘s income. The item taxed should rationally be capable of being considered as the income of a citizen. (xxxiii) That before charging tax, an assessee must be shown to have received income or the same has arisen and accrued or deemed to be so under the

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statute. Any amount which cannot be treated as above is not an income and, therefore, cannot be subject to tax. (xxxiv) That there is a marked distinction between a tax on gross revenue and a tax on income, which for taxation purposes, means gains and profits. There may be considerable gross revenues, but no income taxable by an income tax in the accepted sense. (32) we have summarized hereinabove in para 31 the ratio decidendi of the above discussed cases and certain pertinent observations made therein. A perusal of above sub-paras (i) to (xxx) of para. 31 indicates that the same does not advance the case of the appellants. On the contrary, they reinforce the principle of law that the Legislature, particularly in economic activities, enjoys a wide latitude in the matter of selection of person, subject-matters, events etc., for taxation. The presumption is in favour of the validity of the legislation. The burden to prove that the same is invalid is on the person who alleges it. However, one can urge that the general observations contained in sub-paras (xxxi) to (xxiv) of para 31 lend support to some extent to the appellants case. However, it should not be overlooked that in none of the cases from the judgments of which the above observations have been lifted the questions, as to whether there can be presumptive tax or the minimum tax, in view of Entries 47 and 52 of the Legislative List, was in issue. In this view of the matter, it would be inappropriate to apply the tests traditionally prescribed by the Income Tax Act and/or any other statute. (34) Keeping in view the above case-law and the treaties and the aforesaid legal inference drawn therefrom, we may now revert to the question of vires of impugned

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sections. It may again be observed that the power to levy taxes is a sine qua non for a State. In fact it is an attribute of sovereignty of State. It is mandatory requirement of a State as it generates financial resources which are needed for running a State and for achieving the cherished goal, namely, to establish a welfare State. In this view of the matter, the Legislature enjoys plenary power to impose taxes within the framework of the Constitution. It has prima facie power to tax whom it chooses, power to exempt whom it chooses, power to impose such conditions as to liability or as to exemption as it chooses, so long as they do not exceed the mandate of the Constitution. It is also apparent that the entries in the Legislative List of the Constitution are not powers of legislation but only fields of legislative heads. The allocation of the subjects to the lists is not by way of scientific or logical definition but by way of mere simple enumeration of broad catalogue. A single tax may derive its sanction from one or more entries and many taxes may emanate from one single entry. It is needless to reiterate that it is a well-settled proposition of law that an entry in the Legislative List must be given a very wide and liberal interpretation. The word ―income‖ is susceptible as to include not only what is in ordinary parlance it conveys or it is understood, but what is deemed to have arisen or accrued. It is by working out the net income tax after adjusting admissible expenses and other items, but the same may also be levied on the basis of gross receipts, expenditure etc. There are new species of income tax, namely, presumptive tax and minimum tax. (42) We may again point out that the NTRC, which mostly comprised the representatives of business community representing various trade associations, in its report of December, 1986, quoted hereinabove in para 17, highlighted the corruption obtaining in Government

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and semi-government departments and so also to dishonest tendency on the part of the tax-payers to evade the payment of lawful taxes by using unfair means. In such a scenario, the Legislature is bound to adopt modern and progressive approach with the object to eliminate leakage of public revenues and to generate revenue which may be used for running of the State and welfare of its people. The imposition of minimum tax under section 80D is designed and intended to achieve the above objectives. The rate of half per cent of minimum tax adopted under section 80D seems to be on the basis of the minimum rate of tax suggested by the Exports Enhancement Committee. In our view the above provision falls within the Legislative competence under Entry 47 read with Entry 52. The approach of this Court while interpreting the Constitution should be dynamic, progressive and oriented with the desire to meet the situation effectively which has arisen keeping in view the requirement of ever changing society. Applying the above rule of interpretation, we do not find any infirmity in the impugned section 80D of the Ordinance.‖ A somewhat similar view was taken by this Court in the case of Commissioner of Income Tax versus Asbestos Cement Industries Ltd. and others (supra). The learned Judges of the High Court of Sindh came to the following conclusion in para. 11 of the impugned judgment that:―The advance tax impugned in this petition does not fall within the purview of presumptive tax regime. The advance tax collected by the petitioner No. 1 from the petitioner No. 2 and all other buyers of the pre-paid telephone cards shall be merely credited with the Government which can be utilized and adjusted to the extent found necessary towards the ultimate liability of income tax due, after it has been determined and the

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excess amount if any is to be refunded to the purchasers of pre-paid telephone cards…‖ In our view, the impugned judgment by the High Court of Sindh is in conformity with the ratio laid down by this Court in the case of Elahi Cotton Mills Limited (supra) and he same does not suffer from any legal infirmity so as to warrant interference by this Court.‖ 3.

Taxing rights of legislature are unlimited as long as these are not confiscatory

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad [(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845] ―That the taxing power is unlimited as long as it does not amount to confiscation and that the legislature does not have the power to tax to the point of confiscation. That the word reasonable is a relative generic term difficult of adequate definition. It inter alia connotes agreeable to reason; conformable to reason; having the faculty of reason; notional; thinking; speaking; or acting rationally; or according to the dictates of reason; sensible; just; proper and equitable or to act within the constitutional bound.‖ 4.

Parliament is competent to levy presumptive taxation; broad principles relating to fiscal laws explained

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad [(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845] ―In our view, Sections 80C and 80CC of the Ordinance fall within the category of presumptive tax as under the same the persons covered by them pay a pre-determined amount of presumptive tax in full and final discharge of their liability in respect of the transactions on which the above tax is levied. If we were to read Entry 47 [of the 4th Schedule to the Constitution, Part I] in isolation without referring to Entry 52,

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one can urge that Entry 47 does not admit the imposition of presumptive tax as the expression taxes on income employed therein should be understood as to mean the working out of the same on the basis of computation as provided in the various provisions of the Ordinance. We are inclined to hold that presumptive tax is in fact akin to capacity tax i.e. capacity to earn. In this view of the matter, we will have to read Entry 47 in conjunction with Entry 52 which provides taxes and duties on production capacity of any plant, machinery, undertaking, establishment or installation in lieu of the taxes or duties specified in Entries 44, 47, 48 and 49 or in lieu of any one or more of them. Since under Entry 52, tax on capacity in lieu of taxes mentioned in Entry 47 can be imposed, the presumptive tax levied u/Ss 80C and 80CC of the Ordinance is inconsonance with the above two entries if read in conjunction. Since u/Ss 80C and 80CC the imposition of presumptive tax is in substitution of the normal method of levy and recovery of the income tax, the same is in consonance with Entry 52. The question, as to whether a particular tax is confiscatory or expropriatory, is to be determined with reference to the actual earning or earning capacity of an average prudent successful entrepreneur in a particular trade or business. The fact that a particular assessee has suffered loss/losses during certain assessment years, is not germane to the above question. In this regard reference may again be made to the case of the Madurai District Cooperative Bank Ltd. vs. Third Income Tax Officer, Madurai (supra), referred to hereinabove in para 28(x), wherein taxable income of the assessee declared was Rs. 51,763; whereas the tax imposed was Rs.76,674/07 including surcharge. Indian Supreme Court sustained the above levy and inter alia held that what is not income under the Income Tax Act can be made income under the Finance Act or exemption granted by the Income Tax Act can be withdrawn by the Finance Act or its efficacy can be reduced. Reasonable classification does not imply that every person should be taxed equally. It may be pointed out that reasonable

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classification is permissible provided it is based on an intelligible differentia which distinct persons or things that are grouped together from those who have been left out and that the differentia must have rational nexus to the object sought to be achieved by such classification. It may further be pointed out that different laws can be validly enacted for different sexes, persons in different age groups, persons having different financial standings and that no standard of universal application to test reasonableness of a classification can be laid down as what may be reasonable classification in a particular set of circumstances, may be unreasonable in the other set of circumstances. The requirement of reasonable classification is fulfilled if in a taxing statute the Legislature has classified persons or properties into different categories which are subject to different rates of taxation with reference to income or property and such classification would not be open to attack on the ground of inequality or for the reason that the total burden resulting from such a classification is unequal. The question, as to whether a particular classification is valid or not, cannot be decided on the basis of advantages and disadvantages to individual assessees which are accidental and inevitable and are inherent in every taxing statute as it has to draw a line somewhere and some cases necessarily may fall on the other side of the line. We may observe that once the Court finds that a fiscal statute does not suffer from any constitutional infirmity, it is not supposed to entangle itself with the technical questions as to the scope and modality of its working etc. The above question preeminently deserve to be decided by the Government which possesses of experts services and the relevant information which necessitated imposition of the tax involved unless the same suffers from any legal infirmity which may warrant interference by the Court. The impugned provisions of the Ordinance are based on reasonable classification as they are founded on an intelligible differentia which distinguishes persons covered thereunder with

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the other tax-payers. It has also rational nexus to the object sought to be achieved by such classification i.e. to broadening the tax base and to recover the minimum tax.‖ 5.

Levy of minimum tax held constitutional

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad [(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845] ―Sections 80C and 80CC cannot be equated with section 80D as the same is founded on different basis. It may again be observed that section 80D is based on the theory of minimum tax. It envisages that every individual should pay a minimum tax towards the cost of the Government. The object of the minimum tax is to ensure that the tax-payers who receive substantial amounts from exempt sources, pay at least some tax on their economic incomes of the year. This is achieved by reducing or disallowing certain itemised deductions. We may again observe that a large number of assessees though generally earn profits but on account of various tax concessions including tax holidays, depreciation allowance etc. under Schedule II and deductions allowed under the various provisions of the Ordinance, show loss instead of any net profit, with the result that they do not contribute any income tax towards the public exchequer. The levy of minimum tax has been adopted in some other countries of the world including U.S.A., Israel, France, Columbia and Thailand besides India. In United States, u/s 56(a) a tax equal to 15% of the amount, by which sum of the items of tax preference exceeds the greater of (i) $100,000 (b) .......... (c) ................. etc. is levied. We may again point out that the NTRC, which mostly comprised the representatives of business community representing various trade associations, in its report of December, 1986, quoted hereinabove in para 17, highlighted the corruption obtaining in Government and semi-Government departments and so also the dishonest tendency on the part of the tax-payers to evade the payment of lawful taxes by using

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unfair means. In such a scenario, the Legislature is bound to adopt modern and progressive approach with the object to eliminate leakage of public revenues and to generate revenues which may be used for running of the State and welfare of its people. The imposition of minimum tax u/s 80D is designed and intended to achieve the above objectives. The rate of half per cent of minimum tax adopted u/s 80D seems to be on the basis of the minimum rate of tax suggested by the Exports Enhancement Committee. In our view, the above provision falls within the legislative competence under Entry 47 read with Entry 52. The approach of this Court while interpreting the Constitution should be dynamic, progressive and oriented with the desire to meet the situation effectively which has arisen keeping in view the requirement of ever changing society. Applying the above rule of interpretation, we do not find any infirmity in the impugned Section 80D of the Ordinance. It may be stated that non-obstante clause in section 80-D is for the purpose of liability to pay minimum tax of half per cent on the annual turnover. This will exclude any provision of the Ordinance which may be inconsistent with it. But the same does not exclude the application of other provisions of the Ordinance which are not inconsistent with section 80-D. There seems to be no conflict between above Section 80-D and section 35 of the Ordinance, and hence the same remains available to assessees. To claim business loss or to carry forward the same u/s 35 of the Ordinance from year to year, is not affected by the above levy of half per cent on the annual turnover u/s 80D. The Central Board of Revenue in a written undertaking dated 9.4.1997 filed before this Court confirmed that subject to the conditions laid down in paras 3 and 4 of Circular No. 3 of 1996 dated 18.3.1996, it has retrospective effect and will be applicable to all pending assessments. The relevant portion of the aforesaid circular has already been quoted hereinabove, the effect of which is that while computing the annual turnover of an assessee, the amounts of sales tax and excise duty charged in terms of paras 3 and 4 of the aforementioned circular would be

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excluded. The above undertaking of the Central Board of Revenue is incorporated as a part of this judgment. We may point out that an executive order/notification, which is detrimental or prejudicial to the interest of a person, cannot operate retrospectively. However, a beneficial executive order /notification issued by an executive functionary can be given retrospective effect. In this regard it will suffice to refer to the judgment of this Court in the case of Army Welfare Sugar Mills Ltd. and others vs. Federation of Pakistan and others (1992 S.C.M.R. 1652). The above written undertaking of the Central Board of Revenue to make this circular applicable retrospectively is in consonance with the aforesaid judgment of this Court. In our view, since the provisions of Act XII of 1992 are subsequent in time and as they are contained in a special statute, they shall prevail over the provisions of Section 80D of the Ordinance, which was enacted through Finance Act, 1991, which was an earlier statute and which was part of a general statute. In this view of the matter, assessees who fulfil the conditions of the notifications referred to in the Schedule to Section 6 of Act XII of 1992, are entitled to the protection. The question, as to whether a particular assessee fulfils the conditions of the above notifications, is a question of fact, which will have to be determined by the hierarchy provided under the Ordinance and not by this Court. However, in order to eliminate multiplicity of litigation and to avert element of harassment to assessees, we have dealt with the legal aspect of the above contention though apparently it was not urged before the High Court as we do not find any mention in any of the judgments under appeal. Assessees who are covered by the notifications mentioned in the Schedule to Section 6 of the Protection of Economic Reforms Act, 1992 (Act XII of 1992), are entitled to the protection in terms thereof as per paras 52 to 54 hereinabove. They may approach the Income Tax Department.‖ 6.

Restriction on power to levy tax

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through

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Secretary Finance, Islamabad [(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845] ―That the rule of interpretation that while interpreting an entry in a legislative list it should be given widest possible meaning does not mean the Parliament can choose to tax as income an item which in no rational sense can be regarded as citizen‘s income. The item taxed should rationally be capable of being considered as income of a citizen.‖ Messrs Mahmood & Company v. Assistant Collector, Sales Tax (Enforcement & Collection), Shalimar Division, Lahore and 2 others [2005 PTR 89 [H.C. Lah.] = 2005 PTD 67 (H.S.C Lah.)] ―The levy of tax, its rate and collection does not depend upon the will or agreement of some gentlemen who purport to represent other taxpayers of their class. The Constitutional prohibition against imposition of tax, except under the authority of a law as contained in Article 77 read with Article 127, also extends not only to the rate of tax and the procedure of its collection unless the superior legislation had delegated such a power and that power had been exercised strictly in terms and conditions of the delegation.‖ 7.

When legislation is violative of fundamental rights

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad [(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845] ―That income tax is a tax on a person in relation to his income. It is a tax imposed upon a person (natural or artificial) in relation to his income. That any legislation whereby either the prices of marketable commodities are fixed in such a way as to bring them below the costs of production and thereby make it impossible for a citizen to carry on business or tax is imposed in such a way so as to result in acquiring property of those on whom the

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incidence of taxation fell then such legislation would be violative of the fundamental rights to carry on business and to hold property as guaranteed in the constitution.‖ 8.

Past and closed transactions cannot be reopened by giving retroactive effect to an amending provision unless so provided

Income Tax Officer & another v. Chappal Builders [1993] 68 TAX 1 (S.C.Pak.) ―We are of the opinion that, even though the amending provisions in question, were a part of the procedural laws, they cannot be given retrospective effect, in the facts of the present case. There is no dispute between the parties, that but for the amendments, the business profits for the chargeable accounting period in question, were not liable to be assessed on 31.1.1958. On the expiry of the period of four years u/s 14, the assessee had, therefore, clearly acquired a right and the assessment for the said year became a past and closed transaction. This right could not, therefore, be taken away by giving retroactive operation to the amended statutory provisions extending the period for assessment. The contentions advanced on behalf of the appellant are without substance.‖ CIT v. Eastern Federal Union Insurance Company [1982] 46 TAX 6 (S.C.Pak.) ―We are of the opinion that, even though the amending provisions in question, were a part of the procedural laws, they cannot be given retrospective effect, in the facts of the present case. There is no dispute between the parties, that but for the amendments, the business profits for the chargeable accounting period in question, were not liable to be assessed on 31.1.1958. On the expiry of the period of four years u/s 14, the assessee had, therefore, clearly acquired a right and the assessment for the said year became a past and closed transaction. This right could not, therefore, be taken away by giving retroactive operation to the amended statutory provisions extending the period for assessment. The contentions advanced on behalf of the appellant are without substance.‖

88 Principles of Income Tax Law 9.

Double Taxation is prerogative of legislature

Pak Industrial Development Corporation v. Pakistan, through the Secretary, Ministry of Finance [(1992) 65 TAX 84 (S.C.Pak.) = 1992 PTD 576 = PLD 1992 SC 562] ―Unless there is any prohibition or restriction imposed on the power of legislature to impose a tax twice on the same subject-matter, double taxation though a heavy burden and seemingly oppressive and inequitable cannot be declared to be void or beyond the powers of the legislature. It may, however, be noted that double taxation can be imposed by clear and specific language to that effect. Where the language is not clear or specific by implication such levy cannot be permitted.‖ Haji Muhammad Shafi & Others v. Wealth Tax Officer & Others [(1992) 65 Tax 315 (S.C.Pak)] ―It is, thus, clear that unless there is any prohibition or restriction on the power of the legislature to impose a tax twice on the same subject matter, double taxation cannot be declared illegal or void though it may be oppressive and inequitable. Unless there is a clear law imposing tax twice merely by implication tax cannot be imposed twice over. There should be a clear and specific provision to that effect.‖ 10.

The powers of legislature to tax non-residents

The Imperial Tobacco Company of India Ltd. v. CIT, South Zone Karachi [(1960) 2-Tax (Suppl.-308) (S.C.Pak)] ―This construction is consistent with the words and the sense of the definition of British India as well as with the principle observed in section 4 of Income Tax Act, and the rule of International Law that a legislature has an authority to tax its citizens wherever they be, and to tax the foreigners only if they earn or receive income in the country for which legislature has the authority to make the laws.‖

89 Powers of Legislature 11.

Levy of presumptive taxation

Continental Chemical Co. (Pvt.) Ltd. v. Pakistan and others [(2001) 83 TAX 305 (H.C.Kar.) = PTCL 2001 CL. 454] ―Under the Indian Income Tax Act, 1961 presumptive tax regime has been made applicable to limited number of items but the deduction made at source has been made liable for adjustment against the tax demand created on regular assessment.‖ 12.

Levy of Corporate Asset Tax is constitutionally valid

ICC Textiles Limited v. Federation of Pakistan and Others [(1999) 79 Tax 77 (H.C.Lah.)] ―...there is no limitation placed on the use of word assets in item No. 50 of 4th Schedule [ to the Constitution] and the question as to whether gross assets or net assets are to be taxed was relateable to mechanism and could be determined by the Federal Legislature while further legislating on the subject. I am, therefore, unable to agree with the learned counsel on the interpretation being placed on item No. 50 of 4th Schedule to the Constitution. No doubt tax can only be levied by the Parliament as ordained by Article 77 of the Constitution but as by promulgating section 12 of the Finance Act, 1991, the tax is being levied on the capital value of assets, no valid exception can be taken thereto.‖ 13.

Corporations created by provincial statutes are not “governments”

Indus Steel Pipes Ltd. v. CIT, Companies-II, Karachi and others [(1999) 79 Tax 410 (H.C.Kar.)] ―Having examined 1997 PTD (Tribunal) 1435, it appears to be a correct view that a corporation created as a result of a statute was held not to be a part of the Provincial Government. The present appellant company being an assessee cannot be taken to be an organ of the State and, therefore, it seems that the issue in hand can only be resolved by examining the status of a company and looking into the important distinctive features. It would be seen that the definition of the Government in the

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definition clause cannot be extended to an extent so as to include bodies created by Provincial or Federal Statutes or incorporated as public companies as nothing is to be employed in statutes or documents which is inconsistent with the words expressly used. We further find that legislative intent is absent so to include corporation like the appellant company as an integral part of the Federal Government. We further find that in the present set of circumstances, the legislature has, in fact restricted this concession to companies and corporations directly owned by them and not to those, which are so owned by them through the medium of intermediate corporations. We further find that a company owned by a Government shall not, for all purposes, be deemed to be a Government Department. It may be quite correct that 50% holding of shares by a corporation for carrying on the functions in which they are engaged may be to some extent are carried out on behalf of the Government and further that the income of the corporation to the extent of 50% income of the appellant company is, in fact, the income of the Government of Pakistan. One further aspect could also not be ignored that 50% shares are held by the corporation in the appellant company, then at least to the same extent, employees of the appellant company would be employees of the corporation and then whether it could be said that to the extent of 50% employees of the appellant company shall be deemed to be Government servants and all properties owned by the Corporation are owned by the Government and further all contracts made by the corporation will only be made by the President is required by Article 173 of the Constitution. Consequently, we are of the view that a company or a corporation owned by the Government shall be deemed to be a department of the Government, which was confined for the purposes of its immunity to tax earlier granted and available under Article 165 of the Constitution.‖ 14.

Personal interest must yield to larger interest

Pakistan Burma Shell Ltd., etc. v. Federation of Pakistan through Secretary Ministry of Finance,

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Government of Pakistan, Islamabad, etc. [1998] 78 TAX 234 (H.C.Kar.) = PTCL 1998 CL. 690 ―[Per Mamoon Kazi, J. Contra.] - The expression ―tax on income‖ would not only include ―within its ambit profits or gains actually received by an assessee, but even something that may be presumed by the legislature to have been received. The Legislature in order to achieve certain object would therefore, be acting within its power while resorting to this method of legislation. As was again observed in Elel Hotels‟ case, ―taxation is now not a mere source of raising money to defray expenses of Government. It is a recognised fiscal tool to achieve, fiscal and social objectives‖. Although, in the present case, ostensibly gross receipts of the assessee or the turnover of his business have been deemed to be his income, but in reality only a certain percentage thereof, higher than the imposition is presumed to be his income. Inherent in the concept of income no doubt, is also the concept of profitability and any amount to be called income must have some characteristics of income as the term is ordinarily understood by its various connotations, but the Court only has to ascertain that what has been deemed to be the income of the assessee can reasonably be deemed to be his income. Viewing the issue in the above background, it cannot be said in the present case that the Legislature has transgressed the limits provided by the Constitution. Under section 80C of the Ordinance the whole of the amount received by a person on account of supply of goods or on execution of a contract or the amount spent by an importer of goods (which shall also include customs duty and sales tax) is to be deemed to be the income of such person. Likewise, u/s 80CC of the Ordinance the whole of export proceeds of a person are to be deemed to be his income. Under section 80C of the Ordinance, a tax at the rate of one-half per cent is to be imposed as minimum tax In relation to the turnover of business or trade of a person. The liability for payment of Income Tax varies in case of sections 80C and 80CC from one half percent to one percent of the income in case of exports and from two

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percent in case of imports to two and one-half percent in case of supplies. These rates neither appear to be expropriatory nor confiscatory. Unless the imposition is disproportionate to income, it cannot be said to be confiscatory. In our opinion, the mere fact that margin of profit would be different cannot render the said provisions discriminatory or arbitrary or violative of Article 25 of the Constitution. Profitability in any trade or a business & profession is also commensurate with the relative efficiency of its management although there can be various other factors responsible for the same. However, no two companies or firms having similar trade or business can earn similar margin of profit. The impugned provisions of the Ordinance are apparently based on a presumption that a certain percentage of the assessee‘s gross receipts would be tilt minimum profit. The assesses has been taxed accordingly by the said provisions. Since the provisions are applicable to an assessee engaged in a trade or business it can be normally presumed that the assessee will keep a sufficient margin of profit on his total turnover or his gross receipts. The income tax payable does not appear to be so unreasonable as to be regarded as arbitrary or confiscatory it is noteworthy that in case of sections 80C and 80CC of the Ordinance the assessee is not required to file returns. The provisions have, therefore been designed to be simple avoiding tedious procedure of assessment for the convenience and. benefit of the assessee. In case of section 80D of the Ordinance, a return has to be filed and in case the tax payable by an assessee is more than one-half percent, the same will be assessed and paid accordingly. In case, no tax is payable or the tax payable is less than one-half per cent, such tax has to be paid. The provisions of section 80D on the face thereof do not appear to be discriminatory as they are applicable to the assessee as a class. Section 80D which also by virtue of the non-obstante clause inserted therein purports to include such companies or registered firms in the tax net in whose case no tax is payable or has been paid for any reason enumerated in section 80D of the

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Ordinance. The application of the provisions of section 80C or 80CC of the Ordinance to certain contractors, importers or exporters, etc. as a distinct class is also not difficult to comprehend because tax was already being deducted from them at source u/s 50 of the Ordinance. Therefore, the Legislature in Its own wisdom made the above provisions applicable to them. Apparently, the tax purported to be levied is neither unreasonable or discriminatory nor it appears to be confiscatory. However, merely because a fiscal statute is unreasonable or oppressive, its constitutional validity cannot be called in question. In the present case, companies and registered firms have been classified by the legislation as a separate class and so have been certain contractors, suppliers, importers and exporters. The object sought to be achieved has been shown to be to generate more funds for the public revenue or to prevent evasion of Income Tax. It can hardly be denied that in this country, one of the methods that can be effectively employed to plug loss of revenue is by resort to presumptive taxation. Therefore, there is a reasonable nexus between the legislation and the object it seeks to achieve. As was pointed out earlier, the legislature has sufficient latitude to classify persons or things in different categories to achieve the object of the legislation. The mere fact that the legislation tends to diminish the assessee‘s profile is not sufficient to-make it confiscatory either. The petitioners have failed to discharge the burden by demonstrating that the legislation in question is not in tune with the fundamental rights. In the present case, as we also pointed out earlier, the income tax levied on the gross receipts or as the case may be, the turnover does not appear to be unreasonable and the legislation appears to be based on a presumption that the assessee‘s minimum profit from the trade or business would exceed the Income Tax imposed under the said provisions of the Ordinance. Apparently, there appears to be no ground for assuming that such a measure is discriminatory or confiscatory, barring of course, a few exceptions reference to which has just

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been made in this judgment. However, as has been pointed out, when a larger benefit for the community is to be achieved, individual interest must yield to the larger interest.‖ 15.

Powers of Federal Government to levy income tax on any property or income, including that of Provincial Government

Punjab Small Industries Ltd. v. DCIT, Lahore [(1995) 71 Tax 220 (H.C.Lah)] ―In the constitution as originally framed, Article 165 ordains that no tax can be levied by the Federal Government on any property or income of the Provincial Government. However, later on doubts arose as to whether the income of corporation owned and controlled by the Government or set up by it under Act of Legislature can be deemed to be the income of the Government within the meaning of Article 165 of the Constitution. In order to remove these doubts, the constitution was amended by Constitution (Amendment) Ordinance (P.O. 11) 1985 and Article 165-A was added which reads as under:Art. 165-A - “Power of Majlis-e-Shoora (Parliament) to impose tax on the income of certain corporations, etc. (1) For the removal of doubt, it is hereby declared that Majlis-e-Shoora (Parliament) has, and shall be deemed always to have had, the power to make a law to provide for the levy and recovery of a tax on the income of a corporation, company or any other body or institution established by or under a Federal Law or a Provincial Law or an existing law or a corporation, company or other body or institution owned or controlled, either directly or indirectly by the Federal Government or a Provincial Government, regardless of the ultimate destination of such income.‖ 16.

Parliament can introduce a new change of tax either by incorporating that change in the Income Tax Act or by Finance Act

United Liner Agencies Ltd. Kar. v. CIT, Karachi

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[(1988) 57 Tax (H.C.Kar)] ―The Income Tax Act or Income Tax Ordinance is a permanent Act or Ordinance while the Finance Acts are passed every year and their primary purpose is to prescribe the rate at which the income tax will be charged under the Income Tax Act or Ordinance. But that does not mean that a new and distinct change cannot be introduced under the Finance Act. We are of the view that the exigencies of the financial year determine the scope and nature of its provisions. If the Parliament has the legislative competence to introduce a new change of tax, it may exercise that power either by incorporating that change in the Income Tax Act, or by introducing it in the Finance Act or for the matter in any other statute. This is generally determined by the consideration whether the new change is intended to be more or less of a permanent nature or whether its introduction is dictated by financial exigencies of the particular year. Therefore, what is not income under the Income Tax Act can be made income by a Finance Act, an exemption granted by the Act can be withdrawn by the Finance Act or the efficacy of the exemption may be reduced by the imposition of a new change.‖ 17.

Words occurring in a constitutional provision relating to legislative power should be liberally construed

Pakistan Industrial Development Corporation v. Pakistan, through Secretary, Ministry of Finance [(1984) 49 Tax 76 (H.C.Kar)] ―The cardinal rule of interpretation is that the words should be read in their ordinary, natural and grammatical meaning. However, where courts are called upon to interpret a word occurring in a constitutional provision relating to legislative power, then the words are to be deliberately construed so as to give it widest connotation.‖ 18.

Levy of super tax on free reserves which had already suffered tax held not to be ultra-vires of the powers of Legislature under the Constitution

Pakistan Industrial Development Corporation v. Pakistan, through Secretary, Ministry of Finance [(1984) 49 Tax 76 (H.C.Kar)]

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―The Finance Acts, 1967 and 1968 by which the impugned amendments were introduced in the Income Tax Act providing for levy of Income Tax on ‗free reserves‘ are intra vires. It is stated in para 30 of the petition that the amount lying in ‗free reserves‘ of the company were in fact profits of the corporation on which Income Tax was already paid but this fact is not sufficient to render the levy of tax on such sums ultravires of the powers of Legislature under the Constitution. On a fair reading of para 20 of the petition we are convinced that the amounts lying in ‗free reserves‘ of the petitioner were nothing but unappropriated profit which could legitimately be taxed by the Legislature as ‗income‘ in exercise of its power under Entry No. 43(c) of the Third Schedule to the Constitution of 1962.‖ 19.

Redundancy cannot be readily attributed to the legislature

Mst. Zarina Yousaf v. Inspecting Additional Commissioner of Income Tax/Wealth Tax, Sialkot Range, Sialkot and another [2005 PTR 102 [H.C. Lah.] = 2005 PTD 108 (H.C. Lah.)] ―The Courts are to presume that absurdity was not intended by law makers while it will be a sure result if the interpretation of the Revenue in the situation in hand is accepted as correct. It needs to be noted that connecting an assessee personally to the exemption is likely to defeat the very purpose of exemption.‖ Pakistan Lyallpur Samundri, Transport Co. Ltd. v. CIT, Lahore Zone, Lahore [(1982) 46 Tax 143 (H.C.Lah)] ―One of the cardinal rules of interpretation of statutes is that where an amendment in the law takes place there must be implied necessarily an intention on the part of the Legislature to depart from the earlier law in some respects. Redundancy cannot be readily attributed to the Legislature. The position canvassed by the learned counsel for the petitioner would lead us to the conclusion that such an amendment is redundant because inspite of it the position in regard to the adjustment of unabsorbed depreciation carried forward remained as it was before the amendment. This cannot be readily accepted. There must be something in the law to irresistibly

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indicate, that the alteration sought has not been achieved on the words or expressions used in the amending Act.‖ 20.

Legislature has the power to enact curative legislation

CIT, (East) Karachi v. Ebrahim D. Ahmad & others [(1982) 45 Tax 232 (H.C.Kar)] ―From the principles deduced from the case law discussed hereinabove, it is evident that the Legislature has the power to enact curative legislation and to validate orders/actions which were not valid or were without jurisdiction when passed or taken in cases when some proceeding arising from such order or action remains pending. As observed hereinabove that there cannot be any cavil to the proposition that an original invalid or an order/action without jurisdiction can be validated by the Legislature while some proceeding arising therefrom remains pending and that the transaction does not become past and closed.‖ 21.

Power to make and promulgate Ordinance includes the power to levy tax

Mst. Saeeda Begum & others v. Govt. of Pakistan & another [(1977) 35 Tax 180 (H.C.Kar)] ―(Power to make and promulgate Ordinance for peace and good Government) .... must include the power to exact tax without money no good Government can function. The subject of tax therefore must be included within the scope of the phrase. The only limitation that is placed on the power of the President to promulgate Ordinance is that it is subject to the like restrictions as the powers of Federal legislature to make laws and the Ordinances so promulgated may be controlled or superseded by any such act. In other words the President can promulgate an Ordinance on any subject in regard to which the Federal Legislature can legislate which impliedly defines the scope of the legislation by the use of the phrase peace and good Government.‖ 22.

Rules cannot be made by subordinate authority unless expressly permitted

delegate

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CIT v. Adamji Sons [(1966) 14 Tax 174 (H.C.Kar.)] ―It is settled principle in law that a subordinated delegate authority cannot make rules or issue notification under a statute so as to give a retrospective effect to them, unless the statute itself grants such power.‖ 23.

Subordinate Legislation in the name of removing difficulties usurped the powers of Legislature

M/s Kashmir Edible Oil Ltd. v. Federation of Pakistan 2005 PTR 70 [H.C. Lah.] ―A general remark after reading the SRO would be that here is classic case where the person sitting in a subordinate legislature has, under the excuse of removing difficulties, wrongly tried to usurp the powers of the legislature and passed an edict which aimed at overwhelming all intentions of the legislature in a fiscal matter which has always to be construed strictly.‖

Chapter IV Role of Deeming Provisions/Certain Expressions 1.

Deeming provisions in respect of income

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad [(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845] ―That generally the effect of a deeming provision in a taxing statute is that it brings within the tax net an amount which ordinarily would not have been treated as an income. In other words, it brings within the ambit of chargeability something which might not actually accrue but which through a legal fiction shall be deemed to have accrued notionally. That when a statute enacts that something shall be deemed to have been done which in fact and in truth was not done, the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to. That where a person is deemed to be something the only meaning possible is that whereas he is not in reality that something, the Act required him to be treated as he were with all inevitable corollaries of the statute of affairs. That the legal fictions are limited for a definite purpose, they cannot be extended the purpose for which they are created.‖

101 2.

Widest amplitude of an entry in legislative list does not extend to tax something which is not a citizen‟s income

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad

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[(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845] ―That before charging tax, an assessee must be shown to have received income or the same has arisen and accrued or deemed to be so under the statute. Any amount which cannot be treated as above is not an income and, therefore, cannot be subject to tax. That there is a marked distinction between a tax on gross revenue and a tax on income, which for taxation purposes, means gains and profits. There may be considerable gross revenues, but no income taxable by an income tax in the accepted sense.‖ 3.

Scope of definition of „tax on income‟ under the Constitution

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad [(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845] ―We may state that at this juncture, it will not be out of context to take up Mr. Iqbal Naim Pasha‘s submission that the definition of the term ‗tax on income‘ given in Article 260 of the Constitution provides guideline as to the import and scope of Entry 47 of the Fourth Schedule to the Constitution, Part I, by providing that ‗tax on income‘ includes a tax in the nature of excess profits tax or a business profits tax which, according to him, have the same connotations which were understood in respect of Excess Profits Tax Act, 1940, and the Business Profits Tax Act, 1947. The above contention is devoid of any force, firstly, for the reason that the definition of the term ‗tax on income‘ given in Article 260 of the Constitution, used the words ‗tax on income‘ includes a tax in the nature of an excess profits business or a business profits tax. The factum that the word ‗includes‘ has been employed and not the word ‗means‘ indicates that the definition given in Article 260 of the above term is not exhaustive. Secondly,

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the entries in the Legislative List, as pointed out hereinabove, are to be construed liberally and not in a pedantic manner. The word ‗income‘ as highlighted hereinabove in various reports and treatises is susceptible to a very wide meaning. We may point out that the question, as to whether the impugned taxes are direct or indirect taxes highlighted by Mr. Sikandar Hayat with the aid of above three Privy Council cases, is not relevant. In the above cases the controversy in issue was, whether the Dominion concerned‘s legislature had the power to levy the impugned tax or the Province concerned. There is no such controversy involved in the instant case. Even otherwise, the impugned taxes are direct taxes.‖ 4.

Deeming provisions in a statute cannot spill over to other provisions in a statute and are to be construed strictly within the four corners of their objects

CIT/WT, Sialkot Zone, Sialkot v. Messrs Thapur (Pvt.), Sialkot [2002] 86 Tax 274 (H.C.Lah.) = 2002 PTD 2112 ―It is settled law that deeming provisions in a statute cannot spill over to other provisions in a statute and are to be construed strictly within the four corners of their objects. The deeming provisions of section 80CC, therefore, are confined only to the kind of receipts and the assessees mentioned therein. Neither the receipts nor the assessees mentioned therein are relevant for any other purpose including the charge of the Fund.‖ 5.

Deeming provisions how to be construed

Kashmir Feeds (Pvt.) Ltd. v. CBR, through Chairman, Government of Pakistan, Islamabad and another [(1999) 80 Tax 24 (H.C.Kar.) = 1999 PTD 1655] ―When a statute contemplates that a state of affairs should be deemed to have existed, it clearly proceeds on the assumption that, in fact, it did not exist at the relevant time but by a legal fiction one has to assume as it did exist.‖ 6.

Word “may” sometime be construed as “shall”

Mohammad Sadiq v. University of Sindh [PLD 1996 SC 182]

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―Generally, the word ‗may‘ involves a choice and ‗shall‘ involves order. This is the customary usage of these words when they appear in a statute. Even an enabling word like may may become mandatory, when the object of the power is to effectuate a legal right.‖ 7.

Scope of deemed income

CIT v. Syed Akhtar Ali [1994] 69 TAX 38 (H.C.Kar.) ―Setion 12(7) envisage ‗deemed income‘ income where an assessee makes any loan or advance to any person which is either interest free or on which interest at a nominal rate is charged. We are of the view that in such a situation, interest worked out at the rate of two percent above the bank rate as reduced by the interest, if any, charged by the assessee shall be deemed to be interest income of the lender.‖ 8.

“Include” and “shall be deemed to be included” meaning of

-

CST v. Lever Brothers Pak Ltd. [(1991) 64 Tax 124 (H.C.Kar)] ―It is well-settled that the word ‗including‘ or the expression ‗shall be deemed to be included‘ is generally used in interpretation clause in order to enlarge the meaning of words and phrases occurring in the body of the statute.‖ J.L. Wei & Co. v. CIT [1989] 59 TAX 108 (H.C.Kar.) ―The law clearly provides that all the entires found in the assessee‘s account books for the previous year unless clearly explained and the nature and source are disclosed satisfactorily, the same will be treated as income and will be charged to tax.‖ Colony Textile Mills Ltd. v. CST, Lahore Zone, Lahore [(1975) 32 Tax 282 (H.C.Lah.)] ―What is correct construction of word ‗include‘ depends upon the facts and circumstances of each case. Sometimes it is used in interpretation clauses in order to enlarge the meaning of

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the words or phrases and must be construed as comprehending, not only such things as they signify according to their nature and import, but also the things which the interpretation clause declares that they shall include. But the word ‗include‘ is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the word or expression defined. It may be equivalent to mean and include (as in the position in section 2(11) of the Act) and in that case it may afford an exhaustive explanation of the meaning which, for the purpose of the Act must invariably be attached to those words or expressions.‖ [2003] 88 TAX 121 (Trib.) ―It is an established principle that main function of the definition of a term is to remove vagueness and to provide a degree of definiteness to the said term of phrase or word so defined. It is also an established principle of interpretation of law that the word ―include‖ whenever is given in any definition is often used in interpretation clause in order to enlarge the meaning of that word or phrase occurring in the provisions of the statute/law and when it is so used then that word and phrase must be construed as comprehending not only such things it signify according to its nature and import but also things which the interpretation clause declares that it shall include. It clearly means that the definition of a word or phrase when it say ―includes‖ then it would amount to include along with what has been so given in its plain literal and ordinary dictionary meaning. Obviously the word used in an inclusive definition imply extension of that term and phrase and they cannot be treated as restrictive in nature..... We, therefore, do not find any merit in the AR‘s contention that this receipt is covered by Section 80C.‖ 9.

Assessment and levy of super tax on total income of three months at the rate applicable to twelve month‟s notional income as a condition for permitting change of previous year by assessee was held without legal sanction.

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CIT v. Nishat Cinema, Lyallpur [1979] 39 TAX 140 (H.C.Lah.) ―We heard the learned counsel for the Department who urged that under this proviso the Income Tax Officer had wide discretion to burden the permission for change of previous year, with such conditions as he may think fit. The assessment of notional income and imposition of super tax thereon, according to the learned counsel are reasonable conditions, which can justifiably be imposed on the assessee by the Income Tax Officer, to accord his consent. It is thus obvious that the tax is to be levied on the profits and gains of the business carried on by an assessee. Gain is the equivalent of profit and profit accrues if the receipts from the business exceed the expenditure incurred for acquiring the receipts. Section 10 is, however, subject to the other provisions of the Act. The combined effect of sections 3, 4, 6 and 10 is that to sustain the levy there should have been income attributable to the business carried on by the assessee. The concept of notional income of a previous year, by multiplying 3 months‘ income by 4 is thus not vouched by the provisions of the Income Tax Act. It appears to us that in imposing conditions on an assessee, to allow him to change his previous year, there is an overriding limitation on the powers of the Income Tax Officer not to levy such a condition which is not warranted by the Income Tax Act itself. The learned counsel for the Revenue has placed reliance on the proviso to spell out the powers for the assessing authority to set out the impugned condition. But as observed above this power is qualified and has to be exercised within the limits fixed by the statute. The proviso has to be interpreted in harmony with the other provisions of the Income Tax Act and not to nullify those provisions.‖

Chapter V Specific Words Explained 1.

“Accrue” and “arise”

Cement Agencies Ltd. v. ITO, Central Circle II, Karachi [(1969) 20 TAX 33 (S.C.Pak)] ―The policy of the Ordinance is to make the amount of income taxable when it is received either actually or constructively. So far as the words accrue and arise are concerned. We are to take ordinary dictionary meaning of these words. Since both the words have been used in the provision in question they must be taken to have distinct meanings. Accrues conveys the sense of growing up by way of additional or increase or as accession or advantage, while the word arises connotes comes into existence or notice or presents itself. It is, however, to be noticed that these two words have been used in contradistinction to the word received indicating a right to receive. The words accrues and arises represent a state anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate.‖ Commissioner of Agricultural Income Tax v. BWM Abdur Rehman [(1974) 29 Tax 212 (S.C.Pak.)] ―Whereas receive clearly connotes a specified sum passing into the possession of the receiver. The word accrued, in the context, obviously means no more than that a right had arisen in a certain person to recovery of a certain sum. The expression accrued in the context also, carries plainly the sense of an accrual for the benefit of the person concerned, as distinguished from the sense of merely receiving money under legal obligation to pass it on to another person or authority, which is incidental to the recovery of cesses by an assessee.‖ 109 2.

“Accrue” and “arise” vis-a-vis effect of book entries

110 Principles of Income Tax Law

Pandit Pandurang v. CIT, Central Provinces [2 ITC 69 (Nagpur)] In a very recent case decided by the Privy Council, St. Lucia Usines and Estates Co. vs. St. Lucia [(1924) A.C. 508 at p. 512], Lord Wrenbury has observed:―The words ‗income arising or accruing‘ are not equivalent to the words ‗debts arising or accruing.‘ To give them that meaning is to ignore the word ‗income‘. The words mean ‗money arising or accruing by way of income‘ There must be a coming in to satisfy the word income ... If the tax-payer be the holder of stock of a foreign Government carrying say 5 per cent interest, and the Government is that of a defaulting state which does not pay the interest, the tax-payer has neither received nor has there accrued to him any income in respect of that stock. A debt has accrued to him but income has not. It does not follow that income is confined to that which the tax-payer actually receives. Where income tax is deducted at the source the tax-payer never receives the sum deducted but it accrues to him.‖ 3.

„Adjudicate‟ necessarily implies settling a matter

Messrs. Prime Chemicals through Member of Association of Person v. Government of Pakistan through Secretary Finance, Islamabad and 3 others [2004 PTD 1388 (H.C. Lah.)] ―To adjudicate, necessarily implies settling a matter. This is synonymous with the word ―adjudge‘. The adjudicatory process may be before an administrative authority or before a court of law. Even if it is before an administrative agency, the rights are to be adjudged after notice to parties affording opportunity of hearing and appraisal of record. The factual position and the finding are to be recorded specifically. Reference in this connection may be made to the following cases:– (i) People v. Rave, 364, III, 72, 3 N.E. 2 d 972, 975.

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(ii) Allegpency Ludlum Steel Corp. v. Pennsylvania Public Utility com‘n, 501 pa. 71, 459A, 2d 1281 1221. In the case of Samuel Goldwyn, Inc. v. United Artists Corporation, C.A.A. Del., 113 F. 2d 703, 706, adjudication is defined as hearing, after notice of legal evidence on the factual issues involved. Again in the case of Campbell v. Wyoming Development Co., 55 Wye, 347, 100 p. 2d 124, 132, it was said that adjudication contemplates that the claims of all the parties thereto have been considered and set at rest.‖ 4.

Adjudication requires passing of a speaking order

Messrs. Prime Chemicals through Member of Association of Person v. Government of Pakistan through Secretary Finance, Islamabad and 3 others [2004 PTD 1388 (H.C. Lah.)] ―Obviously, a factual inquiry based on record for purposes of adjudication had to be conducted. A bare and bald statement that the case of the petitioner and one other as referred to in paragraph 22 of the order being identical, the order was extendable even to them, made this no order in the eye of law as it violated the very purpose of adjudication as well as the principle of natural justice, which requires formulation of a speaking order disposing of a case reflecting a discussion of a factual position and handing down of a judgment or a finding on such basis. On the touchstone of the standards laid for purposes of adjudication since remote antiquity, we find that the order under reference and as reflected in paragraph 22 is hardly an order. It is destitute of any discussion relevant to the record of this case. It is perverse and consequently a nullity in the eye of law. It deserves to be quashed and a direction is, therefore, issued to the Deputy collector Customs, Sales Tax and C.E. (Adjudication), Lahore, to re-write the order afresh after hearing the petitioner and to dispose of the matter in accordance with the observations made hereinabove and to refrain from passing such orders in serious matters in such a slipshod manner.‖

112 Principles of Income Tax Law 5.

“Agricultural Income” when remains to be such in the hands of recipient

CIT, Punjab, NWFP & Bahawalpur v. Mrs. E.V. Miller [(1959) 1 TAX (III-1) (S.C.Pak)] ―A servant employed on an agricultural farm under a contract of service can no more claim his salary to be agricultural income on the ground that he is paid by his master out of his agricultural income than a shopkeeper can claim exemption from tax because the price which he has received for his wages has come out of the agricultural income of the buyer. But if income lying in reserve with a person is agricultural income which he himself cannot enjoy and is meant to be distributed among its rightful claimants, it cannot be disputed that no change of character is implied in the distribution of that income because income is earned for expanding and; a person who is precluded in law from expanding it on his own enjoyment and holds it for the benefit of the others does not bring out any change in the nature of that income when he posses it on to the beneficiary.‖ 6.

“Agriculture” and “agricultural purposes”

CIT, East Bengal v. Kumar Narayan Roy Choudhry and others [(1959) 1-TAX (III-207) (S.C.Pak.)] ―The word agriculture is not used in the Act in its extended dictionary meaning. It has been used in a narrow sense and so interpreted, it means that an operation to be agricultural must involve or be connected with the cultivation of the soil.‖

113 Specific Words Explained 7.

“Annual value”

CIT v. Kathiawar Coopperative Housing Society [(1985) 51 Tax 5 (H.C.Kar)] ―From plain reading of sub-section (2) it would appear that the actual rent received by the landlord is not the basis for determining that taxable amount, but the amount which the leased property is likely to fetch by way of rent or which the property might reasonably be expected to fetch from year to year shall be the basis of calculating the taxable amount.‖ 8.

“Approval” and “permission” are not synonymous

[2004 PTD (Trib.) 618] The learned counsel also argued that under section 13 the DCIT is required to obtain approval of the IAC whereas in this regard such approval was not obtained. He pointed out that in fact the DCIT/ITO Circle-B Sukkur vide his letter, dated 13.6.2002 addressed to IAC Sukkur Range Sukkur has sought ―permission‖ of the IAC and in response to this letter the IAC vide his letter, dated 24.6.2002 also granted ―permission‖ to the DCIT. He produced copies of both the letters which support the point raised by the learned counsel. The learned counsel cited two decisions in support of his arguments that where ―approval‖ was mandatory only ―permission‖ by the IAC was not enough for addition under section 13. These two cases cited as judgment of the Supreme Court of Pakistan reported as 1998 SCMR 2013 in Civil Appeals Nos. 162 and 163 of 1995 and 2003 PTD (Trib.) 1238 ITAT Lahore Bench decided 15.8.2002 support the arguments of the learned counsel. In view of the above discussion and in ratio decidendi of the above case-law we have to observe that the DCIT as well as the IAC Sukkur because of their inapt and careless attitude have caused loss of Revenue and the law in this respect favours the assessee. The case-law cited by the learned counsel and referred above have also been followed by us in I.T.A. No. 676 of 2003 (Assessment year 1998-99) decided on 16.9.2003. Accordingly

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we confirm the order of CIT(A) and dismiss department appeal.‖ M/s. Chhuna Mal Salig Ram v. Punjab NWFP [5 ITC 316] ―The annual value of property u/s 9 of the Income Tax Act does not include sums paid by the tenants to the owner on account of house tax payable by the owner....‖ 9.

“Artificial juridical person”

[1998 PTD (Trib.) 1379] ―Artificial juridical person includes a company, a local authority and a cooperative housing society. Company is not covered by the provisions contained in section 80B of the Income Tax Ordinance, 1979.‖ 10.

“Assess”

CIT v. Kamran Model Factory [2002] 86 TAX 39 (H.C.Kar.) = 2002 PTD 14 Mr. Rehan Hasan Naqvi referred us to the definition of the word ―assess‖ as defined in Black‟s Law Dictionary, 5th Edition, on page 116 as under:―To ascertain; fix the value of. To fix the amount of the damages or the value of the thing to be ascertained. To fix, to calculate the rate and amount of tax.‖ In the book titled Excellent Legal Words and Phrases by Mian Muhibullah Kakakhel, Vol-I the word ―assess‖ has been defined on page 552 as under:―To fix the amount to be paid as tax or assessment, i.e., that tax fixed as rate or rent.‖ Longman‟s Dictionary of Contemporary English, New Edition, on page 64 defines the word ―assess‖ as under: ―To calculate or decide the value or amount of.‖ In the Chamber‟s 20th Century Dictionary, New Edition, 1983, on page 73 the word ―assess‖ has been defined to mean-

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―to fix the amount of, as a tax; to tax or fine; to fix the value or profits of, for taxation, to estimate.‖ 11.

“Assessable income”

CIT v. Kamran Model Factory [2002] 86 TAX 39 (H.C.Kar.) = 2002 PTD 14 In the book titled Excellent Legal Words and Phrases by Mian Muhibullah Kakakhel, Vol-I the word ―assessable income‖ has been defined on page 553 as under:―Assessable income‖ means what the words convey namely that income which is assessable to income-tax under the Income-tax Act.‖ 12.

“Assessment”

CIT v. Kamran Model Factory [2002] 86 TAX 39 (H.C.Kar.) = 2002 PTD 14 Longman‟s Dictionary of Contemporary English, New Edition, on page 64 defines the word ―assessment‖ as under: ―The act of assessing; the value or amount at which something is calculated.‖ Muhammad Amjad v. CIT, Zone A Karachi [(1992) 65 Tax 176 (H.C.Kar) = 1992 PTD 513] ―Kanga and Palkhivalas in the Law and Practice of Income Tax, Eighth Edition Volume I, at page 1127 have commented upon the word assessment. They have observed that ―the word assessment is used in the Act as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable; and sometimes the whole procedure laid down in the Act for imposing liability on the taxpayer. The word assessment must be understood in each section of this Act with reference to the context in which it is used, in some sections it has a comprehensive meaning and includes reassessment (e.g. section 265) and in some sections it has a restricted meaning and is used as distinct from re-assessment (e.g. section 147)‖. They have further observed that ―the method prescribed by the Act for making an assessment to tax using the word assessment in its most comprehensive sense as including the whole procedure for

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imposing liability upon the taxpayer consists of the following steps. In the first place, the taxable income of the assessee has to be computed. In the next place, the sum payable by him on the basis of such computation has to be determined. Finally, a notice of demand in the prescribed form specifying the sum so payable has to be served upon the assessee.‖ 13.

“Agreed assessment” though framed outside the four comers of the Act is still an assessment at par with any other assessment

CIT, Sargodha v. Irshad Anwar & Co. Kamalia [2002] 85 TAX 470 (H.C.Lah.) = 2002 PTD 750 ―An agreed assessment could only be framed where an assessing officer was handicapped in proceedings or collecting evidence. However, from the attending circumstances, he has in his mind a certain estimate of income which escaped assessment. Keeping in his mind his disability to collect incriminating evidence, he settles for an offer which appears to him to be reasonably near the mark that he had settled in his mind as regards recovery of escaped income. In any case an agreed assessment though framed outside the four comers of the Act is still an assessment as any other assessment could be. It does not stand either at a higher or at lower pedestal then any other assessment. A blanket protection to an agreed assessment, therefore, can neither be in accordance with law nor the public policy. It is one of the settled propositions of law that parties can neither vest jurisdiction in a statutory authority nor by agreement can divest it wherever it is available to him under the law.‖ 14.

Agreed assessment violative of Contract Act will be voidable

CIT, Sargodha v. Irshad Anwar & Co. Kamalia [2002] 85 TAX 470 (H.C.Lah.) = 2002 PTD 750 ―An assessing officer framing an agreed assessment can always make a case to avoid that ―agreement‖ if he can prove that the same was coloured by wrong declarations, even innocent, mis-representation and fraud. A consent given by the

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assessing officer fraught by fraud or even on a bona fide mistake on the part of the assessee will not be a ―free consent‖ as contemplated in section 14 of the Contract Act. Any such agreement would obviously be voidable at the option of the revenue.‖ 15.

“assessment year”-- stable interpretation should be adopted

Nagina Silk Mills, Lyallpur v. ITO, A-Ward, Lyallpur & others [(1963) 7 TAX 442 (S.C.Pak.) = PLD 1963 SC 322] ―The word ―assessment year‖ should not be broken into two segments i.e., ―assessment‖ and ―year‖. It must be given stable interpretation and must be held to mean a period of twelve months. The ―year‖ here does not mean period of shorter or longer duration than a time frame of 12 months.‖ 16.

“Best judgment” estimate

must

reflect

fair

and

proper

Ayenbee (Pvt.) Ltd. v. Income Appellate Tribunal and others [2002] 86 TAX 117 (H.C.Kar.) = 2002 PTD 407 ―The best judgment assessment thus should not be punishment which is meted out to the assessee and must reflect the Assessing Officer‘s fair and proper estimate after taking into consideration of local knowledge, repute of the assessee‘s circumstances, his own knowledge of previous returns of the assessee and other parallel cases, which are proved to be parallel. In this respect we are fortified by the judgment of the Hon‘ble Supreme Court in Messrs Pak Co. Ltd. Sargodha vs. CIT, Rawalpindi Zone 1985 SCMR 786.‖ 17.

“Business”

CIT, Lahore Zone, Lahore v. Muhammad Allah Bux [(1977) 35 Tax 74 (H.C.Lah)] ―The term business has been defined in section 2(4) of the Act. Business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. It has been repeatedly observed that business with the aid of meaning given in dictionary be deprecated.‖

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CIT v. New China Glassware Company [(1974) 30 Tax 158 (H.C.Kar.)] ―The definition of the word business, as contained in section 2(4) of the Act, embraces only such activities as are in the nature of trade, commerce or manufacture.‖ 18.

“Business connection”

General Bank of Netherlands Ltd. v. CIT, Central Karachi [(1991) 63 Tax 149 (S.C.Pak)] ―After survey of case law, learned Judges in the High Court correctly took the view that in order to bring a case under the head of business connection, it is necessary that there should be some activity in the taxable territory which contributes, directly or indirectly, to the earnings of those profits or gains which are to be taxed. Their Lordship also agreed with the view canvassed by the appellant that the interest earned on the securities in question cannot be said to be profits or gains accruing or arising from any business connections in Pakistan.‖ 19.

“Capital” and “dividend” - distinguished

CIT v. Pakistan Insurance Corporation & Others [(1997) 75 Tax 113 (S.C.Pak)] ―The words capital and dividend though related have entirely different considerations. In the context of the Income Tax Law, very broadly speaking capital would signify investment whereas dividend would denote gain or return on the investment. However, in clause (d) of section 2(6A) of the Act, an extended meaning has been given to the word dividend so to bring to tax such payment also that a company may make by manipulating its share capital .... The scope of this clause can not be extended when the company merely returns to the shareholders only their original investment.‖ 20.

“Case”

Abdul Rashid v. Special Judge (Central) Lahore & another [(1976) 34 Tax 199 (H.C.Lah.)]

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―The word case in section 5 of the Act has recorded statutory interpretation in the explanation to sub-section (7-A) of section 5 in the following manner:―In this section, the word case in relation to any person whose name is specified in an order or any direction issued thereunder, means all or any proceedings under this Act in respect of any year which may be pending on the date of such order or direction which may have been completed on or before such date, and includes all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year.‖ 21.

“Certified copy”

CIT/CST Rawalpindi v. Pakistan Television Corp. Ltd. Rawalpindi [(1978) 38 Tax 181 (H.C.Lah.)] ―A certified copy will, therefore, be one which answers the requirements as given in section 76 of the Evidence Act, by reference, even though Evidence Act is not applicable. It may, therefore, be supplied in any form provided that it bears a certificate of an authorised officer that it is a true copy of the original in his custody.‖ 22.

“Charitable purposes”

CIT, East Zone, Karachi v. Merchant Navy Club [2004 PTD 1304 (H.C. Kar.)] ―At the very outset, we would like to observe that the Income-tax Officer and the Appellate Assistant Commissioner have ignored the objects of establishing the respondent‘s club as contained in the Memorandum of Association and rules and regulations with the result that they have lost sight of the dominant and main object of establishing the respondent club. It appears that they have not examined the issue in right perspective and were influenced by an incidental and ancillary activity whereby the entertainment of dancing performance and drinks to the seamen wee provided at concessional rates. We agree with the

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proposition laid down in the judgments cited above that the expression ‗charitable purpose‘ carries a broader and extended connotation. The definition given in the Explanation to section 4(3) of the Repealed Act, to the effect that it includes relief to the poor, education, medical relief and the advancement of any other object of general public utility is inclusive and is not exhaustive, conclusive or exclusive.‖ Pakistan Seamen Contributory Welfare Fund Karachi v. Income Tax Appellate Tribunal & 2 Others [(1993) 67 Tax 400 (H.C.Kar)] ―As is evident from clause 2(14), the definition of charitable purpose is not exhaustive but the same is an inclusive definition which only has the effect of enlarging the ordinary meaning of the expression charitable purposes. It would, therefore, be erroneous to assume that the definition in any case restricts the meaning of the said expression to what has been referred to be in the said definition. Consequently, the mere fact that the object, for which the petitioner institution has been constituted, is not public benefit, cannot in any manner disentitle the petitioner to claim exemption under clause (94).‖ 23.

“Charity” and “charitable purposes”

Sadar Anjuman-i-Ahmedia, Rabwa v. CIT, Rawalpindi [(1977) 36 Tax 117 (H.C.Lah)] ―It is undoubtedly very difficult to define charity with precision. The literature on the point is as vast as despairing. The question strictly speaking is not whether a charity exists, but whether the trust on which property is held as trust is for a charitable purpose. In determining its legal meaning the courts have been guided by the lists of charitable objects set out in the pre-amble to the statutes 43 Eliz I. C. 4, 1601. The best classification of charitable purposes under the above Act has been given by Lord Machaghtens speech in CIT vs. Pensel [(1891) A.C. 531] which is being consistently followed by the English Courts. It was stated that charity in its legal sense comprises four principal divisions:

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i) trusts for relief of poverty; ii) trusts for the advancement of education; iii) trusts for the advancement of religion; and iv) trusts for the purposes beneficial to the community, not falling under any of the preceding heads. That judgment added that the trusts referred to are not the less charitable in the eye of law because incidentally they benefit the rich as well as the poor, as indeed, every charity that deserves the name must do so either directly or indirectly. The American Law Institute in the Restatement of Trusts adds two more headings. v) promotion of health; and vi) governmental and municipal purposes. The religious and charitable objects of Muslim Waqfs cannot be of any assistance in the cases in hand. A perusal of the explanation after the second proviso in section 4(3)(i) of the Act, would show that the scope of the term charitable purpose in the Act are as extensive as adopted by the British or American Courts and guidance can be sought from them in view of the paucity of authority in this country. Further, it is well established principle of law of charities that a purpose is not charitable unless its benefit is directed either to the public-at-large or a sufficient section of public or community sufficiently defined or identified by some quality of a public nature.......‖ 24.

“Commercial” and “commerce”

Raleigh Investment Co. Ltd. v. CIT, (East) Karachi [(1983) 47 Tax 214 (H.C.Kar)] 24.1 Word commercial meaning of According to Ballentines Law Dictionary, 3rd Edition, page 222, it means: ―Pertaining to the purchase and sale or exchange of goods and commodities and connoting as well forms

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of, and occupation in business enterprises not involved in trading in merchandise; in a broad sense, embracing every phase of commercial and business activity and intercourse.‖ 24.2 Word Commerce meaning of ―According to Blacks Law Dictionary, 4th Edition, page 336 the word ―commerce is defined as, the exchange of goods, productions or property of any kind.‖ 25.

“Company” and “shareholders” Relationship between

CIT, Punjab, NWFP & Bahawalpur v. Mrs. E.V. Miller [(1959) 1 TAX (III-1) (S.C.Pak)] ―The constituents of a company are its shareholders because its promoters must subscribe to its shares in order to bring it into existence. The company has a memorandum of association which controls its business activity. For the management of its affairs it has its own articles of association and a board of directors. The assets of a company are owned by it and not by its shareholders but the company is constituted for the purpose of earning profits and the shareholders are not only entitled to rateable distribution of its assets on its being wound up, but also indirectly control the management of the company by appointing the directors. Thus the shareholders have ultimate control over the management of the company, though they do not directly manage its affairs. It is true the directors derive their authority from the law, but as their own appointment rests with the shareholders, they are, in substance, the agents or delegates of the general body of the shareholders. What is of vital importance, however, is that a company is brought into existence and exists for sole purpose of earning profits and gains and it earns them not for itself but for the benefit of the shareholders. To earn profits for its shareholders being the reison dentre of the company, a company would be defeating the object of its own existence if croesus-like it filled coffers with gold and did not distribute it as dividend to its shareholders. A company cannot enjoy its own income, the ultimate beneficiaries of the income

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being the shareholders themselves. Who, on the recommendation of the directors, declare the dividends. If a company went on taking its profits to reserve every year and did not distribute it among its shareholders, it would be acting contrary to all business principles and the shareholders would be compelled either to change its management or to dissolve it because they invest their capital for the purposes of enjoying the income and not for the purpose of the company accumulating such income. True, a company is a person but it is only a juridical person, having no mouth to feed or person to shelter and sustain, and if it is taxed, it is taxed not on any general principle of law but because such is the policy of the Statute that taxed it. Its own income is but notional and it is only on its distribution that it becomes the actual income of its shareholders.‖ 26.

“Company limited by guarantee”

Sind Industrial Trading Estate Ltd., Karachi v. Central Board of Revenue and 3 others [1975] 31 TAX 114 (H.C.Kar.) ―A company limited by guarantee is generally a non-profit making association and such a company is an alternative to a company by shares. Under the scheme of Companies Act 1913, a company cannot be created in which the members are free from any liability whatsoever. Therefore, ordinarily a company created under the Companies Act is limited by shares, that is, the members of the company are made liable as contributories to the extent of the shares they have taken or they have agreed to take in the company. But such a company is not suitable for nonprofit making association, and therefore, as an alternative to such a company, the companies Act permits the incorporation of a company limited by guarantee, that is, a company in which the members agree that, in the event of liquidation of the company they will subscribe an agreed amount. In effect, such members are guarantors of the company‘s debts up to the agreed amount. As regards the working capital of such a company, it generally

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comes from other sources, that is, endowments, grants, fees, subscriptions, etc.‖ 27.

“Complete”

Hudabiya Engineering (Pvt.) Ltd., Lahore v. Pakistan through Secretary, Ministry of Interior, Govt. of Pakistan, Islamabad [(1997) 76 Tax 302 (H.C.Lah.)] ―According to Blacks Law Dictionary, 6th edition, at page 285, complete as adjective means full, entire, including every item or element of the thing spoken of, without omissions or deficiencies; as, a complete copy, record, schedule or transcript, perfect, consummate; not lacking in any element or particular; as in the case of a complete legal title to land, which includes the possession, and the right of property. In Corpus Juris Secundum, volume 15-A at page 118 complete has been defined as absolutely finished; completed or concluded; consummate, entire, filled up, free from deficiency, perfect, including every item or element of the thing spoken of, without omissions or deficiencies, whole; lacking nothing, with no part, item, or element lacking; having all needed or normal parts, elements or details. Similarly in Words and Phrases, permanent edition 8, at page 386, while defining complete it is stated that the word complete means filled up with no part, item or element lacking, free from deficiency, entire, perfect, consummate.‖ 28.

“Consultancy fee” falls under the term “industrial and commercial profits”

CIT v. Unilever P.L.C., U.K. 2002 PTD 44 (H.C.Kar.) ―While referring to the above definition, Mr. Javed Farooqui has stated that all kinds of fee have been excluded from the definition of ―industrial and commercial profits‖ and this exclusion would squarely cover consultancy fee. The argument, though neither raised in the grounds of appeal nor arises out of the order of the ITAT, has no merit. The term ―industrial and commercial profits‖ cannot be given any

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pedantic connotation; this term cannot be understood in a manner not so intended or expressed. The inclusions have to be given their common sense, ordinary and grammatical meaning. A Division Bench of this Court in Raleigh Investment Co. Ltd. vs. CIT 1983 PTD 126 has even found gains from the disposal of shares to be included in the term ―industrial and commercial profits‖. In Glaxo Group Ltd. vs. CIT 1992 PTD 636 it was held that when foreign consultants tender technical advice to local companies, the same constitutes ―personal services‖ and cannot be included in the term ―industrial and commercial profits‖. In the latter case the Court had followed its earlier judgment in Glaxo Laboratories vs. CIT 1991 PTD 195. In both the cases exemptions claimed by the non-resident assessee were partly declined. The Supreme Court, however, overturned the demand of exemption in both these judgment in appeal in Glaxo Operations UK Ltd. vs. CIT being C.A. 76-K of 1991 and 26-K of 1992, dated 28.11.1993 (unreported), wherein it was held that a company or a corporate body would ―obviously‖ act through human agencies such as employees, and thus the use of the foreign company of its personnel for the purposes of consultancy agreement would not be fatal to the claim of exemption, thus imply that such consultative service would not make it a ―personal service‖ excluding it from the ambit of ―industrial or commercial profits‖. The Supreme Court‘s judgment has been followed in Glaxo Group Ltd. vs. CIT ITR No.529 of 1990 dated 3.9.1998 (unreported), decided by a Division Bench of this court. In Lars Costa Adhom vs. CIT 1994 PTD 590, a Division Bench of the Lahore High Court found the supervision in relation to erection of machinery by non-resident the Swedish nationals to be an act performed by the said person on behalf of the Swedish Company. The proceeds from such supervision were found to qualify for exemption under the Avoidance of Double Taxation Treaty between Pakistan and Sweden. A plain reading of the definition of ―industrial and commercial profits‖ cited above confirmed that not all types of fee have been excluded from the ambit of ―industrial or commercial profits‖. The exclusion is only in relation to a fee drawn by an enterprise from the

126 Principles of Income Tax Law

management, control or supervision of the trade, business or other activity of other enterprise or concern. In other words, the exclusion is in relation to a fee earned from the management, control or supervision of an enterprise in Pakistan. A consultancy fee by no stretch of imagination would arise or be payable as a consideration for managing, controlling or supervising an enterprise. The term ―consultation‖ has been the subject-matter of discussion by our Courts. In Burewala Textile Mills Ltd. vs. Punjab Government NLR 1979 Lab. Lah 297, it was observed that ―consultation‖ presupposes that one who has to consult has a problem or a proposition; it can be between a layman and an expert or between two experts. The Lahore High Court in Electric Equipment Manufacturing Co. Ltd. vs. Government of Punjab 1979 PLC 416 (Lahore) considered a number of reference including ―Words and Phrases‖, Permanent Edn., Vol. IX, p.3; Rolls vs. Minister [1984] 1 All ER 13; R. Pushpam vs. The State of Madras AIR 1953 Mad. 392 and Fiether vs. Minister of Town Planning [1947] 2 All ER 496, to hold that the word ―consult‖ implies conference of two or more minds respecting a topic in order to enable them to evolve a correct or satisfactory solution. In the context of judicial appointments our Supreme Court in the celebrated Judges‘ case i.e. Al-Jehad Trust vs. Federation of Pakistan PLD 1996 SC 324 has also dilated upon the term ―consultation‖ to carry a ―consultative process‖ between the consultees and the ―consulters‖. The latter was subsequently followed in Al-Jehad Trust vs. Federation of Pakistan PLD 1997 SC 84. It is an admitted position that the fee in question is towards consultancy and the term ―consultancy‖ (as confirmed by the above definitions) would denote tendering advice and counselling and surely not managing, controlling or supervising. Consultancy fee thus falls under the term ―industrial and commercial profits‖. The contention of the learned counsel of the appellant on this score also fails. The upshot of the above discussion is that the four appeals in question are dismissed, the order of the ITAT maintained and the questions of law framed above are answered in the affirmative, however, there shall be no order as to costs.‖

127 Specific Words Explained 29.

“Debt”, “Loan”, “Owe” and “due” difference between

CWT v. Noor Rai Ibrahim [(1992) 65 Tax 262 (S.C.Pak)] ―From these judgments, definitions and meanings it can safely be stated that the word debt has a wide meaning and is an obligation to pay an ascertained sum in present or in future. Any amount owed to some other person would be a debt owed by him to the creditor. The essence of the word debt is the obligation to pay and the amount which is payable. It is a liability to the person who has an obligation to pay, the amount which may be certain or calculable readily.‖ CWT, Lahore Zone, Lahore v. Mst. Fozia Mughis, Lahore [(1975) 32 Tax 1 (H.C.Lah.)] ―It is further to be noticed that the word debt is to be kept distinct from what is known as a loan, for every loan may be a debt but every debt will not necessarily be a loan. Our view is that a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation debitum in praesenti solvendum in futuro. In some cases it may not be presently payable and it may be uncertain in amount which will become certain when accounts are finally dealt with. In other words it is a present liability to pay an amount in future, though it was not ascertained but was ascertainable.‖ ―As regards the word owed in Aiyers Law Lexicon (1940 Edition page 931) it is written that owe means to be under obligation to pay.‖ ―It is to be remembered that strictly speaking there is a difference between the words owed and due for that which is due is always owed by the debtor, but which is owed may not be due at a particular date .... the former refers to liability whereas the latter to payability.‖ A.J. Hartshorn v. CIT, (West) Karachi [(1984) 49 Tax 198 (H.C.Kar)] ―In Strouds Judicial Dictionary, IVth Edition, meaning of the word due is immediately payable (it is common signification).

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The word due signifies a fixed and settled obligations or liability which has to be determined in each case from its own context and usually is neither contingent nor dependent on any happening.‖ Taimur Shah v. CIT [(1976) 34 TAX 151 (H.C.Kar.) = PLD 1976 Kar. 1030] ―We find ourselves unable to agree with the broad proposition of Mr. Nusrat that the word due has an implication of a liability which is continuing from the past.‖ 30.

“Deemed order”

[(2004) 89 TAX 418 (Trib.) = 2004 PTD (Trib.) 752] ―The upshot of above discussion is that there is no concept of a deemed order anywhere in the world. The Legislature has declared a properly prescribed piece of paper as an order, which has to be treated as such. As a result after the assessment year 1995-96 when the return filed would be deemed to be an assessment order under section 59 and 59A the provisions of section 65(1)(c) would come into operation. This means that the said order deemed to be an order can also be opened under section 65 after the assessment year 1995-96. The analogy which one can draw is that when the Legislature has declared some document to be an assessment order the High Court is of the opinion that it can be cancelled under section 65 but when it was not held to be an order it could not have been cancelled. This finding of the Honourable High Court fully supports our views.‖ 31.

“Default”

Irfan Gul Magsi v. Haji Abdul Khaliq Soomro and others [1999 PTD 1302] ―Expression default connotes an element of wilful and deliberate failure to fulfil an obligation and negligence in the performance of the duty. Every failure on the part of a person without any ulterior design and mala fide intention would not equate with the expression default as used in its strict legal sense. Before a person is declared to be in default, it is absolutely

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necessary that there should have been a demand to make payment of a determined sum which should have remained unresponded and unattended for a period beyond the period prescribed by law. Issue of default in the context of Rent Laws was set at rest in the famous case reported as Ghulam Muhammad Lundkhor vs. Safder Ali (PLD 1967 SC 530). In the words of the apex Court the word default in legal terminology necessarily imports an element of negligence or fault and means something more than mere non-compliance. To establish default one must show that the non-compliance has been due to some avoidable cause, for a person who ought not to be made liable for a failure due to some cause for which he is, in no way, responsible or which was beyond his control. It is not lightly to be presumed that the law intends to cause injustice or hardship, thus, unless the Legislature has made its intention clear that construction must be preferred which will prevent manifest injustice and obviate hardship. On this principle also the expression default should mean an act done in breach of a duty or in disregard of an order or direction. This view was followed in the subsequent cases reported as Muhammad Hassan Khan vs. Mirza Abdul Hamid (1981 SCMR 799), Irshad Hussain vs. Abdul Rehman Kazi (1983 SCMR 471), M. Imamuddin vs. Surriya Khanum (PLD 1991 SC 317) and NDFC vs. Naseemuddin (PLD 1997 SC 564).‖ 32.

“Definite Information”

CIT, Companies Zone-II, Karachi v. Sindh Engineering (Pvt.) Limited, Karachi [2002] 85 TAX 386 (S.C.Pak) = 2002 PTD 419 ―Therefore, question arises whether ‗definite information‘ was passed on to Income Tax Officer. In the instant case it came to the notice of Successor Income Tax Assessing Officer that while making original assessment no material was brought on record to entitle the respondent to claim exemption of 5% rebate of super tax being a public company which material fact was consciously neither disclosed nor brought to the notice of the predecessor assessing authority thereby concealed the same consequently respondent-company was not properly and lawfully

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assessed and thereby got exemption of 5% rebate of super tax. The Successor Assessing Officer in the circumstances was competent to issue notice and to impose additional assessment against the respondent being not ‗public company‘ considering that there was no material in support of said fact. To elaborate this aspect of the case it is to be observed that for exercise of jurisdiction under section 65 of the Ordinance for the purpose of additional assessment condition precedent is that there should be a ‗definite information‘ but it should not be gossip or surmises. In the instant case if ‗definite information‘ as said above would have been placed before the Successor Assessing Authority, then he would be legally justified to re-open the case under section 65 of the Ordinance for the purpose of additional assessment because the additional relief of rebate was obtained by assessee contrary to law applicable on the subject. But in the present case if the Income Tax Appellate Tribunal after recording the evidence and exercising the jurisdiction, would have found that respondent was a public company within the relevant provision of law we would have endorsed the decision but it was not done.‖ E.F.U. General Insurance Ltd. & Others v. Federation of Pakistan & Others [(1997) 76 Tax 213 (S.C.Pak) = 1997 PTD 1693 = PLD 1997 SC 700] ―It was observed that the words ―definite information‖ are the keywords for the purpose of justifying action under sub-section (1) [Section 65] and, as the said words had not been defined in the Ordinance they will carry their literary meanings. It was observed that every information cannot be treated as the basis for re-opening of the assessment but the information should be of the nature which should qualify as ―definite information‖ and that the expression ―definite information‖ could not be given a universal meaning but it will have to be construed in each case. It was further observed that where an assessee discloses all the material facts without any concealment and the assessment had been consciously completed by the Income Tax Officer, in such a case, in the absence

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of the discovery of any new facts which can be treated as ―definite information‖ there cannot be any scope for reopening of the assessment u/s 65. It was further observed that any change of opinion on the basis of the same material by the Income Tax Officer will not warrant pressing into service the said provision. It was observed that a circular from the Central Board of Revenue interpreting any provision of a law not a definite information for reopening of assessment by an Income Tax Officer. It was then observed that expression definite information will include factual information as well as information about the existence of a binding judgment of a competent court of law/forum for the purposes of section 65 of the Ordinance, but any interpretation of a provision of law by a functionary which has not been entrusted with the function to interpret such provision judicially cannot be treated as a definite information.‖ IAC & Another v. Pakistan Herald Ltd. [(1997) 76 Tax 131 (S.C.Pak) = 1997 PTD 1485] ―The term ‗definite information‘ conveys a meaning which is not the same as change of opinion. A different interpretation of any provision of law or deriving a different conclusion from a given set of facts will not amount to a definite information. It will be a change of opinion. Therefore, the basis for reopening the assessment was a change of opinion of the respondent. The respondent therefore could not have taken any action u/s 65 of the Income Tax Ordinance as it was not based on any definite information, but on change of opinion.‖ Central Insurance Co. & Others v. CBR, Islamabad [(1993) 68 TAX 86 (S.C.Pak)] ―Mere guess, gossip or rumour cannot be treated as definite information. However, the expression definite information cannot be given a universal meaning, but it will have to be construed in the circumstances of each case. The term definite information conveys a meaning which is not same as change of opinion. A different interpretation of any provision of law or deriving a different conclusion from a given

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set of facts will not amount to definite information. It will be a change of opinion. Receiving or obtaining by an assessing officer certain interpretation of a particular provision of law from any department, be it a ministry of law or Central Board of Revenue or any legal adviser or from his knowledge and reading law books would not constitute information in terms of section 65. Dangerous results may follow from a liberal interpretation of the word information as sometime advocated by the Department, as it will give unrestricted discretion in the hands of the assessing officers who may on their own interpretation of law set at naught the settled and final assessment.‖ Saitex Spinning Mills, Lahore v. CIT, Zone-3, Lahore [2003 PTD 808 (H.C.Lah.)] ―After hearing the learned counsel for the parties and on taking Question No.2 first, we are in agreement with the learned counsel for the appellant that re-opening of the case of the assessee was certainly unjustified. The Assessing Officer failed to bring home the availability of definite information as contemplated in section 65 of the repealed Ordinance to re-open the case. The view of their Lordships of the Supreme Court as expressed in re: E.F.U. General Insurance Co. Ltd. vs. Federation of Pakistan (PLD 1997 SC 700) an re: Central Insurance Co. vs. Central Board of Revenue (1993 SCMP 1232) lends support to the submissions made at the bar that mere reference to a declared value by another assessee would not by itself be a ―definite information‖ to become a sufficient ground to re-open a completed assessment. The idea of sanctity of a completed assessment is certainly averse to the re-opening based upon conjectures and surmises.‖ 33.

“Discard”

Pak Services Ltd. v. CIT, (Revision) Karachi [(1993) 68 Tax 49 (S.C.Pak)] ―No doubt that extended meaning of discard given in the dictionary includes abandonment. However, all abandonment of property cannot and does not amount to discarding of the

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property. The word discard entails a choice, a selection, a voluntary act of leaving behind, causing of leaving or abandoning. Without such a choice, selection or volition, the word discarded would be inappropriate to use. For example, if one was made to forcibly leave his house, that would not amount to discarding the house.‖ 34.

“Dividend”

CIT, Peshawar Zone, Peshawar v. Siemen A.G. [(1991) 63 TAX 130 (S.C.Pak.) = PLD 1991 SC 368] ―The word return is generally understood as profit in the nature of dividend and not in the nature of interest and/or obligatory charge. Return on capital as guaranteed in the agreement between the parties was thus dividend within the meaning of term as defined in Income Tax law. The Income Tax authorities cannot change the nature of the contract intended by the parties under the pretext that the rule of interpretation of a fiscal law in this behalf is different. The courts are bound to apply Islamic rules of interpretation to all laws, and fiscal laws are no exception.‖ CIT, Punjab, NWFP & Bahawalpur v. Mrs. E.V. Miller [(1959) 1 TAX (III-1) (S.C.Pak)] ―The company though a separate legal person in the contemplation of law and liable to assessment as a subject chargeable with tax is not for all purposes to be regarded as entirely separate and distinct from the shareholders. The underlying principle of the clause as the commissioner in stating the present case has recognised is that the dividend represents merely the shareholder‘s share in the income of the company.‖ Siemens A.G. & Halske v. CIT [(1983) 47 Tax 132 (H.C.Pesh)] ―Dividend according to Blacks Law Dictionary, may denote, a fund set apart by a corporation out of its profits, to be apportioned among the shareholders, or the proportionate amount falling to each. Prima facie a ―dividend‖ according to Strouds Judicial Dictionary, means a payment to share holders when a

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company is a going concern. In Halsburys Laws of England Volume VII, 4th Edition, the ordinary meaning of dividend is share of profits, whether at fixed rate or otherwise, allocated to the holders of shares in a company. The term is generally used with reference to trading or other companies, and to payments made to members of a company as such and not by way of remuneration for services.‖ 35.

“Employee”

CIT, North Zone, Lahore v. Owen Roberts & Co. Ltd. Lahore [(1973) 27 Tax 95 (H.C.Lah.)] ―The word employee is too well understood in the English language and usage to require any elucidation and we would restrict overselves to observe that the expression employee clearly envisages the relationship of master and servant and can hardly be applied to a person who is an alter ego of a juristic person.‖ 36.

“Enduring benefit”

Sindh Trading Company v. CIT [(1967) 15 Tax 53 (H.C.Kar.)] ―The expression enduring benefit does not imply that it necessarily lasts for ever. It only means that it should endure in the way that fixed capital endures. What degree of durability or permanence it should possess for qualifying as a capital asset, depends upon the facts of each case. The main consideration in such cases always is, whether the expenditure concerned, is part of the company‘s working expenses, or in other words, expenditure laid down as part of the process of profit-earning or whether on the other hand, it is a capital outlay, viz. expenditure necessary for the acquisition of property or of rights of a more or less permanent character, the possession of which is a condition of carrying on its trade at all.‖ 37.

“Enemy”, “enemy territory” and “aggrieved party”

Associated Cement Companies Ltd. v. Pakistan [(1978) 38 Tax 132 (S.C.Pak)]

135 Specific Words Explained

―Now in the following Rules namely, the Defence of Pakistan Rules, framed u/s 3, enemy and enemy territory have been comprehensively defined as under:2-(2) enemy means any person or state at war with, or engaged in military operations against Pakistan. 2-(3) enemy territory means(a) any area which is under the sovereignty of, or administered by, or for the time being in occupation of, state at war with, or engaged in military operations, against Pakistan. (b) any area which may be notified by the Central Government to be enemy territory for the purposes of these rules or such of them as may be specified in the notification. Aggrieved party:- Now in order to be aggrieved party within the meaning of sub-Article (2) of Article 98, of the Constitution of Pakistan 1962, it would be imperative for a party to show that any of his proprietary or personal right as recognized by the laws of the country, has been invaded or denied to him. Right and remedy are no doubt complementary concepts, because right without remedy would be meaningless just as it would be inconceivable to think of a remedy without a corresponding right. In other words a right, be it tangible or intangible such as the right of a person to enjoy his property or to remain secure in his reputation, clearly postulates something of value to a person for the protection or the realisation of which remedy is provided in every civilised legal system. Inevitably, therefore, if a person is unable to show that any of his right as recognized by law has been invaded or denied to him then he would have no cause of action to seek any relief, for evidently he cannot claim to be aggrieved.‖ 38.

“Erroneous”

United Builders Corporation Mirpur v. CIT, Muzzafarabad [(1984) 49 Tax 34 (H.C.AJ&K)]

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―The word erroneous, as defined in Oxford Dictionary, means, mistaken, incorrect, in the legal sense, an order was considered erroneous if it deviated from the law.‖ 39.

“Erroneous” – the scope of word explained

[(2004) 89 TAX 316 (Trib.) = 2004 PTD (Trib.) 422] ―The word ‗erroneous‘ in almost all the legal dictionaries have been defined to mean an error of law. It is correct that an ‗error‘ may include in its meanings all kinds of mistakes but the word ―erroneous‖ means basically ―an error of law‖. In this regard one can refer Blacks Law Dictionary 5th Edition published by West Publishing Company in 1979. Defining the word erroneous it speaks as follows:Erroneous: Involving error; deviating from the law. This term is not generally used as designating a corrupt or evil act. Similarly erroneous assessment and erroneous judgment have been defined as follows: Erroneous assessment: Refers to an assessment that deviates from the law and is therefore invalid, and is a defect that is jurisdictional in its nature and does not refer to the judgment of the assessing officer in fixing the amount of valuation of the property in r Blatt, 41 N.M. 269, 67 P. 2d 293, 301. Erroneous Judgment: One rendered according to course and practice of court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles. Above definitions have been followed in many earlier and recent judgments. In this regard we can refer 1984 PTD 137 (H.C. AJK), 1991 PTD (Trib.) 321 and (1969) 20 Tax 51 (Trib.). Going through the ratio decided of the above judgments one can come to the obvious conclusion that the word ―erroneous‖ even if is expanded to the ‗error of fact‘ it still cannot be considered as wide enough to consider an estimate, a gossip, a feeling which gives reason to suspect, an apprehension or possibility of a better

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judgment by way of superior wisdom and experience. It is a different word than error and mistake. The income tax law is very specific in charging various situations. For a mistake, which is synonymous to the word error, a separate section has been provided. Even for this wider connotation the opinion of the court is that the ―mistake‖ that floats from the order is the one, which can be rectified. In the present situation where the legislature is very particular in mentioning the word ―erroneous‖ we cannot allow extension of arms by exercising jurisdiction which is not provided by section 66A.‖ 40.

“Evasion” and “Avoidance” - the difference

CIT, Companies II, Karachi v. Sultan Ali Jeoffery & others [(1993) 67 TAX 51 (S.C.Pak)] ―In the field of taxation, tax avoidance and tax evasion are two different terminologies conveying completely different meaning. Tax avoidance occurs when a person in a legitimate manner as provided by law adopts a course by which the tax liability is reduced or eliminated. In doing so the assessee seeks his remedy and mechanism within the provisions of law.... Avoidance of tax by adopting legal methods will not amount to evasion of tax. But the moment avoidance is sought by illegal contrivance, deceitful methods and adopting a course not permissible in law it turns into evasion.‖ 41.

“Evasion of Tax”

CIT, Companies II, Karachi v. Sultan Ali Jeoffery & others [(1993) 67 Tax 51 (S.C.Pak)] ―Evasion with reference to taxation laws means to illegally manipulate things in such manner that the tax payable under law cannot be assessed. By an act of evasion the assessee can reduce his tax liability or completely eliminate it. Evasion of tax or duty is always in breach of the applicable and binding law. In taxation law evasion will mean adoption of such deceitful mechanism and manipulation not permitted by law which may result in reduction or elimination of tax liability.‖ 42.

“Execution of Contract”

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Sarwar & Co. v. CBR & others [(1997) 76 Tax 1 (H.C.Lah)] ―The meaning being placed by the learned counsel on the expression execution of contract is neither borne by the context in which it has been used nor by its dictionary meaning. In Blacks Law Dictionary, 5th Edition, at page 510, execution of contract has been defined as including performance of all acts necessary to render it complete. Similarly, according to Words and Phrases permanent edition, execution means, completion, fulfilment or perfecting of anything.‖ 43.

“Expenditure” & “reserves”

CIT, (Central) Karachi v. New Jubilee Insurance Co. Ltd. [(1982) 46 Tax 125 (H.C.Kar)] 43.1

expenditure, meaning of

―Expenditure is thus what is paid out or away and is something which is gone irretrievably.‖ 43.2

reserves, meaning of

―According to Ballentines Law Dictionary, third edition, page 1101, reserves means: Verb: To appropriate to a particular purpose. To exclude. To set aside. To set apart from that which has been granted. To make a reservation. Noun: In insurance, a sum of money variously computed or estimated, which, with accretions from interest, is set aside, as a fund with which to mature or liquidate, either by payment or reinsurance with other companies, future unaccrued and contingent claims, and claim accrued but contingent and indefinite as to amounts or time of payment.‖ 44.

“Failed” and “default” are not synonymous.

Masood Textile Mills Ltd. v. Commissioner of Income Tax, Companies Zone, Faisalabad and others [(2004) 89 TAX 51 (H.C. Lah.)]

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―The word ―fail‖ according to the Ballentainets Law Dictionary, third edition, at page 450, means to refuse, to neglect. Similarly, in Black‘s Law Dictionary ―fail‖ has been defined as fault, negligence, or refusal. Consequently, the mere non-payment by itself would not amount to failure to pay unless there has been a neglect or refusal or inexcusable commission on the part of a person liable to pay the amount. A somewhat similar situation arose in the cases of Sindh Employees‟ Social Security Institute v. Silver Industries Ltd. (1982) PLC 1062) and Messrs RLD Ball Bearing Limited v. Sindh Employee‟s Social Security Institution, Karachi (PLD 1991 SC 308). In both the cases the dispute was with regard to payment of increase under section 23 of the West Pakistan Employees Social Security Ordinance, 1965, according to which, if an employee fails to pay on the due date the contribution payable by him, the amount so payable shall be increased by such percentage or the amount as may be prescribed. In the first case, honourable Mr. Justice Ajmal Mian (as he then was) after considering various dictionaries as also the case-law ruled that although words ―fail‖ and ―default‖ were not synonymous, and ―fail‖ has wider connotation as compared to ―default‖ but the reasonable interpretation would be that in order to attract the penal provision of levy or increase contained in the above section, there should be inexcusable, neglect or omission on the part of the employer to pay contribution.‖ 45.

“Failure”

CIT, North Zone, Lahore v. Waris Silk Weaving and Knitting Mills, Gujranwala [(1973) 28 Tax 181 (H.C.Lah.)] ―If a person is required by law to do something which becomes impossible for him to do, not on account of his own negligence or fault, but on account of something which was unavoidable and in any case not subject to his control, he cannot be said to have failed to perform that which the law or an order passed under the law required him to do.‖ 46.

“Fixed capital”

140 Principles of Income Tax Law

The Punjab National Bank Ltd. v. CIT, Punjab & NWFP [2 ITC 184 (Lahore)] ―Securities purchased by banks are permanent investments being part of their fixed capital. They do not form part of their stock-in-trade.‖ 47.

“Fixed capital” and “circulating capital”

Gillander Arbuthnot & Co. v. CIT [(1966) 13 Tax 163 (H.C.Lah.)] ―Fixed capital represents the amount spent on setting up structure of the business, e.g. land and machinery, for manufacture of goods, the sum paid for acquiring a concern and the amount spent on purchase of stock and securities, etc. Appreciation of their value is not a trading receipt and their depreciation not a trading expense to be incorporated in the profit and loss account. Circulating or floating capital in the amount spent on running the concern, in carrying on and carrying out an operation of business for making profit, for example purchase of raw-material, pay-roll, directors‘ fee, etc. Literally, it is that capital which keeps circulating and floating in the course of business and does not constitute its outer framework. The amount spent in this account is trading expense and an increase on it a trading receipt to be incorporated and circulating capital is, however, not inflexible, e.g., land and machinery will be circulating capital in the hands of a real estate dealer and manufacturer of machinery, respectively, but fixed capital in the hands of a manufacturer of goods.‖ 48.

“General Public”

Pakistan Tourism Development Corporation Ltd. and another v. Collector, Customs, Central Excise and Sales Tax, Lahore and others 2005 PTR 14 [S.C. Pak] = 2005 PTD 104 (S.C. Pak) = (2005) 91 Tax 105 (S.C. Pak)] ―This brings us to the main plea relating, to the term ―General Public‖ appearing in section 2(28). Term ―General

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Public‖ has been defined in Words and Phrases Permanent Edition Volume 18, Gabardine Gondola. It is as follows: General Public: The ―general public‖ is not confined to citizens of a municipality but embraces all the people and is represented by the Legislature: Rayor v. City of Cheyenne, 178 P. 2d 115, 116, 63, Wyo. 72‖. The spirit of above term is not to limit its scope, but to enhance it. There was no legal justification for a narrow construction of said term, as has been done by High Court. In the case reported as Goalundo Ice Association Ltd. v. Commissioners of the Rajabari Municipality (PLD 1952 Dacca 12), the word ―public‖ as used in section 125(l)(b) of the Bengal Municipal Act was defined as ―including every member of the public in general‖. In Chamber English Dictionary, the word ―General‖ means ―relating to genus or whole class: including various species: not special‖ not restricted or specialized: relating to the whole of to all or most.‖ 49.

“Goods” do not include immovable property

Kawther Grain (Pvt.) Ltd. v. DCIT, Gujranwala [(1999) 80 Tax 262 (H.C.Lah.)] ―The interpretation of word Goods as adopted by the Assessing Officer does not find support either from the Income Tax Ordinance or for that mater from any other law. The consistent view of the Superior Courts in Pakistan that in cases of fiscal statutes only the letter of law should be seen has sufficiently been highlighted in re: Collector of Customs vs. S.M. Ahmad & Company (supra) and re: Muhammad Younis vs. CBR (supra). It is also an accepted proposition that the words used in a statute if not defined therein should be assigned their ordinary dictionary meaning. Reference to the aforesaid two dictionaries supports the contention of the learned counsel. The sale of immovable property including land and building alongwith machinery installed therein could by no imagination be treated as supply of goods or services rendered.‖ 50.

“Goodwill”

Controller of Estate Duty, Lahore v.

142 Principles of Income Tax Law

Muhammad Bashir Muhammad Nazir & others [(1974) 29 Tax 91 (H.C.Lah.)] ―A goodwill is a thing very easy to describe, very difficult to define, it is the benefit and advantage of the good name and reputation and connection of a business. It is the attractive force which brings in customers. It is the one thing which distinguishes an old established business from a new business at its first start. The term goodwill is nothing more than a summary of the rights accruing to the purchasers from their purchase of the business and property employed in it. The goodwill of a partnership may be said in a general way to be the value of its business, over and above the value of its tangible assets and which grows out of the firm‘s name, trade worked up and publicity obtained. It is as much an asset of the firm, to the amount of its actual value to the business, as is its physical property, and consequently, is the subject of sale and other contract or of a right of action for a trust concerning it, as is any other property of the firm. Like any other form of goodwill, the goodwill of partnership depends very largely upon the continuance of the business and a cessation of the business, for any extended time will generally in whole or in part, destroy the value of the goodwill.... Goodwill being an asset of the firm is subject to a partial ownership of every member thereof and is ascertained in the same manner as any other asset, by settlement of partnership.‖ 51.

“Guess work” vis-a-vis best judgement explained

Ayenbee (Pvt.) Ltd. v. Income Appellate Tribunal and others [2002] 86 TAX 117 (H.C.Kar.) = 2002 PTD 407 ―It is further added that the so-called ―guess work‖ as already explained cannot be otherwise than that of a ‗prudent man‘ and that too on the basis in cases where ―evidence‖ is not at all available, of necessary probabilities. The cases cited by the authors in this behalf are: ―1937 PC 133 (AIR V 24): ILR Nag. 191: 64 Ind. App. 102:31 Sind LR 284; 1957 Pat. 467 (AIR V 44

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C 140): 36 Pat. 886: 1955 Trav-Co. 67(67) [(S) AIR V 42 C 26]: ILR‖ Trav-Co. 1022; 1952 Pat. 235 (AIR V 39); 31 Pat. 246 (Case under S. 10(4), Bihar Sales Tax Act. 6 of 1944, which is analogous to S, 23(4), Income Tax Act - AIR 1937 PC 133 Fol.): 1926 Lah. 233 (AIR V 20); 9 Luck 85 (An Income Tax Officer does not possess absolute arbitrary authority to assess at any figure he likes, and although he is not bound by strict judicial principles, he should be guided by the rules of justice, equity and good conscience) (AIR 1934 Nag. 183) (AIR V 21); 31 Nag. LR 32: 1938 Lah 867 (AIR V 25); ILR 1939 Lah 47: IR 1940 Nag. 83 (AIR V 27); ILR 1941 Nag. 360‖.‖ 52.

“Hearing”

Messrs Essem Power (Ltd.), Escorts House though Company Secretary Mr. Qaim Mehdi v. Federation of Pakistan through Secretary, Ministry of Finance and 2 others [(2004) 89 TAX 380 (H.C. Lah.) = 2004 PTD 811 (H.C. Lah.)] ―Hearing‖ is obviously a proceeding where the parties are heard or evidence is taken to determine the issue and also to record decision on the basis thereof. It consists of any confrontation, oral or otherwise, between an affected individual and the decision maker sufficient to allow individual to present his case in a meaningful manner. Sub-rules (2) and (3) of Rule 20 of ITAT Rules can only be resorted to by the Tribunal to proceed ex parte or in default upon non-appearance of one or both the parties. Sub-rule (1) however applies where both the parties appear. On the appearance of both the parties, the Tribunal under sub-rule (1) is bound to give hearing to both the parties. Scope of these sub-rules is thus well defined. Each subrule applies to a distinct situation. A judgment delivered after hearing the parties under sub-rule (1) cannot be recalled by the Tribunal under the proviso, which is applicable only to judgments delivered under sub-rule (2) or (3) of Rule 20. Assessee‘s application before the Tribunal under the proviso was not maintainable as the assessee was not a party in default. It had appeared through its counsel and had fully participated in the appeal proceedings.‖

144 Principles of Income Tax Law 53.

“Immunity”

Hudabiya Engineering (Pvt.) Ltd., Lahore v. Pakistan through Secretary, Ministry of Interior, Govt. of Pakistan, Islamabad [(1997) 76 Tax 302 (H.C.Lah.)] ―In Ballentines Law Dictionary, 3rd Edition, the following definition of Immunity appears at page 584: ―A personal favour granted by law, contrary to the general rule ex parte levy, 43 Ark 42. A privilege or special privilege, a favour granted, an affirmative act of selection of special subjects of favours not enjoyed in general by citizens under constitution, statute, or laws, Hammer vs. State 173 Ind. 199, 89 NE 850. A right in the negative form of freedom from action or restraint which otherwise might be taken against or imposed upon a person such as the right of witness to be free from arrest while attending court.‖ 54.

“Includes”

Siemens A.G. & Halske v. CIT [(1983) 47 Tax 132 (H.C.Pesh)] ―The word includes [in section 2 (6-A) of I.T.A. 1922] is significant and it is apparent that the word means has not been used in the section. The includes denotes that the definition is inclusive and not exhaustive. The meaning of both these words has been given at page 197 of Crais on Statute Law, 1952 Edition, and it is remarked that there are two forms of interpretation clause. In one, where the word defined is declared to mean so and so, the definition is explanatory and prima facie restrictive. In the other, where the word defined is declared to include so and so, the definition is extensive.‖ 55.

“Including”

CST, Rawalpindi Zone, Rawalpindi v. Abdul Razaq Zia-ul-Qamar [(1973) 27 Tax 99 (H.C.Lah.)] ―We have already seen that the word including is used for enlarging the scope and for bringing in species which would otherwise not be covered.‖

145 Specific Words Explained 56.

“Income”

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad [(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845] ―The expression income entails wide spectrum. It covers actual as well as constructive receipts and benefits in cash or kind. It even includes what one saves by using it for oneself. For example, use of house by its owner. That as per dictionary, the word income means a thing that comes in. Its natural meaning embraces any profit or gain which is actually received. However, while construing the above word used in any entry in a legislative list, the above restrictive meaning cannot be applied keeping in view that the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of mere simple enumeration of broad categories. That what is not income under the Income Tax Act can be made income by Finance Act. An exemption granted by the Income Tax Act can be withdrawn by the Finance Act or the efficacy of that exemption may be reduced by the imposition of a new charge, of course, subject to Constitutional limitations. That the question, whether a particular kind of receipt is income or not would depend on its answer on the peculiar facts and circumstances of the case. If the nature of the receipt and its source are not satisfactorily explained by an assessee, facts which are generally within his peculiar knowledge the Income Tax Officer may legitimately presume that the amount in question is an income of the assessee from an undisclosed source. In Haig‘s language, income is increase or accretion in one‘s power to satisfy his wants in a given period in so far as that power consists of (a) money itself, or (b) anything susceptible of valuation in terms of money, whereas, Simon equates personal income with algebraic sum of consumption and change in network.

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That the process of income determination is often expressed as one of the matching costs and revenues. It involves the process of working out costs used in connection with the earning of the revenue in a particular accounting period.‖ Pak Industrial Development Corporation v. Pakistan, through the Secretary, Ministry of Finance [(1992) 65 TAX 84 (S.C.Pak.) = 1992 PTD 576 = PLD 1992 SC 562] ―Word Income as used in section 2(24) should be read in its ordinary, natural and grammatical meaning. However, when this term is to be viewed in the constitution conferring legislative powers, the most liberal construction should be put upon this word so that the same may have effect in their widest amplitude.‖ CIT v. Faysal Islamic Bank of Bahrain, Karachi [(2001) 83 TAX 376 (H.C.Kar.) = PTCL 2001 CL. 410] ―The definition as appearing in section 2(24) of the Ordinance of the word/expression ―income‖ would mean ―net income‖ after making all permissible allowances, deductions, depreciation etc. If assuming for the sake of argument that the definition is to be taken to mean ―net income‖, the said definition cannot be assigned to the word/expression ―income‖ as used in section 23 of the Ordinance as the very purpose of section 23 of the Ordinance would be defeated. As has already been stated herein above, section 3 of the Ordinance as the very purpose of section 23 of the Ordinance provides the various permissible allowances, depreciations, expenditures etc., which are to be deducted from income. Such deduction can only be made from the ―gross income‖ and not from the ―net income‖ as the ―net income‖ would be arrived at after providing/deducting all the permissible allowance, expenditures, depreciation etc. Addition in section 23(1)(v), the legislature has given its clear intention that depreciation on assets given on lease shall be allowed against lease rentals only.‖ Pakistan Industrial Development Corporation v.

147 Specific Words Explained

Pakistan, through Secretary, Ministry of Finance [(1984) 49 Tax 76 (H.C.Kar)] ―Income therefore, in the light of above dictionary meaning would include all moneys or other gains periodically received by an individual, corporation etc., for labour, service or from property, investments, operations, etc. Income denotes a thing that comes in. Therefore, in its natural meaning the word income will embrace any profit or gain which is actually received.‖ CIT, (Central) Karachi v. Habib Insurance Co. Ltd. Karachi [(1969) 19 Tax 222 (H.C.Kar.)] ―Having held that the word income in the Government of India Act 1935 has to be given the widest possible meaning the court observed that the gains taxed u/s 12(B) were profits that were received by the assessee. It was in this context that the court went on to say that, according to its ordinary meaning, income means a thing that comes in...... We have to construe the word income in the widest possible manner and, in our opinion the word is wide enough to include capital gains on the appreciation of investment as provided in rules 3 and 6 even though such gains have not been realised.‖ 57.

“Income tax authority”-- ITAT is not covered in section 156(3)

[2003] 88 TAX 9 (Trib.) = 2003 PTD (Trib.) 1708 ―In our view, there is a clear cut bifurcation in the provisions of sub-section (1) of section 156 of the Ordinance, 1979 with regard to the terms ―any income tax authority‖ or the ―Appellate Tribunal‖ which have been clearly disjoined from each other by using the word ―or‖ in between them. In sub-section (3) of the said section, only the words ―any income tax authority‖ have been used but there is no any mention of Appellate Tribunal. In these circumstances, there appeared to be a cautious omission/intentional omission by the Legislature of not including the words ―the Appellate Tribunal‖ along with the words ―income tax authority‖ in the provisions of sub-section (3) of section 156

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whereas specifically the said words (the Appellate Tribunal) were mentioned in sub-section (1) of the said section. Even otherwise, the various classes of ―income tax authorities‖ have been enumerated in section 3 under Chapter-11 of the then Ordinance, 1979 but the Appellate Tribunal has nowhere been included in the categories of ―income tax authorities‖. In fact, the Appellate Tribunal stands constituted by separate provision u/s 133 under chapter-XIII of the Ordinance, 1979 and as such is a forum not falling within the category of term ―income tax authority‖.‖ 58.

“Individual” & “association of persons”

The Punjab Province v. The Federation of Pakistan [(1960) 2-Tax (Suppl. 3) (S.C.Pak)] ―There can be no doubt that the word individual can only mean a natural person i.e. a human being. While every individual must be a person, the converse is not true because an artificial juridical person or a legal person, whether it is a corporation aggregate or corporation sole, is not an individual. By no stretch of imagination the provincial government can be held to be an association of persons.‖ 59.

“Individual” and “such individual”

Rashid Akhtar & Sons v. CIT, Lahore [(1980) 42 Tax 168 (H.C.Lah)] ―There are in fact three reasons for giving to the words any individual now a meaning different from one that is urged .... Firstly, the word individual as held in the case of Khatija Begum, in its ordinary meaning, and as it was then used in section 3 of the Income Tax Act, implied both a male and a female..... Secondly, any doubt in this respect has been further removed by the substitution of the expression her husband by the expression he or she in clause (i). The context now is such that it positively indicates that the individual could be male or a female..... Thirdly, in clause (ii) the use of the expression such individual takes us back to the individual mentioned in the opening words of sub-section (3) of section 16. The scope of expression such individual is, as wide as that of the expression an individual.‖

149 Specific Words Explained 60.

“Industrial undertaking” – meaning of

[(2004) 89 TAX 461 (Trib.)] ―EPZA Ordinance, 1980 was promulgated to set up export oriented industries and EPZA Rules, 1981 were made in pursuance to section 26 of EPZA Ordinance, 1980 for carrying out the purposes of the EPZA Ordinance, 1980. However, in no manner the EPZA Ordinance, 1980 & EPZA Rules, 1981 can extend any tax concession to a support organization, such as a bank or an insurance company, which is only admissible to an industrial undertaking under clauses (126) & (128) of 2nd Schedule of Income Tax Ordinance, 1979 for the simple reason that it is the domain of the legislature to levy tax on certain classes of income and to exempt certain classes from tax under income tax law. In this regard reference is made to section 14(1) of Income Tax Ordinance, 1979 which provides that the incomes or classes of income or person or classes of persons specified in the 2nd Schedule shall be exempt from tax under this Ordinance, subject to conditions and to the extent specified therein. Sub-section (2) of section 14 formally provides that only the Federal Government may, from the time to time by notification in the official gazette, make such amendment in the 2nd Schedule, by adding or omitting or making any change in any clause or condition therein, as it may think fit subject to approval by the National Assembly. Thus if the definition of an industrial undertaking was extended to include any supporting enterprise/organization, such as bank or insurance company, it should have been made by the Federal Government by a notification u/s 14(2) of Income Tax Ordinance, 1979 and not by any other law, as quoted or cited by the learned counsel for the appellant. The argument of the learned D.R. that although an industrial undertaking has not been defined in 2nd Schedule, but a definition is available for the same in Part-IV of First Schedule, as reproduced supra, has some force as it is a settled principle that if no definition of a particular term is available in its particular place, its definition in the same enactment or in some other enactment

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may be adopted. And if it is not available even in any enactment then its general meaning should be adopted. In this regard even the general meaning an ‗industrial undertaking‘ does not favour the assessee which is a banking company and no way is engaged in producing any goods for the market nor has employed any machinery for the purpose of its business activities. Reference is also made to section 48 of Income Tax Ordinance, 1979 under which exemption from tax is allowed to newly established industrial undertaking with certain conditions as laid down under sub-section (2) of section 48. This section is identical to section 14 read with clauses (126) & (128) of 2nd Schedule. In sub-section (2) of section 48 various conditions have been laid down including: ―(d) that it employs ten or more workers and involves the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal agency; or twenty or more workers and does not involve the use of electrical energy or any other form of energy which is mechanically transmitted.‖ Although these conditions do not apply to clauses (126) & (128) yet it gives a general idea as to what an industrial undertaking for which an exemption is claimed has to be. We have also considered the arguments of the learned counsel that while section 2(e) of EPZA Ordinance, 1980 requires that an industrial undertaking shall be further specified in this behalf by the Federal Government and that EPZA Rules, 1981 notified vide SRO 1058(I)/81, dated 23.9.1981 are made under the said notification and that the rules have further specified such supporting enterprises under rules 5(3), 10 and to be more specific under rule 15(4) of EPZA Rules, 1981. But we have noted that EPZA Rules, 1981 have been made in exercise of powers conferred by section 26 of EPZA Ordinance, 1980, and not u/s 2(e) of EPZA Ordinance, 1980. Section 26 of EPZA Ordinance, 1980 simply provides that the ―Federal

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Government may, by notification in official gazette may make rules for carrying out the purpose of this Ordinance.‖ 61.

“Interest”

Siemens A.G. & Halske v. CIT [(1983) 47 Tax 132 (H.C.Pesh)] ―The word interest has not been defined in the Income Tax Act. Various meaning of interest have been given in Strouds Judicial Dictionary and at serial no. 42 it is shown to mean compensation paid by the borrower to the lender for deprivation of the use of his money. Interest, according to Blacks Law Dictionary, means the compensation allowed by law or fixed by the parties for the use or forbearance or detention of money. According to Whartons Law Lexicon, interest means money paid at a fixed rate percent for the loan or use of some other sum, called the principal.‖ 62.

“Liable”

Noon Sugar Mills Ltd. v. CIT, Rawalpindi [(1990) 62 TAX 74 (S.C.Pak)] ―The word liable inter alia carries the meaning as subject to an obligation, that for which one is liable, a debt, bound or obliged in law or equity, responsible, chargeable, answerable, legally subject or amenable to, compellable to make satisfaction, compensation or restitution. The above quoted definitions of word liable indicate that it inter alia carried the meaning as subject to an objection, that for which one is liable, a debt bound or obliged in law or equity, responsible chargeable answerable legally subject or amenable to, compellable to make satisfaction compensation or restitution. It is also evident that the meaning of the word liable is not restricted to denote an absolute and fixed liability but has the meaning expressed by phrase within the range of possibility.‖ CIT, Rawalpindi v. Noor Sugar Mills [(1975) 32 Tax 273 (H.C.Lah.)]

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―The word liable is susceptible of two interpretations. In a wider and a broader sense it means answerable or responsible in law. In narrow and stricter sense it only connotes held liable, after the liability has been fixed on him by adjudication.‖

153 Specific Words Explained 63.

“Life”

Adeel-ur-Rehman and others v. Federation of Pakistan and others 2005 PTR 1[S.C. Pak.] = 2005 PTD 172 (S.C. Pak.)] ―The word ‗life‘ has been interpreted in the case reported as Ms. Shehla Zia vs. WAPDA (PLD 1994 SC 693) as under:―The word ‗life‘ in the Constitution has not been used in a limited manner. A wide meaning should be given to enable a man not only to sustain life but to enjoy it.‖ 64.

“Manufacture”

CIT v. Paskin (Pvt.) Ltd. 2003 PTD 2073 (H.C.Kar.) ―The term ―manufacture‖ is not defined in the Income Tax Ordinance, therefore, aid has to be taken from the for ascertaining it‘s ordinary meaning. In the Blacks Law Dictionary 6th Edition at page 965 it is defined as follows: Manufacture.-The process or operation of making goods or any material produced by hand, by machinery or by other agency anything made from the raw materials by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine, Cain‟s Coffee Co. vs. City of Muskogee, 171 Ok1, 635, 44 P.2d 50,52. In the 21st Century Dictionary revised Edition at page 837 the term is defined as follows: Manufacture-. 1. To make something from raw materials, especially in large quantities using machinery. 2. To invest for fabricate something. 3. To practice, act or process or manufacturing something. 4. Anything manufactured. On examining the definition of the term manufacture, it is clear that it is used for describing the process of making of

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goods or any material produced by hand or by machinery or by any other process from raw material in large quantities. What respondent appears to have done is that it has cut the leather which is the raw material and then stitched the cut pieces to make them into jacket. Then the respondent appears to have stitched buttons and made kaj to make the jacket complete. In doing this job, the respondents are admittedly in large quantity. Now keeping in view the definition of the term ―manufacture‖ as reproduced above, undoubtedly, the job undertaken by the respondent is of manufacture of leather garment. It is immaterial for the purpose of clause (125A), that the process of manufacturing of leather garment is undertaken by the respondent for itself or for others. The service charges as is referred to in the question will obviously be the profits and gains derived by the respondent from manufacturing of leather garments. In this view of the matter our answer to the question referred in the affirmative.‖ The CIT, Burma v. Messrs Steel Brothers and Co., Ltd. [2 ITC 129 (Rangoon)] In Murray‟s New English Dictionary, manufacture is defined as to work up (Material) into forms suitable for use. In Annandale‘s Concise English Dictionary, manufacture is defined as the operation of reducing raw materials into a form suitable for use by more or less complicated processes. In Chamber‟s Twentieth Century Dictionary manufacture is defined as to make from raw materials by any means into a form suitable for use. According to these definitions it appears to me to be self-evident that Messrs. Steels operations in the milling of rice, in the extraction and conversion of timber, in the ginning of raw cotton and the pressing of oilseeds all amount to manufacture.‖

155 Specific Words Explained 65.

“Material”

Pak. Educational Society Karachi v. Govt. of Pakistan through Chairman & Secretary Revenue Division Islamabad [(1993) 67 Tax 311 (H.C.Kar)] ―The meaning of the word material given in Legal Thesaurus by W.C. Burton basic, capital, cardinal, central, compelling, consequential, essential, extensive, far-reaching, fundamental, indispensible, influential, key, heading, main, major, memorable, momentous, necessary, paramount, pertinent, pivotal, prevalent, primary, principal, relevant, remarkable, salient, signal, significant, substantial, valuable, vital, weighty, worth considering.‖ 65.1 “Material Evidence” ―The expression material evidence has been defined by Blacks Law Dictionary as under:Material Evidence:- Such as is relevant and goes to the substantial matters in dispute, or has a legitimate and effective influence, or bearing on the decision of the case. Materiality, with reference to evidence does not have the same signification as relevancy.‖ 66.

“May”

CIT v. Surridge & Beecham [(1968) 18 Tax 72 (H.C.Kar.)] ―Ordinarily the word may is used in a permissive or an enabling sense. But this is not universally true. There are cases in which it is used in the imperative sense. When statutes authorise persons to do acts for the benefit of others or for public good or the advancement of justice, the use of expression may has a compulsory force.‖ 67.

“Merge” & “Merger”

A&B Food Industries Ltd. v. CIT/CST, Karachi [(1992) 65 Tax 281 (S.C.Pak)] ―The definitions of the words merge and merger given in Corpus Juris Secundum, Vol 57, pages 1067 and 1068, which read as follows:-

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Merge: The verb to merge has been defined as meaning to suck or disappear in something else; to be lost to view or absorbed into something else; to become absorbed or extinguished; to be combined or be swallowed up; to lose identity or individuality. It has also been defined as meaning to sink the identity or individuality of; to cause to disappear; to make to disappear in something else; to cause to be absorbed or engrossed; to swallow up. It is frequently used with the words in or into. Merger. In law it is the absorption or extinguishment of one estate or contract in another. It is said that merger is an operation of law not depending on the intention of the parties. However, it has also been stated that it is the law that merger is largely a question of intention to a great extent depending on the circumstances surrounding each particular case, and it is said that the courts will always presume against it whenever it will operate to the disadvantage of a party. In merger there is a carrying on of the substance of the thing, except that the substance is merged into, and becomes a part of a separate thing with a new identity....‖ 68.

“Mistake apparent from record” Scope of section 156

[(1998) 77 Tax 151 (Trib.)] ―Where a provision is capable of two interpretations, the adoption of one of such interpretations could not be considered a mistake apparent from the record for which action could be taken subsequently. Mistake contemplated u/s 156, Income Tax Ordinance, 1979 must be one that could/would immediately meet the eye and should not be one that could be established by a long-drawn process of argumentation.‖ 69.

“Notice”, “give notice” and “opportunity”

[(2004) 89 TAX 365 (Trib.) = 2004 PTD (Trib.) 441] ―In order to further appreciate the legal requirement of the proviso quoted supra, we need to understand the meanings of important words ―Give a Notice‖, ―Notice‖ and ―Opportunity‖.

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Since these legal terms are not defined in the Ordinance, we shall consult Black‘s Law Dictionary and the Commentary of Kanga & Palkiwala:Black‘s Law Dictionary: Give notice.-To communicate to another, in any proper or permissible legal manner, information or warning of an existing fact or state of facts or (more usually) of some intended future action; e.g. tenant giving landlord thirty-day notice of termination of tenancy; employee giving employer two weeks notice intention to quit; to give notice of appeal to appellant. The word ―Notice‖ in its turn has been given the following meaning:Notice.-Information; the result of observation, whether by the senses or the mind; knowledge of the existence of a fact or state of affairs; the means of knowledge. Intelligence by whatever means communicated. Any fact which would put an ordinarily prudent person on inquiry. That which imparts information to one to be notified. Notice in its legal sense is information concerning a fact, actually communicated to a person by an authorized person or actually derived by him from a proper source, and is regarded in law as ―actual‖ when the person sought to be affected by it knows thereby of the existence of the particular fact in question. It is knowledge of facts which would naturally lead an honest and prudent person to make inquiry, and does not necessarily mean knowledge of all the facts. In another sense, ―notice‖; means information, an advice, or written warning, in more or less formal shape, intended to apprise a person of some proceeding in which his interests are involved, or informing him of some fact which it is his right to know and the duty of the notifying party to communicate.‖

158 Principles of Income Tax Law 70.

“Occupation”

CIT, Madras v. Sri Krishna Chandra Gajapathi Narayan Deo, Raja of Parlakimedi [2 ITC 104 (Madras)] ―If, however, he (that is the owner) furnishes it (that is, the vacant house) and keeps it ready for habitation whenever he pleases to go to it, he is an occupier though he may not reside in it one day in a year.‖ 71.

“Opinion”

Star Rolling Mills v. CIT [(1974) 30 Tax 27 (H.C.Kar.)] ―An opinion on the basis whereof a statutory authority is entitled or empowered to take any action or initiate any legal proceeding, may by accurate or erroneous, but it must be an honest opinion or conviction, based on tangible material capable of sustaining such opinion, and not mala fide opinion or colourable exercise of statutory power.‖ 72.

“Or”

Pakistan Services Ltd., Karachi v. CIT, Central Zone-C (COS-1) [(1999) 80 Tax 106 (H.C.Kar.) = 1999 PTD 2901] ―We do not see any reason for holding that word ‗or‘ appearing in Explanation (i) to section 24(i) of the Ordinance is not to be used in its ordinary and natural use as disjunctive and to use it as conjunctive as to relate to the word bonus with the expression payable to an employee in accordance with the terms of his employment as remuneration.‖ 73.

“Owners”, “ownership” and “own”

Burma Railway Co. v. Secretary of State [1 ITC 140 (Burma)] ―It must be presumed that the legislature was aware that the expressions owner, ownership and the verb to own in its various tenses have been frequently used in Acts of a similar nature and further that they can be and are used in various meanings in different Acts, in some of which they have been specially defined

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for the purposes of particular sections. Nevertheless the expression has not been defined for the purposes of this Act. It may have the narrow and technical meaning of the full ultimate and legal owner, but if this was intended, it could easily have been expressed and the failure to do so points to its not having been so intended.‖ 74.

“Paid”

CIT, Rawalpindi v. K.K. & Co. Ltd. [(1980) 42 Tax 81 (H.C.Lah)] ―.... the word paid used in the context of the bonus u/s 10(2)(x) could not be so extended as to cover any provision of payment at the end of the year unless the obligation is discharged by actual payment of the sum involved during the accounting year.‖ 75.

“Pay” or “paid”

[2004 PTD (Trib.) 2087 = (2004) 90 Tax 240 (Trib.)] ―Section 25(c) as reproduced above uses the word ―paid‖. The word ―paid‖ has not been defined by this section. So, we will have to look at the Dictionaries for understanding the meaning of the word ―paid‖ or ―pay‖. According to Oxford Dictionary ―pay‖ means ―to give a person what is due in discharge of debt or for services done or goods received‖. New Webster‘s Dictionary defines word ―pay‖ as; ―to discharge a debt or obligation by giving or doing something, to recompense as for goods supplied or services rendered, to satisfy claims of a person by giving money due‖. Chamber 20th Century Dictionary gives the following meaning of the word ―pay‖; ―To satisfy, to gratify, to give what is due in satisfaction of a debt, in exchange, in compensation, in remuneration. To settle or discharge a claim, bill, debt, duty by having over money for, or other equivalent, compensation, etc.‖ 76.

“Party in default”

Messrs Essem Power (Ltd.), Escorts House though Company Secretary Mr. Qaim Mehdi v. Federation of Pakistan through Secretary, Ministry of Finance and 2 others

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[(2004) 89 TAX 380 (H.C. Lah.) = 2004 PTD 811 (H.C. Lah.)] ―The resort to the proviso is available to a ―party in default‖ to show a ―sufficient cause‖ preventing it from appearing before the Tribunal on the day of appeal hearing. In the present case, none of the parties were in default during the hearing of the appeal before the Tribunal. The counsel for the assessee admitted that both the parties appeared and participated in the appeal hearing and were not absent and that the judgment was neither a default nor an ex parte judgment. He however, contended that delay delivery of judgment amounts to ―default of hearing‖ whereof the proviso could be invoked by the assessee. This argument has no weight. The words ―party in default‖ as used in proviso to Rule 20 is obviously meant for the person or persons failing to appear and attend the hearing of appeal before the Tribunal in terms of sub-rule (2) or sub-rule (3) of Rule 20 and thus inviting a judgment in default or ex parte. These sub-rules respectively apply where ―the appellant or the respondent does not appear‖ (sub-rule (2)) or where ―both the parties remain absent‖ (sub-rule (3)), the Tribunal may decide the appeal on merits. The proviso provides a remedy against the decisions made by the Tribunal in the absence of one or both the parties referred to in the proviso as ―the party in default‖. Such ―party in default‖ can apply within thirty days to the Tribunal for recalling the order by proving that such party was prevented by a sufficient cause from appearing when the case was called on for hearing. This remedy is against default or ex parte decisions if the non-appearing party can show a sufficient cause for its absence. The word ―party in default‖ as used in the proviso and in the context of Rule 20 of ITAT Rules can by no stretch be interpreted to mean ―the default in hearing‖. Default in hearing is denying an opportunity of hearing to a party even when the party was present before the Court or the Tribunal. The terms ―party in default‖ and ―default in hearing‖ or non-hearing connote different meanings and arise out of different situations and entail different consequences. The

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non-appearing party denies itself the hearing by remaining absent from the Court when the case is called for hearing. Its default in appearance becomes the reason for the judgment in default or ex parte judgment by the Court. Contrarily the default in hearing a party is attributable to the Court before whom the party or the parties appear but are denied the opportunity by the Court to submit their case either adequately or otherwise. The absence of hearing can also arise from the absence of notice or adequate notice in the case. As a consequence of no notice or inadequate notice if a party is unable to attend the Court on the day the case was fixed, remedy of the application under the proviso can be availed of if a decision is made on such nonappearance of a party. If a party attends and participates in the hearing of the case proceedings, the proviso to Rule 20 will not be applicable.‖ 77.

“Pay”

CIT, North Zone, Lahore v. Mst. Wazirunnissa Begum [(1974) 29 Tax 188 (S.C.Pak.)] ―The word pay in section 16(2) means to satisfy, to set at rest, to discharge, to require with what is due or deserved etc., and it is obvious that the word as used in the aforesaid provision means when the money is actually delivered and not when a decision is made to make the payment.‖ 78.

“Penalty”

Citi Bank N.A. Karachi v. CIT, Central Zone C Karachi [(1994) 70 Tax 159 (H.C.Kar)] ―Term penalty according to the Blacks Law Dictionary is an elastic term with many differentiations of meaning. It involves an idea of punishment corporeal or pecuniary, civil or criminal, although its meaning generally is confined to pecuniary punishment. There cannot be two opinions about such meaning of the term. But in order to understand the real import of a term in a statute, it is necessary to examine the statute itself as an aid to interpretation.‖ 79.

“Permanent establishment”

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CIT v. Unilever P.L.C., U.K. 2002 PTD 44 (H.C.Kar.) ―The above definition confirms that the term ―permanent establishment‖ denotes a branch, management, factory or other fixed place of business but does not include an agency unless the agent has and habitually exercises a general authority to negotiate and conclude contracts on behalf of such enterprise or has a stock of goods or merchandize from which he regularly meets his order. This definition of ―permanent establishment‖ hardly covers the visits of the expatriates/employees of the respondent. The term ―permanent establishment‖ signifies some permanence. In CIT vs. Fisakhapatnam Port Trust [1983] 144 ITR 146 the Andhra Pradesh High Court at page 162 has found a ―permanent establishment‖ to connote ―projection of the foreign enterprise itself into the territory of the taxing state in a substantial and enduring form; (vide F.E.Koch‘s Book on the Double Taxation Conventions published by Stevens & Sons, London, 1947, Vol-1 at page 51, quoting Mitchell B. Caroll. Before the sub-Committee of the Committee of U.S. Senate Foreign Relations). The appellant has failed to bring any evidence or document on record to substantiate its claim that the respondent has maintained a ―permanent establishment‖ here in Pakistan. The ITAT‘s finding of fact that the respondent has not maintained a ―permanent establishment‖ in Pakistan has gone unrebutted in view of the appellant‘s failure to bring forth any other evidence to the contrary (see CIT vs. Abbott Finance 1982 PTD 31). There is thus no reason to disturb this finding of fact In light of the above discussion we hold that the visits of the expatriates of the respondent in Pakistan would not constitute a ―permanent establishment‖ of the respondent in Pakistan.‖ 80.

“Pending” vis-a-vis revision petition under repealed I.T.O. 1979

Home Service Syndicate v. CIT 2003 PTD 2109 (H.C.Lah.) ―The revision petitions on the date when the new Ordinance came into being were not pending and were filed on

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28th of August, 2002 within the limitation provided by section 138(c) of the old Ordinance. This Court is reminded of the case of Delbert-Evans vs. Davies & Watson [1945] 2 All E.R. 167, D.C., wherein it was observed: There is ample authority for saying that during the time between the conviction of an accused person on indictment and his appeal to the Court of Criminal Appeal the case is not ended at all, the case is still sub judice. The case is pending, to use the expression which has been used in many cases and in many judgments, and the publication of improper matter may amount to a contempt of Court. Newspapers who choose to publish comments upon a criminal case while it is still pending, and criminal case is still pending while the time for appealing has not run out at least, and most assuredly in the case of a man who is appealing or is proposing to appeal - if they choose to comment on the facts of the case other than upon matters which have been given in evidence in open Court, they do so at their peril. In this case, the petitioner-Company had not filed his revision petition but was proposing to do the same within the time frame of 90 days when the new law came into being.‖ 81.

“Pending” ordinarily means that the matter is not concluded

Home Service Syndicate v. CIT 2003 PTD 2109 (H.C.Lah.) ―In the case of S.K. Kashyap vs. State of Rajasthan (AIR 1971 SC 1120 at page 1128), the Supreme Court of India said that the word ―pending‖ ordinarily means that the matter is not concluded and the Court which has cognizance of it can make an order on matter in issue. The test is whether any proceedings can be taken in the case before the Court or Tribunal where it is

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said to be pending. The answer is that until the case is concluded, it is pending.‖ 82.

“Pending” not only means actually pending but what is proposed to be filed within an unexpired periphery of time

Home Service Syndicate v. CIT 2003 PTD 2109 (H.C.Lah.) ―It must be understood that whereas an appeal is a right, the revision too is provided by the statute. The Saving Clause of the Ordinance itself as well as the provision of section 6(e) of the General Clauses Act protects these provisions of revision of the old law as long as the matter was pending. It is clear to us that ―pending‖ does not mean physical pending but would also include within its definition what is proposed to be filed within an unexpired periphery of time which has happened in the present case. When we look at the impugned orders, we see that the Commissioner of Income Tax relied on the dictionary meaning of the words ―pending‖ without realizing that the word ―pending‖ had to be construed in context with the present proceedings and the law and a mere reliance on a mere dictionary meaning did not make a correct appreciation.‖― 83.

“Person”

Begum Nusrat Bhutto v. ITO, Circle V, Rawalpindi [(1980) 42 Tax 59 (H.C.Lah)] ―The power of authority of the present day Legislature is not limited to the following of principles of jurisprudence and treat a dead man as a non-entity which in actual fact is; the Legislature can treat the dead man as alive as for certain purposes, it can treat a living human being as dead for example in cases of bankruptcy or insolvent.‖ 84.

“Presumptive Tax Regime”

[2004 PTD (Trib.) 2786] ―Regarding definition of word income we have already mentioned that in Presumptive Tax regime (PTR) the turnover is

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income while in other cases the income basically is receipts minus expenses. The distinction, therefore, is obvious.‖ 85.

“Previous year”

Sheikh Miran Bux Karam Bux Ltd. Karachi v. ITO, Company Circle 12, Karachi [(1976) 33 Tax 99 (H.C.Kar.)] ―Previous year had only one definition in the Income Tax Act, 1918. However, by a subsequent legislation, namely, the Income Tax Act of 1922, the definition of previous year was enlarged. While retaining the old definition, paragraph (b) was added, and paragraph (c) was introduced by the Income Tax (Amendment) Act 1939. Looking at the two paragraphs, it is clear that, in case of paragraph (a), the previous year meant an accounting year comprised of a full period of twelve months and corresponding to a financial year preceding the financial year of assessment. But in paragraph (b), the use of words such period was unqualified and gave a discretion to the Central Board of Revenue or such authority, as was authorised by the Board in this behalf to lay down the length of the period which could either be less than one year or more than one year of a year.‖ 86.

“Processing”

Rafhan Maize Products Co. Ltd. v. CIT [1988 PTD 571 (S.C.Pak)] ―Admittedly the operation of freezing, preserving or canning of these items would not change their identity and, therefore, the word processing as used in the aforesaid legal provision, is also to be interpreted or understood in the same manner, i.e. the identity of the raw material is not destroyed in the operation or operations.‖ Crescent Sugar Mills & Distillery Ltd. Lahore v. CIT, Lahore Zone, Lahore [(1981) 43 Tax 1 (H.C.Lah)] ―The term manufacture has often been understood as transformation of one article into a commercially different commodity. The Tribunal does not appear to be wrong in

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confining the processing to undergoing a treatment which does not change the identity of the goods. May be, that in some shades in exact, the connotation of the word manufacture and processing overlap but we, feel, that here the word processing is not amenable to extended meaning and conceivably has been used along with the associated words in the cognate sense as a phenomenon of the food processing industry which includes, the canning, freezing and preservation of goods through various methods.‖ 87.

“Proceedings” and “pending proceedings”

[2003] 88 TAX 145 (Trib.) ―In a general scene, the form and manner of conducting juridical business before a court or judicial officer. Regular and orderly progress in form of law, including all possible steps in an action from its commencement to the execution of judgment. Term also refers to administrative proceedings before agencies, tribunals, bureaus, or the like. An act which is done by the authority or direction of the court, agency, or tribunal, express or implied; an act necessary to be done in order to obtain a given and; a prescribed mode of action for carrying into effect a legal right. All the steps or measures adopted in the prosecution or defence of an action. Statter vs. United States, C.C.A. Alaska, 66 F.2d 819, 822. The word may be used synonymously with ―action‖ or ―suit‖ to describe any act done by authority of a court of law and every step required to be taken in any cause by either party. The proceedings of a suit embrace all matters that occur in its progress judicially. Term ―proceeding‖ may refer not only to a complete remedy but also to a mere procedural step that is part of a larger action or special proceeding. Rooney vs. Vermont Investment Corp., 10 Cal.3d 351, 110 Cal. Rptr. 353, 365, 515 p.2nd 297. A ―proceeding‖ includes action and special proceedings before judicial tribunals as well as proceedings pending before quasijudicial officers and boards. State ex rel. Johnson vs. Independent

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School Dist. No. 810. Wabasha Country, 2600 Minn. 237, 109 N.W.2d 596, 602. In a more particular sense, any application to a court of justice, however made, for aid in the enforcement of right, for relief, for redress of injuries, for damages, or for any remedial object. ―Proceeding‖ means any action, hearing, investigation, inquest, or inquiry (whether conducted by a court administrative agency, hearing officer, arbitrator, legislative body, or any other person authorized by law) in which, pursuant to law, testimony can be compelled to be given. ….. In the case of Income Tax proceedings this would mean and include the assessment stage before he taxation officer to the final order by the Supreme Court of Pakistan. During this period or if in between the petitioner does not opt for an appeal, the case attains finality and until then the entire process is covered within the definition of the word ‗proceedings‘. The use of word ―pending‖ enlarges the scope of the section. It has been defined at page 1134 of the same Dictionary. It originates from the Italian words ―LIS-PENDENS‖ which mean continuity till final judgment through which the cause of action is set at rest. Seeking help from General Clauses Act, 1893 section 6 he defined the pending proceedings to be as the continuation upto the execution or implementation of the final order. Pending proceedings has been held as continuation till culmination point i.e. execution of the final order after which neither any appeal was filed nor any remedy was left.‖ 88.

“Profit”

CIT, Karachi v. Paracha Textile Mills Karachi [(1973) 28 Tax 155 (H.C.Kar.)] ―The word profits has not been defined in the Income Tax Act. Firstly the word profits as occurring in the said proviso must be understood in its context, and that is, in relation to the bonus paid to the employees and the requirement of reasonableness between profits and bonus, including as aforesaid, commercial expediency.‖

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The Bharat Insurance Company Ltd. v. CIT, Punjab & NWFP [5 ITC 288 (High Court Lahore)] ―In Mersy Docks and Harbour Board vs. Lucas (2 Tax Cas. 25) interpreted by the House of Lords to mean the next proceeds of a concern after deducting the necessary outgoing without which those proceeds could not be earned or received or income of whatever character it may be over and above the costs of receipts and collection, and the gains of a trade were taken to be whatever was gained by the trading, for whatever purpose it was used. The same view was adopted by the majority of that House in Last vs. London Assurance Corporation (2 Tax Cas. 100). There is nothing to show that the word profit is used in different sense in the Indian Income Tax Act. In Board of Revenue vs. Al. A.R. RM Arunachalam Chethiar (1 ITC 75), a similar interpretation was adopted by a Special Bench of the Madras High Court on the basis of several English decisions.... The Income Tax then in force was the Act of 1918, but there seems to be no material difference in the provision of that Act and the present Act so far as the point under discussion is concerned.‖

169 Specific Words Explained 89.

“Property”

Hamdard Dawakhana v. CIT, Karachi [(1980) 42 TAX 1 (S.C.Pak)] ―There is consensus of judicial opinion that the term property, as used in clause (i) is a term of the wide import and subject to any limitation or qualification which the context might require, it signifies every possible interest, which a person can acquire, hold and enjoy. It is comprehensive enough so as to cover even business, cash, deposits, securities and other such things. There is nothing in the language of the clause in question to restrict in any manner the normal and accepted meaning to the word property so as to exclude business from its contention.‖ 90.

“Receivable” u/s 17 means actually received and not “due”

[2003] 87 TAX 148 (Trib.) = 2003 PTD (Trib.) 1146 ―The learned A.R. sought strength from the Indian jurisdiction reported as 22-ITR 13 (Bombay High Court) in the case of Seth Lalbhai Dalpatbahi vs. Commissioner of Income Tax, Bombay North. In the supra judgment Section 8 of the Repealed Act, 1922 which is almost identical to Section 17 of the Income Tax Ordinance, 1979 was the subject matter of discussion, the instant case is very much relevant especially in view of the fact that in the above cited judgment the Honourable Bombay High Court was seized of the matter to determine the meaning of word ―receivable‖. The facts of the supra cited case are that interest on security was payable on the 15th April and 15 October every year. These securities were lodged with the Imperial Bank of India. 15th October, 1944 was holiday, 16th October was a working day and 17th and 18th October were again Diwali holidays. The Imperial Bank collected the interest in respect of this half year on the 21st October, 1944 and credited it to the assessee‘s account in the bank pass book on the same date. The assessee however, passed the corresponding entry in his books of account on 25th October, 1944. This half yearly income falling due for payment on 15% October, 1944, had

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been treated by the Department as income of the assessment year 1945-46. The assessee contended that this should be included in the assessment year 1946-47. In this regard the assessee had relied upon Section 8 of the Repealed Income Tax Act, 1922 which dealt with the assessability of income under the head ―Interest on securities‖ which reads as under:The tax shall be payable by an assessee under the head ―interest on securities‖ in respect of the interest receivable by him on any security of the Central Government or Provincial Government, or on debentures or other securities for money issued by or on behalf of a local authority or a company. It was the contention of the assessee that word ―receivable‖ in this connection means ―received‖ and as the interest was credited by the bank to the assessee‘s account on 21st October, 1944, it should be treated as the income of the year in which this date falls, i.e. assessment year 1946-47. The Tribunal held that the interest was receivable by the assessee on the 16th October, which was a working day and, therefore, it was the income of the year in which this date falls, i.e. the accounting year relevant to the assessment year 1945-46. The Tribunal did not agree with the assessee that ―receivable‖ means ―received‖. On a reference application forwarded to the High Court for the determination of the same, it was held. Undoubtedly, the language used by the Legislature is ―receivable‖ and not ―received‖ and we are asked to draw the necessary inference that the Legislature was attempting to tax interest on securities not when it was received, but when it was capable to being received. But when on looks a little more closely into the scheme of the Act, it is clear that ―receivable‖ in this case does not mean ―capable of being received‖.‖ 91.

“Received”-- A person cannot receive a thing from himself

Sundar Das v. Collector of Gujrat [1 ITC 189 (Lahore)]

171 Specific Words Explained

―The Act contains no definition of the word receive or received but in Murrays Oxford Dictionary the expression receive is defined as to take in ones hand or into ones possession (something held out or offered by another), to take delivery of (a thing) from another, either for oneself or for a third party. In the Imperial Dictionary the same expression is defined as to get or obtain; to take, as a thing offered, given, sent, committed, paid, communicated or the like; to accept. It seems to me that the word receive implies two persons, namely, the person who receives and the person from whom he received. A person cannot receive a thing from himself.‖ ―.... Taking the expression received in its ordinary dictionary meaning, I am of opinion that the assessee, who had already received the money in Baluchistan, did not receive it again when he brought it into, or forwarded it to, the Punjab. I would, therefore, hold that he is not taxable on the alleged income mentioned in the reference‖. 92.

“Repeal” & “amendment”

Eastern Federal Union Insurance Co. v. CIT [(1966) 14 Tax 211 (H.C.Kar.)] ―There is no difference in principle between repeal and amendment. Section 6 of General Clauses Act is applicable to the present case. Under this provision of law the repeal does not affect any right, privilege, obligation or liability, acquired, accrued under any enactment so repealed.‖ 93.

“Reserve”

CIT, Central Zone Karachi v. United Liner Agencies, Karachi [(1990) 62 Tax 31 (H.C.Kar)] ―The word reserve in its ordinary sense means keeping apart something with a view to utilise it on a future date for a particular or specific purpose. Therefore, any amount which has been kept apart with reference to its particular use at a future time will be called a reserve. But if there is an unappropriated amount in the profit and loss account without specifically

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keeping it apart for utilising for any purpose in future, it will not be deemed to be a reserve.‖ 94.

Unlawful action/order does not force any law of limitation for filing of appeal

[2004 PTD (Trib.) 838] ―This judgment of the august High Court has cloyed the present assessee to file appeal before the First Appellate Authority being the case was also selected through parametric balloting. It is consensus judicial opinion that where any order has been passed by an authority in excess of its jurisdiction or suffered from want of jurisdiction, no finality can be affixed to such order and that should be ignored for all practical purposes. Even limitation of file appeal against the order which has been passed without lawful jurisdiction would cease to run meaning thereby appeal against such order can be instituted at any time. Similarly, any proceedings which are conducted without any lawful authority, how come those proceedings can get refuge under the law and low on what grounds superstructure built on such void proceedings can stay on the earth. Corollary would be that such building must fall down. Reverting to the facts of the case, it is not disputed on behalf of the Department that the Hon‘ble High Court had not declared selection of the cases through parametric method to be violative of para 6 of the SAS for the year 2000-2001, without lawful jurisdiction. In the given scenario, I hold that since selection of the case through computer balloting has been held by the august Lahore High Court, Lahore to be passed by the DCIT was without lawful jurisdiction and is nullity in the eye of law. I offer to be assessed on agreed basis, therefore, purported consent of the assessee does not confer jurisdiction to the Assessing Officer to make an illegal assessment. Thus, the DCIT had no jurisdiction to process the assessee‘s case under normal law and the order passed thereunder being without lawful jurisdiction is nullity in the eye of law.‖ 95.

Law of limitation vis-à-vis rules of justice explained

173 Specific Words Explained

Collector of Sales Tax and others v. Shabhbaz & Co. and others 2005 PTR 72 [S.C. Pak.] = (2005) 91 Tax 107 (S.C. Pak.)] ―It may be noted that the question of condoning of delay on the ground so urged by the learned counsel is debatable in view of the latest judgment of this Court in the case of Muhammad Hussain and others v. Muhammad and others 2000 SCMR 367 and Ali Muhammad through L.R.s v. Chief Settlement Commissioner 2001 SCMR 1822, however, leaving the question of limitation for consideration at a later stage, in view of the earlier judgment of this Court in Civil Petition No.1068-L of 2002 wherein leave to appeal had been granted subject to limitation, leave to appeal in this case is also granted.‖ [2004 PTD (Trib.) 1543 = (2004) 89 Tax 546 (Trib.)] ―According to the learned counsel there was no sufficient cause beyond the control of department justifying the late filing of appeal and that the plea taken by the department that departmental formalities take longer period was also no ground and in this regard he referred to the case reported as 2000 S.C.J. 586. It was further pointed out that the ground taken by the department that several officers were involved in the filing of appeal was also not a valid ground in law as held in the case reported as 2000 SCMR 706. Further according to the learned counsel that the Government cannot be treated differently than an ordinary litigant for condonation of delays which in the present case was solely on account of negligence which is no cause of condonation of delay. Reliance for this purpose was placed on the case reported as 1999 CLC 45. The learned counsel therefore, pleaded that the condonation having not been properly explained as per the reasons mentioned in the application filed by the Commissioner of Income-tax reproduced above, the appeal was not maintainable on the face of it and should be dismissed in limine.‖ 96.

“Sales” and “supplies”

CIT v. Prime Dairies Ice Cream Limited [(1999) 80 Tax 282 (H.C.Lah.)]

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― ....the supply may include sale but this cannot be synonymous with the aforesaid expression .... The expression supplies as embodied in section 50(4) of the Income Tax Ordinance, 1979 (XXXI of 1979) does include sales.‖ 97.

“Shall”

Allied Bank of Pakistan Ltd., Azad Kashmir Branches, Mirpur through Inam Elahi Azhar, EVP and Provincial Chief, PHQ (Punjab) v. Income Tax Appellate Tribunal, AJK Council, Muzaffarabad and others [2001] 83 TAX 404 (H.C.A&JK) = [2000] 82 TAX 417 (H.C.AJ&K) = 2000 PTD 2872 ―No doubt, that in section 134(5), the word ‗shall‘ has been used but merely and simply on the basis of the word ‗shall‘, it could not be construed that it is mandatory provision of law. Both the aforesaid Reports clearly convey that where the consequences of failure to comply with the provision are not stated, the provision is directory and where the consequences are specifically mentioned, the provision is mandatory. In the instant case, the consequences of failure to comply with section 134(5) has not been given, therefore, it could not be construed as a mandatory provision of law but it is a directory provision of law.‖ 98.

“Specify”

CIT, North Zone, Lahore v. Lahore Central Iron and Hardware Machinery, Merchants [(1973) 27 Tax 40 (H.C.Lah.)] ―To sum up, therefore, if something has been described as far as is reasonably possible or as far as a careful man of business could and would do without going into the unreasonable particulars and it need not be a completely accurate and detailed description and it can be unambiguously identified it would be said to have been specified. This in fact is a specification by reference and this is nothing usual.‖ 99.

“Supply”

Al-Khair Gadoon Ltd. vs. Commissioner of Income Tax

175 Specific Words Explained

[(2004) 90 TAX 271 (H.C. Lah.) = 2004 PTD 2467(H.C. Lah.)] ―No doubt in the original provision only supply was mentioned and purchases did not figure anywhere but it will hardly be significant as expression supply itself is comprehensive enough to include the activity of both sale as well as purchase. Those who understood its true import included purchase, those who did not exclude it therefrom. It was in view of this confusion whether contrived or real, that the legislature in its wisdom inserted the explanation. Since supply is just inconceivable without the activity of sale and purchase, it would be absurd and unconscionable to exclude purchase from the purview of the above mentioned provisions. Their Lordships of Lahore High Court for the first time much before the insertion of the explanation while referring to the meaning of the expression ‗supply‘ as defined in the Black Law Dictionary and explaining its true import and implication held that supply being an expression of general nature connotes the availability of aggregate of things needed and demanded for a given use or purpose and thus includes sale as well as purchase. Amendment in an Act or Ordinance cannot be retrospective, if it imposes a new or adds to an already existing liability or tends to take away a right already accrued. Assuming that the insertion of the explanation was an amendment, which is not the case, yet it being declaratory in nature will have retrospective effect from the date the original provision was given effect.‖ 100. “Tax”

Muhammad Younus v. Chairman Municipal Committee, Sahiwal [(1986) 53 Tax 93 (H.C.Lah)] ―A tax is a compulsory extraction or a contribution imposed by a sovereign authority or required by the general body of the subjects and citizens. The power to levy a tax has to be founded in a statute whereby authority is given to levy and

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collect the compulsory contribution in the good of the citizens or for running the administration....‖ 101. “Tax” and “fee”

Biafo Industries v. Federation of Pakistan PTCL 2000 CL. 384 ―Therefore, the distinction between a tax and fee lies primarily in the fact that tax is levied as a part of common burden or general revenue, while a fee is a payment for special benefit or privilege. This distinction between tax and fee was adopted in the case of Abdul Majid and others PLD 1960 Dacca 502 and in the case of Mahboob Yar Khan PLD 1975 Lah. 748. However, it should not be forgotten that there is no generic difference between a tax and fee. Both are compulsory exaction of money by public authorities. A tax is imposed for public purposes and is not supported by any consideration of service rendered in return. Whereas a fee is levied in view of services rendered. Consequently, there is an element of quid pro quo between the payer of the fee and the authority which imposes it.‖ 102. “Tax paid” and “tax payable”

[2003] 87 TAX 136 (Trib.) = 2003 PTD (Trib.) 1222 ―The connotation ―tax paid‖ and ―tax payable‖ cannot be interpreted to exclude the tax payable under presumptive tax regime for the earlier assessment years. It rather applied to all kinds of taxes paid by an assessee for the impugned order either under section 80B, C or D. Similarly, for comparison purposes the tax payable for 1996-97 shall be grossed up by excluding tax payable under any of the above sections as well as surcharge payable by the said assessee during the relevant assessment year 1996-97. The result of above discussion is obvious. The assessing officer had accepted a return, which was erroneous in law and obviously prejudicial to the interest or revenue, as the same was not covered within the scheme of Self-assessment. It has caused prejudice to the revenue on both counts, i.e., for the reason of payment of lesser tax and also that the ITO had no

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jurisdiction to accept the return, which did not qualify for the Scheme of Self Assessment. The cancellation by the IAC, therefore, is upheld and the appeal is dismissed.‖ 103. „Turn-key project‟

[2004 PTD (Trib.) 2695] ―Turning, to the definition of ‗turn-key project‘ he submitted that it was well-established now in legal terminology that a ‗turn-key project‘ meant a complete unit where what was required by owner was only to turn the key. He also invited our attention to our decision as to what was meant by turn-key in reported judgment cited as (1998) 78 Tax 93 (Trib.) He further emphasized by referring to the well-esblished maxims of law that it was substance of the transaction which was to be examined and not the form, for the purposes of taxation. In this regard he referred to reported decision of Karachi High Court (1996) Tax 14-305 and (1993) 67 Tax 113 (Trib.) We have examined the issue before us. It would be pertinent to refer to the definition of turn-key contract as given in Black‘s Law Dictionary: ―Turn-key-Contract. Project in which all owner needs to do is ―turn the key‖ in the lock to open the building with nothing remaining to be done and all risks to be assumed by contractor. Glassman Const. Co., Inc v. Maryland City Plaza, Inc. D.C. Md. 371 F. Supp, 1154, 1159. Term used in building trade to designate those contracts in which builder agree to complete work of building and installation to point of readiness for occupancy. It ordinarily means that builder will complete work to certain specified point, such as building a complete house ready for occupancy as dwelling, and that builder agree to assume all risk. Gantt v. Van der Hoek, 251, S.C. 307, 162 S. E. 2d 267, 270. ―In oil drilling industry as job wherein driller of oil well undertakes to furnish everything and does all work required to

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complete well, place it on production, and turn it over ready to turn the key and start oil running into tanks. Retsal Drilling Co. v. Commissioner of Internal Revenue, C.C.A. tex., 127 F. 2d 355, 357. A turn-key contract to drill a well involves the testing of the formation contemplated by the parties and completion of a producing well or its abandonment as a dry hole, all done for an agreed-upon total consideration, putting the risk of rising costs, well trouble, whether, and the like upon the driller, but it does not, in the absence of a clear expression, require the driller to guarantee a producing well. Total drilling (sic) Abraham 64 No.M. 380, 328 P. 2d 1083, 1091. The Contract turn-key project was examined in somewhat similar circumstances, by Division Bench of this Tribunal in the case reported as 1998 PTD (Trib.) 3771. In that case also, like this case before us, the assessee had executed part of the contract, and the Division Bench, after having examined the facts and circumstances of the said contract has held:(41) We further find that there is sufficient documentary evidence to conclude that although the respondent has constructed the mean and major portion of the Pipeline System envisaged, planned and designed as per DBD, some of the essential element of the system have been constructed by others and until such other elements have been integrated, no testing or commissioning has been possible for the respondent. Thus, in our considered opinion the contract executed by the respondent lacks the essential characteristics of a turn-key project both as commonly understood in terms of its dictionary meaning as well as explained in the C.B.R. Circular 6 of 1994 ibid and that the ration of decision (in 1948) 16 ITR (supra) 101 (HL) is applicable to the employment of the term Turnkey in the instant case. We find that the respondent has not been extended the benefits that has promoted the legislation explained in sub-para (d) of para 4 of the C.B.R. Circular being reproduced by us hereunder:-

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(d) Withholding tax regime for non-resident contractors. Non-resident Contracts, including those executing turn-key projects were so far subject to withholding tax equivalent to 3% of the gross receipts which was treated as full and final tax liability. The rate of tax so charged was found to be law given relatively high profit margins in such contracts, particularly in case of turn-key projects involving designing, consultancy, supply equipment and machinery, and installation thereof.‖ We do not agree with the view that each part of the contract is an integral whole and each part must be deemed to turn key in it is own right, detached from over all project. This is not what is meant or understood by term ―turn key‘. The substance of the contract shows that it was only a smaller part of the over all project and could not be deemed as ‗turn key‘ project. The DCIT should not have gone by the nomenclature used in the audited accounts. He was therefore, not justified in holding the assessee as assessee in default for not declaring the tax at the rate of 8% otherwise applicable on execution of a ‗turn key‘ project, he also acted contrary to the explanation given by C.B.R. in Circular No. 6 of 1994 where ‗turn key‘ project was understood as a project involving designing, consultancy supplies of equipment machinery and installation thereof. Any part of it such as designing but not execution, could not be held to be a turn key project. We are therefore, clear in our mind that this was a case of misinterpretation of law by the two officers below. The Charge of tax under sections 5/86 is therefore, held to be illegal and is hereby vacated.‖ 104. “Turnover”

[(2004) 89 TAX 480 (Trib.) = 2004 PTD (Trib.) 355] ―Before examining this contention of the learned AR of the assessee, we would like to refer to the meaning of ‗turnover‘ as given in the Principles of Income Tax Law with International Tax

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Glossary by Huzaima Bukhari and Dr. Ikramul Haq, which reads as follows:―Turnover Volume of business of an enterprise as set forth in the profit and loss account. It is usually measured by reference to the gross receipts, or gross amounts due, from the sale of goods or services, etc. supplied by the entity.‖ In the Concise Oxford Dictionary, Ninth Edition, this term has been given the following meaning: ―turnover/../n. 1. the act or an instance of turning over, 2. the amount of money taken in a business, 3. the number of people entering and leaving employment etc. 4. a small pie or tart made by folding a piece of pastry over a filing, 5. US Sport loss of possession of the ball to the opposing team‖. Of the above meanings given in the Concise Oxford Dictionary, the Item No. 2 is the only relevant part which says that the turnover means the amount of money taken in a business which, to our minds, appears to be a basic essence of the definition of ‗turnover‘. We are not really inclined to agree with the submission of the learned AR of the assessee that the explanation to subsection (2) of section 80D of the 1979 Ordinance, contains an absolute and exhaustive definition of the term ‗turnover‘ as this is an Explanation which has been introduced to remove the doubt and, prima facie, such doubts were there with regard to the treatment of trade discounts shown on invoices of bills. A plain reading of section 80D shows the intention of the Legislature to levy a minimum tax on a company irrespective of whether it has earned any profit or not. The term ‗turnover‘ is a wide term and in our considered view it includes the receipts and accruals from the major business trading professional activity of the Company and since the law says that the turnover from all sources must be taxed, it has to be from all sources and all activities which are not in the

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ordinary course of the business of the assessee, such as the sale of fixed assets, would not form a part of the turnover. We also do not agree with the submission of the learned AR of the assessee that there is no benefit provided to the customers of the assessee. The assessee is engaged in the business of providing financial facilities to its customers and certainly this is a benefit to its customers by way of providing loans and credits and other financing facilities. Thus, in our considered view, the assessee cannot be excluded from the purview of the provisions of section 80D of the 1979 Ordinance.‖ [2003] 87 TAX 156 (Trib.) = 2002 PTD (Trib.) 3006 ―.....minimum tax u/s 80D is chargeable on the turnover of a company and company includes a trust as defined by Section 2(16)(bb). This minimum tax is chargeable on the turnover even if the income of a company is otherwise exempt from tax under any provision of Income Tax Ordinance. Thus tax u/s 80D would be charged on the turnover of the respondent trust even if its income or receipts have been allowed exemption under any of the clauses of Second Schedule to the Income Tax Ordinance. The word turnover has been defined by Section 80D in its explanation to sub-section (2) which has been reproduced supra. According to this explanation, turnover means the gross receipts, exclusive of trade discount shown on invoices or bills, derived from the sale of goods or from rendering, giving or suppling services or benefits or from execution of contracts. If assessee‘s above mentioned receipts are seen in the light of the explanation which defines turnover, we find that the donations do not represent turnover as the same have not been derived from the sale of goods or from rendering giving or supplying services or benefits or from execution of contracts. Hence donations are not chargeable to minimum tax u/s 80D. So far as tuition/admission fee and other income are concerned the same have been received by the School, which the assessee is operating for rendering services in connection with education, and therefore, the same are chargeable to ltax u/s 80D. In view of the foregoing discussion, it would meet the ends of justice if the donations received by the assessee trust are

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exempted from the levy of minimum tax under section 80D. However, assessee‘s other income and receipts on account of tuition/admission fee may be charged by the assessing officer to tax under section 80D. With these directions the appeal filed by the revenue disposed off.‖ 105. “Working liability”

capital”,

“current

assets”

and

“current

CIT v. Pakistan Tobacco Company Ltd. [(1988) 57 TAX 118 (H.C.Kar.) = 1988 PTD 66] ―From the above quoted passages from the various books on accounting the following deductions can be deduced with reference to the terms, working capital, current liability and current assets. (i) The working capital is the amount that remains for the running or working of a business after the purchase price of the fixed assets has been paid. (ii) That the difference between the current assets and current liabilities is also called working capital. (iii) Working capital can also be defined as the money which has been put into business and which has to stay there, the amount of cash and supplies necessary to be kept in hands to meet current expenses and contingencies as they arise for the proper, safe and convenient conduct of the business having regard to the owners ordinary outstanding both payable and receivable. (iv) Total working capital represents the investment of the company‘s medium and longer term funds in assets which are expected to be realised within the year of trading. It is not a permanent investment but turn over many times in a year. It is required for maintenance of inventories i.e. stock of raw-materials, work-in-progress, and purchase of goods, for extending credit to customers and for maintaining a cash balance. The total requirement is met partly by

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the credit that the suppliers of goods and services rendered to the firm and the remaining by the firm itself. (v) That according to Machullan Dictionary of Accounting, working capital is current assets less current liability other than those for taxation and proposed dividends. (vi) Current liability is a financial obligation of company falling due within one year or within an operating cycle if it is longer than one year. (vii) Current liabilities are debts which business must pay in near future not later than 12 months from the date of the last balance sheet which includes inter alia taxes. 106. “Year” - How to be understood

Nagina Silk Mills, Lyallpur v. ITO, A-Ward, Lyallpur & others [(1963) 7 TAX 442 (S.C.Pak.) = PLD 1963 SC 322] ―Definition alone cannot extend a period of (limitation) which had already commenced to run many years earlier, according to a fixed measure of time, namely, a year of twelve months. The legislature never intended that the period of limitation prescribed in the Act should become variable with the changes in the ―financial year‖ or ―year‖ inserted by Finance Act for certain other purposes, namely, to accord with the new accounting years adopted by Government.‖

Chapter VI Construction of fiscal statutes 1.

A fiscal statute has to be construed in its true perspective

Messrs BILZ (Pvt.) Ltd. v. DCIT, Multan and Another 2002 PTD 1 (S.C.Pak) ―Learned counsel stated that the Assessing Officer after having gone through the registers should have pointed out the parties from whom the advance tax was liable to be deducted. We are afraid that the contention raised by the learned counsel has no force because as it has been observed hereinabove that it is the petitioner firm itself who made the supplies, therefore, no one else better than it would have knowledge that from whom the deduction is to be made. The department had successfully discharged its obligation by making reference of the details of the supplies, which were made under different heads as per the contents of the show-cause notice. It may be noted that according to the settled principle of law that a fiscal statute has to be construed in its true perspective and in respect of payment of income tax, if it is found due against a party, then such statue cannot be interpreted liberally in order to make out a case in favour of an assessee who has failed to pay the tax.‖ 2.

Exemption clauses, rules of interpretation

World Trade Corporation v. The Excise & Sales Tax, Appellate Tribunal (Lahore Bench), Lahore and 2 others [1999 PTD 1179 = PCTLR (S.C.Pak) 524] ―All kinds of foodstuff(s) exempted from sales tax under Serial No. 3 of the Sixth Schedule of which, currently, there subsist as many as eleven sub-entries, are qualified by the word unprocessed. To put the matter more explicitly, it is only such foodstuff(s) as are unprocessed, which would 187

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qualify for the exemption. Tamarind with seeds was not in an unprocessed form. Thus, the same did not qualify for exemption. The normal rule is that words in a statute, unless the context otherwise warrants or the Legislature exhibits a different intention are to be accorded their ordinary natural meanings. Sixth Schedule, Item No. 3(ii) of Sales Tax Act, 1990, in relation to the word unprocessed has resorted to both these devices. As a result, ordinarily literal meanings shall have to be ascribed to the word except when in a given context, the Legislature, cognisant of attending exigencies, has either expanded or curtailed its connotations. Thus, whereas the controlling words of the entry remain constant, some of the aspects of processing, though not all, are exemplified by sub-item (ii) itself, when such pointedly exclude from the exempted category fruits, fruit juices and vegetables, bottled, canned or packaged. Now, according to ordinary dictionary meanings, the word process used as a verb, inter alia, equals to prepare (agricultural produce) for marketing e.g. by canning, bottling or treating it chemically. Therefore, while packaging is, additionally, illustrated in the sub-heading, there is nothing to suggest that other normal forms of processing, manual, mechanical or chemical, have thereby been excluded. Indeed, there are items in the heading e.g. 3(iv) where packing is not treated as processing, such as freezing or otherwise preserving, is not taken as processing under the item in hand viz. 3(ii). The position, therefore, remains that only such of the foodstuffs stand exempted from sales tax, as be in the generic unprocessed form, the Legislature explicitly exercising its own option to deviation, wherever, in relation to a given subitem, it deems fit. The only categories excluded from the circumstances of processing in Serial No. 3(ii) of the Sixth Schedule are freezing or otherwise preserving, normally falling within the element of processing. No occasion arises for further limiting the ambit of the qualifying word processed occurring in the entry.‖

189 Construction Of Fiscal Statutes 3.

Rule of interpretation regarding expressions used in fiscal statute

words

and

Noon Sugar Mills Ltd. v. CIT, Rawalpindi [(1990) 62 Tax 74 (S.C.Pak)] ―.....in this behalf reference to the following judgments of this court will not be out of context: (i) Meher Khan vs. Yaqub Khan and another (1981 SCMR 267) in which this court observed as follows:―No doubt the elementary rule of construction is that the words used in a statute should be construed liberally but according to what is termed as the golden rule of interpretation by Maxwell, the ordinary meaning of a word need not be adhered to if a construction based on it, would be at variance with the intention of the legislature as collected from the statute itself or if it leads to an absurdity. In such cases the language may be varied or modified so as to avoid such absurdity or inconvenience....‖ (ii) Hirjan Salt Chemical (Pak) Ltd. vs. Union Council and others (1982 SCMR 522); in which this court made the following observations: ―It is now well established principle of interpretation of statutes that rules which are merely subordinate legislation cannot over-ride or prevail upon the provisions of the parent statute and wherever there is an inconsistency between a rule and statute, the latter must prevail. This however, envisages that all efforts to reconcile the inconsistency must first be made and the provisions of the parent statute prevail only if the conflict is incapable of being resolved. We also do not have any cavil with the proposition that when construing any word used in a statute which has not been defined therein,

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it should be understood to have been used in its dictionary meaning or even its ordinary or popularly understood meaning...‖ 4.

An equitable construction of a fiscal statute is not permissible

CIT, East Bengal v. Kumar Narayan Roy Choudhry and others [(1959) 1-TAX (III-207) (S.C.Pak.)] ―A fiscal statute should be construed strictly and no question of equitable construction arises.‖ Dreamland Cinema, Multan v. CIT, Lahore [(1977) 35 Tax 169 (H.C.Lah)] ―There is no dispute about the proposition that equitable construction of a fiscal statute is not permitted. A person must be taxed only if he comes within the letter of law, otherwise he is free even though his case falls within the spirit of law as held in Hira Chand vs. Emperor (AIR 1931 Lah. 572). In CIT vs. Ectis C. Reid (AIR 1951 Bom. 333) their Lordships observed that in interpreting a taxing statute the language should not be strained to hold subject liable to tax. The judicial committee of the Privy Council approved the following passage in Bank of Chittinad vs. Income Tax Officer, Madras (AIR 1940 PC 183): ―If the person sought to be taxed comes within the letter of law he must be taxed, however, great hardship may appear to be. On the other hand, if the Crown, seeking to recover the tax cannot bring the subject within the letter of the law, the subject is free, however, apparently within the spirit of the law, the case might otherwise appear to be. Where two equally reasonable constructions are possible, one strict and the other beneficial to the assessee, the latter should be preferred in a taxing statute in view of the rule laid down in CIT vs. Hossen Kasam Dada (PLD 1961 SC 375).‖ 5.

Fiscal rules are meant for good fiscal governance

Shahtaj Sugar Mills Ltd. through Chief

191 Construction Of Fiscal Statutes

Executive v. G.A. Jahangir and 2 others [2004 PTD 1621 (H.C. Lah.)] ―These rules of interpretation are particularly applicable to fiscal matters, and as observed by the Hon‘ble Supreme Court in re ―Pfizer Laboratories Ltd. v. Federation of Pakistan and others (supra) to good governance in financial matters. All budgetary estimates are made on yearly basis and therefore a number of fiscal steps are taken to either improve or change the fiscal rules and regulations keeping in view the condition of the economy. These fiscal rules, regulations and instructions are relevant, by and large to a particular assessment or financial year and altogether change their implications after a passage of time. The period of one year laid down for the purpose of claiming of refund needs to be seen in that background as well.‖ 6.

Literal approach, unless it absurdity, has to be followed

leads

to

a

manifest

CIT/WT, Sialkot Zone, Sialkot v. Messrs Thapur (Pvt.), Sialkot [2002] 86 Tax 274 (H.C.Lah.) = 2002 PTD 2112 ―In matters of taxation a literal approach, if it does not lead to a manifest absurdity, has to be followed. In income-tax law, the words ―total income‖ as well as ―assessment‖ have their peculiar meanings. In re: CIT, West Bengal-III vs. Balkrishna Malhotra (1971) 81 ITR 759, their Lordships of the Supreme Court of India observed that since the judgment of Madras High Court in Viswanathan Chettiar vs. Commissioner of Income-tax (1954) 25 ITR 79 no other High Court in India had interpreted the word ―assessment‖ as used in the proviso of section 34(3) of the late Act in a different way. The Madras High Court in that judgment had concluded that the word ―assessment‖ meant not merely the computation of the income of the assessee but also the determination of the tax payable by him. In re: Commissioner of Income-tax, West Bengal vs. Blackwood Hedge (India) (P.) Ltd. (1971) 81 ITR 807, the Calcutta High Court re-counted the three wellknown stages of imposition of tax, namely, (a) liability to pay tax, (b) computation of tax payable and (c) recovery of tax. It was

192 Principles of Income Tax Law

accordingly observed that every order which contemplated computation of income or determination of the amount of tax payable was not an order of assessment within the meaning of late Income-tax Act, 1922. In the next case relied upon by Mr. Ibrar Hussain Naqvi, Advocate, re: CIT. Madras (Central) vs. N.D. Georgopoules (1980) 125 ITR 630 the Madras High Court expressed the view that the word ―assessment‖ normally connoted the entire process commencing from the submission of the return till the determination of tax liability. In re: CIT, Kerala vs. Datpathe (1972) 83 ITR 823, it was found that the word ―total income‖ used in sections 66 and 110 of the Indian Income Tax Act, 1961 meant total income computed as envisaged by these sections and in accordance with the other provisions of the Act. The Supreme Court of India in re: CIT, (Central), Delhi vs. Harprashad & Co. (P.) Ltd. (1975) 99 ITR 118 was considering the definition of the word ―income‖ as well as ―total income‖ as used in various provisions of the late Income-Tax Act, 1922. Their Lordships finally concluded that an income in order to come within the purview of definition must satisfy two conditions. Firstly, it must comprise the total amount of income, profits and gains referred to in section 4(1) of the Act. Secondly, it must be ―computed in the manner laid down in the Act‖. ―In the view of their Lordships if either of these conditions failed, the income will not be part of the total income that can be brought to charge. It will be noted that the words ―income‖ and ―total income‖ as defined respectively in section 2(24) and section 2(44) of the Income Tax Ordinance bear almost the same meaning assigned to them under the late Act, 1922. Therefore, the ratio settled in the aforesaid judgment clearly attracted to understand their meaning in the context of the Income Tax Ordinance as well.‖ 7.

Machinery provision in a taxing statute to be liberally construed in order to effect recovery

CIT/WT, Sialkot Zone, Sialkot v. Messrs Thapur (Pvt.), Sialkot [2002] 86 Tax 274 (H.C.Lah.) = 2002 PTD 2112

193 Construction Of Fiscal Statutes

―Even by employing the most liberal rules of construction of machinery provisions we have not been able to support the working back of presumptive income by the Assessing Officer and then its subject to charge of Workers‘ Welfare Fund. The provisions of section 4 of Workers‘ Welfare Fund lay out the stage at which the levy of the fund has to be made. It is firstly at the time of filing of a return and in case of any change in the income returned and the income assessed, at the time assessed although subsection (4) of section 4 further contemplates thai an order for levy of fund can be made after an assessment has been framed yet the reference still remains to the framing of an assessment. There is no other incident or stage to which the levy of the fund can be linked. In order to grant the prayer of the Revenue not only this Court will have to lay down a rule which would amount to legislate but also a number of lacunas will have to be supplied. The charging provisions of section 4 of Workers‘ Welfare Fund Ordinance and those of presumptive tax regime under section 80CC to our mind cannot be reconciled or be interpreted in a way to justify a charge. The charge as noted earlier necessarily bears a reference to and follows pattern of a regular assessment framed on observation of usual formalities and following computation of income keeping in view the different provisions of the Income Tax Ordinance. Since that does not happen in cases covered by section 80CC, the charge and computation of Fund in such cases is neither legally justified nor otherwise possible. The charging provisions of section 4 of Workers‘ Welfare Fund Ordinance are clear that the Legislature intended the charge on the real income of an industrial concern. There is nothing in these provisions which can possibly be extended, enlarged or stretched to hold that the levy was contemplated on presumptive income as well.‖ 8.

Principle of strict construction meant for taxing provisions and does not apply to machinery provisions

Deans Associates (Pvt.) Limited v. IAC of Income Tax [2002] 86 TAX 138 (H.C.Kar.) = 2002 PTD 441

194 Principles of Income Tax Law

―Principle of strict construction of fiscal statue is applicable only to taxing provisions such as charging provisions and not to those parts of the statute which contain machinery provisions as per principle laid down in 1980 Tax LR 185. Power u/s 66A can be exercised by the respondent only when the following factors co-exist: (i) There should be proceedings under the Act. (ii) In such proceedings the ITO must have passed the order. (iii) The commissioner should consider that the said order is erroneous and prejudicial to the interest of the Revenue. (iv) It is only when all the above mentioned factors coexist then the respondent will have jurisdiction to take action u/s 66A. (v) For the purpose whether the aforesaid factors are available to the respondent to take action needs factual inquiry for which propriety demands that the respondent should allow to proceed in the matter in accordance with law. As mentioned above the petitioner has alternative remedies before the Department under the provisions of the Income Tax Ordinance, 1979. The petitioner is well within his right to raise all legal and factual pleas before the respondent by filing fresh reply of the notice date 27.4.2000 who is duty-bound to consider the same and pass speaking order including assumption of jurisdiction.‖ 9.

When language is clear provisions are to be construed strictly

CIT, B-Zone, Lahore v. Lahore Cantonment Cooperative Housing Society, Lahore [2002] 85 TAX 25 (H.C.Lah.) = 2002 PTD 629 ―The words of the statute are clear and do not admit of any interpretation other than the one already made by the Tribunal. Since the provisions of fiscal statutes are to be construed strictly

195 Construction Of Fiscal Statutes

we entertain no doubt that penal provisions of section 88 were not attracted to the case of the assessee. An admitted liability or the one detemrined by an Assessing Officer after long drawn proceedings are absolutely two differnet things. The concession given by law to pay tax with return only to the extent of an admitted liability or the income being returned therein, cannot possibly be cirucmvented by ignoring the express words of the statute.‖ 10.

Benefit of ambiguity should be given to the assessee

Searle Pakistan (Pvt.) Ltd. v. Government of Pakistan through Secretary Ministry of Finance & Another [(1994) 69 Tax 10 (H.C.Kar)] ―There is no cavil about the settled principle of interpretation that taxing provisions should be strictly interpreted and the benefit of ambiguity, if any, must go to the subject.‖ Dreamland Cinema, Multan v. CIT, Lahore [(1977) 35 Tax 169 (H.C.Lah)] ―Where two equally reasonable constructions are possible, one strict and the other beneficial to the assessee, the latter should be preferred in a taxing statute.‖ 11.

Tax must be imposed by clear and unambiguous language

Commissioner of Sales Tax Lahore v. Lutfi & Co. Lahore [(1973) 28 Tax 168 (H.C.Lah.)] ―Since the exemption creates an exception to the general rule of taxation, it would be for the assessee to show that his case falls strictly within the scope of the exemption.‖ Kashmir Pottery Works, Sialkot v. CST, North Zone, Lahore [(1973) 28 Tax 172 (H.C.Lah.)] ―It has to be kept in mind that since the notification deals with the exemption of certain items from tax it has to be construed strictly.‖ Rahmatullah and Sons v. CST, Lahore [(1973) 27 Tax 256 (H.C.Lah.)]

196 Principles of Income Tax Law

―We fully agree with the principle that the ambiguity, if any, in the construction of a taxing statute must be resolved in favour of the subject. But this principle has no application where, as in this case, the charging section clearly imposes the liability but the assessee relies on an exemption which is in the nature of an exception to the general rule on the subject. The exemption must be strictly construed and confined to the exemption itself and not extended beyond it.‖ Secretary of State v. Seth Khemchand Thaoomal [1 ITC 26 (Sind)] ―As, observed in Maxwell on the Interpretation of Statutes, 4th Ed., page 429: Statutes, which impose pecuniary burden, are subject to the rule of strict construction. It is a well-settled rule of law that all charges upon the subject must be imposed by clear and unambiguous language, because in some degree they operate as penalties.‖

197 Construction Of Fiscal Statutes 12.

Exemption cannot be allowed if not claimed

Singer Sewing Machine Co. v. CIT and others [1964] 9 TAX 273 (H.C.Kar.) = 1964 PTD 554 ―Assessee was entitled to relief u/s 15B of 1922 Act, but he did not claim this relief in the return of income. It is held that assessing officer was not bound to grant relief as ignorance of law is no excuse. Judicial Review : COMMENTED by the Supreme Court of Pakistan in [1965] 11 TAX 364 (S.C.Pak). Their Lordships observed: “. . . That such a proceeding in revision would be a judicial proceeding and not merely departmental affair. The power of revision has to be exercised, according to judicial principles. The provision of section 33A(2) of 1922 Act apparently envisages a remedy alternative to a regular appeal from assessment. In the circumstances, it became the duty of the Commissioner to grant relief if the entitlement was clear. The learned Commissioner apparently misdirected himself in holding that he had no power to interfere in the matter. “. . . All these factors go to establish the bona fides of the assessee-company in claiming that the assessment in question were not appealed against, owing to misapprehension of the correct position. The High Court has observed, in this connection, that ignorance of law was no excuse. That may be conceded, but section 33, subsection (20) provided an alternative judicial remedy to the assessee, of which it availed itself and the relief was denied to it, on an erroneous view of law by the Commissioner. “. . . It must be found as a result of the above discussion, that the Commissioner declined to exercise his undoubted jurisdiction in the case, on a ground which was legally not supportable. This fact calls for correction of his order. We allow the appeal and quash the order passed by the CIT, in this case.” 13. In case of ambiguity/doubt, the benefit should be given to taxpayer and not the Revenue

Hari Krishna Das v. CIT, UP [5 ITC 275 (Allahabad)]

198 Principles of Income Tax Law

―The Income Tax Act is a fiscal enactment and in the case of an ambiguity, it is to be construed by the well-known principle in favour of the subject and not against the subject.‖ 14.

Benefit of doubt is the right of taxpayer

Rowe & Co. v. The Secretary of State for India [1 ITC 161 (Burma)] In Finance Act, 1894 and Studdert, In re [(1900) 2 Ir. R. 400 at p. 410] Fitzgibbon L.J. said : ―The benefit of the doubt is the right of the subject‖. 15.

Courts while interpreting a statute must adhere to the plain meaning of the words

Commissioner of Income-Tax, Karachi v. Messrs Nazir Ahmed and Sons (Pvt.) Ltd., Karachi [(2004) 89 TAX 385 (H.C. Kar.) = 2004 PTD 921 (H.C. Kar.)] ―Now coming to the explanation under consideration, we find that under the original enactment any person responsible for making any payment in full or in part to any person on account of supply of goods was required to deduct the advance tax at the time of making payment at the rate specified in the First Schedule, however, by inserting explanation through Finance Act, 1998, it was provided that the expression supply of goods include both cash and credit purchase of goods by the buyer whether on a contract or not or credit or in cash. With the insertion of this explanation the distinction between supply and sale was removed. The Trite Law of Taxation is that the words used in the tax laws until and unless defined in the statute shall be taken in the same sense and meaning as is understood in the common parlance by the business community. There can be no doubt that the supply of good and sale are not one and the same in nature. Although every supply is a sale but every sale is not supply. These concepts are so clear that they do not require any elaboration. With the insertion of explanation under consideration the sale was also held to be supply of goods and thus, it is a substantive piece of legislation whereby a sale, by a fiction of law has been deemed to be supply of goods. It is also pertinent to note that it has enlarged and extended the scope of

199 Construction Of Fiscal Statutes

section 50(4) of the Ordinance and because of the provisions contained in section 80C of the Ordinance, has the effect of enhancing the liability whereby the tax deducted under section 50(4) is to be held as full and final discharge of liability and the tax so deducted shall not be allowed adjustment as originally envisaged in subsection (4) of section 50, whereby the credit of tax so deducted in any financial year was subject to the provisions of section 53, because of non-obstante clause contained in section 80C, thus, looking to the effect of the explanation it cannot be held that it is merely declaratory or clarificatory in nature or has been inserted for the purpose of removal of doubt. There is yet another principle that no absurdity or unreasonableness is to be attributed to the Legislature. Now if the provisions contained in the explanation under consideration are held, to be retroactive in application, it will create illogical and unreasonable consequences as the payer shall be held to be a defaulter under section 52 of the Ordinance, for not deducting the advance tax on sales treating the same as supply of goods and shall further be liable to the charge of additional tax for failure to deduct the advance tax under section 86 of the Ordinance for failure to deduct the advance tax, as was done in the case under consideration.‖ Muhammad Younus v. Chairman Municipal Committee, Sahiwal [(1986) 53 Tax 93 (H.C.Lah)] ―It is also true that the historical background of a statute serves as a useful guide in ascertaining the intention of the legislature, but, only if the words used are capable of more than one interpretation; but it has never been held that courts may depart from the plain meaning of the words employed in statute because of its historical background. The court remains under an obligation to adhere to the plain meaning of the words employed in it.‖ 16.

Meaning of doubtful words to be gathered by reference to words associated with them

Crescent Sugar Mills Distillery Ltd. Lahore v.

200 Principles of Income Tax Law

CIT, Lahore Zone, Lahore [(1981) 43 Tax 1 (H.C.Lah)] ―It is one of the cordinal rules of the construction of statute that when several words have been used in an enactment, the meaning of the doubtful words may be gathered by reference to words associated with it.‖ 17.

Fiscal statutes be strictly construed and no addition or omission therefrom permissible

Taimur Shah v. CIT [(1976) 34 TAX 151 (H.C.Kar.) = PLD 1976 Kar. 1030 ―The provisions of the aforesaid (Section 45A) come into play only when an assessee fails to pay the tax due from him. It is, therefore, to be seen when a tax is due from a person leaving aside the deduction of tax at source u/s 18 or the payment of advance tax u/s 18-A, neither of which provisions are applicable in the instant case, tax is to be determined and assessed under the provisions of section 23 of the Act, mainly, on the basis of the returns of income to be made u/s 22. On such assessment being made, the tax becomes due and a notice of demand is to be issued u/s 29 of the Act specifying the sum due and payable. The amount specified in the notice of demand is required to be paid with the time specified in the notice, as provided in section 45. An assessee thus would be deemed to have failed to pay the tax due from him if he fails to pay the tax by the date specified in the notice of demand issued u/s 29. In the instant case, as already pointed out, the three notices of demand for the three charge years in question were all issued in September 1965 much after section 45A had been added to the Income Tax Act. As such the assessee‘s failure to pay the tax due from him occurred after section 45A had become a part of the Income Tax Act. No question, therefore, of retrospective operation of section 45A arises in the instant case. If the intention of the legislature had been that the application of this section should be restricted to the tax due for the charge years following insertion

201 Construction Of Fiscal Statutes

of the said section then this intention would have been made manifest by the use of appropriate words. There is. however, nothing in section 45A which implies that its application is restricted to tax due for the year following the insertion of the said section. In a fiscal statute, its provisions have to be strictly construed and no additions to or omissions therefrom are permissible. As such, we are unable to construe section 45A of the Act so as to limit its application to tax due for the years following its addition to the Act as this can only be done if we were to add these words or words of similar import in the section, which is not permissible to us. According to Maxwell, 10th Edition : ―It is but a corollary to the general rule of literal construction that nothing is to be added to or taken from a statute unless there are similar adequate grounds to justify the inference that the legislator intended same thing which it omitted to express‖. As observed by Lord Mersey in (1910) AC 409, 420: ―It is a strange thing to read in an Act of Parliament words which are not there, and, in the absence of clear necessity, it is a wrong thing to do.‖ 18.

Construction of law should not lead to startling results

Crown Bus Service Ltd. Lahore v. CBR and others [(1976) 34 Tax 54 (H.C.Lah.)] ―It is well settled that courts should follow that construction of law which does not lead to startling results or destructive ends.‖ 19.

Tax can only be imposed by clear words of the Act

Sundar Das v. Collector of Gujrat [1 ITC 189 (Lahore)] ―No tax can be imposed except by words which are clear and the benefit of the doubt is the right of the subject [per Lord Justice FitzGibbon in re Finance Act, 1894 and Studdert [(1900) 2 Ir.R. 400], and the Court is not entitled to substitute for express words or an irresistible inference a process of guess-work, however subtle the reasoning or ingenious the marshalling of facts by which such a process is supported. If the person sought

202 Principles of Income Tax Law

to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible, in any statute, what is called an equitable construction, certainly such a construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute.‖ [2003] 87 TAX 183 (Trib.) ―It is a well-settled rule of law that all charges upon the subject must be imposed by clear and unambiguous language because in some degree they operate as penalties, the subject is not to be taxed unless the language of the statute clearly imposes the obligation and language must not be strained in order to tax a transaction which had the legislature thought of it, would have been covered by appropriate words. Here, the intention of the statute was clarified by adding ―Explanation‖ in the main provision of section 2(e) and as Circular No.18 of 1991 dated July 2, 1991 issued by the CBR. This Explanation was effective from 28th June, 1979, therefore, the burden of tax was presumed to be levied from such date.‖ 20.

Strict rule of interpretation to tax a subject

Secretary to the Board of Revenue (Income Tax) v. North Madras Mutual Befit & Co [1 ITC 172 (Madras)] ―It is commonplace that in statutes of taxation the imposition of a duty must be in plain terms [Per Buckley L.J., in Inland Revenue Commissioner‟s vs. Gribble [(1913) 3. K.B. 212 at p. 219]; such a statute must be construed strictly and the onus lies upon the Crown to show that the person whom it is sought to tax falls clearly within its operation.‖ 21.

Subject can only be taxed if statute expressly so provides

203 Construction Of Fiscal Statutes

Rowe & Co. v. The Secretary of State for India [1 ITC 161 (Burma)] ―In Tennant vs. Smith [(1892) A.C. 150 at page 154], Lord Halsbury L.C. said: This is an income tax Act, and what is intended to be taxed is income. And when I say what is intended to be taxed, I mean what is the intention of the Act as expressed in its provisions, because in a taxing Act, it is impossible, I believe, to assume any intention, any governing purpose in the Act, to do more than take such tax as the statute imposes. In various cases the principle of construction of taxing Act has been referred to in various forms, but I believe they may be all reduced to this, that inasmuch as you have no right to assume that there is any governing object which a taxing Act is intended to attain other than that which it has expressed by making such and such objects the intended subject for taxation, you must see whether a tax is expressly imposed. Cases, therefore, under the taxing Acts always resolve themselves into a question whether or not the words of the Act would have reached the alleged subject of taxation. Lord Wensleydale said in Micklethwaite, re [(1855) II Ex. 452 at p. 456], It is a well established rule, that the subject is not to be taxed without clear words for that purpose; and also, that every Act of Parliament must be read according to the natural construction of its words.‖ 22.

Subject taxable if within letter of law, not taxable if not within letter of law though within the spirit

Secy. to Commr. Salt v. Ramanathan Chetti, minor by guardian [1 ITC 37 (Madras)] ―In Partington vs. Attorney-General [(1869) 4 E.G.I. App. H.L. 100], Lord Cairns stated the rule thus ―As I understand the principle of all fiscal legislation, it is this. If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law the subject if free, however apparently within the spirit of the law the case might otherwise

204 Principles of Income Tax Law

appear to be. In other words, if there be admissible, in any statute, what is called an equitable construction certainly such a construction is not admissible in a taxing statute where you should simply adhere to the words of the statute. In Coltness Iron Company vs. Black [(1881) 6 App. Cas. 315] Lord Blackburn stated the same rule somewhat differently. The noble Lord said: ―No tax can be imposed on the subject without words in an Act of Parliament clearly showing an intention to lay a burden on him. But when that intention is sufficiently shown it is not open to speculate on what would be the fairest and most equitable mode of levying that tax.‖ 23.

Burdening a subject with heavy taxation on personal views of any official is not sustainable

[(2004) 90 TAX 29 (Trib.)] ―The ratio and the principle laid down in these two cases is that burdening a subject with heavy taxation on personal views of the official involved, irrespective of the position held by him in the income tax hierarchy, cannot be sustained. Since, the assessing officer has estimated the sales on the whimsical inference drawn from certain set of facts and a wild guess as well as of a fanciful estimate, therefore, such estimation of sales cannot be held good and made basis for adoption of sales for the year under appeal. As a natural sequel the sales should be adopted considering history of the case and having taken regard to the encouraging results declared by the assessee from year after year. The assessing officer is, accordingly, directed to adopt the sales at Rs. 28,00,000/- for the year under appeal.‖ 24.

Court must stick to the letter of the statute

Rowe & Co. v. The Secretary of State for India [1 ITC 161 (Burma)] ―In Attorney-General vs. Milne [(1914) A.C. 765 at p. 771] Viscount Haldance L.C. said: It may be that, if probabilities,

205 Construction Of Fiscal Statutes

apart from the words used, are to be looked at, there is, on the construction which the Court of Appeal have put on the statute, a causus omissus which the legislature was unlikely to have contemplated. But, my Lords, all we are permitted to look at is the language used. If it has a natural meaning we cannot depart from that meaning unless, reading the statute as a whole, the context directs us to do so. Speculation as to a different construction having been contemplated by those who framed the Act is inadmissible, above all in a statute which imposes taxation, and in the same case Lord Atkinson said:―To succeed the Crown must bring the case within the letter of that enactment. It is not enough to bring the case within the spirit of it, or to show that if the section be not construed as the Crown contends it should be construed, property which ought to be taxed will escape taxation, or will enjoy...an immunity from successive levies of estate duty. These evils, if such they be, must, if they exist, be cured by legislation. Judicial tribunals must in interpreting these taxing Act stick to the letter of the statute. Again in Lumsden vs. Inland Revenue Commissioners [(1914) A.C. 877 at p. 887], Viscount Haldane L.C. said:―The duty of a court of construction in such cases is not to speculate on what was likely to have been said if those who framed the statute had thought of the point which has arisen; but, recognising that the words leave the intention obscure, to construe them as they stand, with only such extraneous light as is reflected from within the four corners of the statute itself, read as a whole.‖

Chapter VII Language of Statute 1.

If two views are possible from reading a provision of law, then one favouring the citizens is to be given preference

Amin Spinning Mills and another v. Deputy Collector Central Excise and others [(2004) 90 TAX 191 (S.C. AJ&K) = 2004 PTD 2479 (S.C. AJ&K)] ―The expression ‗question of law arising out of such order‘ in section 66 of the Indian Income-Tax Act, 1922, cannot be restricted only to those questions which have been argued and decided by the Tribunal. Sometimes, a question of law is raised before the Tribunal but an aspect of that question is neither raised nor decided. In such circumstances, other aspects of the same question can be allowed to be urged before the High Court. It is by now well settled that a Court of law and Tribunal should apply correct and relevant law of the land on the proposition before it irrespective of the fact that a party has referred the law or not. If two views are possible from reading a provision of law, then the view which favours the citizens may be given preference over the second view. The aforesaid solitary principle of law is supported by the authorities titled The State v. Syed Qaim Ali Shah (1992 SCMR 2192), and B.P. Biscuit Factory Ltd. Karachi v. Wealth Tax Officer and another (1996) 74 Tax 81 (S.C. Pak.)=(1996 SCMR 1470).‖

207 2.

Rule of benefit to subject where two interpretations are possible

208 Principles of Income Tax Law

Mst. Zarina Yousaf v. Inspecting Additional Commissioner of Income Tax/Wealth Tax, Sialkot Range, Sialkot and another 2005 PTR 102 [H.C. Lah.] = 2005 PTD 108 (H.C. Lah.)] ―If two reasonably acceptable interpretations of a provision of law are possible then the one that goes to the benefit of the subject should be adopted.‖ Micropak (Pvt.) Ltd., Lahore v. Income Tax Appellate Tribunal, Lahore and 2 others [(2001) 83 TAX 451 (H.C.Lah.) = 2001 PTD 1180] ―Where two interpretations of a taxing statute are equally possible then the one favourable to the subject was to be adopted.‖ 3.

When two interpretations are possible in relation to any provision in the discipline of taxation, the one favourable to the assessee would prevail

IAC of Income Tax and others v. Messrs Micro Pak (Pvt.) Limited and others 2002 PTD 877 (S.C.Pak) ―Before parting with these matters, it may be observed that all concerned are one on the point that when two interpretations are possible in relation to any provisions in the discipline of taxation, the one favourable to the assessee is to prevail. The learned Members of the Division Bench of the High Court were quite right in reiterating the above principle of law in paragraph 12, already reproduced above, of the impugned judgment.‖ Mehran Associates Ltd. v. CIT, Karachi [(1992) 66 Tax 246 (S.C.Pak)] ―The cardinal principles of interpretation of a fiscal statute seem to be that all charge upon the subject are to be imposed by clear and unambiguous words. There is no room for any intendment nor there is any equity or presumption as to a tax. A fiscal provision of a statute is to be construed liberally in favour of the taxpayer and in case of any substantial doubt, the same is to be resolved in favour of the citizen.‖ Allied Bank of Pakistan Ltd., Azad Kashmir Branches,

209 Language Of Statute

Mirpur through Inam Elahi Azhar, EVP and Provincial Chief, PHQ (Punjab) v. Income Tax Appellate Tribunal, AJK Council, Muzaffarabad and others [2001] 83 TAX 404 (H.C.A&JK) = [2000] 82 TAX 417 (H.C.AJ&K) = 2000 PTD 2872 ―Where a provision was open to two reasonably possible interpretations, then, the interpretation which favours the taxpayer has to be adopted.‖ J.A. Textile Mills Ltd. v. CBR [(2000) 81 TAX 88 (H.C.Lah.) = 1999 PTD 4138] ―.....in case of other laws and statutes which infringe upon the rights of citizen or a party the apex court in re: Abdul Rehman vs. Inspector General of Police, Lahore and 2 others (PLD 1995 SC 546) favoured a beneficial interpretation. The rule settled in re: CIT, East Pakistan vs. M/s. Hossen Kasam Dada, Karachi (PLD 1961 SC 375) states that when two equally reasonable constructions are possible one strict and other beneficial then the latter should be preferred. The situation, thus, calls for employing at least two general principles. First that where an article or income can equally be placed under two heads of income or tariff then the one favourable to the tax payer should be adopted. Second when an item or income etc. expressly falls into one clause then its placing into another clause would be unjustified. All the moreso, when the other clause is subject to a higher rate of tax. Rijaz (Pvt.) Ltd. v. Wealth Tax Officer Circle III Lahore [(1996) 74 Tax 9 (H.C.Lah)] ―It was observed that according to the well-accepted principles of interpretation the doubt has to be resolved in favour of the citizen. In these circumstances, the law-maker could clarify its intention by adding an explanation which cannot be legitimately objected to.‖ Commissioner Sales Tax v. Rizki Ink Company Ltd. [(1991) 64 Tax 34 (H.C.Kar)]

210 Principles of Income Tax Law

―.....according to us, if two interpretations are possible then any interpretation which favours the assessee has to be preferred.‖ CIT, Central Zone B, Karachi v. Zakia Siddiqui [(1989) 59 Tax 79 (H.C.Kar)] ―It is well recognised principle of interpretation that if a fiscal statute is capable of two reasonable interpretations then the one which is favourable to the subject be adopted.‖ Highland Manufacturers (Pak) Ltd. v. CIT, (West), Karachi [(1985) 51 Tax 66 (H.C.Kar)] ―We would observe that the Income Tax provisions have to be strictly construed and should be interpreted in a manner which is more favourable to the subject.‖ 4.

Doctrine of favourable interpretation charging and not to machinery provisions

applies

to

Barnala Commission Shop, Chak-Jhumra v. Income Tax Officer, B-Ward, Lyallpur [1963] 7 TAX 153 (H.C.Lah.) = 1963 PTD 534 = 1963 PLD 311 ―Fiscal provision in case of ambiguity should be interpreted in favour of subject. This doctrine applies to charging provisions of Act and not to collecting provisions.‖ 5.

Two equal possible interpretations of exemption clause one favouring the revenue to be adopted

CIT/WT, Multan Zone, Multan v. Allah Yar Cotton Ginning & Pressing Mills (Pvt.) Limited, Multan Road, Vehari [2000] 82 TAX 433 (H.C.Lah.) = 2000 PTD 2958 ―Further that in case of doubt or two equally possible interpretations the one in favour of the revenue shall be adopted. For reference see the judgement in re: Army Welfare Sugar Mills Ltd. vs. Federation of Pakistan (1992 SCMR 1652).‖ 6.

Rule of interpretation of ambiguous words

Jamat-i-Islami Pakistan through Syed Munawar Hassan, Secretary General v. Federation of Pakistan through Secretary, Law, Justice and Parliamentary Affairs &

211 Language Of Statute

Muttahida Qaumi Movement (MQM) through Deputy Convener, Senator Aftab Ahmad Sheikh v. Federation of Pakistan through Secretary, Ministry of Interior, PLD 2000 S.C. 111 ―It is a well-settled rule of construction of statutes that if the words used are ambiguous and admit of two constructions and one of them leads to a manifest absurdity or to a clear risk of injustice and the other leads to no such consequence, the second interpretation must be adopted.‖ 7.

If there was any doubt or ambiguity in language even then interpretation favourable to assessee had to be adopted

Khurram Saghir Industries, Lahore v. CIT, Zone-A, Lahore [(2001) 83 Tax 489 (H.C.Lah.) ―The use of word ―prior‖ in second proviso to sub-section (1) of section 13 and in sub-section (2) makes it very clear that two ―prior‖ separate approvals of the Inspecting Additional Commissioner were required where an Assessing Officer was to make addition to the declared value of any valuable property. Obviously the requirement of prior approval was meant to safeguard the interest of the assessee to avoid arbitrary exercise of jurisdiction vested in the Assessing Officer. A simultaneous approval normally will not serve the purpose of the provisions because more often than not a simultaneous approval would be a fait accompli. Lastly as remarked by the learned Division Bench of the Karachi High Court in the aforesaid judgement even if there was any doubt or ambiguity in the language the interpretation favourable to the assessee had to be adopted as laid down by the apex Court in re: B.P. Biscuit Factory Ltd. For the aforesaid reasons we are of the considered view that two separate prior approvals u/s 13(2) and in proviso to section 13(1) of the Ordinance were required and a combined approval obtained under both these sub-sections or of the draft assessment order did not fulfil the requirement of law.‖ 8.

In case of ambiguity in language, statement of objects and reason, can be relied upon

212 Principles of Income Tax Law

Mst. Fatima Bibi c/o Crown Bus Service, Lahore v. CIT, North Zone (West Pakistan), Lahore [(1962) 6 TAX 1 (H.C.Lah.) = 1962 PTD 625 = 1962 PLD 809] ―Statement of objects and reasons be referred when there is ambiguity in fiscal statute. In such a case benefit should go to subjects.‖ 9.

Ambiguity in language should be resolved in the favour of taxpayer

CIT v. Muhammad Kassim [(2000) 81 TAX 229 (H.C.Kar.) = 2000 PTD 280] ―If there was any doubt or ambiguity in the language used in the statute which rendered same capable of several interpretations, then the interpretation favourable to the assessee or the citizen was to be adopted.‖ 10.

Literal rule can only be deviated in case of ambiguity in language; otherwise courts should adhere to plain words

Muhammad Hayat Haji Mohammad Sardar v. CIT, Punjab & NWFP [5 ITC 159 (High Court, Lahore)] ―But the argument ab inconvenient as well as that based upon the order in which the two sections stand, may influence the interpretation of a statute when its language is ambiguous and capable of more than one meaning ..... When once the meaning is plain, it is not the province of a Court to scan its wisdom or its policy. Its duty is not to make the law reasonable, but to expound it as it stands, according to the real sense of the words. 11.

Plain words and patent meanings of law are to be applied and interpreted as they are and no latent meanings are to be attached to the patent words which convey the plain and obvious meaning

CIT, Karachi v. Messrs Civil Aviation Authority 2002 PTD 388 (H.C.Lah.)

213 Language Of Statute

―Plain words and patent meanings of law are to be applied and interpreted as they are and no latent meanings are to be attached to the patent words which convey the plain and obvious meaning.‖ 12.

Liability of withholding agent is restricted to plain language of statute

Continental Chemical Co. (Pvt.) Ltd. v. Pakistan and others [(2001) 83 Tax 305 (H.C.Kar.) = PTCL 2001 CL. 454] ―In our view the principle of law which thus, emerges from these Indian authorities is that where the payee/deductee pays his full tax, any short-fall in or failure to deduct income tax at source by the deductor/payer would not make the later an assessee in default, since non-deduction or short-fall in relation to thereof would be of no consequence. This principle is squarely applicable in the present case since the sellers/importers in the present case having paid their full tax, any failure to deduct the tax by the petitioner would be of no consequence. Respondent No. 3 has created a liability which cannot be ascribed as one u/s 50(4)(a) of the 1979 Ordinance. In fact the deduction of tax contemplated u/s 50(4)(a) also makes the following incumbent conditions: (a) the credit of the tax deducted or imposed has to be passed on to the deductee; (b) the deductee shall be allowed to claim the benefit of this deduction in his return of total income tax and towards his final tax liability. However, through the Circular under discussion the exemption in relation to deduction at source u/s 50(4) has been extended to all recipients who may enjoy exemption under any of the provisions of the 1979 Ordinance. This would surely include the further exemption prescribed by section 80C(4). Applying this circular also the petitioner was under no obligation to deduct tax at source u/s 50(4) in relation to the purchases on which tax at import stage had been deducted u/s 50(5) and which constituted a final discharge of liability u/s 80C(4). The

214 Principles of Income Tax Law

respondent 2 and 3 were bound to obey these orders/instructions u/s 8 of the 1979 Ordinance, while these instructions were also in keeping with the provisions of the 1979 Ordinance in particular section 80C(4). Failure to disregard this CBR Circular is ipso facto an unlawful exercise of jurisdiction. The jurisdiction to apply the provisions of the 1979 Ordinance in any manner is not restricted to the proceedings for the assessment or recovery of final income tax liabilities but also relates with the same force in respect of advance tax, be it u/s 50(4) or section 53 or any other provision of the 1979 Ordinance. In the context of advance deduction of income tax at source there is no provision in the 1979 Ordinance nor any jurisdictional order issued by CBR confers jurisdiction on the respondents Nos. 2 and 3. On the contrary, the proviso to section 50(4)(a) categorically confirms that the substantive provision of section 50(4)(a) is to apply to non-residents as well, but only mutatis mutandis. It is settled law that where impugned orders are void and completely without jurisdiction (as in this case) a petitioner can directly approach the Court in its Constitutional jurisdiction. It is an admitted position that the tax to be deducted is an advance tax, more particularly when the provision of section 50(4)(a) has been made subject to section 53 of the 1979 Ordinance. Any advance tax, of necessity thus, has otherwise to be imposed as per the scheme of advance tax u/s 53, before the year runs out. The income tax to be deducted has to be a percentage of purchase and is directly linked up with the transactions. But if the tax u/s 50(4)(a) or u/s 53 is imposed after the end of the year to which it relates, it would cease to have the character of advance tax. Under section 53 of the 1979 Ordinance the last instalment of advance tax is to be paid or collected by 15th June. In this case for the purposes of advance tax, the assessment year 1996-97, respectively, while the respondent No.3, however, admittedly had issued his first notice on 1.6.1998 and then on 3.6.1998 and had completed orders in

215 Language Of Statute

July/August, 1998. These proceedings and orders were thus, beyond section 50(4)(a) incompetent and time-barred as well. In case an assessee continues default of section 53 and the time for framing the regular assessment or the end of the assessment year reaches, the substantive default of section 53 (i.e. advance income tax) would automatically lapse since under law any payment of section 53 is a credit with the exchequer which is liable to be adjusted with the actual liability for that year.‖ 13.

Court must confine itself to language of law

CIT v. Muhammad Kassim [(2000) 81 TAX 229 (H.C.Kar.) = 2000 PTD 280] ―While interpreting a provision of statute, Court has to read the provision as it exists and to deduce or infer the meaning in accordance with the existing test or the words or particular provision. Court is not supposed to add to or subtract any word(s) from any provision of a statute while interpreting a provision so as to give same a meaning other than the one which obviously and plainly flows or can be inferred from it.‖ 14.

Statutes should be interpreted strictly in accordance with letter of law

J.A. Textile Mills Ltd. v. CBR [(2000) 81 TAX 88 (H.C.Lah.) = 1999 PTD 4138] ―It is an established principle that fiscal statutes should be interpreted strictly in accordance with the letter of law used and the words employed. For reference see 1977 SCMR 371 re: Collector of Customs, Karachi & Others vs. M/s Abdul Majeed Khan & Others. Also that in case of any ambiguity or doubt arising from construction, the same should be resolved in the favour of subject. For reference see PLD 1961 SC 375 re: CIT, East Pakistan vs. M/s. Hossen Kasam Dada, Karachi & others and Abdul Majeed Khan and others (supra). The ratio settled in 1993 SCMR 274 = 1993 PTD 69 re: Mehran Associate Limited vs. CIT, Karachi also supports this kind of approach in fiscal matters....‖ 15.

Inconsistencies are in-built in Income Tax

216 Principles of Income Tax Law

Hatz Trust of Simla v. CIT, Punjab & NWFP [5 ITC 8 (High Court Lahore)] ―It is true that the interpretation of the Indian Income Tax Act is far from being an easy matter. It is founded on the English Acts with certain differences to meet different conditions. The English Acts have been added so or varied to meet certain attempts to evade them and the same is true of the Indian Acts. The result is that there may appear to be certain inconsistencies....‖ 16.

General Language not infrequently intended sub modo

Emperor v. Probhat Chandra Barua [1 ITC 284 (Calcutta)] ―General language is not infrequently intended sub modo, and even in statutes cannot be taken at the foot of the letter. But in the first place an Income Tax Act may be taken to have been framed so as to express intentions of the legislature on a matter of cardinal importance for its purpose. Secondly, the words employed in section 4 - the charging section are calculated to an end which in the absence of any saving clause they are apt and sufficient to secure, that is, they place on the subject claiming exemption the burden of making out his case under the strict provisions of the statute. Thirdly, the modification sought to be implied overlaps a modification made expressly and with much care to limit and define its scope. Fourthly, the basis of the express modification is the payment of land revenue, and the legislature so far from moving in diversa materia, may very easily be supposed to regard its own provision as a precise formula, probably of compromise, adequately meeting the obligations imposed on it for modern purposes by the Permanent Settlement as well as the demands of others (e.g., the more highly assessed holders of estates temporarily settled) for some degree of uniformity in the incidence of direct taxation. It is difficult indeed to believe that the effect of the tax upon such important subjects as mining profits in permanently settled provinces was left to be thrashed out as against all interests upon the terms of the Regulation. Nor can it reasonably be taken as

217 Language Of Statute

axiomatic that it is any more fair or just to tax forthwith an estate subject to periodical revision as regards land revenue than to tax an estate permanently settled.‖ 17.

It is inconceivable that a person can be saddled with responsibility/liability for non-compliance of law which is to be enacted somewhere in future

Commissioner of Income-Tax, Karachi v. Messrs Nazir Ahmed and Sons (Pvt.) Ltd., Karachi [(2004) 89 TAX 385 (H.C. Kar.) = 2004 PTD 921 (H.C. Kar.)] ―The case, under consideration pertains to assessment year 1995-96, meaning thereby the period ending 30th June, 1995. The explanation has been inserted by Finance Act, 1998 and if the operation of the explanation is held to be retrospective a person would be held to be defaulter for not making compliance with law which was to be enacted after three years of the transaction taking place during the period relevant to the assessment year 1995-96. It is inconceivable that a person can be saddled with responsibility/liability for non-compliance of law which is to be enacted somewhere in future. Because of the totally changed facts and circumstances, emanating from the introduction of presumptive tax regime the ratio of the judgment in the case of Dream Land v. Commissioner of Income Tax, (1977) 35 Tax 179 (Lah.) is not attracted. For the foregoing reasons, it is held that the learned Tribunal was fully justified to hold that the explanation added to section 50(4) of the Ordinance, by Finance Act, 1998, cannot be applied retrospectively. After hearing learned counsel for the appellant, the appeal was dismissed in limine by a short order on 30.10.2003. These are the detailed reasons in support thereof.‖

Chapter VIII Application of Statute 1.

Application of rule generalibus specialia derogant

CIT, East Pakistan, Dacca v. Engineers Limited, Dacca [1967] 16 TAX 81 (S.C.Pak.) ―The second contention, raised by the learned counsel for the CIT, that clause (xvi) was not applicable rested on the rule that a special provision in a statute excludes the application of a general provision of similar nature. This is a well established rule of construction of statutes, but is attracted in the interpretation of clause (xvi) the relevant clauses read as follow: (xii) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business; (xiv) any expenditure of a capital nature on scientific research related to the business; (xv) any expenditure laid out or expended on the training abroad of citizens of Pakistan, in connection with a scheme approved by the Central Board of Revenue for the purposes of this clause; and (xvi) any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation. The scope of clause (xvi) which is residuary nature is thus wholly different from the sums included in clause (xii), (xiv) and (xv). There being no similarity of subject-matter between clauses (xii), (xiv), (xv) and (xvi) of section 10(2) the rule generalibus specialia derogant was clearly not attracted.‖ 219 2.

Interpretation of charging and machinery provisions of a fiscal statute

220 Principles of Income Tax Law

Trustees of the Port of Karachi v. CBR & another [(1990) 61 Tax 30 (H.C.Kar)] ―A taxing statute usually contains charging and machinery provisions. The former fixes the liability to pay tax and has to be construed strictly and where two reasonable interpretations are possible one which favours the subject should be accepted. Once the liability to tax is fixed the machinery provision comes into play. This has to be construed liberally and in a manner that the recovery is ensured. Where more than one reasonable interpretation of such provision is possible one which favours recovery should be adopted.‖ 3.

Interpretation of machinery provisions of a fiscal statute

Trustees of the Port of Karachi v. CBR & another [(1990) 61 Tax 30 (H.C.Kar)] ―Mr. Sheikh Haider the learned counsel for the respondent has contended that as section 50(7A) is not a charging but machinery provision it should be liberally interpreted to ensure that recovery of tax is made and no part of it escapes. It is true that the machinery provisions of a fiscal statute should be interpreted in such a manner that recovery is not frustrated or adversely affected. But it does not mean that to achieve this object one can travel beyond the realm of law and do violence to language and intention of the statute. The machinery can be extended only to the extent it is permissible under law. In this attempt one cannot override the rights of other parties only because a recovery has to be made. Such provisions have their own limitations and they are to be found within the statute itself.‖ 4.

Law applicable on the first day of assessment year will apply and not the one in existence during the next year

CIT v. Pakistan Tobacco Company Ltd. [1988] 57 TAX 118 (H.C.Kar.) = 1988 PTD 66 ―The legal proposition is very obvious, namely, that accounting year is different from assessment year. The law applicable to a particular assessment year will be the law which is

221 Application Of Statute

in force in that year and not the law which was in force during the accounting year unless otherwise stated or implied.‖ 5.

For the purposes of assessment of income the law applicable is that in force on the first day of the relevant assessment year

Rustam F. Cowasjee & 2 others v. CBR & 2 others [(1985) 52 Tax 123 (H.C.Kar.)] ―It is well-settled that for the purposes of assessment to income tax the law to be applied is that law that is in force in the assessment year, in other words the income tax as stands amended on the first day of July of a financial year will apply to the assessment of that year.‖ 6.

Right accrued cannot be taken away by implication

Harjina & Company (Pak) Limited, Karachi v. CIT [1964] 8 TAX 1 (H.C.Kar.) = 1963 PTD 867 = 1963 PLD 996 ―Rights under existing laws are not to be supposed to have been repealed by implication unless intention becomes clear from language of law.‖

Chapter IX Interpretation of Statute 1.

Statute must be intelligibly expressed and reasonably definite and certain

Jamat-i-Islami Pakistan through Syed Munawar Hassan, Secretary General v. Federation of Pakistan through Secretary, Law, Justice and Parliamentary Affairs & Muttahida Qaumi Movement (MQM) through Deputy Convener, Senator Aftab Ahmad Sheikh v. Federation of Pakistan through Secretary, Ministry of Interior, PLD 2000 S.C. 111 ―Statutes must be intelligibly expressed and reasonably definite and certain. An act of the Legislature to have the force and effect of law must be intelligibly express and statutes which are too vague to be intelligible are a nullity. Certainty being one of the prime requirements of a statute, a statute in order to be valid must be definite and certain. Anticipated difficulty in application of its provisions affords no reason for declaring a statute invalid where it is not uncertain. Reasonable definiteness and certainty is required in statutes and reasonable certainty is sufficient. Reasonable precision, and not absolute precision or meticulous or mathematical exactitude, is required in the drafting of statutes, particularly as regards those dealing with social and economic problems. Penal statutes contemplate notice to ordinary person of what is prohibited and what is not. Statute creating an offence must be precise, definite and sufficiently objective so as to guard against an arbitrary and capricious action on the part of the State functionaries who are called upon to enforce the statute.‖ 223 2.

While interpreting fiscal notifications the only guiding principle should be that no undue advantage could be taken on the basis of far-fetched or scholarly

224 Principles of Income Tax Law interpretation which the plain language does not imply nor intended to mean

Collector of Central Excise and Sales Tax v. Rupali Polyester Ltd. and others [2003] 87 TAX 49 (S.C.Pak.) ―It hardly needs any elaboration that while interpreting a notification [this circular can also be equated with notification having sanctity of law) ―the purpose or purposes for which a notification is issued would be relevant in determining the vires of a notification. One of the practical and effective ways of proliferating the purpose is to see how far the suggested meaning destroys and defeats or promotes the ultimate purpose. In this research the Court is not confined to the literal meaning of the words used in the notification but it has to adopt a rational attitude by attempting to align its vision to that of the draftsman while drafting the notification in question‖. [Bindra‘s ―Interpretation of Statutes‖, 7th Edn., p.833). A careful analysis of Circular No.2 of 1988 and its ingredients as mentioned hereinabove would show that it is free from any ambiguity, absurdity or confusion and the language employed therein is so plain which cannot be twisted whatever principles of interpretation may be pressed into service because the question of any insertion, deletion or addition does not arise as it is to be interpreted in such a manner that the object of its issuance is promoted rather than hampered. We are of the considered opinion that while interpreting Fiscal Notifications the only guiding principle should be that no undue advantage could be taken on the basis of far-fetched or scholarly interpretation which the plain language does not imply nor intended to mean. The provisions as contained in section 30 of the Sales Tax Act, 1951 are to be kept in view and no separate meanings can be assigned which are not in consonance with the said Act. It is an admitted feature of the case that the sales tax was recovered from the customers and added to the cost of production.‖ 3.

Exemption clauses provided under incentives should be construed liberally

Irum Ghee Mills Limited v.

industrial

225 Interpretation Of Statute

Income Tax Appellate Tribunal and another [2000] 82 TAX 3 (S.C.Pak) ―For the reasons discussed above, the appeal is allowed, the ex-parte order dated 30.06.1997, the subsequent appellant orders and judgement of the High Court, dated 26.6.1998 are set aside, and the appellant is declared entitled to the exemption granted by clause 118E of the Second Schedule to Income Tax Ordinance, 1979. Since the principal objection of the clause was to encourage setting up of industrial undertakings by offering tax incentives to boost up industrial growth a benefit view was to be taken rather than to defeat its object on technical grounds.‖ 4.

Effect of non-obstante clause

E.F.U. General Insurance Ltd. & Others v. Federation of Pakistan & Others [(1997) 76 Tax 213 (S.C.Pak) = 1997 PTD 1693 = PLD 1997 SC 700] ―Effect of said non-obstante clause is that the specified sections of the Act or rest of the Ordinance to the extent that these are inconsistent with Section 10(7) and First Sched. of the Act or section 26 and Fourth Sched. of the Ordinance shall not be given effect to. No inconsistency exists between the special provision relating to general insurance business in the Act or Ordinance and the applicable Schedules containing general provisions for computation of tax on business. Such general provisions then apply for computation of tax on income from general insurance business.‖

226 Principles of Income Tax Law 5.

Non obstante provision overrides conflicting provision

CIT v. National Agriculture Ltd., Karachi [2000] 82 TAX 73 (H.C.Kar.) = [2000] 81 TAX 249 (H.C.Kar.) = 2000 PTD 254 ―....if two provisions of a Statute are not consistent or are in conflict with each other then the provision of the section starting with the expression ―notwithstanding‖ or with ―non obstante‖ clause would have preference and would override the provisions or the sections of the Statute dealing with the same subject-matter.‖ 6.

Interpretation of statute is not CBR‟s domain

Central Insurance Co. & other v. CBR Islamabad [(1993) 68 Tax 86 (S.C.Pak)] ―The interpretation of any provision of the Ordinance can be rendered judicially by the hierarchy of the forums provided for under various sections of the Ordinance, namely, the Income Tax Officer, Appellate Assistant Commissioner, Appellate Tribunal, High Court and this court and not by the CBR. Therefore, interpretation of statute is not CBR‘s domain.‖ 7.

Proceedings of the Legislature can be resorted to when the words of a provision are ambiguous

A&B Food Industries Ltd. v. CIT/CST, Karachi [1992] 65 TAX 281 (S.C.Pak) ―We are inclined to hold that reference to the proceedings of the Legislature can be resorted to when the words of a provision of a statute are ambiguous with the object to discover the real intention of the law-makers but when there is no ambiguity in the language employed in the relevant provisions of the statute, recourse to the proceedings of the Legislature cannot be made in order to construe the same in violation of the language employed therein. In our view, if the language of the statute is clear and unambiguous, the Court is bound to construe and to give it effect without taking into consideration anything extraneous to the same.

227 Interpretation Of Statute

Reference may also be made to a recent decision of this court in the case of Miss Benazir Bhutto vs. Federation of Pakistan [PLD 1988 SC 416]‖. 8.

General and specific words

Noon Sugar Mills Ltd. v. CIT, Rawalpindi [(1990) 62 Tax 74 (S.C.Pak)] ―Reference may also be made to para 189 from the Construction of Statute by Earl T. Crowford 1940 edition, which

reads as follows: General and special words or terms: It is also basic rule of construction that general words should be given a general construction, that is, they should be given their full and natural meaning, unless the statute in some manner reveals that the legislative intent was otherwise. Such a contrary intent may be found in the purpose and subject matter, or context of the statute, so that as a result the general terms may be qualified or restrained.....‖ 9.

Words in statutes cannot be treated as surplusage or redundant

Muhammadi Steamships Company Ltd. v. CIT, (Central) Karachi [(1966) 14 Tax 281 (S.C.Pak.) = PLD 1966 S.C. 828] ―Provisions granting exemptions or privileges have to be construed strictly against the person claiming the exemption or the privilege. It is a well established rule of interpretation of statutes that no words in a statute are to be treated as surplusage or redundant.‖ 10.

Every word used in a statute has to be given effect to and no word of provisions of a statute is to be treated as surplusage and redundant

CIT v. Kamran Model Factory [2002] 86 TAX 39 (H.C.Kar.) = 2002 PTD 14 ―The principle of interpretation of statute that every word used in a statute has to be given effect to and no word or provisions of a statute is to be treated as surplusage and redundant. The case of East and West Steambship Co. vs. Queensland

228 Principles of Income Tax Law

Insurance Co. Ltd. reported in PLD 1963 SC 663 can be cited in support of the above proposition. A similar observation was made by the Supreme Court in the case of Jalal Mehmood Shah vs. Federation of Pakistan reported in PLD 1999 SC 395. In the circumstances, the omission on the part of the Assessing Officer for making the order for levy of Workers‘ Welfare Fund at the time of finalizing the assessment even if considered to be an error or mistake visible or apparent from the record or found floating from a bare reading of the order of the Assessing Officer, he would not have the right to have recourse to section 156 of the Income Tax Ordinance.‖ 11.

Rule of harmonious construction of statutes

CIT, Karachi v. Khatija Begum, partner Shakil Impex Karachi [(1965) 12 Tax 95 (S.C.Pak)] ―Now it is well-settled that: the words of a statute, when there is doubt about their meaning, are to be understood in the sense in which they best harmonize with the object of the enactment and the object which the legislature had in view.‖ See Maxwell on Interpretation of Statute. The same author also says that: “To arrive at the real meaning it is always necessary to get an exact conception of the aim, scope and object of the whole Act, to consider according to Lord Coke (I) what was the law before the Act was passed; (ii) what was the mischief or defect for which the law had not provided; (iii) what remedy Parliament has appointed; and (iv) the reasons of the remedy.” Mustafa Prestressed R.C.C. Pipe Works Ltd. Karachi v. Commissioner of Sales Tax (Investigation), Karachi [(1990) 62 Tax 119 (H.C.Kar.)] ―It is well-settled principle of interpretation that all the provision of an enactment have to be construed harmoniously.‖ CIT, Lahore Zone Lahore v. Malik & Co. Lahore [(1974) 29 Tax 165 (H.C.Lah)]

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―Rules and the section are to be read together in harmony and not in derogation of one another.‖ 12.

Cautious approach is necessary when adopting foreign case-law

Beach Luxury Hotel Ltd. v. CIT, (Central), Karachi [(1981) 44 Tax 40 (S.C.Pak.)] There is, however, a word of caution, a reservation to be kept in view in all such historical and comparative studies. Not much help can be directly obtained in construing a particular provision of our Income Tax Act, by reference to interpretation of similar, or analogous provisions, in Income Tax Legislation in England or India. However, on analogous provisions, fundamental concepts and general principles, unaffected by the specialities of either, the authorities may be helpful as guides.‖ 13.

Court cannot imply anything not expressed in statute

Hirjna & Co. (Pak) Ltd. Karachi v. Commissioner of Sales Tax, Central Karachi [(1975) 31 Tax 78 (S.C.Pak.)] ―We may here observe that in interpreting the taxing statute the courts must look to the words of the statute and interpret it in the light of what is clearly expressed. It cannot imply anything which is not expressed, it cannot import provisions in the statute so as to support assumed deficiency.‖ 14.

Person sought to be taxed must come within the letter of law

CIT, North Zone, Lahore v. Mst. Wazirunissa Begum [(1974) 29 Tax 188 (S.C.Pak.)] ―In determining whether or not a particular matter comes within a taxing statute, it is only the letter of law to be looked into. There is ample authority for the proposition that in a fiscal case, form is of primary importance, the principle being that if the person sought to be taxed comes within the letter of the law, he must be taxed, however great a hardship may thereby be involved but on the other hand if the crown cannot bring the subject within the letter of the law he is free, however, apparent

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it may be that his case comes within what might be called the spirit of the law.‖ 15.

No words to be treated as surplusage

Muhammadi Steamship Company Ltd. v. CIT, (Central) Karachi [(1966) 14 Tax 281 (S.C.Pak.) = PLD 1966 S.C. 828] ―It is well established rule of interpretation of statute that no words in a statute are to be treated as surplusage or redundant. The words ‗such capital being computed in accordance with the rules made by the Central Board of Revenue‘ could not be read as surplusage or redundant.‖ 16.

Exemption clauses vis-a-vis rules of interpretation

Muhammadi Steamship Company Ltd. v. CIT, (Central) Karachi [(1966) 14 Tax 281 (S.C.Pak.) = PLD 1966 S.C. 828] ―Provisions granting exemptions or privileges have to be construed strictly against the person claiming the exemption or the privilege.‖ 17.

A fiscal statute should be construed strictly

CIT, East Bengal v. Kumar Narayan Roy Choudhry and others [(1959) 1-TAX (III-207) (S.C.Pak.)] ―A fiscal statute should be construed strictly and no question of equitable construction arises.‖ 18.

Abrogation of International Law

Imperial Tobacco Co. of India Ltd. v. CIT, South Zone, Karachi [(1959) 1-TAX (III-284) (S.C.Pak.)] ―Statutes are not to be construed as abrogating International Law unless their language clearly leads to that result, and that extra territorial operation of a statute over foreigners is not to be presumed as having been intended unless it is expressly so stated.‖ 19.

While interpreting a fiscal statute, there is no room for any intendment, inference or presumption

231 Interpretation Of Statute

CIT, Companies-I, Karachi v. Messrs National Investment Trust Ltd., Karachi 2003 PTD 589 (H.C.Kar.) ―The learned counsel has conceded that while interpreting a fiscal statute there is no room for any intendment, inference or presumption and the plain words used by the Legislature are to be looked only, for application of a particular provision. He has, however, insisted that income, profits and gains are to be computed for the purpose of Income Tax Ordinance, 1979 in accordance with the method of accounting regularly employed by the assessee.‖ 20.

Hypothetical permissible

construction/interpretation

is

not

[2004 PTD (Trib.) 2749] ―It is trite law that the subject is not to be taxed unless the language of the statutes clearly imposes the obligation, and language must not be strained in order to tax transactions which had the Legislature thought of it would have been covered by appropriate words. Beneficial legislation has to be interpreted benevolently as far as possible. Hypothetical construction/interpretation is not permissible as held by the Honourable Superiour Courts.‖ 21.

Fiction of law is restricted to the extent specified in statute and its scope is not to be extended

CIT, Companies-I, Karachi v. Messrs National Investment Trust Ltd., Karachi 2003 PTD 589 (H.C.Kar.) ―The explanation is not general in terms and shall not be applied to other sections of Income Tax Ordinance, on the basis of the principle that a fiction of law is restricted to the extent specified in the statute and its scope is not to be extended. The intention of the Legislature is clear from the fact that no such explanation has been inserted in section 50(6A) of the Income Tax Ordinance, 1979.‖

232 Principles of Income Tax Law 22.

Definitions given in a particular statute are meant strictly for the said law unless adopted by other statutes through legislation or reference

CIT, Companies-II, Karachi v. Messrs Muhammad Usman Hajrabai Trust Imperial Courts, Karachi 2003 PTD 577 (H.C.Kar.) ―It is established principle of the interpretation of statutes that the definitions given in a particular statute are to be employed for the purpose of the said statute only until and unless the definitions are adopted by any other statute through the legislation by incorporation or reference. A perusal of section 2 of the Income Tax Ordinance clearly shows that the definitions given therein are for the purpose of the Income Tax Ordinance only. For the purpose of Wealth Tax Act, 1963, the definitions of the terms expressions and words used in the said Act have been given in section 2 thereof. In sub-section (2) of section 2 of the Wealth Tax Act, 1963, it is stated that, ―the words and expressions used but not defined in this Act shall have the meaning assigned to them under the Income Tax Ordinance, 1979‖. Since the expression company as used in the Wealth Tax Act, 1963, is defined in section 2(9) of the said Act, therefore, the contention of the Revenue that, the learned ITAT ought to have interpreted the expression company used in the Wealth Tax Act, 1963 with reference to the definition given in the Income Tax Ordinance is not tenable and is without any substance. In the judgements cited by the appellant itself, it is clearly stated that, in taxing statute one has to look merely at what is clearly stated. There is no room for any intendment. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied, one can only look fairly at the language used. By now, it is established principle of the interpretation of fiscal statutes that, a tax on any person is to be levied by clear and unambiguous words and the expressions used in the charging sections are not to be stretched by any process of interpretation so as to bring a person within the tax net, not falling under the clear and plain language of the statute. For the foregoing reasons, we are of the opinion that, the learned ITAT has

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correctly interpreted the law in the light of the established principles of the interpretation of fiscal statutes pertaining to the charging of tax. The impugned finding of the learned ITAT that, a trust is not liable to the charge of wealth tax is not open to any exception and is hereby upheld. The contention of the appellant is without substance with the result that all the appeals stand dismissed in limine.‖ 23.

Law is to be interpreted in the totality of the scheme contained in a particular statute and is not to be taken in isolation

BILZ (Pvt.) Ltd. v. DCIT, Multan and another 2002 PTD 1 (S.C.Pak) ―Learned counsel stated that the Assessing Officer after having gone through the registers should have pointed out the parties from whom the advance tax was liable to be deducted. We are afraid that the contention raised by the learned counsel has no force because as it has been observed hereinabove that it is the petitioner firm itself who made the supplies, therefore, no one else better than it would have knowledge that from whom the deduction is to be made. The department had successfully discharged its obligation by making reference of the details of the supplies, which were made under different heads as per the contents of the show-cause notice. It may be noted that according to the settled principle of law that a fiscal statute has to be construed in its true perspective and in respect of payment of income-tax, if it is found due against a party, then such statue cannot be interpreted liberally in order to make out a case in favour of an assessee who has failed to pay the tax.‖ Messrs Indus Basin & Co. v. CIT [2002 PTD 2169 (H.C.Kar.)] ―The learned ITAT further ignored another cardinal principle of the interpretation of statutes that a law is to be interpreted in the totality of the scheme contained in a particular statute and is not to be taken in isolation. We have seen that, the word ‗building‘ has been used in its broader sense which is inclusive of all the three categories of buildings appearing at

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Serial Nos.I, II and II-A, under the heading ‗building‘, in Table annexed to rule 2. We have already referred to the use of term ‗building‘, in section 23(l)(v), rule 1 (1), (2), (3), (3A) and rule 2 of the Third Schedule. In rule 5 of the Third Schedule also, word ‗building‘ has been used for the purpose of allowing initial depreciation but for the purpose of rate of depreciation, different categories have been given at Serial Nos.(a), (aa), (aaa) and (b). .Under clauses (a), (aa) and (aaa) the nature and use of the building has been described while in clause (b) it is simply stated, ‗in the case of other building‘. It means that clause (b) in rule 5(1) is in the nature of residuary clause and similar is the position of rule 2 where at Serial No.I, it is described as building (not otherwise specified) while at Serial Nos.II and II-A Factory or workshop (excluding godowns and offices) and residential quarters for labourers have been described, meaning thereby that at Serial Nos. II and II-A description of the buildings have been given and Serial No. 1 is residuary in nature. Reading of rule 2 and rule 5 shows that the Legislature after giving particular description of some categories of the building has left all other categories of building in residuary provisions. It is pertinent to observe here that the categories of various assets under particular head, does not have the effect of taking away any class of asset outside or beyond the parameters of main heading of the asset. In other words, notwithstanding, the classification of assets in different categories for the purpose of rate of depreciation all of them belong to the same specie under which they are categorized.‖ 24.

It is not for the Courts to supply for deficiency in the language of law as framed

CIT/WT, Sialkot Zone, Sialkot v. Messrs Thapur (Pvt.), Sialkot [(2002) 86 Tax 274 (H.C.Lah.) = 2002 PTD 2112] ―The prayer of the Revenue for a liberal construction of the provisions of section 80CC read with section 4 of the Workers‘ Welfare Fund Ordinance if granted in the manner it is being sought, a number of blanks will have to be filled in and many deficiencies supplied to justify computation of the fund. It

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is not for the Courts to supply for deficiency in the language of law as framed. Where law expressly holds out to an assessee that in case of particular receipts the deduction made at source in respect thereof shall be his final discharge of liability under the Income Tax Ordinance, any further charge with reference to the provisions contained in another legislation cannot justify a further charge.‖ 25.

No provision of a statute should be considered in isolation, until and unless any section/provision thereof is a complete code in itself. Any Scheme contained in a statute or subordinate legislation should be considered in totality of the Scheme

A. Rehman alias Abdullah and another v. Federation of Pakistan and others 2002 PTD 804 (H.C.Kar.) ―Before giving our finding on the point under consideration, it would be appropriate to state that the established principle of interpretation of statutes is that no provision of law contained in a statute is to be considered in isolation, until and unless any section/provision is a complete code in itself an any Scheme contained in statute or subordinate legislation, is to be considered in the totality of the Scheme. Thus, adhering to this principle, we will consider all the relevant provisions in the Scheme together in their totality.‖ 26.

Where language of any statute or legal document is clear, then the same has to be acted upon accordingly

A. Rehman alias Abdullah and another v. Federation of Pakistan and others 2002 PTD 804 (H.C.Kar.) ―Here the golden principle of interpretation of statutes comes into picture that where the language of any statute or legal document is clear, it has to be acted upon accordingly.‖ 27.

If the words are not already defined in the statute, such words used in a section of the statute are to be given their ordinary meaning

CIT v. Kamran Model Factory

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[2002] 86 TAX 39 (H.C.Kar.) = 2002 PTD 14 ―The general principle of interpretation is that the words used in a section of the statute are to be given their ordinary meaning if not already defined in the statute. By giving the ordinary meaning of the word ―assessable‖ there can be no other possible interpretation than the one which we had arrived at hereinabove. From the above discussion the only conclusion which can be had is that assessees who are not required to file return of total income under the Income Tax Ordinance, relating to presumptive tax regime cannot be subjected to the charge/levy of Workers‘ Welfare Fund.‖ 28.

Words, “tax payable on the basis of such return” are to be interpreted on a reading of return of total income as a whole including the claim of exemption if any, and the assessment order is not to be read as part of return of total income under any principle of the interpretation of statutes

CIT, Karachi v. Messrs Civil Aviation Authority 2002 PTD 388 (H.C.Lah.) The words, ―tax payable on the basis of such return‖ are to be interpreted on a reading of return of total income as a whole including the claim of exemption if any, and the assessment order is not to be read as part of return of total income under any principle of the interpretation of statutes.‖ 29.

Document is to be read as a whole and not in piece or in conjunction with any other material which is not be part of document

CIT, Karachi v. Messrs Civil Aviation Authority 2002 PTD 388 (H.C.Lah.) ―Document is to be read as a whole and not in piece or in conjunction with any other material which is not part of document.‖ 30.

Principles for determining mandatory or directory provision of law

Allied Bank of Pakistan Ltd., Azad Kashmir Branches, Mirpur through Inam Elahi Azhar, EVP and Provincial

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Chief, PHQ (Punjab) v. Income Tax Appellate Tribunal, AJK Council, Muzaffarabad and others [2001] 83 TAX 404 (H.C.A&JK) = [2000] 82 TAX 417 (H.C.AJ&K) = 2000 PTD 2872 ―No universal rule or absolute test existed for determining whether a provision of law was mandatory or directory and it was to be determined according to the intention of the Legislature and the language which had been used in the provision. Ordinarily, where consequences of failure to comply with certain provisions were not stated those were to be deemed to be directory, and where the consequences were specifically mentioned, the provision was mandatory. Statute, as a general rule was understood to be directory when it contains matter merely of directions but it was construed as mandatory when those directions were followed up by an express provision that in default of following them, he had to face the consequences. Provision was mandatory if its disobedience entitled a serious legal consequence.‖

238 Principles of Income Tax Law 31.

Correct interpretation of Rule 15 vis-a-vis right of appeal

Allied Bank of Pakistan Ltd., Azad Kashmir Branches, Mirpur through Inam Elahi Azhar, EVP and Provincial Chief, PHQ (Punjab) v. Income Tax Appellate Tribunal, AJK Council, Muzaffarabad and others [2001] 83 TAX 404 (H.C.A&JK) = [2000] 82 TAX 417 (H.C.AJ&K) = 2000 PTD 2872 ―Rule 15 further contains that where the memo. of appeal is not filed in the manner specified, then, the Registrar or the Officer authorized under rule 7, may return it to the appellant or his authorized representative, if any, to bring it in conformity with the provisions of the said Rules within such time as he may think. The aforesaid rule also lends support to the arguments that section 134(5) is directory provision of law and not mandatory because it suggests that if any memo of appeal is not accompanying the necessary document then, the Registrar shall return the same and provide further time for its completion. Thus, it clearly shows that in case, the appeal fee was not deposited within time then the Registrar should have directed the appellant to deposit the requisite appeal fee. He should have also provided time to the appellant for depositing the appeal fee, so, it could not be said that this provision is a mandatory provision of law, therefore, if, at all, the memo of the appeals were not accompanying the requisite fee, then, under rule 15, it was the responsibility of Registrar to provide further time to the appellant for depositing the appeal fee. Nothing like such was done in the instant cases. It is to be noted that if it would have been a mandatory provision of law, then, in rule 11, it should have been mentioned that the memo of appeals should accompany the requisite court-fee and the consequences for failure of which would have also been provided in the aforesaid rules.‖

239 Interpretation Of Statute 32.

“Assessment consciously completed”, meaning of

National Beverages (Pvt.) Ltd. v. Federation of Pakistan and others [(2001) 83 TAX 359 (H.C.Kar.) = PTCL 2001 CL. 250] ―The expression ―assessment consciously completed‖ has been elaborately explained by the Supreme Court in the case of Pakistan Tobacco Co. Ltd. vs. Government of Pakistan and 3 others (PTCL 1992 CL. 376 = 1993 SCMR 493) as under:6. The question as to when reopening of the case u/s 65 of Income Tax Ordinance, 1979 is allowed and justified in spite of the fact that all material facts were already on the record when previous finding was given, came up for detailed examination before this Court in the case of Edulji Dinshaw Limited (supra) in which nearly the whole case-law on the subject has been noticed. It is held in the reported judgement of that case once all the facts have been fully disclosed by the assessee and considered by the Income Tax Authorities and assessments have been consciously completed and no new fact has been discovered there can be no scope for interference with these concluded transactions under the provisions of section 65 on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been underassessed in the meaning of section 65(1)(a)(b) of the Ordinance. Maximum emphasis in this ruling is on use of words to the effect ‗assessments have been unconsciously completed‘. Requirement spot-lighted is that Income Tax Officer has applied his mind consciously to the facts of the case and perusal of the record. If there is conscious application of mind, then rule laid down in this case will apply with full force. If there is no conscious application of mind by Income Tax Officer, then rule laid down in this case will not be attracted.‖ 33.

Parametric computer balloting held contrary to the law

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Ikhlaq Cloth House, Faisalabad v. ACIT, Circle-12, Faisalabad Zone, Faisalabad and 3 others [2001 PTD 3121] ―Article 2A of the Constitution and promulgation of Shariat Application, 1990 enjoins on the State to deal with issue under Islamic dispensation and Islamic principle of interpretation of statute should be followed. Admittedly respondent while promulgating Self-Assessment Scheme for the year 2000-2001 made a clear representation that cases for selection of audit would be made through random computer ballot. This was the promise given out by the Government to the taxpayer and the citizens. It has a binding effect in law and jurisprudence. It is commanded by the God Almighty through the passages contained in Qura‘an-e-Hakeem in Surah Bakara, Surah Al-Maida and Sura Bani Israel that the promises made to each other should be adhered to. This solemn transcendental principle is to be followed and is not merely decorative. The promise becomes more imperative when it is given out by the Government. Therefore, such promise has a binding force and cannot be allowed to be breach moreso by the hierarchy of respondent No. 4. The device or parametric computer balloting, therefore, has no place in the Self-Assessment Scheme under consideration and it is alien to the Scheme. It, therefore, follows that the parametric computer balloting is contrary to the law under the said Scheme and has to be declared as such.‖ 34.

Machinery provisions cannot be construed to go beyond the spirit of law

Leather Connections (Pvt.) Ltd. v. Central Board of Revenue, Islamabad [2001] 83 TAX 1 (H.C.Lah.) ―It is settled proposition of law that principle of strict construction of fiscal statute is applicable only to taxing provisions such as charging provisions and not to those parts of statutes which contain machinery provisions as per principle laid down in (1980 Tax Law Report 185). It is true that the machinery provisions of a fiscal statute should be interpreted in

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such a manner that recovery is not frustrated or adversely affected. But it does not mean that to achieve this object one can travel beyond the spirit of law and do violence to language and intention of the statute. The machinery can be extended only to the extent it is permissible under the law. In this attempt one cannot override (rights) of other parties only because a recovery has to be made. Such provisions have their own limitation and they are to be found within the statute itself.‖ 35.

Claimant of an exemption has to prove the same without any ambiguity

CIT/WT, Multan Zone, Multan v. Allah Yar Cotton Ginning & Pressing Mills (Pvt.) Limited, Multan Road, Vehari [2000] 82 TAX 433 (H.C.Lah.) = 2000 PTD 2958 ―These cannot be read as exemption granting provisions. It is an established proposition of fiscal laws that the claimant of an exemption has to bring it home without any ambiguity.‖ 36.

Machinery provisions of fiscal law should be construed so as not to destroy recovery mechanism

Leather Connections (Pvt) Limited v. The CBR, Govt. of Pakistan, Islamabad through its Chairman [2000] 82 TAX 42 (H.C.Lah.) ―Mere reading of aforesaid section, notification and letter dated 4.4.1995 reveal that the same are in accordance with law. Section 50(7BB) was inserted by the competent body by Finance Act No. 10 of 1993, as per principle laid down by the Hon‘ble Supreme Court in Ellahi Cotton Mills‟s case (PLD 1997 SC 582). Proviso (ii) of aforesaid section 50(7BB)(b) confers powers to CBR therefore, CBR issued SRO No. 614/93, dated 18.7.1993 which was published in official gazette on 18th July, 1993, therefore, contention of petitioner‘s counsel has no force that CBR has no authority to issue notification. Similarly the contention of petitioner‘s counsel has no force that notification was not published in the official gazette. CBR has given formula to determine the estimated cost of construction of a building on the basis of cost of construction as

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specified by Pakistan Public Works Department or Provincial Building Department does not indicate at all that the CBR has delegated its powers to the other department on the well known principle of adoption or legislation by reference which is known principle. In arriving to this conclusion I am fortified by judgment of this Court ―P.I.A. Corp‟s case (PLD 1979 Lah 415). It is also settled proposition of law that interpreting a fiscal statute that Court must look all the words of statute and interpret the same in the light of what is clearly expressed and Court has no jurisdiction to imply anything which is not expressed. In this behalf reliance is placed on Hanjama and Company vs. Commissioner (1971) 23 Tax 230 (S.C.Pak) = (1971 SCMR 128) and Collector of Custom‟s case (1977 SCMR 371). It is settled proposition of law that principle of strict construction of fiscal statute is applicable only to taxing provisions such as charging provisions and not to those parts of statutes which contain machinery provisions as per principle laid down in (1980 Tax Law Report 185). It is true that the machinery provision of a fiscal statute should be interpreted in such a manner that recovery is not frustrated or adversely affected. But it does not mean that to achieve this object one can travel beyond the spirit of law and do violence to language and intention of the statute. The machinery can be extended only to the extent it is permissible under the law. In this attempt one cannot override rights of other parties only because a recovery has to be made. Such provisions have their own limitation and they are to be found within the statute itself. In arriving to this conclusion I am fortified by the following judgments: CIT,‟s case AIR 1940 PC 124 Maithram vs. Ranjidas. Escorts Limited‟s case [1975] 31 TAX 164 (H.C.Lah.) = 1975 SCMR 570.‖ 37.

Rule of liberal construction of machinery provisions

Deans Associates (Pvt.) Limited v. IAC of Income Tax [2002] 86 TAX 138 (H.C.Lah.) = 2002 PTD 441

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―Principle of strict construction of fiscal statue is applicable only to taxing provisions such as charging provisions and not to those parts of the statute which contain machinery provisions as per principle laid down in 1980 Tax LR 185. Power under section 66A can be exercised by the respondent only when the following factors co-exist: (i) There should be proceedings under the Act. (ii) In such proceedings the ITO must have passed the order. (iii) The commissioner should consider that the said order is erroneous and prejudicial to the interest of the Revenue. (iv) It is only when all the above mentioned factors coexist then the respondent will have jurisdiction to take action under section 66A. (v) For the purpose whether the aforesaid factors are available to the respondent to take action needs factual inquiry for which propriety demands that the respondent should allow to proceed in the matter in accordance with law. As mentioned above the petitioner has alternative remedies before the Department under the provisions of the Income Tax Ordinance, 1979. The petitioner is well within his right to raise all legal and factual pleas before the respondent by filing fresh reply of the notice date 27.4.2000 who is duty-bound to consider the same and pass speaking order including assumption of jurisdiction.‖ Leather Connections (Pvt) Limited v. The CBR, Govt. of Pakistan, Islamabad through its Chairman [2000] 82 TAX 42 (H.C.Lah.) ―It is also settled proposition of law that machinery provisions of fiscal statute should be liberally construed to ensure recovery as per principle laid down by this Court in W.P. Province vs. K.B. Amir-uddin (PLD 1953 Lah 433). The aforesaid judgment was confirmed by Federal Court reported as (P.L.D.

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1956 Federal Court 220). The same was again upheld by the Hon‘ble Supreme Court in Let. Con. Nawabzada Muhammad Amir Khan‟s case (PLD 1961 SC. 119) The contention of learned counsel for respondent No. 3 has a force that in case of nondeduction of advance tax on the basis of aforesaid section penal consequences have to be faced by respondent No. 3 as is held by D.B. of Karachi High Court in Raman‟s case (1985 PTD 787).‖ 38.

Things should be done as required by law

M. Saleem v. Dy. Director FIA/CBC, Multan and another PTCL 2000 CL. 465 ―Where a thing was provided to be done in a particular manner, it had to be done in that manner and if not so done, the same would not be lawful.‖ 39.

Redundancy should not be readily assigned by courts

CIT v. Muhammad Kassim [2000] 81 TAX 229 (H.C.Kar.) = 2000 PTD 280 ―It is a well-established principle of interpretation of statutes that no provision of an enactment is to be treated as redundant or surplus and has to be given its meaning and effect to.‖ 40.

Strict rule of fiscal statutes emphasised

CIT/WT, Companies Zone, Faisalabad v. Rana Asif Tauseef C/o Rana Hosiery & Textile Mills (Pvt.) Ltd., Faisalabad [2000] 81 TAX 7 (H.C.Lah.) = 2000 PTD 497 ―Before proceeding further, we feel necessary to reiterate three well-knows rules of construction of fiscal statute. Firstly, that fiscal statutes are to be construed strictly and a citizen is to be taxed within the letter and spirit of a charging statute. Briefly, the imposition of tax must be affected by plain words of Legislature. Lord Atkinson stated this principle in case of Ormond Investment Co. vs. Betts, (1928) A.C. 143, 162 in the following words:It is well-established that one is bound, in construing Revenue Acts, to give a fair and reasonable construction to their language without leaning to one side or the other,

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that no tax can be imposed on a subject by an Act of Parliament without words in it clearly showing an intention to lay the burden upon him, that the words of the statute must be adhered to, and that so-called equitable constructions of them are not permissible.‖ 41.

Exemption clauses are to be construed strictly

CIT/WT, Companies Zone, Faisalabad v. Rana Asif Tauseef C/o Rana Hosiery & Textile Mills (Pvt.) Ltd., Faisalabad [2000] 81 TAX 7 (H.C.Lah.) = 2000 PTD 497 ―Where the fiscal legislation embodies exemption/ deduction provisions, the same are construed strictly and against assessee. See Iram Ghee Mills Ltd. vs. Income Tax Appellate Tribunal, (1998 PTD 3835); Thirdly; an exemption/deduction provision should be construed by liberal approach with an eye on the underlying purpose of said provisions. If the language of that provision is doubtful, the same should be resolved in favour of assessee on the touch-stone of the intention of legislature. See P.A. Likunju, Cashew Industries vs. CIT, (V. 166 (1986) ITR 804), CIT, Luknow vs. U.P. Cooperative Federation Ltd. (V. 176 (1989) ITR 435 and Collector of Central Excise, Bombay-I, and another vs. Parle Export (P) Ltd. (V. 183 (1990) ITR 624). Reference be made also to Heartland vs. Damon‟s Estate (103 V.519, 156, Atl. 518) and Kimball vs. Potter (N.H. 196 Atl. 272). Observation of learned Judge, in first case, in following terms:A law for the assessment and collection of taxes is to be construed with the utmost liberality. But in order to be subjected to a tax, the property must be such as is ordinarily included, in the description given in the statute, and not such as can be brought within it by a process of reasoning only or by a strained construction because the legislature must be presumed to be fairly able to describe such property as it desires to tax without resorting to a strained construction or a course of fine reasoning.‖ 42.

The scope of “Explanation” and its impact explained

246 Principles of Income Tax Law

Commissioner of Income-Tax, Karachi v. Messrs Nazir Ahmed and Sons (Pvt.) Ltd., Karachi [(2004) 89 TAX 385 (H.C. Kar.) = 2004 PTD 921 (H.C. Kar.)] ―From the above proposition of law relating to the scope of explanation the following conclusions are drawn:(i) The ordinary object of an explanation to a statutory provision is to explain the meaning and intendment of the Act. (ii) Where there is any obscurity, ambiguity or vagueness in the main enactment, the explanation clarifies the same so as to make it consistent with the dominant object which it seems to be subservient. The explanation is a note of caution by the Legislature to rectify the judicial error and to give guideline for future, clarifying the intention of the Legislature. (iii) Normally, the explanation does not enlarge or limit the provision already enacted. (iv) Sometimes, the legislature steps in to convey its real, intention if not fully conveyed by the earlier enactment or there has been a misconception about he scope of a provision. (v) Sometimes definition or a deeming clause is inserted by an explanation. (vi) Sometimes on account of ineptness or lack of dexterity on the part of draftsman, substantive provisions are also enacted with the heading explanation. (vii) If an explanation is merely declaratory or clarificatory in nature or is meant to fill in certain obvious gaps or to convey the real intention of the legislature by explaining the menaing and intendment of the Act or by clarifying an obscurity or vagueness in the main enactment it is always retrospective in effect and is operative since the very inception of the enactment and shall be held to be existing all along.

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(viii) However, if a substantive/a new enactment has been made or a new definition is added or a deeming provision is inserted or the scope of a provision particularly a substantive/charging provision is enlarged or extended it shall not have the retrospective effect until and unless specifically specified so by the Legislature. A perusal of the Ordinance shows that an explanation was added to subsection (3) of section 19 of the Ordinance as follows:―Explanation.—For the purpose of this section, any property, the owner of which is in receipt of any rent, whether in cash or otherwise, whether from employer or otherwise, shall not be taken to be in the occupation of such owner for the purpose of his own residence.‖ 43.

Explanation can be added to elaborate the meanings

Rijaz (Pvt.) Ltd. v. Wealth Tax Officer Circle III Lahore [1996] 74 TAX 9 (H.C.Lah.) ―As a general principle it is true that an explanation does not enlarge the scope of the provision to which it is attached but it is equally well-settled that if doubts about true interpretation of a provision have arisen, it is open to the legislation to clarify its intention by amending the law which may as well be by adding an explanation. All principles of interpretation are agreed towards finding out the true intent to the legislation which in the present case was made clear by adding an explanation which cannot be ignored.‖ 44.

Object of adding an Explanation to a statutory provision is only to facilitate its proper interpretation and to remove any possible confusion or misunderstanding about its true meaning

[2003] 87 TAX 183 (Trib.) ―In order to understand the purpose of explanation added in the statute, we would refer to the case law cited by the learned counsel for the assessee.

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(a) PLD 1981 SC I In the case, the Honourable Supreme Court while interpreting the Explanation added to the statutory provisions, has observed:―The contention that the explanation relating to clause (i) of section 13(2) is not truly an Explanation but is, in fact a ―deeming clause‖ is wholly fallacious. The legislature in its wisdom, has specifically named it as an Explanation and made it relatable to clause (i) of section 13(2) in order to indicate as to what the term ―rent due‖ may include. We feel that there is no ambiguity in the words used by the legislature necessitating a construction other than the one indicated by a plain reading of that word‖. The object of addition of an explanation to a statutory provision has been considered in the case of Colony Sarhad Textile Mills vs. Collector, C.E. & I.C. (1) It may be mentioned that the present Chief justice of the Supreme Court (Mr. Justice S. Anwarul Haq), was a party to the said judgment. We respectfully agree with the observations made by the Court in that case which are as follows: ―The object of addition of an explanation to a statutory provision is only to facilitate its proper interpretation and to remove any possible confusion or misunderstanding about its true meaning. It does not per se create or extinguish any liability which has to be spelled out only from the main provision sought to be interpreted with the assistance of the Explanation. In other words, the Explanation is to be relied upon only as a useful guide or in aid to the construction of the main provision‖. The objective of the explanation in the present case is obviously the same namely to remove any doubt as to the meaning of the term ―rent due‖ as used in clause (1) of section

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13(2) and to clarify that in addition to the amount of rent simpliciter it could also include other charges and taxes agreed to by the parties. And even in the present case, the Explanation does not create, or add anything to the main section but merely illustrates as to what the term ―rent due‖ may include. Obviously, therefore, the Explanation does not place any limitation on the type and the number of other charges the payment of which the tenants may agree to pay and which would thus become due from him. (b) PLD 1968 Lahore 202 In this case, the Honourable Lahore High Court has observed as under: ―The argument must in our opinion fail for more than one reason. For one thing, the Explanation is not a substantive provision. It is merely an aid to the interpretation of proviso (b) to clause (5A)‖. (c) PLD 1982 Lahore 109 In this case, the Honourable Lahore High Court has observed as under: ―It is well settled that an ―Explanation‖ does not enlarge the scope of main section which it is supposed to explain. It was held so in the Kishan Sing vs. Prem Singh and others (1) Generally, an ―Explanation‖ is added to a section by way of clarification and to facilitate its interpretation. However, the true contraction of an ―Explanation‖ must depend upon its terms and the language used in it‖. (d) PLD 1969 Lahore 228 In this case, the Honourable Lahore High Court has observed as under:

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―It is well-settled that an Explanation does not enlarge the scope of the original section that it is supposed to explain‖. (e) PLD 1982 Lahore 115 In this case, the Honourable Lahore High Court has observed as under: ―Generally, an ―explanation‖ is added to a section by way of clarification and to facilitate its interpretation. However, the true contraction of an ―explanation‖ must depend upon its terms and the language used in it‖. In view of above case law, it emerges that: (i) the explanation is not a substantive provision and it is merely an aid to the interpretation of proviso added to the main section; (ii) explanation is added to remove any doubt as to the meaning of any proviso or section; and (iii) It is well settled that an ―explanation‖ does not enlarge the scope of main section which is supposed to explain and an explanation is added to section by way of clarification to facilitate its interpretation. In our view, the true interpretation of an ―Explanation‖ must depend upon its terms and language used in it and generally an explanation is added to a section by way of clarification and to facilitate its interpretation. In view of whatever stated above, we are of the view that an ―Explanation‖ is added by way of clarification and to facilitate its interpretation. Normally, it would apply prospectively, specially when it creates substantive obligation. But in this case, the ―Explanation‖ was added to sub-clause (ii) of clause (e) of section 5 wherein it was mentioned that it shall be effective from 20th day of June, 1979. Therefore, the intention of the legislature was clearly spelt out by the amendment and categorically the date was mentioned. In view of this, the effect of this

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―Explanation‖ was to take effect from 20th June, 1979. In view of this, the order of learned CIT(A) is found proper and the tax levied for these assessment years is also as per the law. The combined order of learned CIT(A) for the assessment years 1987-88 to 1990-91 is hereby confirmed.‖ 45.

Harmonious construction is recommended

Mustafa Prestressed R.C.C. Pipe Works Ltd. Karachi v. Commissioner of Sales Tax (Investigation), Karachi [(1990) 62 Tax 119 (H.C.Kar.)] ―It is well-settled principle of interpretation that all the provisions of an enactment have to be construed harmoniously.‖ 46.

Basic rules to construe charging and machinery provisions

Arafat Woollen Mills Ltd. v. Income Tax Officer, Companies Circles E-1, Karachi [1986] 54 TAX 1 (H.C.Kar.) = 1986 PTD 316 ―Income Tax Act/Ordinance provides structure for levying and collection of tax and purpose of scheme of Act/Ordinance relating to this object must be kept in view. Provisions of Income Tax Act/Ordinance are to be construed in such a way as to make it workable. Sections which impose charge should be strictly construed and those which deal with machinery of assessment and collection should not be subjected to strict construction.‖ 47.

Speech of the Federal consequences or effect

Minister

has

no

legal

CIT/CST (Central Karachi) v. A.B. Food Industries Ltd. Karachi [(1984) 50 Tax 158 (H.C.Kar)] ―I have no hesitation in holding that the speech given by the Finance Minister cannot have any effect on the legal consequences flowing from the language employed in the enactment.‖ S. Muhammad Din & Sons Ltd. v. STO, Special Circle I, Lahore [(1977) 36 Tax 74 (H.C.Lah.)]

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―In my opinion, however, such speeches are meant for the consumption of the lay public but cannot have any effect on the legal consequences of the relevant enactments, the rules made thereunder or the notifications issued in pursuance thereof.‖ [(1983) 47 Tax 1 (Trib.)] ―Even otherwise, the Tribunal in its order has held that the speech of the Finance Minister seems only as a helpful guide for finding out the intention of the legislature. It cannot, however, control the provisions of law as enunciated by the Finance Act itself.‖ 48.

Role of history of legislation provision of law/statute

in

interpreting

a

Sainrapt & Et. Brice, Karachi v. CIT, (West), Karachi [(1979) 40 TAX 116 (H.C.Kar.) = PLD 1979 591] ―It is well established that in the interpretation of statutes, the meaning of the words should be considered in the light of history of the legislation and the state of the law at the time the statute was passed, in order to consider whether the statute was intended to alter the law or to leave it exactly where it stood before. As observed by Maxwell on Interpretation of Statutes, 12th edition, page 47, the court is not to be oblivious of the history of law and legislation in amending the law. Craies on Statute Law, 7th edition,(at page 126) observes that the cause on necessity of the Act may be discovered by considering the state of the law at the time when the Act was passed and in memorable cases the courts with a view to construing an Act have considered the existing law and reviewed the history of legislation upon the subject.‖ 49.

Inapt and inaccurate phraseology of draftsman cannot nullify a provision made by legislature

Highway Petroleum Service (Regd.) Lahore v. Islamic Republic of Pakistan & another [(1977) 36 Tax 8 (H.C.Lah.) = 1977 PTD 183 = PLD 1977 Lah. 797]

253 Interpretation Of Statute

―I put on the phrase additional amount of tax, renders the last two words virtually redundant but clearly I am of this view also, that an inapt and inaccurate phraseology of the draftsman cannot and should not nullify a provision made by the legislature which is consistent with existing legal norms. A passage from Sweet and Maxwell, 11th edition, at page 221, based on sound judicial precedents, may be quoted in support of this view. It is to the following effect: ―Where the language of a statute in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, presumably not intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence. This may be done by departing from the rules of grammar, by giving an unusual meaning to particular words, by altering their collection, or by rejecting them altogether, under the influence, no doubt, of an irresistible conviction that the legislature could not possibly have intended what its words signify, that the modifications thus made are mere corrections of careless language and really give the true meaning. Where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftsman‘s unskillfulness or ignorance of the law, except in a case of necessity or the absolute intractability of the language used.‖ 50.

Departmental construction can be used in aid of interpretation

Crown Bus Service Ltd. Lahore v. CBR & others [(1976) 34 Tax 54 (H.C.Lah.)] ―It was laid down in Nazir Ahmad vs. Pakistan and 11 others (PLD 1970 SC 453 at page 459) that a passage from Crafords Statutory Construction, 1940 edition, at page 399 may be usefully reproduced to point out the effect of departmental construction,

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that is to say, the construction which is placed in practice on the provisions of a statute or rule by the administrative authorities who are charged with the execution of the statute or the rules. The learned author observes; ―Where the executive construction has been followed for a long timing an element of estoppel seems to be involved. Naturally many rights will grow up in reliance upon the interpretation placed upon a statute by those, whose duty it is to execute it. Often grave injustices would result should the courts reject the construction adopted by the executive authorities.‖ 51.

Interpretation leading to destructive ends should be avoided by Courts

Crown Bus Service Ltd. Lahore v. CBR & others [(1976) 34 Tax 54 (H.C.Lah.)] ―In Act IV of 1924 no particular mode of constituting a Central Board of Revenue has been mentioned except, perhaps, by making appointments of its members and we are doubtful as to whether any such plea in this context can be successfully advanced by the petitioner. The objection of the learned counsel for the petitioner is based on the assumption that u/s 2 of Act IV of 1924 two formalities viz. (a) constitution of Central Board of Revenue and (b) appointments of its members, had to be independently performed and if, for instance, certain person or persons are straightaway appointed as members of the Central Board of Revenue that probably is not enough. We do not agree, because, there is nothing to lead to such a corollary in the wording of section 2 of Act IV of 1924. Confining ourselves to the notification dated 29.8.1947 we may observe as a matter of principle, all that the courts of law are required to examine while considering a document or an instrument is the intention and not merely the form of any order or direction contained therein depending upon the facts, circumstances and the context of each case. Acting on that principle we hold that if the intention of making appointments of certain officer or officers as members of the Central Board of Revenue is for example with a view to establish the Central Board of Revenue and similarly if the

255 Interpretation Of Statute

appointments cannot be made except when it implies a creation of the Central Board of Revenue, then on the facts and overall circumstances in such situations, it can be safely held that the aforesaid appointment inter alia implied the constitution of the Central Board of Revenue as well and a specific and independent recital regarding the creation of the Central Board of Revenue is not to be considered as a must, especially when as already pointed out, in Act IV of 1924 no particular form and procedure for constituting a Central Board of Revenue had been laid down. The view of our government has also been the same. This will bear out the deductions which we have made from Governor-General‘s Orders Nos. 2 and 12 of 1947 hereinbefore referred to. The first was issued by Lord Mountbatten and the letter by the Quaid-i-Azam Muhammad Ali Jinnah in their capacities as Governor-General of their respective countries. These two Orders implied that the Central Board of Revenue constituted as a legal entity in 1924 continued with necessary adaptation for each Dominion and it was on that assumption that without staging its recreation or re-constitution various powers, functions and directions were given or assigned to it, because, otherwise there was no justification to quote or make mention of Central Board of Revenue for Pakistan and Central Board of Revenue for India in those two Orders when no such Boards as alleged by the petitioner existed then and thereafter. We were told that neither in India nor in Pakistan there was staged any re-creation or re-constitution of the Central Board of Revenue afresh and that both the countries acted on the premises that the Central Board of Revenue constituted in 1924 was a legal entity which had duly come into being in that year and later on only appointments of its members were to be made whenever necessary. It was on that construction of the relevant law that both the countries uptil now worked. The Central Board of Revenue is referred to in (i) Income Tax Act XL of 1922 (ii) Central Board of Revenue Act VI of 1924; (iii) Excess Profits Tax Act XV of 1940; (iv) Business Profits Tax Act XXI of 1947; (v) Central Excise and Salt Tax Act I of 1944; (vi) Sea Customs

256 Principles of Income Tax Law

Act VII of 1888; and (vii) Land Customs Act XIX of 1924. If the contention of the learned counsel for the petitioner is accepted it will mean that almost whole of the revenue financial laws of the country came to a stand still due to non-creation of the Central Board of Revenue as alleged. Obviously we cannot endorse such a plea. If the contention as suggested by the learned counsel for the petitioner is accepted that will create complications and confusions for all concerned leading to a great deal of chaos in the country and will throw open all the actions taken, functions performed, orders passed and directions issued by the Central Board of Revenue after 1947 up to-date or, as a matter of fact, onward from 1924. On the other hand, the view taken by us will not lead to any destructive results. It is well settled that courts should follow that construction of law which does not lead to startling results or destructive ends.‖ 52.

Marginal notes to the section of an Act cannot be referred to for the purpose of construing the Act

CIT, Lahore v. Aziz Din [1976] 33 TAX 258 (H.C.Lah.) ―But in this connection before us reliance was strongly placed on the marginal note to section 46 of the Act which speaks of the ―Mode and time of recovery‖. It was, therefore, contended that sub-section (I) of this section relating to imposition of penalty is nothing but a provision for mode of recovery of the tax and a part of the machinery provided to facilitate the recovery of tax. It is lever and a handle to exert pressure on the assessee and even to force him to pay the arrears of tax due from him. But we see no force in this contention. These marginal notes do not form part of the section. These observations were cited with approval by Their Lordships of the Supreme Court in The Commissioner of Agricultural Income Tax, East Bengal vs. B.W.M. Abdul Rehman Manager, Taki Bara Taraf Wards Estate [(1973) SCMR 445] and the Court observed that in interpreting a fiscal statute only the letter or the law must be looked to and there is no room for any intendment. Also in Messrs Hirjina & Co. (Pakistan) Ltd. Karachi

257 Interpretation Of Statute

vs. Commissioner of Sales Tax Central, Karachi [(1971) SCMR 128], the Court held that in interpreting a taxing statute the Courts must look to the words of the Statute and interpret it in the light of what is clearly expressed. It cannot imply anything which is not expressed, it cannot import provisions in the statute so as to support assumed deficiency. In the instant case, we find that in the adaptation order passed by the Central Board of Revenue, it is not expressly stated that the penalty provisions contained in sub-section (1) of section 46 of the Income Tax Act are applicable to the amount payable in virtue of Martial Law Regulation No. 43/48 and it is not permissible to import any such construction into that order by implication.‖ 53.

Caution should be used while borrowing the meaning attached to terms and phrases used in one statute, while interpreting another statute

CIT, Rawalpindi v. Noor Sugar Mills [(1975) 32 Tax 273 (H.C.Lah.)] ―It is not always safe to borrow the meanings attached to terms and phrases used in one statute as aid in support of the interpretation of a different statute meant for a different purpose and dealing with a wholly different subject matter. It is of course permissible to have recourse to the ordinary dictionary meanings in interpreting a statute.‖ 54.

Inclusive definitions enlarge the scope of a term/word

[2004 PTD (Trib.) 1029] ―It is an established principle that main function of the definition or a term is to remove vagueness and to provide a degree of definiteness to the said term of phrase or word so defined. It is also as established principle of interpretation of law that the word ‗include‘ whenever is given in any definition is often used in interpretation clause in order to enlarge the meaning of that word or phrase occurring in the provisions of the statute/law and when it is so used then that word and phrase must be construed as comprehending not only such things it signifies according to its nature and import but also things which the interpretation clause declares that it shall include. It clearly

258 Principles of Income Tax Law

means that the definition of a word or phrase when it say ‗includes‘ then it would amount to include along with what has been so given in its plain, literal and ordinary dictionary meaning. Obviously the words used in an inclusive definition imply extension of that term and phrase and they cannot be treated as restrictive in nature.‖ 55.

Definitions given in a particular statute are restricted to the said statute unless any other statute adopts the same by incorporation or reference

CIT, Companies-II, Karachi v. Messrs Muhammad Usman Hajrabai Trust Imperial Courts, Karachi 2003 PTD 577 (H.C.Kar.) ―It is established principle of the interpretation of statutes that the definitions given in a particular statute are to be employed for the purpose of the said statute only until and unless the definition is adopted by any other statute through the legislation by incorporation or reference. A perusal of section 2 of the Income Tax Ordinance clearly shows that the definitions given therein are for the purpose of the Income Tax Ordinance only. For the purpose of Wealth Tax Act, 1963, the definitions of the terms expressions and words used in the said Act have been given in section 2 thereof. In sub-section (2) of section 2 of the Wealth Tax Act, 1963, it is stated that, ―the words and expressions used but not defined in this Act shall have the meaning assigned to them under the Income Tax Ordinance, 1979‖. Since the expression company as used in the Wealth Tax Act, 1963, is defined in section 2(9) of the said Act, therefore, the contention of the Revenue that, the learned ITAT ought to have interpreted the expression company used in the Wealth Tax Act, 1963 with reference to the definition given in the Income Tax Ordinance is not tenable and is without any substance.‖ 56.

Defining a provision in one enactment by the help from other laws is never safe

[2004 PTD (Trib.) 1104] ―The point of view of the Tribunal, therefore, is very clear. When it says that remedial provision in terms of clause 59 in Part

259 Interpretation Of Statute

IV had come to reduce the rigours of section 12(9A) and for this purpose comments that this may perhaps was keeping in view section 245 of the Companies Act it does not mean that it has considered the provision of Company Law as application in the income-tax proceedings. It was only a comment to say that in the presence of the governing clause under section 245 of the Companies Law the introduction of section 12(9A) was not justified. This, however, does not mean that after its introduction its application can be corrupted by taking queue from the language of the provisions of the company. It is a settled principle of interpretation that while defining a provision in one enactment the help from other laws is never safe. These facts kept in view the questions posed either by the Department or by the assessee, all are considered as firstly not properly drafted and secondly without substance. The result is obvious. Both the reference applications are rejected.‖ 57.

Terms and phrases used in a statute prima facie should be construed in their popular sense

CST, Rawalpindi Zone, Rawalpindi v. Rashid Burner, Sialkot [(1974) 29 Tax 221 (H.C.Lah.)] ―There are two rules as to the way in which terms and expressions are to be construed, when used in an Act of Parliament. The first rule is that general statutes will prima facie be presumed to use words in their popular sense.... critical refinement and subtle distinction are to be avoided and the obvious popular meaning of the language should, as a general rule, be followed.‖ 58.

While interpreting a statute - nothing is to be read in and nothing is to be implied

CIT v. Nagina Talkies (property) Karachi [(1974) 29 Tax 115 (H.C.Kar.)] ―In fiscal statutes the meaning has to be ascertained from the plain language of the statute and nothing is to be implied in such statute.‖ 59.

Meaning of doubtful words should be interpreted by reference to meaning of words associated with it

260 Principles of Income Tax Law

Kashmir Pottery Works, Sialkot v. CST, North Zone, Lahore [(1973) 28 Tax 172 (H.C.Lah.)] ―In order to ascertain the meaning of any word or phrase that is ambiguous or susceptible to more than one meaning, the court may properly resort to other words with which the ambiguous words associated in the statute. Accordingly if several words are connected by a copulative conjunction a presumption arises that they are of the same class, of course a contrary intention is indicated.‖ 60.

Provisions should be interpretated in accordance with the plain meaning of the language used therein

Eastern Textile Mills Ltd., Chittagong and G.Merajuddin and another v. CIT, East Pakistan, Dacca [1966] 13 TAX 145 (H.C.Dacca) ―It is an accepted principle of interpretation that a statute is to be understood in accordance with the plain meaning of the language used in it. ―If there is one rule of construction of statutes and other document, it is that you must not imply anything in them which is inconsistent with the words expressly used‖.‖ 61.

Departmental instructions cannot be used in aid of interpretation

Mujibur Rehman v. CIT [(1966) 13 Tax 141] ―Departmental directions have nothing to do with the interpretation of the statute.‖ 62.

Statute should be given its ordinary meaning

Noor Hussain, Dacca v. CIT, Dacca [1963] 7 TAX 113 (H.C.Dacca)=1963 PTD 161=1963 PLD 373 ―Interpretation of one statute by analogy to interpretation of another is unsafe, particularly when two statutes are not pari materia. Proper way of construction is to give effect to all words of relevant provisions dispassionately. Fiscal statute must be strictly construed in favour of assessee. Golden rule is that statute must prima facie be given its ordinary meaning.‖

261 Interpretation Of Statute 63.

Once intention of legislature is clear no extraneous principle of interpretation or construction of statute is to be employed

Collector of Central Excise and Sales Tax v. Rupali Polyester Ltd. and others [2003] 87 TAX 49 (S.C.Pak.) ―Canons of construction and rules of interpretation are directed to one and only one end, namely, towards finding out the intention of the Legislature. When this is clear, there is no room for praying in aid any extraneous principle of interpretation or cannons of construction. (Mozzaffar Ahmad vs. Anwar Ali PLD 1965 Dacca 269. PLR 1964 Dacca 906, 16 DLR 336 (DB).‖ 64.

Punctuation marks and construction of statutes

Maharani of Bardwan v. Krishna Kamini Dasi [14 ILR PC 365] ―It is an error to rely on punctuation in construing Acts of the Legislature.‖ Seth Gurmukh Singh v. CIT [(1944) 12 ITR 393 (Lahore)] ―...... in the interpretation of statute punctuation, not being a part of the statute to be construed, is not a determining factor and if the proviso as punctuated leads to an absurd result or conflicts with some other provision of the statute which is unambiguous and free from doubt, the punctuation must yield to an interpretation that is reasonable and makes it consistent with the other provisions of the Act ......‖ [p. 424]. Board of Revenue v. Ramanathan Cheltian [1 ITC 244 (Madras)] ―It is then argued that, on the true construction of clause (vii), all sales of machinery are included irrespective of whether they are sold by reason of their being obsolete; in other words, that the words as obsolete govern the word discarded appearing immediately before them and not the word sold. The phraseology of this clause is not very happy because it is obvious

262 Principles of Income Tax Law

that the words could bear either meaning; but the statute has been punctuated, and we must take the punctuation marks as part of the statute. If it were intended to read the words as obsolete, as governing sold one would expect to find a comma after the word sold There is none, the comma being put after the word obsolete.‖

Chapter X Retrospectivity 1.

Fiscal laws and theory of retrospectivity

CIT, (AJ&K Council), Muzaffarabad and another v. Asian D. Enterprises through Eijaz Qureshi, Managing Director and 5 others & CIT, (AJ&K Council), Muzaffarabad and 2 others v. Messrs Cade Creets Associates through Managing Partner, Diwan Ali Khan Chughtai and another [2000] 81 TAX 371 (S.C.AJ&K.) = 2000 PTD SC 892; CIT, AJK and another v. Asian D. Enterprises and other [2000] 82 TAX 518 ((S.C.AJ&K.) ―It is evidence from the case law, referred to by the learned counsel for the appellants, that there is no proposition in support of the view that a fiscal law cannot be made operative retrospectively. Obviously, when there is no such embargo imposed upon the Legislature by the Interim Constitution Act, how such a restriction can be assumed. Thus, the very basis on which the findings of the High Court rest is without any legal substance. Even if it is assumed for the sake of argument that demand of additional income tax is ‗deprivation‘ of the ‗property‘ of the respondents within the meanings of paragraph I, that has been done in pursuance of law, i.e., the Income Tax Ordinance, 1979 and the Finance Act, 1995 and, thus, the tax demanded could not be held violative of the Fundamental Right No. 14 according to which a person can be deprived of his property according to law. Needless to say, as has been indicated above, the demand of additional advance income tax from the respondents was made in pursuance of the aforesaid statutes which have been validly 265

266 Principles of Income Tax Law

adapted in the State. However, the fact of the matter is that by the impugned provision of law, the rate of income tax has not been retrospectively increased; only the rate of deduction of advance tax has been increased. The deduction of advance tax is only a tentative deduction which has to be adjusted when the final assessment of income tax to be paid by the respondentCompanies is made. Thus, the findings of the High Court that demand of additional advance income tax is violative of Fundamental Right No. 14 guaranteed by the Interim Constitution Act, are devoid of any force and are not sustainable. In the light of what has been stated above, we accept the above entitled appeals, set aside the impugned judgements of the High Court and hold that additional advance income tax was rightly demanded from the respondent-petitioners. Consequently, the writ petitions filed by the respondents are hereby dismissed.‖ 2.

Scope of retrospective legislation

ITO, Investigation Circle & others v. Sulaiman Bhai Jiwa and others [(1970) 21 Tax 62 (S.C.Pak)] ―It is fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in terms of the Act, or arises by necessary and distinct implication (see Maxwell on the Interpretation of Statutes - 9th edition - page 221 and Treaties on Statute Law by Caries - 4th edition - page 329). It follows from this rule that retrospective effect to a statute may be given either by express words or that the same may be inferred from the language employed. 3.

Retrospective application of law must be by explicit words

CIT, Rawalpindi Zone, Rawalpindi v. Lyallpur Cold Storage [1976] 34 TAX 14 (S.C.Pak.) ―Mr. M.A. Lone, learned counsel for the Department submitted in support of these petitions, that this Court‘s decision in the case of Noor Hussain still held the field. It was argued

267 Retrospectivity

that the majority decision in that case proceeded on the interpretation of the crucial words ‗constituted by‘ which had replaced the earlier expression ‗constituted under‘ and which despite the amendment of 1965 still remained part of the statute. Learned counsel further submitted that the amendment of 1965 is merely declaratory and was inserted ex abundati cautela, and, therefore, will, in the absence of the express words in the amending statute or by necessary implication, not have retrospective effect.‖ 4.

Rule to determine retrospective effect

ITO, Investigation Circle & others v. Sulaiman Bhai Jiwa and others [(1970) 21 Tax 62 (S.C.Pak)] The use by the legislature of words, such as ―shall‖ or ―hereafter‖, is taken to indicate an intent that the statute is to be construed as prospective only; on the other hand the use of words denoted past time, such as ―heretobefore‖ constitute an explicit declaration that the Act is to be construed retrospectively. When retrospective effect to statute is not given by express words, one must, apart from the language employed, ―look to the general scope and purview of the statute, and at the remedy sought to be applied, and consider what was the former state of the law, and what it was that the legislature contemplated‖. (See Treatise on Statute Law by Caries - 4th edition - page 334).‖ CIT v. Olympia [(1988) 57 Tax 71* (H.C.Kar)] ―The general rule of construction of statutes is that the enactments are not to be given retrospective operation unless the statute expressly provides so or from the language employed it appears to be the necessary intendment of the Legislature. As, however remedial statutes are designed to redress an existing grievance and do public good, and such statutes normally do not *

Wrongly appeared as “46” in the Journal.

268 Principles of Income Tax Law

diminish, destroy or affect any vested right, these are liberally construed. Lahore High Court had also taken the view in Rippon‟s case (1973) PLD 1973 Lah. 849 that an amending law which is purely remedial and curative, must be liberally construed in favour of subject. We also subscribe to the same view. Then as stated in Crawford, 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 provision of law and if such operation will carry out the intent of the legislature as ascertained through the application of the principles of liberal construction. CIT v. Olympia [(1988) 57 Tax 71* (H.C.Kar)] ―It is a well-settled principle of interpretation of statutes that any amendment in the existing law will not affect cases which has been finally determined or proceedings which have attained finality unless the amendment expressly provides for such effect.‖ Rustam F. Cousjee & 2 others v. CBR & 2 others [(1985) 52 Tax 123 (H.C.Kar)] ―Retrospective legislation is looked upon with disfavour as a general rule, and properly so because of its tendency to be unjust and oppressive. It is a fundamental rule of law that no statute shall be construed to have retrospective operation, unless such a construction appears very clear in terms of the Act, or arises by necessary and distinct implication. Upon the presumption that the legislature does not intend to enact what is unjust, every statute which takes away or impair a vested right acquired under the existing law or creates a new *

Wrongly appeared as “46” in the Journal.

269 Retrospectivity

obligations or imposes a new duty or attaches a new disability in respect of transactions or considerations already passed must be presumed to be intended not to have retrospective operation; If there are words in the enactment which either expressly state or, necessarily imply that the statute is to be given retrospective operation, then the Act should have retrospective operation even though the consequence may appear unjust and hard; a statute is not to be construed to have greater retrospective operation that its language renders necessary.‖ 5.

Judgment of Supreme Court becomes operative from the date of announcement having no retroactive legal implication

Shahtaj Sugar Mills Ltd. through Chief Executive v. G.A. Jahangir and 2 others [2004 PTD 1621 (H.C. Lah.)] ―Also it is a settled proposition that a judgment of the Supreme court would be operative from the date of announcement and would have no retroactive legal implication as found by the apex Court in re: Mst. Attiyya Bibi Khan and others v. Federation of Pakistan (2001 SCMR 1161). Even in case of amendment in law providing for remedial measures, according to the Hon‘ble Supreme Court of Pakistan in re: Commissioner of Income Tax v. Shahnawaz Ltd. and others (1993 SCMR 73) it will be effective and applicable only to those cases where assessment had not been made by the Assessing Officer or where the matter was pending in appeal before the Tribunal or was sub judice before the High Court at the time the amending law was enacted. In the view of the apex Court, cases which had finally been determined or had attained finality i.e. which were past and closed transactions could not be reopened under amending legislation, where there were not express words to that effect in the amending law.‖ 6.

Authority to legislate includes authority to legislate with retrospective effect

Mst. Saeeda Begum & others v. Govt. of Pakistan & another [(1977) 35 Tax 180 (H.C.Kar)]

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―.... it is a settled principle that the authority to legislate includes the authority to legislate with retrospective effect.‖ 7.

The authorities concerned can consider amendment brought in during the pendency of proceedings, and benefit if any can be provided to the assessee

Iftikhar Hussain Alvi c/o Kaghan Ghee Mills (Pvt.) Ltd., Gadoon Amazai Industrial Estate, Swabi v. ITO/DC, Income Tax and others PTCL 2003 CL. 213 (H.C.Pesh.) ―It is an established law that amendment brought in during the pendency can be considered by the authorities concerned, and benefit if any be provided to the assessee, the Notification No. SRO 1283(I)/90, dated 13.12.1990 was promulgated when the assessment of the petitioner was pending, the petitioner is therefore entitled to its benefit. The Notification SRO 1283(I)/90 dated 13.12.1990 was promulgated when the assessment of the petitioner was pending i.e. the assessment order was passed on 29.6.1993. It is by now established law that amendment brought in law during the pendency can be considered by the authorities concerned, and benefit if any be provided to the assessee. In Commissioner of Income Tax vs. Shah Nawaz Ltd. and others (1993 SCMR 73) the dicta laid down by the High Court that cases which were pending at the time of amending law was enacted i.e. cases which has not been finally determined or proceedings which had not attained finality the retrospective effect of the amending law would therefore apply only to those cases where the assessment has not been made by the ITO or where the appeal was pending before the Tribunal or the reference was sub judice before the High Court at the time when the amending law was enacted was approved by the August Supreme Court of Pakistan. The Income Tax Officer and the learned Income Tax Appellate Tribunal have failed to appreciate this legal position properly, therefore, the assessment order passed by the Income Tax Officer and that of the Income Tax Appellate Tribunal are without lawful authority.

271 Retrospectivity

The net result of the above discussion is that the Income Tax Officer and learned Income Tax Appellate Tribunal have failed to properly appreciate that the petitioner was entitled to benefit of clause (8) of Part I of Second Schedule of the Ordinance. We, therefore, while answering this Tax Reference hold that the petitioner was entitled to benefit of clause (8) of Part I of the Second Schedule of Income Tax Ordinance, 1979. Clause (8) of Part IV of the Second Schedule has retrospective application preventing the Assessing Officer to probe into source of income under section 13(1)(aa) of the Ordinance. So far as the other argument of the learned counsel for the petitioner that clause (8) has retrospective application preventing the Assessing Officer to probe into source of income under section 13(1)(aa) of the Ordinance is concerned, the same also has a force in it for the following reasons:Firstly, in clause (8) the word ―invested‖ has been used which is of key importance as it has been used in past participle form. It had covered all those investments which had been made in the industrial undertaking whose income was assessed under clauses (118C), (118D) and (118E) of Part I of the Second Schedule of the Ordinance at the time of insertion of clause (8).‖ 8.

If retrospective operation of a provision results in injustice it should not be so applied

Mian Muhammad Khalil v. ITO, Company Circle, Faisalabad [(1979) 40 Tax 113 (H.C.Lah)] ―Where retrospectivity not expressly provided in amended provision of law, and retrospective operation results in inconvenience or injustice to the subject. Such a provision cannot be applied retrospectively.‖ 9.

Remedial and curative legislation has retrospective effect

CIT v. Shahnawaz Ltd. and others [1992] 66 TAX 125 (S.C.Pak.)

272 Principles of Income Tax Law

―The amendment in relevant section was a remedial and curative legislation designed to soften the harsh, unjust and unreasonable law, as was then obtaining, not restricting the maximum period for levy of additional tax. There is no reason why the remedial law should not be applied to pending proceedings. Although the amendment was made by the Finance Act, 1973 but it could not be restricted to assessment year 1973-74. The retrospective remedy would be available to all ‗cases which were pending at the time the amending law was enacted i.e. cases which had not been finally determined or proceedings which had not attained finality. The retrospective effect of the amending law, would, therefore, apply only to those cases where assessment had not been made by the Income Tax Officers or where an appeal was pending before the Tribunal or a reference was sub-judice before the High Court, at the time the amending law was enacted. The cases which had been finally determined or had attained finality i.e. which were past and closed, transaction, could not be reopened under amending legislation there are no express words to that effect employed in the amending law‘.‖

273 Retrospectivity 10.

All provisions which come to cure/redress or to allow relief to assessees will always have effect retrospectively.

[(2004) 90 TAX 39 (Trib.)] ―This is a limitation, an embargo on the assessing officer which has provided solace to the long hanging disadvantage to the assessee. It has come as a remedy and has cured a fault. All such provisions which come to cure/redress or to allow relief would always have the effect retrospectively. The question proposed by the department is of no help. Our decision that this provision is retrospective applies on all pending cases up to the stage of High Court. Thus even if the notice has been issued earlier it shall become illegal if hit by said amendment. Here again we find strength from the judgment of the Supreme Court referred by us supra.‖ 11

Beneficial executive retrospective effect

order/notification

has

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad [(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845] ―An executive order/notification, which is detrimental or prejudicial to the interest of a person, cannot operate retrospectively. However, a beneficial executive order/notification issued by an executive functionary can be given retrospective effect.‖ Iftikhar Hussain Alvi c/o Kaghan Ghee Mills (Pvt.) Ltd., Gadoon Amazai Industrial Estate, Swabi v. ITO/DC, Income Tax and others PTCL 2003 CL. 213 (H.C.Pesh.) ―Secondly, in the Notification SRO 1283(I)/90 dated 13.12.1990 no date has been given for application of clause (8), therefore, there is no bar imposed by the authorities which issued the said Notification to interpret retrospectively.

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Thirdly, clause (8) is beneficial in nature. It is also by now established principle of law that if any Notification/ Circular is of benevolent nature, the same would go to the assistance of assessee. In this regard reliance can safely be placed on the following judgments: (i) The Commissioner of Income Tax, East Pakistan, Dacca vs. Noor Hussain (PLD 1964 S.C. 657). (ii) Laxmichand Hirjibhai vs. CIT, Gujrat-III (128 ITR). (iii) Gurjargravures Pvt. Ltd. vs. Income Tax Officer, Company Circle-VIII, Ahmedabad and another (154 ITR 786). (iv) Rajan Ramkrishna vs. Commissioner of Wealth Tax, GujratI (127 ITR 1). (v) Navnil Lal C. Zaveri vs. K.K.Sen (56 ITR 198). (vi) Ellerman Lines Ltd. vs. CIT (82 ITR 913). (vii) Bechardas Spg. & Wvg. Mills Co. Ltd. vs. CIT (ITR 153 of 1976). (viii) Tata Iron & Steel Co. Ltd. vs. N.C. Upadhyaya (ITR 96 1). (ix) Navnit Lal Ambalal vs. CIT [1976] (105 ITR 735). (x) M. M. Annaiah vs. CIT (76 ITR 582 Mys). (xi) Dr. T.P Kapadia vs. CIT (87 ITR 511 Mys). (xii) Dattatraya Gopal Shette vs. CIT, Poona Range, Poona Kania. (xiii) CIT Kerala-I vs. B.M.Edward, INDIA Sea Foods, Cochin (119 ITR 334). (xiv) Raja-rajeswari Weaving Mills vs. Income Tax Officer “A” Ward, Cannanore and another (113 ITR 405). (xv) CIT Assam, Nagaland, Meghalaya, Manipur and Tripura (102 ITR 408). (xvi) (150 ITR 460). (xvii) UCO Bank vs. CIT (237 ITR 889), (1999 PTD 3752). (xviii) T.R. No. 33/97 (Usman Ghee Industries vs. CIT). and (xix) CIT vs. Muhammad Kassim (2000 PTD 280).

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Fourthly, the purpose of insertion of clause (8) was to encourage industrialists to promote the investment in the industrial undertaking without fear of probing their source of income, therefore, employing clause (8) retrospectively would be in line of promotion of the purpose of the legislation. It is not always necessary that retrospective application is found in express words. In the absence of express words whenever there is intendment to the effect that some provisions will be retrospective in its application, effect can be given to that intendment. In this regard reliance can be safely placed on Alif Din vs. Noor (PLD 1969 Peshawar 62). Clause (118C) of Part I of Second Schedule and Clause (8) of Part IV of Second Schedule to the Ordinance are inseparable and inserted together to encourage investment in the industrial undertaking. The net result of the above discussion is that the Income Tax Officer and learned Income Tax Appellate Tribunal have failed to properly appreciate that the petitioner was entitled to benefit of clause (8) of Part I of Second Schedule of the Ordinance. We, therefore, while answering this Tax Reference hold that the petitioner was entitled to benefit of clause (8) of Part I of the Second Schedule of Income Tax Ordinance, 1979. We also set aside the assessment order dated 26.6.1993 passed by the Income Tax/Assessment Officer and the order of learned Income Tax Appellate Tribunal dated 16.5.1996 and restore the order of the Commissioner Income Tax (Appeals), dated 12.4.1994. The Reference is sent to the Income Tax Appellate Tribunal in terms of section 136(5) of the Ordinance with the direction to pass necessary orders as required under the above mentioned section of law. The Registrar of this Court is directed to send certified copy of this judgment under the seal of the Court and under his signatures to the Appellate Tribunal enabling it to do the needful. There shall be no orders as to costs. The income of Company in which the petitioner had made investment by purchasing shares was assessed under clause

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(118C). When the Company itself was assessed under clause (118C) then the petitioner was entitled for protection granted to his investment under clause (8) i.e. the investment in the Company which was enjoying benefits of clause (118C) was immune from probe. In clause (8) the word ―invested‖ has been used in past participle.‖ 12.

A notification purports to impose a new liability or obligation cannot operate retrospectively

Bashir Sons (Pvt.) Ltd. v. CBR [(1993) 67 Tax 395 (H.C.Lah.)] ―It is trite law that a notification which has the effect of imposing liability or obligation cannot operate retrospectively in the absence of any legal sanction in the statute itself.‖ 13.

An amendment which is explanatory or clarificatory can be made to operate retrospectively

Micropak (Pvt.) Ltd., Lahore v. Income Tax Appellate Tribunal, Lahore and 2 others [(2001) 83 TAX 451 (H.C.Lah.) = 2001 PTD 1180] ―The findings of this Court in re: Prime Commercial Bank and others vs. ACIT, 1997 PTD 605 (H.C.Lah.) are relevant. In that case a Single Bench of this Court on the authority of an earlier view held in K.G. Old Principal Christian Technical Training Center Gujranwala vs. Presiding Officer Punjab Labour Court Northern Zone and 6 others (PLD 1976 Lahore 1097) found it to be a settled proposition that generally an amendment was clarificatory or declaratory in nature. In the present case there is nothing to show that the amendment in section 12(18) by Finance Act, 1998 was brought about to clarify the earlier provision and not to bring a change in it. All the more so when the amendment was not given retrospective effect normally clarificatory or declaratory amendments are given.‖ Rijaz (Pvt.) Ltd. v. Wealth Tax Officer, Circle III, Lahore [(1996) 74 Tax 9 (H.C.Lah.)]

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―As regards question of retrospectivity suffice it to say that the power of legislature to legislate retrospectively is well recognized and in the present case the retrospective operation to the explanation has been given by a specific provision in the amending law. Be that as it may, it is trite law that an amendment which is explanatory or clarificatory always operates retrospectively.‖ CIT, Karachi (West), Karachi v. S. A. Rehman [1980] 42 TAX 147 (H.C.Kar.) = 1980 PTD 314 ―The next argument of Mr. Mansoor Ahmed Khan is that Act XI of 1966 whereby section 10(2A) was amended is a declaratory, or in any case a creative enactment. He has stated that the amendment seeks to define what is a bad or doubtful debt, or in any case cures the existing provision by giving the words a purposeful and meaningful intent. Two questions arise namely whether the amendment is in the nature of declaratory enactment and if so, whether the same would be of retrospective application. A Declaratory Act generally takes a form by statement ―it is declared‖. Patently such words have not been used. In Act XI of 1966. Th second characteristic of a declaratory statute is that it intends to remove doubts as to the meaning of effect of a statue and if not expressly at least by implication the legislature exhibits the reason for passing a Declaratory Act Blackstone, J in Nicol v. Verelete [1779] 26 ER 751, stated ―declaratory statues do not prove the law was otherwise before, but rather the reverse‖. Coleridge, CJ in Jones vs. Bennet [1890] 63 LT 705, defined a Declaratory Act that ―means to declare the law, or to declare that which has always been the law, and there having been doubts which have arisen, Parliament declares what the law is and enacts that it shall continue what it then is‖. Such characteristics are also lacking in Act XI of 1966. Further it must be stated that our system of law abhores retrospective legislation but if ever a necessity has arisen to give retrospective effect, the statute generally expresses such intention. Act XI of 1966 can also not be called a procedural or adjective law because it is a statutory step in determination of

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rights of the Income Tax Officer as well as the assessee. The right is the retention of money on behalf of others. It also makes an assessee liable to taxation in respect of moneys notionally treated as his profits while exposing him to at least a risk of demand. According to us Act XI of 1966 was intended to provide a limit of time and avoid the lying of money in a sort of suspense account for a period exceeding three years. New rights and liabilities came into existence and new concepts of law were brought into existence. This act cannot, therefore, be called a Declaratory Act. Curative statutes are by their very nature intended to operate upon and affect past transactions and are for such reason wholly retrospective. These statutes are in the nature of validating statues which operate on conditions already existing and for such reason have retrospective operation. If the enactment in question is to be in the nature of a curative law the legislature would have stated so unambiguously. We are of the view that the amending statute is not even curative in nature.‖ Dreamland Cinema, Multan v. CIT, Lahore [(1977) 35 Tax 169 (H.C.Lah.)] ―If the object of the statute is to explain the provisions or to remove a doubt, the law would apply retrospectively.‖ 14.

Declaratory statutes generally apply retrospectively

Dreamland Cinema, Multan v. CIT, Lahore [1977] 35 TAX 169 (H.C.Lah.) ―All the writers are unanimous in their view that declaratory statutes apply retrospectively. A reading of explanation would show that the intention of the legislature to remove a doubt and explain the intended import of original provision.

the the was the

Undoubtedly we have to find out the intent of the legislature and should not be swayed merely by the use of word ‗declaratory‘ or otherwise. If, therefore, the object of the statute is to explain the previous provisions or to remove a doubt, the law would apply retrospectively.‖

279 Retrospectivity 15.

As a general principle the Explanation is clarificatory and declaratory in nature, therefore, it operates retrospectively. It reflects the true intent of the legislature

CIT, Zone-B, Lahore v. Sardar Muhammad [2001 PTD 2877] ―It is well-settled rule of construction of statute that when a statute amends existing statute by adding, omitting or substituting any provision in the existing statute and the amending statute specifically provides that the addition, omission and substitution shall be deemed always to have been so made, the addition, omission or substitution shall take effect from the date when the original provision was enacted. As it has been specifically provided by the amending Act Explanation shall always be deemed to have been so added, therefore, the Explanation so added would, be read as part of section 19(3), as enacted originally. As a general principle the Explanation is clarificatory and declaratory in nature, therefore, it operates retrospectively. It reflects the true intent of the legislature. Reference and reliance is made to the cases which areMuhammad Hussain Patel vs. Habib Wali Muhammad PLD 1981 SC 1; Colony Sarhad Textile Mills vs. Collector, CE&LC PLD 1969 Lah. 228; Messrs Rijaz (Pvt.) Ltd. vs. The Wealth Tax Officer 1996 PTD (Trib.) 489. The object of the Explanation in statute is to remove any ambiguity and bring about clarification relating thereto. The process of interpretation is geared in finding out the true intent of the legislature. Therefore, after insertion of the explanation any ambiguity which surfaced in interpreting the provision of section 19(3) has been done away with. Language of the Explanation is plain and simple. It admits no doubt or ambiguity. Any property the owner of which is in receipt of any rent whether from employer or otherwise shall not be taken to be in occupation of such owner for the purpose of his own residence. This Explanation to section 19(3) clearly entails that

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the rent received by the owner in respect of the property which is in his occupation would be rental income from property and would be charged to income tax and as the Explanation is retrospective in its nature and operation, therefore, the deletion of the rental income by the CIT, (Appeals) and the Income Tax Appellate Tribunal was not correctly made.‖ 16.

Explanatory amendment is always applicable retrospectively to all relevant cases pending at the relevant time

Dreamland Cinema, Multan v. CIT, Lahore [1977] 35 TAX 169 (H.C.Lah.) ―The amendment under review is of explanatory type stated to have been introduced ―for the avoidance of doubt‖. The rule about interpretation of such statute is distinct though the principles of interpretation of taxing statutes would apply if attracted to the situation. A reading of the explanation would show the intention of the Legislature was to remove a doubt and explain the intended import of the original provision‘. If the object of the statute is to explain the provisions or to remove a doubt, the law would apply retrospectively. The addition of Explanation 2 to section 24(2) was with the object of removing a doubt (probably created by the two judgments of the West Pakistan High Court) [in CIT vs. Yousuf & Co. (1967) 15 TAX 4 and CIT vs. Tayah Moosa & Co. [(1967) 15 TAX 62]. The enactment was expressly explanatory in nature. Therefore, it had to apply retrospectively to all the relevant cases pending on that date.‖ 17.

Explanation added to section 50(4) cannot be applied retrospectively

Commissioner of Income-Tax, Karachi v. Messrs Nazir Ahmed and Sons (Pvt.) Ltd., Karachi [(2004) 89 TAX 385 (H.C. Kar.) = 2004 PTD 921 (H.C. Kar.)] ―The above explanation is in the nature of substantive legislation and it was added by Finance Act, 1996, specifically stating that it shall be deemed always to have been so added. Although this explanation was added to nullify the effect of a

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judgment given by the Income Tax Appellate Tribunal and thus, it could be argued that the Legislature stepped in to correct the judicial error and convey the real intent of sub-section (3) of section 19 but the Legislature realized that the provisions contained in the explanation was not within the normal scope of explanation and had enlarging effect therefore, the explanation was added with specific statement that it shall be deemed always to have been so added. From the perusal of various explanations either enacted at the time of promulgation of the Ordinance itself, or inserted subsequently, it is obvious, that all the explanations are not necessarily declaratory and clarificatory or for removal of doubt. Some explanations are definitive in nature, some of them have enacted the deeming provisions, some explanations are on the face of them declaratory, clarificatory and for the removal of doubt. Some of the explanations have been specifically inserted with retrospective effect and the others have no such statement. Some of the explanations have enlarged and extended the scope of already enacted provisions and through some explanations substantive legislation has been resorted to. The result is that no hard and fast rule can be made applicable to all the explanation inserted by subsequent legislation. The explanations squarely fall within the normal purpose and scope of explanations, to wit, being declaratory, clarificatory, meant for removal of doubt, removing of obscurity or an ambiguity or filing in any obvious gap or correcting any pronouncement by the Court taking as judicial error by the Legislature, shall have the retrospective effect. However, the explanation whereby substantive legislation has been made or deeming provisions have been enacted or substantive provisions of law have been enlarged or extended creating new liabilities they shall not have retrospective effect.‖ 18.

Charging provision cannot operate retrospectively unless explicitly provided so by the legislature

[2004 PTD (Trib.) 1655] ―Brief facts of the case are that the assessee sold a car during the year for Rs. 80,000. The I.T.O. found that the written

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down value of the same on 30-6-1990 was Rs. 38,962. He, therefore, charged Rs. 41,038 to tax as terminal profit during the impugned year. Prior to the amendment in Clause 7(c) of the Third Schedule, sale proceeds of any class of assets over its written down value was being treated as income of the assessee. In case, however, if the sale was restricted to one asset out of the class of assets its sale proceeds were not taxed. The amendment of 1991 brought in the charge on every asset as against class of assets and the excess of sale proceeds over the written down value of each case is now taxable. The impugned year before us is for 1991-92 wherein the assessee sold one individual asset which has been charged by the I.T.O. who has given following observation in his support. ―This plea has been considered and it is pertinent to mention that w.e.f. assessment year 1991-92 an amendment has been made in Third Schedule by virtue of which terminal profit/loss is now to be determined on the basis of individual asset. For assessment year under discussion, terminal profit is to be worked out on the basis of individual asset rather than a class of assets.‖ The question which has been taken up before us is whether the amendment brought in by Finance Act, 1991 is applicable to proceeds made prior to the 30th of June, 1991 or not. Before we give our findings we should first determine as to the nature of the present amendment in rule 7 of the 3rd Schedule which deals with the disposals of assets and treatment of resultant gains or losses. The rule was prescribed for creating a charge on the asset which are disposed of by the Companies who are likely to close down their business. It was felt that assets sold in such circumstances fetch more value than the one declared by the assessee in their balance sheet on account of yearly depreciation received by them in terms of written down value. The legislature by way of insertion of above provisions intended to discourage pre-mature sale of capital assets after a relatively short period to get the benefits of inflationary raise in prices and thus charged to tax such transactions which were claimed as exempt under the

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garb of capital gain earlier. It was again felt that by usage of the language ‗Class of Assets‘ the legislature has exempt a single transaction out of the class of assets and in this way if a person had more than one cars he could escape the charge by selling only one of them being a part of a class of assets. To avoid this situation the legislature brought in another amendment through Finance Act, 1991 by way of which a single transaction even if the same is a part of a class of asset has also been covered under the charging provisions of Income Tax Ordinance, 1979. The position that emerges is creation of a charge on an asset which was not there earlier through amendment by Finance Act, 1979. The charging provisions are always prospective unless otherwise provided. It is a settled principle of law, however in our support we refer the judgment, which we feel is more relevant and applicable on all fours to the present case i.e. (1983) 47 Tax 5 (Trib.) In this case the learned Tribunal has given following findings:―A bare perusal of the Explanation that it defines a notional income and makes it chargeable to tax. No doubt ordinarily the function or scope of an explanation is to explain the law as it exists. But in the instant case the legislature has shown to legislate a substantive charging provision in the garb of an explanation. In our view, the mere caption given to a particular provision of law would not legally charge the real intent and purport of the provisions. Since we have not the least hesitation in holding that the said Explanation is a charging provision, there is no escape from the conclusion that it cannot be given effect retrospectively in the absence of a specific provision making it operative in retrospection; The legislature is fully competent to legislate a provision with retrospective operation and it is an established law that unless a charging provision has not been made retrospective, the same should always be treated as prospective. It is also equally established that the retrospectivity in respect of a statute cannot be presumed. Maxwell on interpretation of Statute 12th addition at page 216 contains one the most well-known statement of the rule

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regarding retrospectivity as expounded by R.M. Wright in ReAthlumney: ―Perhaps no rule of construction is more firmly established than this that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation, otherwise than as regards matter of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only. The rule has, in fact, two aspects for it ―involves another and subordinate rule, to the effect that a statute is not to be construed so as to have a greater retrospective operation than its language renders necessary.‖ Mr. Qadeer-ur-Din Ahmed J. in PLD 1969 SC 599 re: Nabi Ahmad and another v. Home Secretary Government of West Pakistan examined the reasons for such presumption against retrospectivity. His lordship remarked:―Rights of the parties arising from facts which come into existence before the passing of a statute, should be presumed to be unaffected by it, unless it is expressly or by necessary implication made retrospective. The full significance, and implications of the protection cannot be fully appreciated unless we discover its reasons. This is not a statutory protection, yet the principle has by virtue of a presumption of fair-play effectively checked encroachments on existing right by the all powerful British Parliament unless they were found to have been clearly and unambiguously so intended. The origin of this presumption is to be found in the conscientious abhorrence that all just men have for the unjustice that is inherent in changing the legal implications of a situation to the disadvantage of those who would otherwise benefit by a right which existed at the time of the change. As a manifestation of more or less, a natural or instinctive sense of justice, perhaps an instinctive repugnance to what one feels to be injustice, the Courts have held that laws do not ―impose new liabilities in respect of events taking place before their commencement.‖

285 Retrospectivity 19.

A penal provision cannot operate retrospectively

CIT, Karachi v. Nisar Ahmad [(1984) 50 Tax 187 (H.C.Kar)] ―A penal provision can‘t operate retrospectively unless it is so provided by the statute itself.‖ 20.

Subordinate legislation can be applied retrospectively only if expressly mentioned

Aftab Medical Stores Dera Ghazi Khan v. CIT, Lahore [(1976) 34 Tax 10 (H.C.Lah.)] ―A subordinate legislation like rules can be applied retrospectively only if the parent Act confers such a power on the rule making authority and it is so expressly mentioned in the rules as well.‖ 21.

Explanation inserted in section 52 of Income Tax Ordinance, 1979 has retrospective effect

Continental Chemical Co. (Pvt.) Ltd. v. Pakistan and others [(2001) 83 TAX 305 (H.C.Kar.) = PTCL 2001 CL. 454] ―A bare perusal of the explanation added to section 52 of the Ordinance is sufficient to conclude that it has not created any new obligation or liability on the taxpayers but has been solely designed to bring about a change in the forum where a person responsible for deducting advance tax on behalf of another assessee as per requirement of section 50 of the Ordinance is to be proceeded against on his failure to deduct or collect the advance tax and to deposit the same in Government treasury. The question of retrospective operation of the explanation would have arisen only if it has the effect of imposing new liability or obligation on the taxpayer or had effected any existing rights either by taking them away or curtailing them. A bare perusal of the explanation is enough to hold that it only provides a change in the forum, whereby the powers to hold proceedings against the payer as a deemed assessee in default have been taken away from the Assessing Officer/DCIT, dealing with the tax proceedings of the recipients and have been conferred on the

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Assessing Officer/ DCIT, having power to deal with the tax proceedings of the payer. It is a well-established principle of law that when the legislature brings about a change in the forum then the same is always with retrospective effect unless it has the effect of curtailing the existing rights available to a party for challenging any adverse order. By the aforesaid explanation, the legislature has not taken away any right of appeal or revision or has not in any manner curbed the rights available to a deemed assessee in default and is merely in the nature of a change of officer/authority. It may also be stated that the object of an ‗explanation‘ to a statutory instrument is to clarify, to facilitate proper understanding of a provision and to serve as a guideline as pronounced by the Honorable Supreme Court in the case of Naveed Textile Mills Ltd. vs. Assistant Collector (appraising Customs House and other reported in PLD 1984 SC 92. By virtue of the explanation added/incorporated in section 52 of the Ordinance, the Assessing Officer/Deputy Commissioner of the Income Tax dealing with the tax assessment proceedings of an assessee would have the right to initiate and finalize the proceedings against the said assessee in cases where he is to be treated as an assessee in default. As such in view of this, no exception can be taken to the orders passed u/s 52 read with section 86 of the Ordinance by Assessing Officer/DCIT, respondent No. 3 against the petitioners. The petitioners should have satisfied themselves by reliable and satisfactory evidence that the said importers had been subjected to tax and should not have relied on assumptions, surmises and conjectures for non-performance of the obligations cast upon them by section 50(4) of the Ordinance i.e. deduction and collection of tax from the amount which they had paid to the eleven importers/sellers of medicines. In view of the addition/incorporation of the explanation to section 52 of the Ordinance, respondent No. 3 had the jurisdiction and authority to initiate proceedings u/s 52 against the petitioners as assessee in default in the assessment

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proceedings relating to the petitioners and no exceptions can be taken to the order passed by him u/s 52 read with section 86 of the Ordinance. Consequently, this Constitutional Petition is found to be without any substance and must fail.‖

288 Principles of Income Tax Law 22.

Retroactivity of the law upheld

CIT, (AJ&K Council), Muzaffarabad and another v. Asian D. Enterprises through Eijaz Qureshi, Managing Director and 5 others & CIT, (AJ&K Council), Muzaffarabad and 2 others v. Messrs Cade Creets Associates through Managing Partner, Diwan Ali Khan Chughtai and another [2000] 81 TAX 371 (S.C.AJ&K.) = 2000 PTD SC 892; CIT, AJK and another v. Asian D. Enterprises and other [2000] 82 TAX 518 ((S.C.AJ&K.) ―It may also be pointed out that in the instant case neither it has been the case of the respondents nor there are any findings by the High Court that any of the respondent-petitioners had paid the advance Income Tax at the previous rates prior to the enforcement of the Finance Act of 1995. It is evident from the above mentioned survey of case law that the findings of the High Court that the Finance Act, 1995, which was adapted retrospectively by Ordinance No. 1 of 1998, could not operate retrospectively, are not legally correct.‖ 23.

Retroactivity of the law upheld limitation period extended retrospectively by legislation held not valid

Income Tax Officer, Investigation Circle & others v. Sulaiman Bhai Jiwa and others [(1970) 21 Tax 62 (S.C.Pak)] ―The orders annulling the assessments in question on ground of limitation in view of the extension of the period of limitation by ex post facto legislation, shall be deemed to have been made without lawful authority.‖ 24.

Amendment in sub-clause (a) of rule 5 of the 5th Schedule to the Income Tax Ordinance held not retrospective

CIT, Central Zone, Lahore v. National Security Insurance Co. Ltd., Lahore [(2001) 84 TAX 500 (H.C. Lah.)] ―....we are of the considered view that in absence of a clear provision making the aforesaid amendment to be retrospective

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the assessing officer cannot be held to have a power earlier to the date of amendment to examine, ―reserves‖ or ―provisions‖ for any expenditure etc. The principles with regard to the prospective or retrospective application of status particularly taxing statute are quite established. The Supreme Court of Pakistan in re: Adnan Afzal vs. Sher Afzal (PLD 1969 SC 187) examined general principles of retrospectively of procedural provisions. The rule with regard to retrospectivity of remedial law was examined by the apex Court in re: CIT vs. Shah Nawaz Ltd. (1992) 66 Tax 126. The effect of change in law on pending proceedings was also examined by the Hon‘ble Supreme Court in re: Sardar Ali vs. Muhammad Ali (PLD 1988 SC 287). In case of taxing statutes an assumption of retrospectively is all the more forbidden. Though the power of legislature in that regard is never questioned, yet in absence of an express provision to that effect in talking statutes, retrospectively of application cannot be accepted except in cases of remedial legislation or beneficial notifications as found by the Supreme court of Pakistan in re: Messrs Army Welfare Sugar Mills Ltd. vs. Federation of Pakistan (1992 SCMR 1652). The amendment in question certainly clothed the Assessing Officer with a fresh power to examine certain kinds of reserves and provisions, which he was not earlier, empowered to do. The enhancement of scope of his interference with regard to reserves and provisions in process of an assessment for levy of tax cannot be taken as procedural in nature. The amendment represents vesting of a new jurisdiction in the Revenue Collector which could not travel back to earlier assessment years merely for the reason that some of the assessments in these years were still pending that being so, as said earlier, the learned Tribunal was justified in holding that till the introduction and enforcement of the aforesaid amendment in sub-clause (a) of rule 5 of the 5th Schedule to the Income Tax Ordinance the Assessing Officer was not competent to interfere with a provision or a reserve as disclosed by an assessee carrying on the business of Insurance.‖

290 Principles of Income Tax Law 25.

Provisions of sub-clause (c) of section (2) of section 111 of the Income Tax Ordinance, 1979 are not retrospective in nature

CIT, Zone-B, Lahore v. Muhammad Sarwar Khan [PTCL 2001 CL. 383] ―No law providing for a greater or different punishment which was available at the time of commissions of the offence or default can be held to be a valid law muchless to interpret a law which on the face of it appears prospective. Since the impugned addition in the income of the assessee was made by resorting to the provision of section 13, the penalty imposed was clearly not exigible as the act of alleged concealment and furnishing of inaccurate particulars in terms of various provisions of sub-section (1) of section 13 occurred many years before introduction of the provisions. It will also be noted that the impugned penalty was not made with reference to any other provisions of the Ordinance or any other sub-clause of section 111. The view adopted by the learned Judicial Member that provisions of sub-clause (c) of section (2) of section 111 were not retrospective in nature appears correct. Provisions of sub-clause (c) of section (2) of section 111 were not retrospective in nature. Provision providing for penalty is not procedural in nature. The situation in the present case is, however, totally different. The provisions of section 111 at the time of enforcement of Ordinance provided for two kinds of meaning to the words ―concealment‖ and ―furnishing of inaccurate particulars‖ of income as used in sub-section (1) of section 111. Subsequently, the scope of their meaning was enlarged by introducing a third category in the form of sub-clause (c) which since its introduction reads as under:Section 111(2)(c) (a) xxxxxxxxxx (b) xxxxxxxxxx

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(c) any act referred to in clauses (aa), (b), (c), (d) and (e) of sub-section (1) of section 13. Since the impugned addition in the income of the assessee was made by resorting to the aforesaid provisions of section 13, the penalty imposed was clearly not exigible as the act of alleged concealment and furnishing of inaccurate particulars in terms of various provisions of sub-section (1) of section 13 occurred many years before introduction of the provisions. It will also be noted that the impugned penalty was not made with reference to any other provisions of the Ordinance or any other sub-clause of section 111. The view adopted by the learned Judicial Member that provisions of sub-clause (c) of section (2) of section 111 were not retrospective in nature appears correct.‖ 26.

Amendments in machinery section being procedural are applicable to pending proceedings

Kohinoor Textile Mills Ltd. v. CIT [1974] 30 TAX 138 (S.C.Pak.) ―We have carefully re-examined the provisions of the Finance Act of 1957 and have come to the conclusion that the applicability of statutory amendments could not possibly have been made to depend upon modifications to be made by the executive for then the executive could have rendered the statute nugatory by one making the necessary modifications. The use of the words ―modifications, if any,‖ clearly indicated that even if no modifications were made the amendment would still be operative. The statute which had come into force by the will of legislature could not also remain ―dormant‖ at the will of the executive. It operated of its own force and it becomes the duty of the executive to give effect to it as far as possible even without the modifications which could, at best be only of a consequential nature. We are unable, therefore, to agree with the High Court that without the modifications the amendment was not applicable. We are also unable to agree that the amendment did not apply to pending proceedings because, the provisions of section 34 of the Income Tax Act impose no charge on the subject but merely deal with the machinery of assessment as held

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by the Privy Council in the case of the CIT, Bengal vs. Messrs Mahaliram Ramjidas [(1940) 8 ITR 442]. This was, therefore, an amendment of procedure in which no assessee has a vested right. Such procedural amendments operate retroactively and apply even to pending proceedings.‖ 27.

Retrospectivity even in a procedural law is to be avoided if it affects an existing right or causes injustice to anyone

[2004 PTD (Trib.) 1655] ―Nevertheless, it is also a settled principle of law that retrospectivity even in a procedural law is to be avoided if it affects an existing right or otherwise causes inconvenience or in justice to anyone. Even if the impugned provision for arguments sake, as expressed by learned D.R. is to be considered an amendment in procedure, to which in principle we are not inclined to (agree), the same cannot charge a transaction completed by the assessee prior to the amendment. The arguments of leaned D.R. that the Finance Act regulates to assessment year relevant to the accounting year ended prior to the same is of no help to department. The provisions before us having created a charge which were not there when the transaction was completed cannot be applied retrospectively. The addition made by the I.T.O. and confirmed by the learned CIT(A) for the assessment year 1991-92 is, therefore, deleted.‖ 28.

Omission of provision from statutes held not to operate retrospectively

Mandviwalla Motors Limited, Karachi v. CIT, Central Zone „B‟, Karachi [1991] 64 TAX 19 (H.C.Kar.) ―The Income Tax Officer, Company, Circle II, Karachi, passed an assessment order on the return filed by the applicants for assessment year 1971-72. He determined the undistributed profit of the applicants to be Rs.10,64,690 and imposed a tax of Rs.2,92,790 in terms of section 23-A of the said Act. On appeal the amount of undistributed profits was worked out to be Rs.8,58,392 and consequently tax payable was fixed at

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Rs.2,25,258. As the applicants failed to pay such amount additional tax u/s 45-A of the Act was levied. On plain reading of the above provision of law it is abundantly clear that no provision has been made for providing any machinery for assessment but it clearly imposes a charge on undistributed income and is therefore of substantive nature. Such a conclusion is also in conformity with the principles of interpretation of statutes laid down in the case decided by the Privy Council and reported in [1940] 8 ITR 442 and followed in the case reported in 1985 PTD 465. The first contention advanced by Mr. Muhnmmad Nasim, Advocate for the applicant has no force. Mr. Muhammad Nasim, Advocate for the applicant has not been able to show that omission of section 23-A from the Act through Finance Ordinance, 1972, was done as a remedial or curative measure. We are also unable to subscribe to the view that original order of assessment by the Income Tax Officer required to be passed after issuing a show cause notice on the subject. At any rate in absence of any provision of issuing a notice in the enactment the requirements of principles of natural justice stand satisfied as the applicants were heard on the subject by the Appellate Authorities.‖ 29.

Any Act/Ordinance cannot cover any period prior to coming into force of the Act/Ordinance

[(1984) 49 Tax 34 (Trib.)] ―The well settled principle of law is that subject to any provision of saving clause, scope and extent of any section of any Act/Ordinance cannot cover any period prior to coming into force of the Act/Ordinance.‖ 30.

Rights conferred under statutes cannot be taken away by later legislation except by express words or by necessary implication

Emperor v. Probhat Chandra Barua [1 ITC 284 (Calcutta)]

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―I am not myself prepared to go the length of holding that rights such as those conferred under the Permanent Settlement can only be abrogated if express provisions cancelling such rights are inserted in a subsequent legislative enactment. No doubt the maxim generalia specialibus non derogant may be regarded as embodying a good working rule of construction, but where the intention of the legislature to abrogate or modify existing rights is manifest as a necessary implication from the language used in the repealing statute, it matters not, in my opinion, that the existing rights are not therein expressly and specifically modified or cancelled. Lord Selborne, Lord Chancellor, refers to this canon of construction in Seward vs. Vera Cruz [(1884) to App. Ca. 59], where he observes: ―If anything be certain it is this, that where there are general words in a later Act capable of reasonable and sensible application without extending them to subjects specially dealt with by earlier legislation, you are not to hold the earlier and special legislation indirectly repealed, altered, or derogated from merely by force of such general words, without any indication of a particular intention to do so.‖ Lord Justice Bowen restated the canon in In re Cuno, Mansfield vs. Mansfield [(1889) 43 Ch. D. 12 at p. 17] in these words: ―in the construction of statutes, you must not construe the words so as to take away the rights which already existed before the statute was passed unless you have plain words which indicate that such was the intention of the legislature. See also Irrawaddy Flottila Company vs. Bhagwandas [(1891) I.L.R. 18 Cal. 620; 18 I. A. 121]. Sunder Mull vs. Ladhuram Koluram [(1923) I.L.R. 50 Cal. 667; A.I.R. (1924) Cal. 240: 83 Ind. Cas. 757] and Duke of Argyll vs. Commissioners of Inland Revenue [(1913) 109 L.T. 893].

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In Garnett vs. Bradley [(1878) 3. App. Cas. 944 at p. 967], Lord Blackburn laid down what I conceive to be the true rule of construction applicable in the circumstances of this case. His Lordship observes: “There is an other rule if it is properly applied, namely, that where there has been a particular rule established either by custom or by statute, where there is some particular law standing and a subsequent enactment has general words which would repeal that particular law or particular custom, if they were taken in all generality, ........ yet nevertheless the first particular law is not to be repealed unless there is a sufficient indication of intention to repeal it. It is not to be repealed by mere general words: the two may stand together; the first, the particular law, standing as an exceptional proviso upon the general law.” After referring to certain cases, His Lordship continues: ―In all these cases, however, the particular statute relied upon was a statute in favour of a particular class of persons or the property of a particular class of persons. I do not take upon myself to say that all cases in which that rule have been applied to which that remark would not be applicable. But where that is the case, where the particular enactment is particular in the sense that it protects the rights, the property, the privileges of particular persons or a class of persons, the reason for the rule which has been acted upon is exceedingly plain and strong. It would be very unjust, or I would rather say unfair (I do not go further than that), to pass an enactment taking away from a particular person or class of persons his or their rights without hearing what he or they have got to say about it; and if general words were to have the effect of taking away the rights of a particular person or class which had been given to them beforehand, it would be done without their having any knowledge or opportunity of resisting it and it is not to be imputed to the legislature or to be supposed that the legislature

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would do what was unfair. Therefore, I think that where only general words are used, there is a strong presumption that the legislature did not intend to take away a particular privilege, right or property of a particular class, unless they have done something to show that. If they have done something in such a way as would show that that was their intention, if they have said in negative words that those rights or privileges shall all be taken away any enactment to the contrary notwithstanding, that would prevent the presumption arising at all. But in the absence of that, I think it is an intelligible principle to say that the legislature shall not be presumed to have done anything unfair, and to have taken away this particular privilege not having stated openly that they meant to take it away, or in such open or clear language that the persons affected might come and resist and use arguments to show why it should not be taken away, but having simply used general words quite consistent with their never having thought of this privilege at all. I think, my Lords, that that principle will reconcile almost all the cases; certainly it will reconcile all I have cited, and it is a good and intelligible principle.‖ 31.

No retrospectivity involving substantive right unless through explicit legislative intention

Messrs Innovative Trading Company Ltd. v. Appellate Tribunal and 2 others [2004 PTD 38 (H.C. Lah.)] ―It is a settled principle in the domain of fiscal law that the amendment touching upon and dealing with substantive right could not be given retrospective effect until and unless it is specifically intended to be so by the Legislature. Conferring a right of appeal is one of the substantive rights which was thus provided to the officers of the Customs on 19th of June, 2000. Conversely, it also abridges the right of the other party to claim immunity against any order passed in their favour by revisional

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forum. We are not persuaded to agree with the learned counsel of the Revenue that the amendment brought under section 194A by virtue of Finance Ordinance, 2000 was not merely procedural in nature. In case of Haji Abdullah Jan v. The State (2003 SCMR 1063) section 417(2A) of the Criminal Procedure Code was examined by the Apex Court. Sub-clause (2A) was added under section 417, Cr.PC through an Amending Act No. XX of 1994 on 28.10.1994 and it was gazetted on 14.11.1994. On 31.10.1994, learned Sessions Judge passed a judgment of acquittal and an appeal was preferred by the Deputy Attorney-General of Pakistan on behalf of the Federal Government. In that case, it was held that the appeal was not competently filed. It was further observed that sub-clause (2A) was enforced after the judgment of acquittal. Therefore, on examining the various provisions of law we find that the right to file an appeal by any officer of the Customs, was not available before 19th of June, 2000 and the appellant acquired a valuable right through the judgment dated 6.5.2000 and this right could not be taken away by construing the amended provision retrospectively.‖

Chapter XI Powers of Courts/Administrative Jurisdiction 1.

Provisions in the Civil Procedure Code relating to appeals to the Supreme Court are contained in sections 109 to 112 read with Order XLV, C.P.C.

Prime Dairies Ice Cream Ltd. Lahore v. CIT, Companies Zone [2002] 85 TAX 509 (S.C.Pak) = 2002 PTD 430 ―It is clear from subsection (2) of section 137 of the Ordinance that provisions of the Civil Procedure Code relating to appeals to the Supreme Court against the judgment and decree of the said Court so far as applicable shall apply to appeals under this section. It is also manifest from this provision of the Ordinance that provisions of the Civil Procedure Code relating to appeals to the Supreme Court against the judgment and decree of the High Court shall be deemed to have been incorporated by way of legislation by reference to regulate the procedure as to filing of appeals, therefore, the question of entertainability of these appeals has to be resolved under the provisions of the Civil Procedure Code treating by fiction of law that the judgment under appeal is to be deemed to be a decree of the High Court passed in a regular civil matter. The relevant provisions in the Civil Procedure Code relating to appeals to the Supreme Court are contained in sections 109 to 112 read with Order XLV, C.P.C. According to rule 2 of Order XLV, C.P.C. in such a case, whoever desires to appeal to the Supreme Court, shall apply by petition to the Court whose decree is complained of, for a declaration that the case is fit for appeal to Supreme Court. Order dated 30.3.2000 of the High Court appears to have been passed on such a petition moved by the appellants which must have contained the grounds on which such a certificate was sought. This petition in our opinion keeping in view the 299

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provisions of Order XLV as a whole and in particular rule 8 of the said Order is an important document for it, prima facie, appears that the same is to be ultimately treated as memo of appeal containing the grounds for challenging the judgment of the High Court and has to be transmitted to this Court after completion of other formalities as provided in this Order, therefore, the appellants could not present these appeals directly before this Court. This being so, these provisions of the Civil Procedure Code which have been made part of the Income Tax Ordinance through legislation by reference, as observed above, would hold the field and cannot be said to have been overridden by the provisions of the Supreme Court Rules. In case the statute itself does not provide any procedure for filing such appeals, the matter would have been different, in which case, this Court could invoke the provisions of the rules governing similar certificated appeals under the Constitution on ground of similarity but not in case as is the present one where the Statute itself by legislation provide procedure for such an appeal.‖ 2.

Appeals rejected for want relevant provisions of law

of

non-observance

of

Prime Dairies Ice Cream Ltd. Lahore v. CIT, Companies Zone [2002] 85 TAX 509 (S.C.Pak) = 2002 PTD 430 ―For the foregoing reasons, these appeals are neither maintainable nor entertainable directly. The office is directed to return the memo of appeals alongwith other documents after retaining copies of the same on record of this Court to the appellants. The appellants, may if so, desire, approach the High Court for proceeding further according to the provisions of sections 109 to 112 and Order XLV, C.P.C.‖ 3.

In granting leave to appeal rule of consistency is to be followed

Central Insurance Co. Ltd. v. CIT [(1999) 79 Tax 1 (S.C.Pak.)] ―Mr. Sheikh Haider, learned Advocate Supreme Court, appearing for the official respondents/caveators, has submitted that the above petitions merit dismissal as the assessments

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pursuant to the impugned notices have already been finalised and recoveries have already been made and the parties have filed appeals etc. against the above assessments. Since earlier this Court has already granted leave against the judgment of the High Court which is also the subject-matter of the present petitions, in order to follow the rule of consistency, we are inclined to grant leave in the present cases to consider inter alia the question on which earlier leave has been granted. However, we are not inclined to grant any stay order. Leave is accordingly granted.‖ 4.

Judicial approach on constitutional issue should be dynamic

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad [(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845] ―That the policy of a tax, in its operation may result in hardship or advantages or disadvantages to individual assessees which are accidental and inevitable. Simplicitor this fact will not constitute violation of any of the fundamental rights. That while interpreting constitutional provisions courts should keep in mind, social setting of the country, growing requirements of the society/nation, burning problems of the day and complex issues facing the people, which the legislature in its wisdom through legislation seeks to solve. The judicial approach should be dynamic rather than static, pragmatic and not pedantic and elastic rather than rigid. That the law should be saved rather than be destroyed and the court must lean in favour of upholding the constitutionality of a legislation keeping in view that the rule of constitutional interpretation is that there is a presumption in favour of the constitutionality of the legislative enactments unless ex facie it is violative of a constitutional provision.‖ 5.

Conditions under which courts can strike down a law

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through

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Secretary Finance, Islamabad [(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC (Pak) 845] ―That though the legislature has the prerogative to decide the question of quantum of tax, the conditions subject to which it is levied, the manner in which it is sought to be recovered, but if a taxing statute is patently discriminatory or provides no procedural machinery for assessment and levy of tax or that is confiscatory, the court may strike down the impugned statute as unconstitutional.‖ 6.

High Court has only advisory jurisdiction under Income Tax Law

CIT, Central Zone B, Karachi v. Farrokh Chemical Industries [(1992) 65 TAX 239 (S.C.Pak.) = 1992 PTD 523] ―The High Court should not have raised a question of law not forming the part of the Reference expressly or by implication. The mere fact that the High Court would have come to a different finding would not justify the conclusion that the findings of the Tribunal is based on conjectures, suspicion or irrelevant material. The High Court while deciding the Reference is not entitled to proceed on its own findings on a question of fact but has to proceed on the facts and circumstances found by the ITAT.‖ CIT, Lahore Zone v. Sh. Muhammad Ismail & Co. Ltd. Lyallpur [(1986) 53 Tax 122 (S.C.Pak)] ―.... the High Court cannot disturb or go behind any finding of fact given by the Tribunal even on the ground that there is no evidence to support it, unless it has been first expressly challenged by a question raised in the reference application u/s 66 to the Tribunal. We may also add that the function of the High Court in cases referred to it u/s 66 is advisory only and is confined to considering and answering the actual question referred to it.‖ Mst. Fazal Be and 6 others v. CIT, [1996] 74 TAX 141 (H.C.AJ&K)

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―A finding of fact not based on evidence or where a material evidence is ignored a reference to the High Court will be maintainable.‖ CIT, Central Zone Lahore v. Gauher Ayub [(1995) 71 Tax 271 (H.C.Lah)] ―This Court can only deal with the question of law arising out of the order of the Tribunal passed u/s 34 of the Act. The question arising out of the order of Tribunal is that question which was raised before the Tribunal and which was dealt with by the Tribunal, or that question which was not raised before the Tribunal but was dealt with by it or that question which was raised and alleged before the Tribunal but was not dealt by the Tribunal. All such questions are questions of law arising from the order of Tribunal.‖ Nazir Ali M.H. Ganji v. CIT, Companies I, Karachi [(1994) 69 Tax 71 (H.C.Kar)] ―U/s 136 of the Ordinance, the provision for reference to the High Court is the same as u/s 66 of the 1922 Act. The scheme of the Ordinance so far as the scheme of the reference to the High Court on question of law arises the Tribunal can and in certain circumstances must seek, at the instance of the assessee or at the instance of the Revenue, the opinion of the High Court on such question. The jurisdiction exercised by the High Court is purely advisory. It is not that of a Civil Court exercising original or any appellate or revisional jurisdiction. We are of the view that the powers and jurisdiction of the High Court are those which are expressed and conferred upon them and also those which inhere in the exercise of that function and jurisdiction of giving advice. The appeal is kept pending before the Appellate Tribunal. It is an admitted position that in answering questions or disposing of references u/s 136 of the Ordinance, the High Court do not exercise any jurisdiction conferred upon them by the Code of Civil Procedure or the Charters or by the Acts establishing the respective High Courts. We are of the humble

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view that in respect of certain matters, jurisdiction exercised by the High Courts must be kept separate from the concept of inherent powers or incidental powers in exercising jurisdiction u/s 136 of the Ordinance. Section 136 of the Ordinance is a special jurisdiction of a limited nature conferred not by the Code of Civil Procedure or by the Charters or by the Acts constituting such High Courts but by the special provisions of the Income Tax Ordinance for the limited purpose of obtaining the High Court‘s opinion on question of law. In giving the opinion properly, if any question of incidental or ancillary power arises such as giving an opportunity or restoring a reference dismissed without hearing or giving some additional time to file the paper book, such powers cannot be so construed as to confer the power of reviewing the judgment.‖ Hamdard Dawakhana (Waqf) v. CIT, etc. [(1987) 56 Tax 78 (H.C.Kar)] ―High Court can grant stay of recovery of tax, subject to furnishing bank guarantee of the amounts involved (outstanding tax payable).‖ Dhanrajmal Mamnumal & Sons v. CIT, (West) Karachi [(1985) 52 Tax 77 (H.C.Kar.)] ―In our view, this Court has always the jurisdiction to intervene if it appears that the Tribunal has arrived at a finding based on no evidence or where a finding is inconsistent with the evidence or contradictory of it or it has acted on material partly relevant and partly irrelevant or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached.‖ Coronet Paints & Chemicals Ltd. Karachi v. CIT, (West) Karachi [(1984) 50 Tax 115 (H.C.Kar.)] ―It has been held by the superior Courts, that the Court would be entitled to intervene if it appears that the fact finding authority acted without any evidence which cannot reasonably be entertained or facts found are such that no person acting judicially

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and properly instructed as to the relevant law could have come to the determination reached.‖ CIT, Lahore v. Umar Saigal [(1976) 33 Tax 245 (H.C.Lah.)] ―An appeal from the reference under the Income Tax Law is not concerned by any of the conditions mentioned in Article 185(2), Constitution of Pakistan (1973), Article 185(3) limits the jurisdiction of the Supreme Court by providing that: An appeal to the Supreme Court from a judgment, decree, order or sentence of a High Court in a case to which clause (2) does not apply shall lie only if the Supreme Court grants leave to appeal.‖ 7.

Persons who are equally placed cannot be treated discriminately

Bank Al-Habib and another v. Central Board of Revenue [(2004) 90 TAX 9 (H.C. Lah.)] ―The respondent took different stands on different stages and finally refused, that blanket approval cannot be granted on the precedent of Bank of Punjab. The constitutional petitions were filed, thereafter, immediately. There is no codified law governing laches. Each case has to be examined on its own peculiar facts to non-suit or otherwise, on the doctrine of laches. Protracted correspondence between the parties, suggestive of consideration, will not attract the rigour of laches. The petitioner has approached the respondent for the grant of relief in terms of section 23(1)(ix) of the Ordinance. He cited the cases of financial institution to which relief was granted in similar circumstances. The respondent refused to grant relief mainly on the ground that the petitioner is banking company and cannot equate itself with the financial institutions, which has been provided the relief being engaged in development and building sector and some of the institutions were facing hardships. The learned counsel, obviously rendered help to him. The Bank of Punjab performing similar functions and duties like the petitioner, had approached the Federal Ombudsman who

306 Principles of Income Tax Law

directed the respondent to grant benefit of Special Reserve in view of the provisions of section 23(1)(ix) of the Ordinance. The respondent un-successfully challenged the decision of Federal Ombudsman before the Honourable President of Pakistan. Income Tax Appellate Tribunal in an appeal by the Bank of Punjab against respondent allowed relief in regard to Special Reserve in accordance with decision of Federal Ombudsman and decided the appeal in terms thereof. The Central Board of Revenue, Islamabad, thereafter, in obedience of the judgment of the Federal Ombudsman and Appellate Tribunal, revised the original assessment by giving benefit of Special Reserve. The petitioner‘s case is at par with the case of the Bank of Punjab, being similar placed and similarly circumstanced. He cannot be meted out with discrimination. Reasonable classification is permissible but if it is arbitrary or is not founded on any rational basis it will not be deemed to be classification warranting its exclusion from the mischief of Article 25 of the Constitution. In Nizamuddin and another v. Civil Aviation Authority and 2 others (1999 SCMR 467), similar view was expressed by the Honourable Supreme Court of Pakistan. Reiterating its view in Aman Ullah Khan and others v. The Federal Government of Pakistan through Secretary, Ministry of Finance, Islamabad and others (PLD 1990 SC 1092) and Chairman Regional Transport Authority, Rawalpindi v. Pakistan Mutual Insurance Company Limited, Rawalpindi (PLD 1991 S.C. 14) holding that the Government is not supposed to discriminate between citizens and its functionaries and cannot be allowed to exercise discretion on their whim, sweet will or as they please but are bound to act fairly, evenly and justly. Similar observations were also made in the case of Messrs Airport Support Services v. The Airport Manager, Quaid-e-Azam International Airport, Karachi and others (1998 SCMR 2268). In Government of N.W.F.P. through Secretary and 3 others v. Mejee Flour and General Mills (Private) Limited, Mardan and others (1997 SCMR 1804) and in Rai Mazhar Iqbal and another v. The University of the Punjab, Lahore through Vice Chancellor and two others (1922 C.L.C. 1158).‖

307 Powers Of Courts/Administrative Jurisdiction 8.

Two equally possible interpretation emerge leave to appeal granted

Mian Aziz S. Sheikh v. CIT, Investigation Lahore [(1981) 43 Tax 105 (S.C.Pak)] ―The question for consideration before the High Court depended upon two equally possible interpretations of the expression unless he is himself liable to pay any income tax and super tax thereon as an agent. The High Court has itself noticed the fact that there has been a great difference of opinion as to the interpretation of this expression and since a legal question which is likely to affect a large number of cases has arisen, we grant special leave to appeal.‖ 9.

CBR and the Federal Government has no power to resort to judicial interpretation of law

The CBR, Islamabad and others v. Sheikh Spinning Mills Limited, Lahore and others [(1999) 80 Tax 79 (S.C.Pak) = 1999 PTD 2174] ―It seems to be well-settled proposition of law that the Central Board of Revenue, or for that matter even the Federal Government, cannot control or curtail judicial adjudication powers vested in the forums provided under the relevant law by giving a particular interpretation to a particular provision of the relevant law or by issuing notification/S.R.O. for that purpose.‖ 10.

CBR is not competent to judicial/quasi judicial nature

issue

instructions

of

Central Insurance Co. & Other v. CBR Islamabad [(1993) 68 Tax 86 (S.C.Pak)] ―We may point out that the Central Board of Revenue cannot issue any administrative directions in the nature which may interfere with the judicial or quasi-judicial function entrusted to the various functionaries under the statute.‖ 11.

CBR or any other authority cannot enlarge the scope of a provision.

[2004 PTD (Trib.) 151]

308 Principles of Income Tax Law

―Further and this has been pointed out by the DR that the assets are not separately identifiable has not been established. In fact the machinery imported during the year was separately mentioned in balance sheet; hence even if we agree with the provisions of the Circular, even on factual premises the assessee does not have any case to argue. In any case the provision mentioned above does not grant any right to anybody be that Central Board of Revenue or some other authority to enlarge the scope of the provision which has granted this exemption, through a Circular. The departmental objection is that the machinery is not used for the whole year hence shall be restricted to the extent of its utilization in terms of number of days. We have already shown out agreement with the arguments of DR in respect of this issue. The provisions of law in terms of clause (3) of the Third Schedule mentioned above do not give any impression about the allowance of depreciation as a class. The directions of the C.B.R., therefore, have come as a piece of legislation to that extent which perhaps was for the reason that some difficulty in determination of the separate machinery in a class of machinery was not possible. This direction is beyond the scope of the powers available with C.B.R. under section 14 of the Income Tax Ordinance, 1979. In this regard we are fortified by the judgment of the ITAT reported as 1999 PTD (Trib.) 1672 and which has further relied upon the judgment of the Supreme Court of Pakistan reported as 1993 SCMR 1232 = 1993 PTD 766. The learned Judicial Member as the then he was writing on behalf of the full Bench held:―The idea was found to be fallacious in view of the fact that the C.B.R. being a creation of the Statute (Act IV of 1924) could not create an exemption in the way it did by way of the aforesaid letter. Reference was made to a reported judgment of the Karachi High Court in re: Syed Ali Azhar Naqvi v. Government of Pakistan cited as PLD 1994 Kar 67 wherein it was found ―where a statute provides a procedure for doing

309 Powers Of Courts/Administrative Jurisdiction

a thing in a particular manner then that thing should be done in that manner and in no other way or should not be done at all.‖ The view of their Lordships of the Lahore High Court expressed in PLD 1971 Lah. 217 re: Chairman Evacuee Property Trust Board West Pakistan v. Muhammad Din and others was also referred which said, ‗wherever a statute limits a thing to be done in a particular form, it necessarily includes in itself a negative, viz. that a thing shall not be done otherwise.‖ Lastly it was noted that the competency of the C.B.R. to issue Circulars, notification or letters to interpret various provisions of the law was finally settled by the Supreme Court of Pakistan in re: Central Insurance Company and others v. C.B.R. and others cited as (1993) 68 Tax 86 = 1993 PTD 766 = 1993 SCMR 1232. In that case the Court inter alia re-affirmed its view cited in PLD 1964 SC 657 = (1964) 10 Tax 206 re: CIT East Pakistan Dacca v. Noor Hussain. In that case (Cornelius C.J. remarked ―in my view if there is a departure from the law involved in the provision for relaxation contained in the Circular then that Circular is to the extent of the deviation, invalid and ineffective and power thereunder is illegally exercised.‖ In above lines the Honourable ITAT has held that the directions of the C.B.R. which are in conflict to the main legislation are illegal to the extent they deviate from the said law. As regards ITA No. 460/LB/1998 is concerned the judgment has not been produced before us by the learned AR and the Assessing Officer while following the same has not given any reference to the findings therein. We, therefore, consider the same to be as per incuriam as the same apparently has not discussed the C.B.R. Circular and the main provision in its true spirit. Here we also find ourselves in agreement with learned DR that the fiscal law is to be construed strictly and the intendments behind the legislation should not be ignored. When law clearly says that the extra shift allowance shall be calculated by adopting

310 Principles of Income Tax Law

number of days C.B.R. cannot grant further benefit beyond the legislation through a Circular. One may further refer the famous judgment of Central Insurance Company decided by the Supreme Court of Pakistan reported as (1993) 68 Tax 86 (S.C. Pak). We, therefore, hold that extra shift allowance has correctly been disallowed by the Assessing Officer. We need not add that the assets in this case even otherwise were separately identifiable. The assessee appeal on this issue, therefore, is rejected.‖ 12.

Transfer of jurisdiction

Karachi Industrial Corporation & 3 others v. CIT [(1975) 32 Tax 170 (S.C.Pak)] ―There is no provision in the law for issuance of a notice before a case is transferred from one office to another but it was urged that the rule of natural justice requires that before an order adverse to a party is passed he shall be heard. There is little force in the contention. The transfer of jurisdiction in this case was to facilitate assessment by putting it at one place. Per se such an order does not result in any prejudice to the assessee. If the petitioners have any specific grievance against the ITO, they should bring it to notice of the IAC with whose approval assessment is to be finalised.‖ 13.

Only question of law which has substance in it be referred to the High Court

Lungla (Sylhat) Tea Co. Ltd. Sylhat v. CIT, Dacca Circle Dacca [(1975) 31 Tax 64 (S.C.Pak.)] ―It may be pointed out that it is not every question of law that must be referred to the High Court. There must be some substance in it.‖ 14.

Constitutional petition dismissed as withdrawn second petition on the same issue is maintainable

CIT, Karachi v. Ashfaq Ahmad Khan & 10 others [(1974) 29 Tax 149 (S.C.Pak.)] ―Writ petition dismissed as withdrawn subsequent writ petition on the same issue being constitutional petition was held to be maintainable.‖

311 Powers Of Courts/Administrative Jurisdiction 15.

Anomaly in question of law framed and referred by the Tribunal to the High Court; High Court should refer the case back to Tribunal for clarification

Pakistan through CIT, Karachi v. Majestic Cinema [(1965) 12 Tax 15 (S.C.Pak.)] ―It might have been more appropriate course for the High Court to take, when it discovered a clear anomaly in the question referred to it, to send the case back to the Tribunal for clarification of the question referred to it, so that the High Court should have known whether it was asked to consider a question of law applying to the whole matter before the Income Tax authorities or only to a part.‖ 16.

Effect of lack of jurisdiction

Nagina Silk Mills, Lyallpur v. Income Tax Officer, A-Ward, Lyallpur and another [1963] 7 TAX 442 (S.C.Pak.) = PLD 1963 SC 322 ―In the Punjab Province vs. The Federation of Pakistan [PLD 1956 FC 72], it was ruled by the Federal Court that a suit brought by the Punjab Province to challenge its liability to Income Tax, on income derived from certain commercial activities of the Province, u/s 204 of the Government of India Act, 1935 was not barred by section 67 of the Income Tax Act or by section 9 of the Code of Civil Procedure. It was pointed out therein that where the Income Tax Officer‘s order of assessment was wholly vitiated by complete lack of jurisdiction, the principle laid down by the Privy Council in cases of Relight Investment Company Limited vs. Governor-General-in-Council is a representative, would not apply. The order in such a case cannot be said to have been passed under the Act, within the meaning of section 67 of the Act and a suit even in a Civil Court would not have been barred. It therefore follows that the extraordinary writ jurisdiction of the High Court could have been invoked in challenging an Income Tax assessment on the basis that the officer in question lacked jurisdiction to pass the impugned order. The writ jurisdiction was conferred on the High Court by a constitutional provision and even if there be a

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conflict between such a provision and another statute, the constitutional provision must prevail.‖ 17.

Only Supreme Court is competent to adjudicate between the governments

The Punjab Province v. The Federation of Pakistan [(1960) 2-Tax (Supp. 3) (S.C.Pak)] ―The principle underlying Article 184 of the Constitution of Pakistan is that all disputes whether of law or of fact are to be determined by Supreme Court of Pakistan if the parties to the dispute happens to be the Federal Government on the one side and any one or more of the provinces on the other side or if two or more provinces are arrayed against one another. The machinery provided for appeals/revisions in the Income Tax Ordinance 1979 is not relevant in such disputes.‖ CIT, Lahore v. Govt. Jallo Rosin and Turpentine Factory, Lahore [(1976) 34 Tax 71 (H.C.Lah.)] ―On the merits the additional objection raised before us has considerable force. In this connection Article 185(1) of the 1973 Constitution lays down that the Supreme Court shall, to the exclusion of every other court, have original jurisdiction in any dispute between any two or more governments. In the 1962 Constitution there was a corresponding provision in the form of Article 57.‖ 18.

Appeal/Reference to Supreme Court governed by Income Tax Law

The Provincial Library & others v. CIT, East Pakistan [(1959) 1-Tax (III-290) (S.C.Pak)] ―Where the question is whether an appeal to the Supreme Court lies in income tax matter, the question has first to be decided not with reference to provision of the Code of Civil Procedure, but solely in terms of section 137(1), though once the case is held to be qualified u/s 137(1) the provisions relating to appeal to the Supreme Court will apply to the appeal as if it were an appeal from decree of a High Court.‖ 19.

In tax matters Supreme Court jurisdiction is limited

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The Provincial Library & others v. CIT, East Pakistan [(1959) 1-Tax (III-290) (S.C.Pak)] ―The Supreme Court jurisdiction to entertain a statutory appeal in matters arising under the Income Tax Law is limited to the case mentioned in sub-section (2) of section 137 and that such jurisdiction can be invoked only where the High Court has delivered judgment on a reference made to it u/s 136 and also certified the case to be fit one for appeal before the Supreme Court.‖ 20.

Courts have to interpret the law as it stands and have no authority to add, delete or subtract any word in or from the language used in the statute

Messrs Indus Basin & Co. v. CIT 2002 PTD 2169 (H.C.Kar.) ―The learned Tribunal in order to create the distinction had to add expression ‗ordinary‘ with expression ‗building‘ used at Serial No. 1, but in doing so the very cardinal principle of the interpretation of statutes was lost sight of that the Courts are merely supposed to interpret the law as it is and have no authority to add, delete or subtract any word in or from the language used in the statute. Thus the addition of word ‗ordinary‘, with ‗expression‘ building used by the legislature is against the, principles of the interpretation of statutes. In doing so, the ITAT further fell in error by ignoring the principle that when an expression, word or term, is used by the legislature in a particular statute at various places and the said term or word has been defined in the statute with the note that the definitions in the said statute shall be implied unless the context otherwise requires, then ordinarily the definition given in the statute is to be accepted while applying or interpreting the provisions of that particular statute, and if any deviation is to be made then it has to be shown that the context in which the said word or term has been used requires otherwise.‖ 21.

Court is not empowered to deviate from the definition given in the statute

Messrs Indus Basin & Co. v. CIT

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2002 PTD 2169 (H.C.Kar.) ―The Court is bound to explain and highlight the context which requires deviation from the definition given in the statute and must show with reference to the context that a word or term should take some other complexion or colour, with particular reference to the context. However, if the definitions are given in unqualified terms and it is not stated in the definition clause that the words or terms used may be taken in any other sense with reference to the context then the Court is not empowered to assign any other meaning of word or term used in the statute. Now we see that in section 2 of the Income Tax Ordinance, 1979, it is provided that the definitions given therein shall be taken for the purpose of Ordinance, unless the context otherwise requires. The word ‗building‘ is not defined in this section. It is defined in rule 8 of Third Schedule to the Income Tax Ordinance. 1979 in unqualified terms and says that for the purpose of Third Schedule the definitions given in rule 8 shall be implied. The definitions of the words or terms given in rule 8 of the Third Schedule are to be taken in unqualified and unconditional terms for the purpose of entire scheme pertaining to the depreciation contained in the Third Schedule.‖ 22.

Main function of the definition of a term is to remove vagueness, ambiguity or complication

[2004 PTD (Trib.) 1029] ―We would like to observe here that when a term is used in a statute then the same necessarily is to be defined in the definition clause of that law in order to avoid any ambiguity or complications or difficulty which may likely to arise while it is being interpreted and applied to a situation in the context of its literal and ordinary dictionary meanings in order to construe the same for arriving at a logical conclusion. What predominates in the main statute/law and the definition given in the provisions of that main law. If no definition is given in the main law then any such term or phrase or word used in the provisions of law may be given a possible harmonious meaning and conveying a

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sense to the said provisions of law while seeing to its plain, literal and ordinary dictionary meaning.‖ [2004 PTD (Trib.) 2749] ―We would like to reassert our earlier observation in so many cases that when a term is used in a statute, the same must be defined in the definition clause of that law in order to avoid any ambiguity, complications and difficulties which may likely to arise while it is being interpreted and applied to a situation in the context of its literal and ordinary dictionary meaning in order to construe the same for arriving at a logical conclusion. What predominates is the main statute law and the definition given in the provisions of that mean law. If no definition is given in the main law then any such term or phrase or word used in the provisions of law would always be interpreted in a manner that the said provisions of law may be given a possible harmonious meaning and conveying a sense to the said provision of law while seeing to its plain, literal and ordinary dictionary meaning. Main function of the definition of a term is to remove vagueness and to provide a degree of definiteness to the said term or phrase or word so defined.‖ 23.

Disputed questions of fact cannot be resolved in a writ petition

Deans Associates (Pvt.) Limited v. IAC of Income Tax [2002] 86 TAX 138 (H.C.Kar.) = 2002 PTD 441 ―It is settled proposition of law that this court has no jurisdiction to resolve the disputed questions of fact in Constitutional jurisdiction as the principle laid down by the Honble Supreme Court in Muhammad Yunus Khans case 1993 SCMR 618. This Court has considered almost all the case-law on the subject and laid down a principle in Messrs Pak-Arab Fertilizer vs. Deputy Commissioner of Income [2000] 81 TAX 224 (H.C.Lah.) = 2000 PTD 263 that writ petition is not maintainable against the show-cause notice and also observed that party cannot be allowed to bypass jurisdiction vested by the law in Special Tribunal. It is pertinent to mention here that the learned counsel for the petitioner has laid down much emphasis in Shahab-ud-

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Din‟s case [1988] 58 TAX 106 (H.C.Kar,) = PLD 1988 Kar. 587 and in the aforesaid case the writ petitions were dismissed and laid down the following principle: ―The petitioner has not availed the statutory remedy available to him and he has rushed to the Court at the initial stage when only notice has been served. He will have the opportunity to examine the material if any produced before the Income Tax Authorities and rebut it, before any final order is passed. In the facts and circumstances of the case in our view the notice issued by the respondent No. 2 is neither arbitrary, nor without jurisdiction. We therefore, dismiss the petition with no order as to cost.‖ 24.

Question declined academic in nature

lacking

substance

and

being

CIT, Companies, Lahore v. Locus Traders Shan (Pvt.) Ltd., Lahore [(2001) 84 TAX 516 (H.C.Lah.)] ―This is a case stated by the Lahore Bench of the Income Tax Appellate Tribunal, at the instance of the CIT, Companies, Lahore. The following question has been framed for our consideration and answer:―Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that cost of freight and insurance is an item of Profit and Loss Account in spite of the facts that it is direct expense and debitable to the trading account. After hearing the learned counsel for the Revenue, we will not take long to hold that the aforesaid question does not raise any legal controversy as earlier found by a division Bench of this court in (1999) 79 Tax 283 (H.C.Lah.)=1999 PTD 1329 re: CIT vs. Anwar Enterprises, Sialkot. While disposing of as many as 461 P.T.Rs./petitions, the learned Division Bench concluded that these tax references did not raise any question of law arising from the orders of the Tribunal. Also in view of the introduction of presumptive tax regime by Finance Act, 1992, similar

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questions framed in these references were found to be of academic interest only.‖ 25.

High Court is competent to entertain writ where interpretation of law is involved

Bank of Punjab v. Federation of Pakistan [2000] 81 TAX 390 (H.C.Lah.) The fate of this case turns upon the interpretation of section 53(b) of the Income Tax Ordinance, 1979 and the said dispute can very well be decided by this Court in the exercise of its constitutional jurisdiction without insisting that the petitioner should follow the remedies provided by the Income Tax Ordinance, 1979. Furthermore, it appears that the DCIT, was influenced by Circular No. 13 of 1997 issued by the Central Board of Revenue which had been declared as without lawful authority by this Court. In view of what has been said above, this petition is allowed, the impugned order of the DCIT, to the extent it disallowed the petitioner to deduct the tax paid by it u/s 50 of the Income Tax Ordinance, 1979 while computing the payment of advance tax payable u/s 53, is declared to be without any lawful authority and of no legal effect.‖ 26.

Every order increasing tax obligation of an assessee or reducing the refund is appealable u/s 129

Pak-Saudi Fertilizer Ltd. through Managing Director v. Federation of Pakistan through Secretary Finance, Islamabad and 4 others [(2000) 81 TAX 119 (H.C.Kar.) = 1999 PTD 4061] ―In the context of Income Tax we have been able to lay our hands on Hassan Ali Khan Kara Bhai vs. CIT PLD 1974 Kar. 473 wherein Noorul Arfeen J writing for the Court held that notwithstanding that no specific appeal was provided u/s 30 of the Income Tax Act, 1922 against an order u/s 35, however, such appeal lay since the order u/s 35 pertook the character of a fresh assessment order referable to section 23 of the 1922 Act, and therefore, such an order being in the nature of an order of

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assessment was appealable to the Appellant Assistant Commissioner u/s 30 of the Act. The above discussion would amply confirm that the omnibus clause in section 129 i.e. or otherwise increasing the liability of an assessee covers every possible eventuality where the tax liability or obligation to pay income tax is increased or refund reduced, making such orders appealable u/s 129.‖ Note: 27.

Not approved by the Supreme Court of Pakistan, see [2001] 83 TAX 119 (S.C.Pak.).

Objections to jurisdiction are to be decided before proceeding in the matter by adjudicating authority

Abdul Majeed Awan v. IAC of Income Tax [1999] 80 TAX 115 (H.C.Lah.) = 1999 PTD 2910 = 2000 PCTLR 1046 ―Admittedly, the petitioner could raise all the objections to the exercise of jurisdiction, either u/s 156 of Income Tax Ordinance or u/s 66A of the Ordinance and the respondents will be duty bound to attend to the objections and determine the same by recording a well reasoned order. The matter will be reopened only if the objection as to the exercise of jurisdiction is overruled. Every quasi-judicial authority is under legal obligation to consider the objections as to its jurisdiction, if raised in the proceedings and to decide it as a preliminary step, before exercising the jurisdiction or invoking authority under the relevant law. The respondents are expected to first satisfy that the circumstances warrant for indulgence under the relevant provisions and that they have the jurisdiction to reopen the matter.‖ 28.

Ombudsman has no power to declare any legally issued notification as perverse, illegal, arbitrary or discriminatory

Frontier Ceramics v. Government of Pakistan & others [1999 PTD 4126 (H.C.Pesh.)] ―The issuance of notification cannot be termed as maladministration because it could not be said to have been

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issued for a particular person or in a particular case, it was issued for and applied to all those concerned. In the above provisions of law [Wafaqi Mohtasib Ordinance of 1983], it is no where provided that the learned Ombudsman has the authority to declare any legally issued notification as perverse, illegal or arbitrary and discriminatory.‖ 29.

CBR has no authority to file presentation against the orders of Wafaqi Mohtasib

Frontier Ceramics v. Government of Pakistan & others [1999 PTD 4126 (H.C.Pesh.)] ―.....CBR is not a person as contemplated u/s 32 of the President Order 1 of 1983 and, therefore, CBR has no authority to file representations before the President of Pakistan against the recommendations/decisions of the Mohtasib.....‖ 30.

Objection as to jurisdiction can be raised at any stage

Tapal Energy Ltd. v. Federation of Pakistan [1999 PTD 4041 (H.C.Kar.)] ―It is an established principle that submission to jurisdiction of a Court or Authority does not confer jurisdiction on such court or authority and in support thereof reliance is placed on the case of Mohammad Afzal vs. Board of Revenue, West Pakistan and others reported in PLD 1967 SC 314. It may also be pointed out that the objection as to the jurisdiction can be raised at any stage and for the above reliance is placed on the case of (i) Shagufta Begum vs. The Income Tax Officer reported in PLD 1989 SC 360, and (ii) Pir Sabir Shah vs. Shad Mohammad and others reported in PLD 1995 SC 66....‖ 31.

Courts/Tribunals have inherent powers to recall orders independent of any statutory provisions

Mst. Tasneem Kausar v. House Building Finance Corporation [PLD 1999 Lahore 462] ―Court, Tribunal or Authority has an inherent jurisdiction to recall orders obtained from it by practising fraud and misrepresentation. Such power is inherently available to a

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Court/Tribunal of special or limited jurisdiction independent of any statutory provision.‖ 32.

Doctrine of exhaustion explained

Hazoor Bakhsh v. Senior Superintendent of Police, Rahimyar Khan and 12 others [PLD 1999 Lahore 417] ―While parting with this order we are inclined to reiterate that rules enunciated above, flow from doctrine of exhaustion as embodied in Article 199 of the Constitution. It is hardly necessary to reiterate that this doctrine does not absolutely bar the jurisdiction of this Court to adjudicate such petitions if other remedies are available against the impugned orders/ grievance. If the Court comes to the conclusion that the orders /proceedings/actions of functionaries of State under attack are in excess of authority or totally destitute of authority if had power to come to the relief of the affected party in exceptional circumstances. Doctrine of exhaustion is regulatory in nature. In highly exceptional circumstances this Court definitely will come to the rescue of the affected party as pointed out by a celebrated Judge Mr. Justice Aftab Hussain in Haji Muhammad vs. Khizar Hayat PLD 1977 Lah. 424. See Qamar-uz-Zaman vs. Zila Council Bahawalpir 1990 MLD 1748.‖ 33.

Constitutional powers of levying taxes by Federation and provinces

Syed Bhaies Pvt. Ltd. v. Government of Punjab [(NLR 1999 Tax 176] ―It is a fundamental principle of interpretation that where Constitution distributes legislative powers between two different law-making bodies i.e. Federal and Provincial, an act enacted by any such body should be examined to ascertain its pith and substance or its true nature and character for purposes of determining real field of legislation within which subject-matter of the Act lies. Wherever legislative powers are distributed between legislative bodies through legislative lists, situations may arise where two legislative fields might apparently overlap. It is duty

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of Courts, however difficult it may be, to ascertain to what degree and what extent, the authority to deal with matters falling within these classes of subjects exists in each legislature and to define, in the particular case before them, the limits of the respective powers. It could not have been intention of Constitution that a conflict should exist, and, in order to prevent such result the two provisions must be read together, and language of one interpreted, and, where necessary modified by that of the other.‖ 34.

CBR‟s circular holding compensation under Golden Handshake Scheme as taxable held unlawful

Nasir Mahmood Dar, etc. v. Federation of Pakistan and others [(1998) 78 Tax 1 (H.C.Lah.) = 1998 PCLR 1382] ―The Central Board of Revenue has no jurisdiction to issue any circular as to curtail the discretion vesting in the Adjudication Authorities ... the circular issued holding that the amounts received under the Golden Handshake Scheme were salaries is ultra vires the powers of the Central Board of Revenue. In this view of the matter, all these petitions are allowed and the circular issued by the Central Board of Revenue on 6.11.1997 is declared to be without any lawful authority and of no legal effect. The Adjudication Officer shall proceed to decide independently of the circular as to whether the amounts received by the petitioners are tantamount to salaries or not and are taxable. The amounts, if any, withheld by the Banks and the amounts disbursed to the Department under the impugned Circular, shall be refunded to the petitioners.‖ 35.

CBR has no authority to place judicial interpretation on any provision of law

Union Bank Ltd. v. Federation of Pakistan [(1998) 77 Tax 127 (H.C.Lah.)] ―It is not necessary to state the facts in view of the limited nature of the controversy before this Court. Suffice it to stay that according to the petitioner‘s learned counsel u/s 53 of the Income Tax Ordinance, 1979 the liability of the assessee to pay

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advance tax has to be worked out after giving due allowance for the tax already paid u/s 50 of the Income Tax Ordinance, 1979 as mentioned in clause (b) of sub section 1 of section 53 itself but the Central Board of Revenue while interpreting the above section in the impugned circular has opined in para-2 of the circular that the tax withheld u/s 50 shall neither be included in the amount of tax assessed nor shall such tax be accounted for as payment of quarterly advance tax instalments. According to the learned counsel the direction of Central Board of Revenue that the tax withheld u/s 50 be not accounted for as payment of quarterly advance tax instalment is violative of section 53 itself and cannot be given effect to. Relying upon pronouncement of the Supreme Court of Pakistan in Messrs Central Insurance Co. vs. The CBR and others (1993 S.C.M.R. 1232), learned counsel for the petitioner has contended that authority of the Central Board of Revenue to issue Circular No. 13 of 1997 is barred u/s 8 of Income Tax Ordinance, 1979. The jurisdiction of Central Board of Revenue for issuing instructions is confined only to administrative matters. ..... it may be stated that prima facie this contention appears to have merit inasmuch as according to the wording of Section 53(1)(b) the liability of the assessee is to pay the advance tax minus the tax already paid u/s 50. Further discussion in this behalf is unnecessary as Mr. M. Ilyas Khan, Advocate has conceded before this court that Circular No. 13 of 1997 dated 29-9-1997 issued by the Central Board of Revenue has no binding force. He further says that neither any assessing officer nor any appellate authority under the Income Tax Ordinance has, therefore, adopted the said circular. Learned counsel has assured that the authorities concerned shall interpret section 53 of the Income Tax Ordinance, 1979 irrespective of the view taken by the Central Board of Revenue. It is a matter of some regret that the Central Board of Revenue while issuing the circulars does not follow the law declared by the Supreme Court of Pakistan which under Article 189 is binding on all authorities which are required to act in aid

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of Supreme Court of Pakistan. The law on the subject was clearly enunciated in Central Insurance Co.‟s case supra relied upon by the petitioner‘s learned counsel in which it was held that Central Board of Revenue is not one of the authorities in the hierarchy of officers which has jurisdiction to interpret any provision of the Ordinance. That being so, the Central Board of Revenue would be well advised to desist from issuing any such circular which influences the decision of the adjudicating authorities.‖ 36.

Powers of Appellate Tribunal

Karim Aziz Industries Ltd. v. CIT, Rawalpindi Zone [(1997) 75 Tax 90 (H.C.Lah.)] ―A careful reading of sub-section (5) of the above provision, clearly shows that if the Appellate Tribunal is not satisfied with the orders passed by the forum below, it has the power to cancel or vary such orders and can pass necessary consequential directions as the situation may warrant. The language of this section clearly indicates that the powers of the Tribunal under this section have very wide amplitude and are almost to the power of Civil Court under Order XLI, rule 33, CPC. The ratio, deducible from the foregoing discretion is that the power of Appellate Income Tax Tribunal u/s 135 of the Ordinance are almost analogous to the powers of Civil Court under Order XLI, Rule 33, CPC. These powers are of a wide sweep and arm the appellate court with the power to pass an order of remand if it comes to a finding that the orders of the courts below are illegal and there is an occasion for fresh proceeding before the first authority/court. This power is expressly embodied in the language of conclusion, we find that question referred to by the Tribunal is of academic nature and needs no further examination.‖ 37.

Interim stay should be given once writ is admitted

Tharparkar Sugar Mills Ltd. v. Federation of Pakistan through Secretary, Revenue Division and Chairman, CBR, Islamabad and another [1996] 73 TAX 215 (H.C.Kar.)

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―.....once a petition in tax matters is admitted that ispo facto shows that the petitioner has made a prima facie case and therefore interim stay may be granted.‖ 38.

CBR instructions are binding on tax authorities

Utman Ghee Industries v. CIT [2002] 85 TAX 354 (H.C.Pesh.) = 2002 PTD 63 = PTCL 2002 CL. 146 ―...the plain reading of the above mentioned section of law would show that all the Officers and persons who have been employed in the execution of Income Tax Ordinance are bound to follow the orders and instructions issued from time to time by the CBR in the shape of Circulars and Notifications. If any case-law in support of this contention is required, reliance can be placed on Messrs Julian Hoshing Dinshaw Trust and others vs. Income Tax Officer, Circle XVIII South Zone, Karachi and others [1992 SCMR 250], wherein it was held:After hearing the learned counsel for the parties we are unable to agree with the High Court. It is not disputed that Circular No. 8 issued by the Central Board of Revenue was in force at the relevant time. Under section 5(8) of the Income Tax Act, 1922 and section 8 of the Income Tax Ordinance, 1979, the orders, instructions and directions of the Central Board of Revenue are binding on all the officers entrusted with the execution of the Statue. The detailed scrutiny and discussion of the above mentioned case-law lead us to the irresistible conclusion that Circulars No. 3, 11 and 12 of 1992 and 1 of 1993 issued by the CBR on 27.1.92, 4.5.92, 19.5.92 and 11.1.93 in exercise of powers conferred under section 165 of the Ordinance and were meant to tone down the rigours of law and ensure a fair enforcement of its provisions. The Federal Government after inserting sub-section (18) in section 12 of the Ordinance in the year 1987 realised that certain difficulties were created for the assessees and that was the reason that the said provisions of section 12(18) of the Ordinance were held in abeyance till 30.6.90 through Notification No. SRO 838(I)/87

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dated 26.10.87. Then in the year 1992 need was felt to insert subsection (18A) in section 12 whereby in private loan or advance which was found not to have been paid on or before 30th day of June, 1994 or within five years of the expiration of the Income year in which the said amount was obtained, whichever was later, the whole amount of the loan or advance or a portion thereof remaining un-paid after the expiration of such date or paid, as the case would be, was deemed to be income of assessee in the income year immediately next following or any subsequent year in which such finding was made. On the one hand sub-section (18A) was made effective from 1.7.92, on the other hand the Circulars No. 3, 11 and 12 of 1992 and 1 of 1993 were issued.‖ Unique Enterprises, Lahore v. ACIT and 2 others [(1995) 71 Tax 139 (H.C.Lah)] ―The circulars issued by CBR are of binding nature on the functionaries of Income Tax Department; and deviation from the instructions contained in the circulars is nothing but misconduct.‖ 39.

CBR‟s beneficial circulars relating to section 12(18) are held not ultra vires

Utman Ghee Industries v. CIT [2002] 85 TAX 354 (H.C.Pesh.) = 2002 PTD 63 = PTCL 2002 CL. 146 ―The said Circulars could not be declared as ultra vires of section 12(18) of the Ordinance for the following reasons: Firstly, through these Circulars, the genuine transactions of the assessees which were verifiable and identifiable were given protection. Secondly, these Circulars were benevolent and beneficial to the assessee. The basic and first principle construing a beneficial legislation is to interpret its provision to advance purpose rather than thwart or subvert it by specious sophistry. (1992 SCMR 2166). Thirdly, the above mentioned circulars were issued to tone down the rigours of the law and to ensure a fair

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enforcement of the provisions of section 12(18) of the Ordinance. The said Circulars were issued for purpose of just, proper and efficient management of the work of assessment in the public interest and for proper administration of fiscal law so that no undue hardship could be cause to the assessee and the fiscal laws be correctly applied. (1999 PTD 3752). Fourthly, certain relaxations were given to the assessees in order to promote justice and it is also a recognised principle of law that a Court has to take into consideration the object for which a particular Circular was made and the mischief intended to suppress and if two possible constructions of a provision of such an instrument are possible, one which favours the class of persons for whose benefit the Circular has been made would be preferred. (1998 SCMR 440). Fifthly, the legislation itself had felt that insertion of sub-section (18) in section 12 of the Ordinance had created headship and difficulties, therefore, the said provisions were held in abeyance vide Notification SRO No. 838(I)/87 dated 26.10.87 till 30.6.90. Moreover, the pith and substance of the four Circulars was later on incorporated in law in the shape of subsection (18A) which remained on statute book till 1996. The loans or advance taken by any means if not paid within five years were made taxable after the expiry of five years, which means that the Federal Government had itself accepted the validity of the four Circulars issued by the CBR. Sixthly, the said Circulars had been validly issued in exercise of powers under section 165 of the Ordinance and were binding on all the Officers and persons employed in execution of the Ordinance under section 8 ibid. (1992 SCMR 250).

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Seventhly, through the above mentioned Circulars, neither interpretation of any Section of law was made by CBR nor the same could be made in view of the judgment of the August Supreme Court of Pakistan in Messrs Central Insurance Co. and others vs. The Central Board of Revenue, Islamabad and others (1993 SCMR 1232). Eighthly, the above quoted four Circulars were neither against the spirit of section 12(18) of the Ordinance nor the CBR had deviated from the provisions of the Ordinance by issuing the said Circulars.‖ 40.

Courts cannot question the wisdom of legislature in enacting provision of any law

Mian Anwar-ul-Haq Ramay v. Federation of Pakistan [(1993) 67 Tax 195 (H.C.Lah)] ―The law is firmly settled that it is not for the courts to question the wisdom of legislature in enacting provision of any law in any manner and their judicial function in this regard primarily is to confine to the interpretation of the law as it is. Under Article 199 of the Constitution under which this petition has been made, this court is vested with the jurisdiction to declare any law or any custom or usage having the force of law as void to the extent so far it is inconsistent with the rights conferred by chapter I of Part II of the Constitution known as the fundamental rights beyond which the jurisdiction of this court to examine the vires of law in our view does not extend. Learned counsel for the petitioner has not been able to point out any provision of the Constitution by which the legislature is required to lay down guidelines in the law to regulate the exercise of power which it confers on the executive. In the absence of any provision, it is difficult to hold that this court has the jurisdiction to declare any provision of law as ultra vires of the Constitution on that score. Before parting with the discussion on this aspect of the case we may observe that we should not be understood to have held that the absence of any guide-lines for exercise of

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discretionary power conferred under the statute gives to the authority concerned a free hand to exercise the same arbitrarily and whimsically. We may state here that in our considered view to which no exception can be taken the authority is required to exercise power reasonably, justly and fairly on the basis of relevant consideration having legal nexus with the object of law, with wisdom and maturity keeping in view above all the interest of the state. In our opinion these principles shall be read in the statute as guiding principles to regulate the exercise of powers conferred on the functionaries of the state and they are of so fundamental in character that they need not be expressly provided in the statute itself.‖ 41.

Presumption of irregularity with regard to official act cannot be challenge on vague allegation of mala fide

Muhammad Hanif Monnoo v. ITO, Central Circle 1, Lahore [1984] 50 TAX 37 (H.C.Lah.) = PLJ 1984 Lah. 423 ―It is well settled that there is to start with, a presumption is rebutted, the action cannot be challenged upon mere vague allegations of mala fide. The petitioner has failed to rebut the presumption of regularity attached to the impugned proceedings.‖ Abdul Rashid (c/o Union Traders Gole Cloth, Lyallpur) v. Special Judge (Central), Lahore and another [1976] 34 TAX 199 (H.C.Lah.) ―The first question is whether there is substance in the argument that the Central Board of Revenue was required to be constituted again in Pakistan u/s 9 of the Governor General‘s Order 20. Before determining this question I may observe that in my view the argument of Mr. Ilyas Khan that the point about the necessity of the constitution of the Board of Revenue should have been taken and urged before the Income Tax Authorities is not without force. The Central Board of Revenue exercises functions under various enactments e.g. The Income Tax Act, the Central Excise & Salt Act, Wealth Tax Act, Gift Tax Act, Sales Tax Act, Customs Act and Estate Duty Act. It is the first authority described in section 5 of the Income Tax Act, other

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authorities being the CIT, Income Tax Officers etc. Since the year 1962 and by virtue of the provisions of Ordinance 31 of 1962 which amended the Income Tax, Act, the Central Board of Revenue is also the appointing authority of other Income Tax authorities. An attack on the existence of the Board of Revenue by the petitioner who was assessee after 1962 is an attack on the vires of the appointment of the other Income Tax authorities and ultimately on the legality of the assessment. The challenge to the constitution of Board of Revenue should have been thrown at the time of assessment, otherwise it would lead to an anomalous situation in so far as the assessment is treated as legal while the approval for prosecution on the basis of that assessment is attacked as a nullity. The dictum in Ghulam Mohyud-Din vs. Chief Settlement Commissioner PLD 1964 S.C. 829 (840) applies to this case and the writ ought to be refused. The other point that no member of the Central Board of Revenue in Pakistan has been or can be treated to have been appointed by the competent authority i.e. the Central Government, cannot be allowed to be taken since this point was neither raised before the Income Tax authorities nor before the Special Judge nor in the writ petition. This objection is also belated. I agree with the argument of Mr. Ilyas Khan that his point raises a question in the nature of quo warranto even in regard to existing members who would be necessary parties to this petition. It falls within sub-clause (ii) of clause (b) of subArticle 1 of Article 199 which authorises the High Court to require a person within its territorial jurisdiction holding or purporting to hold a public office to show under what authority of law he claims to hold that office. These words clearly make the person holding office a necessary party to the writ petition and in the absence of such party the petition cannot be treated to be properly constituted. The impleading of Central Board of Revenue through its Chairman cannot cure this defect.‖ 42.

A question not raised before the Appellate Tribunal cannot be raised before the High Court

Modern Silk Mills Ltd. Lahore v. CIT, Lahore

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[(1979) 39 Tax 14 (H.C.Lah.)] ―Now it is well settled principle of law that unless a question has been raised before the Appellate Tribunal or arises out of its order the same cannot be raised for the first time before the High Court.‖ 43.

Provisions of the Income Tax Act can be challenged on Constitutional grounds

Highway Petroleum Service (Regd.) Lahore v. Islamic Republic of Pakistan & another [(1977) 36 Tax 8 (H.C.Lah.) = 1977 PTD 183 = PLD 1977 Lah. 797] ―The learned counsel for the petitioners have submitted that there is no right of appeal against the impugned orders and that a revision or reference is no right of a litigant. Further, that as the impugned provisions are being challenged on constitutional grounds, inspite of alternate remedies, the petitioners have a right to challenge the same by means of a petition under the constitution and that, lastly, since the questions raised in these petitions relate to the challenge of the provisions in the Income Tax Act itself, to declare the same to be invalid. It is submitted that a court interpreting the constitution finally is an appropriate forum to raise the questions. The submission is obviously sound and is sustained.‖ 44.

A legal plea going to the roots of the case was allowed to be raised at belated stage

Chief Secretary, Govt. of Punjab, Lahore v. CIT, Lahore [(1976) 33 Tax 176 (H.C.Lah.) = PLD 1976 Lah. 258] ―It was, therefore, alleged in this application that under Article 184(1) of the Constitution of Islamic Republic of Pakistan, 1973 only the Supreme Court has the exclusive jurisdiction to entertain this dispute between the Central Government and the Provincial Government .... This was an altogether new plea which was for the first time raised in this court belatedly after the conclusion of the arguments. But as it was a purely legal plea gong to the root of the case we allowed

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the permission to the respondent to raise the objection for whatever its worth, even at this late stage.‖ [2003] 87 TAX 165 (Trib.) ―The additional grounds through which the issue relating to the jurisdiction of the assessing officer regarding framing of assessment is raised being purely of legal nature are admitted for adjudication. It is a settled principle of law that an issue purely of legal nature where no further enquiry or investigation of facts is required can be raised at the appellate stage even though not agitated before the lower forums.‖ 45.

Courts have inherent jurisdiction in the interest of orderly dispensation of justice

CIT, Rawalpindi v. Wolf Gang Matzke [(1975) 32 Tax 176 (H.C.Pesh.)] ―It is common knowledge, that a statute normally does not provide for each and every conceivable eventuality and in respect of some unforeseen events arising in a case for which it has made no provision, the courts would be deemed to have inherent jurisdiction in the interest of orderly dispensation of justice.‖ 46.

Courts have no concern with disputable questions of distributive justice

Emperor v. Probhat Chandra Barua [1 ITC 284 (Calcutta)] ―In construing a fiscal statute the Court has no concern with disputable question of distributive justice - this upon the plainest ground, that by very strong presumption the legislature has not intended that questions of equality or fairness in taxation should be left to any decision save its own‖.

General rules in respect of writ petition 47.

Petition challenging maintainable

order

u/s

53

Chairman, Central Board of Revenue v. Pak-Saudi Fertilizer Ltd. [2001] 83 TAX 119 (S.C.Pak.)

held

to

be

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―The petition under Article 199 of the Constitution was maintainable and the learned members of Division Bench of Sindh High Court rightly held so.‖ 48.

Conditions explained

for

maintainability

of

writ

petitions

CIT, Karachi & other v. N.V. Philip‟s Gloelampenfabriaken, Karachi [1993] 68 TAX 35 (S.C.Pak.) ―Assessee filed return for assessment year 1980-81 and claimed bad debt which was written off as a whole. Income Tax Officer as well as CIT,(A) disallowed the same. Tribunal allowed the bad debt. Four years after Income Tax Officer issued notice for re-opening the case. Assessee challenged the validity of the notice through Constitutional Petition before the High Court and also filed a fresh return before the Income Tax Officer. High Court permitted the Income Tax Officer to finalise the assessment and Income Tax Officer passed a fresh assessment order which was challenged before CIT(A) but without success. Appeal filed by the assessee before Income Tax Appellate Tribunal was pending Constitutional petition came up for hearing and High Court declared the notice without lawful authority and of no legal effect. Whether petition liable to be dismissed as notice served on the assessee and the consequential order of assessment passed by the Income Tax Officer having been merged in the appellate order passed by the CIT,(A) which was not challenged by the assessee before the High Court. Assessee opted the remedies provided under the statute which was pending till the hearing of Constitutional petition before High Court. Whether High Court can not exercise its constitutional jurisdiction in the mid of the proceedings in the absence of any compelling and justifiable reason.‖ 49.

The assessee has other options like filing a complaint with Ombudsman

Hafiz Mohammad Arif Dar v. ITO [(1989) 60 Tax 52 (S.C.Pak) = PLD 1989 SC 109]

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―In case the petitioner has not allowed any relief by the departmental authorities (despite the observations by the Supreme Court) the petitioner would have no immediate remedy at all against the highhandedness of the department. In such circumstances amongst other remedies, he can file a complaint/grievance application before the Federal Ombudsman, who can provide effective redress.‖ 50.

Order passed without giving opportunity of being heard is not sustainable

Muhammad Khan v. Shamsuddin and others [1975] 31 TAX 94 (S.C.Pak.) ―On merit the point raised in the writ petition falls within the principle laid down by this Court, in the case of Dina Sohrab Katrak [PTD (1959) S.C. 45]. The order of the Provincial Government setting aside the sale without hearing the appellant cannot be upheld. As a result the appeal is allowed. The judgment of the High Court is set aside and it is declared that the order dated the 5th July 1955, passed by the Government of Sindh, was passed without lawful authority. Respondent No. 4, the Province of West Pakistan, is directed to dispose of the applications for setting aside the sale filed by respondent Nos. 1 to 3 after notice to the appellant. Parties are directed to bear their own costs.‖ 51.

No time limitation for illegal orders

Pakistan Electric Fittings Manufacturing Co. Ltd. through Directors v. CIT, and 2 others [2000] 82 TAX 135 (H.C.Lah.) ―The principle of law that orders in contravention of mandatory provisions of law are a nullity and no limitation runs against such orders seems well settled; in this respect reference is invited to Khawaja Muhammad vs. Marduman Babar Kahol 1987 SCMR 1543; also see Ali Muhammad vs. Hussain Bakhsh PLD 1976 SC 37.‖ 52.

Remedies not availed disentitles the party from relief if constitutional petition also fails

334 Principles of Income Tax Law

Islamuddin and 3 others v. The Income Tax Officer and 4 others [2000 PTD 306] ―It is also an established principle of law that when the petitioner failed to avail himself of the remedies available to him under any statute he would have no locus standi to file a Constitutional petition in the High Court to challenge the legality and validity of the orders.‖ 53.

Writ cannot be converted into appeal u/s 136

Abdul Hameed Awan v. Tax Recovery Officer-04 Coys Zone, Income Tax Building at Rawalpindi and 3 others [1997] 76 TAX 238 (H.C.Lah.) = 1998 PCTLR 440 = 1998 PTD 874 ―The learned counsel for the petitioner in reply has submitted that this writ petition be converted into a reference u/s 136 of the Income Tax Ordinance, 1979. I am afraid this cannot be done firstly because the last order passed by the Income Tax Appellate Tribunal on review petition was made on 14.11.1993 and the reference was required to be filed within 90 days of the date of original decision of the Tribunal which was rendered on 3.4.1991. However, instead of availing a proper remedy u/s 136 of the Income Tax Ordinance, the petitioner opted to move a miscellaneous application against the decision of the Appellate Tribunal. This would hardly justify the conversion of this writ petition to a reference which has now been patently and hopelessly time-barred. Even otherwise all the factual and legal issues have been thoroughly thrashed at the level of Income Tax Appellate Tribunal and the learned counsel for the petitioner has not been able to show me any material from which a question of law may be framed u/s 136 of the Income Tax Ordinance. Needless to say that the reference in the High Court is to be dealt with by a Division Bench if at all it is to be preferred.‖ 54.

Where a finding of fact not based on evidence or where a material evidence ignored, reference u/s 136 of repealed Ordinance, 1979 is maintainable

Mst. Fazal Be and 6 others v. CIT,

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[1996] 74 TAX 141 (H.C.AJ&K) ―From the perusal of the authority quoted herein before it follows that a finding of fact not based on evidence or where a material evidence is ignored a reference to the High Court will be maintainable.‖ 55.

Interim relief in the form of release of goods on furnishing of indemnity bond held reasonable

Tharparkar Sugar Mills Ltd. v. Federation of Pakistan through Secretary, Revenue Division and Chairman, CBR, Islamabad and another [1996] 73 TAX 215 (H.C.Kar.) “Per Amanullah Abbasi, J. - The arguments and contentions of the petitioner and respondents have been examined. According to respondents SRO 484(I)/92 allows exemption from Customs duty and Sales Tax to machinery imported during the period commencing from 1st December 1990 and ending on 30.6.95. The value and rate is determined as on the date the manifest is delivered and bill of entry is filed. This SRO cannot be made applicable to the goods which arrived after 30.6.1995. The goods of petitioner arrived on 30.6.1995 and manifest was filed after 30.6.1995 after the expiry of SRO 484(1)192. Accordingly it can be said that benefits of SRO 484(I)/92 were available in all cases where import General Manifest was filed prior to 30.6.1995 and bill of entry was also submitted before this date. There is_ a dispute of few days only and according to petitioner delay was caused because of political victimization otherwise he was entitled to benefits of SRO 484(I)/92. The counter affidavit filed by Mr. Ahmed Mujtaba Memon Asstt Collector Customs mentions that duty is chargeable on standard rate of duty/taxes. It is stated that vessel arrived on 30.6.1995 but it has not been clarified in the affidavit as to how much amount is payable by petitioner. The petitioner wants the machinery for installation as allowed and the respondents want duty/taxes. The amount is not mentioned. The learned advocate for the petitioner has submitted that vested rights were created because all contracts were prior to

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30.6.1995. In similar cases to Hon‘ble Supreme Court and Lahore High Court following the order of Supreme Court in Petition No. 695-L/1995 dated 11.2.1996 we order that the machinery in question be released to the petitioner on furnishing of indemnity bond to the satisfaction of Collector of Customs, Karachi. The petition may be fixed for regular hearing within three months. Per Dr. Ghous Muhammad, J. - In view of these facts as also because of the reason that the Government of Pakistan, Finance Division, (Investment Wing) in 2 letters attached as Annexures C-1 and E-3 has confirmed that any delay is not attributable to the sponsors/petitioners and that the petitioner‘s project has been politically victimized, I have come to the conclusion that the petitioner has a prima facie case which warrants further probe and analysis and it would be very unreasonable to deny interim relief in the form of release of goods till disposal of the petition, especially because the petition already stands admitted on this score vide admission orders of any other bench dated 17.12.1995.‖ 56.

Constitutional jurisdiction cannot be invoked to enforce the rights which were not in existence at the time when the offending enactments were passed

Metro Shipbreakers and another v. Pakistan through the Secretary, Ministry of Finance, Islamabad, etc. [1996] 73 TAX 85 (H.C.Queeta) ―In the light of what has been discussed above, It can be safely inferred that the import fee was legally charged from the petitioner at the relevant time when Letter of Credit was opened in view of the provisions as contained in Import Fee Order, 1993, which have not been challenged. Since the facts of C.P. No. 261 of 1994 C.P. No. 262 of 1994, and C.P. No. 193 of 1994 are common and law points involved are also similar and indentical. therefore, all the petitions are disposed of by this common judgment and keeping in view the above discussion being devoid of force merit dismissal.‖

337 Powers Of Courts/Administrative Jurisdiction 57.

Writs disposed of by consent of parties to avoid delay in finalisation of cases as per law

Saleem and Co. v. Income Tax Authorities [1993] 68 TAX 173 (H.C.Lah.) ―As against the arguments addressed by the learned counsel for the petitioners, Mr. Muhammad Ilyas Khan, Advocate learned counsel for the respondents has contended that in Writ No. 404 of 1990 case of the petitioner Nos.1 and 2 has been decided so far whereas the case of other petitioners is still pending adjudication with respondent No. 1 and, therefore, in order to avoid the piecemeal decision of the matter in issue, the respondents have no objection to the acceptance of both the writ petitions and setting aside of the impugned order and remission of the cases of the petitioners to respondent No.1 for decision thereof in accordance with law. Learned counsel for the petitioners has accepted the offer made by the learned counsel for the respondents and has stated that in view of the apprehension of the petitioners that decision of the cases shall be delayed, the period of one month may be fixed for decision of the cases of all the petitioners. Learned counsel for the respondents has no objection to the fixation of the period of one month for decision of the cases. Resultantly, we accept both the writ petitions, set aside the impugned orders and remit the cases of the petitioners which have been decided and direct that their cases as well as the cases of other petitioners which have not been decided as yet and which are pending adjudication shall be decided within a period of one month w.e.f. today. The assessment of income tax as against the petitioners shall not be finalised till disposal of the cases by respondent No. 1. It is observed, however that in case the petitioners are not satisfied after the matter is finally decided by the respondents, they shall be at liberty to move this Court again.‖ 58.

Respondent‟s contention that stay shall not be granted unless the prescribed Law Officer has been given notice of the application and an opportunity of being heard. Whether argument was without merit - Held yes

338 Principles of Income Tax Law

Eastern Poutry Services v. Govt. of Pakistan and others [1993] 68 TAX 171 (H.C.Kar.) ―He submits that stay cannot be granted in view of the provisions of Article 199(4) of the Constitution. The argument is without merit. Article 199(4) provides that stay shall not be granted unless the prescribed Law Officer has been given notice of the application and an opportunity of being heard. Such notice and opportunity have been given in this ease.‖ 59.

Extra-ordinary jurisdiction of the High Court could not be invoked without first availing the remedies available under the relevant law

Muhammad Ismail v. Income Tax Officer, Mirpur and 2 others [1992] 66 TAX 226 (H.C.AJ&K) ―Even a right of appeal has been given before the Supreme Court. Any person who is affected by the order of any authority, first of all, has to seek remedy under the relevant law on the subject. The extraordinary jurisdiction of this Court could be invoked only in cases where efficacious and alternate remedy is not available. No party can be allowed to avail writ jurisdiction without first availing the remedies available to it under the relevant law. As said in the early part of the order, the right of appeal u/s 129 was available against the order of Income Tax Officer dated 20.9.1989. The petitioner had not availed this remedy. Therefore, under these circumstances, the order of assessment passed by the Income Tax Officer had attained finality.‖ 60.

Stay granted could not be given beyond six months

Siddique Trust v. Income Tax Officer and another [(1987) 56 Tax 120 (H.C.Kar.)] ―Operation of notices u/ss 56 & 61. Stay granted for extension of short period could be given beyond six months cannot be held.‖ 61.

Exercise of jurisdiction of high Court is confined only to consideration whether authority had acted with or without jurisdiction

339 Powers Of Courts/Administrative Jurisdiction

Muhammad Hanif Monnoo v. ITO, Central Circle 1, Lahore [1984] 50 TAX 37 (H.C.Lah.) = PLJ 1984 Lah. 423 ―There is no cavil with the proposition that where the question of jurisdiction of the authority passing the impugned order is raised, the remedy of appeal is not an adequate remedy and in such cases the constitutional jurisdiction can be invoked. The exercise of jurisdiction is, however, confined only to consideration whether the authority had acted with or without jurisdiction. The precedents cited at the Bar by the learned counsel for the petitioner, on closer examination, have been found to be not applicable to the facts of the present case. The scope of interference in this case, under Articles 9 of the Provisional Constitution order is, therefore, limited to the inquiry, whether the Income Tax Officer had definite information on the basis of material on record or he had already obtained previous approval of the Inspecting Assistant Commissioner, If the answer in the affirmative, this Court will stay its hand and will not substitute its belief for that of the Income Tax Officer. If the answer is in the negative, an appropriate writ may be granted.‖ 62.

Where alternate and equally efficacious remedy is available, the petitioner is not entitled to invoke extraordinary jurisdiction of the High Court by way of writ petition

Julian Hoshang Dinshaw Trust v. Income Tax Officer, Circle XVIII, South Zone, Karachi and two others [1981] 43 TAX 92 (H.C.Kar.) = 1981 PTD 53 ―The petitions are not competent under Article 199 of the Constitution as the petitioners have other alternate and equally efficacious remedy, the learned counsel for the respondents is on much firmer ground. In the first two petitions the petitioners have still an opportunity to raise their plea before the Income Tax Officer and in case of an adverse decision file an appeal before the Appellate Tribunal and eventually the matter can come up before the High Court in a reference u/s 136 of the Income Tax Ordinance.‖

340 Principles of Income Tax Law Judicial Review : OVERRULED by the Supreme Court of Pakistan in (1992) 65 Tax 102 = 1992 SCMR 250 = PTCL 1992 CL 181. 63.

In writ court cannot assume jurisdiction of income tax department

Singer Sewing Machine Co. v. CIT, and others [1964] 9 TAX 273 (H.C.Kar.) = 1964 PTD 554 ―Exercise of extraordinary jurisdiction is not called for even where relief ought to be granted on ascertainment of facts as High Court cannot assume functions of Income Tax Authorities.‖ Judicial Review : OVERRULED BY - The Supreme Court of Pakistan in [1965] 11 TAX 364 (S.C.Pak). Their Lordships observed: “. . . That such a proceeding in revision would be a judicial proceeding and not merely departmental affair. The powers of revision has to be exercised, according to judicial principles. The provision of section 33A(2) apparently envisages a remedy alternative to a regular appeal from assessment. In the circumstances, it became the duty of the Commissioner to grant relief if the entitlement was clear. The learned Commissioner apparently misdirected himself in holding that he had no power to interfere in the matter.” “. . . All these factors go to establish the bona fides of the assessee-company in claiming that the assessment in question were not appealed against, owing to misapprehension of the correct position. The High Court has observed, in this connection, that ignorance of law was no excuse. That may be conceded, but section 33, subsection (20) provided on alternative judicial remedy to the assessee, of which it availed itself and the relief was denied to it, on an erroneous view of law by the Commissioner. It must be found as a result of the above discussion, that the Commissioner declined to exercise his undoubled jurisdiction in the case, on a ground which was legally not supportable. This fact calls for correction of his order. We allow the appeal and quash the order passed by the CIT, in this case.” 64.

Where there has been suppression of material/acts, writ of prohibition cannot be issued

U.C. Rekhi v. First Income Tax Officer

341 Powers Of Courts/Administrative Jurisdiction

[1950] 18 ITR 618 (Punj.) ―A writ of prohibition is issued only where there is something done in the absence of jurisdiction or in excess of jurisdiction. Thus, where there had been suppression of material facts in the affidavit which was filed by the petitioner, the court would refuse a writ of prohibition without going into the merits of the case.‖

Writs when held to be maintainable 65.

Writs held maintainable and exhaustion being no bar

Pakistan Oxygen Ltd, Karachi v. CBR, Islamabad and 2 others [2003 88 TAX 108 (H.C.Kar.) = 2003 PTD 1301 ―A perusal of Article 199 of the Constitution of Islamic Republic of Pakistan shows that an appropriate writ can be issued if the High Court is satisfied that no other adequate remedy is provided by law.‖ Attock Cement Pakistan Ltd. v. Collector of Customs, Collectorate of Customs and Central Excise, Quetta and 4 others [(1999) 80 Tax 30 (S.C.Pak.) = 1999 PTD 1892] ―We have noticed that when this controversy was being agitated in the Balochistan High Court and at the leave granting stage, no such Tribunal had been constituted as envisaged by section 46 of the Act. On the other hand, instead of a Tribunal, a Member of the Central Board of Revenue was performing these functions. In the background of these circumstances, it cannot be said that the appellant had the other adequate remedy. The view point of the Central Board of Revenue had become crystal clear when having opined that the accessories and spare parts were not the goods and the deduction of input tax could be made, yet the Central Board of Revenue in the same breath observed that in the past, such deduction had been made, but that was illegal. In these circumstances, how could a member in the Central Board of Revenue adjudicate upon the controversy. Thus, we are of the view that remedy by way of an appeal before the Member, Central Board of Revenue was not an adequate remedy as envisaged under Article

342 Principles of Income Tax Law

199 of the Constitution and, therefore, in our view the writ petition was maintainable.‖ Gatron (Industries) Ltd. v. Government of Pakistan and others [PTCL 1999 CL. 359 = 1999 SCMR 1072 (S.C.Pak.)] ―The rule about invoking the constitution jurisdiction only after exhausting all other remedies, is a rule of convenience and discretion by which the Court regulates its proceedings and it is not a rule of law affecting the jurisdiction. A constitution petition is competent if an order is passed by a Court or Authority by exceeding its jurisdiction even if the remedy of appeal/revision against such order is available, depending upon the facts and circumstances of each case.‖ S.N.H. Industries (Pvt.) Ltd. v. Income Tax Department and another [(2004) 89 TAX 252 (H.C. Kar.) = 2004 PTD 330 (H.C. Kar.)] ―In view of the pronouncements made by the Supreme court in a large number of cases to the effect that if the order or action complained of was so patently illegal, void or wanting in jurisdiction, that any further recourse to alternative remedy may only be counter productive and by invoking of Article 199 the mischief could forthwith be nipped in the bud then in such matters existence of alternative remedy would not bar the exercise of constitutional jurisdiction by this Court. Relief in writ/Constitutional jurisdiction would be available to a party where impugned order was without lawful authority, prejudicial, unjust and mala fide. In view of the discussions, the objection raised by Mr. Aqeel Ahmed Abbasi relative to Constitutional petition without recourse having been made by the petitioner to the remedies available under the repealed Ordinance is without any substance and is overruled.‖ Gulistan Khan Bhittani v. Government of Pakistan and Others [(2004) 89 TAX 70 (H.C. Pesh.)] ―Before going into the merits of the objections of the petitioner, it would be appropriate here to dispose of a

343 Powers Of Courts/Administrative Jurisdiction

preliminary objection raised by respondents Nos. 3 and 4. This objection is that as adequate remedies under the Ordinance and the Act are available to the petitioner and before exhausting the same, the present writ petition is not maintainable. In support of this objection, the learned counsel for the respondents placed reliance on 1993 SCMR 1108. However, this argument is without force. It is correct that if adequate remedies would be available to the petitioner either under the Ordinance or under the Act, the High Court, in its discretionary powers, under Article 199 of the Constitution would not interfere but if it is proved that consciously, taking into account all materials available on the record, then the issuance of the impugned notices would amount to illegality and without waiting for the finalization of the assessment, there would be no bar to the filing of writ petition, availing the discretionary, equitable and efficacious powers of the High Court under Article 199 of the Constitution. In this connection, reference could be made to (i) 2001 SCMR 777 and (ii) 2002 PTD 679.‖ Pak-Saudi Fertilizer Ltd. through Managing Director v. Federation of Pakistan through Secretary Finance, Islamabad and 4 others [(2000) 81 TAX 119 (H.C.Kar.) = 1999 PTD 4061] ―It is settled law that the availability of alternate remedy would be no bar to the maintainability of constitutional petitions where impugned orders are completely without jurisdiction, mala fide, unlawful and of no legal effect. The latest pronouncement of the Honourable Supreme Court in this regard in Gatron Industries Ltd. vs. Government of Pakistan, 1999 SCMR 1072, which reiterates this principle yet again, and which was earlier echoed by this Court in Kamran Industries vs. Collectors of Customs PLD 1996 Kar. 68. When it is amply demonstrated that the impugned order is completely without jurisdiction, it would be a travesty of justice, as in the present circumstances, to decline relief as the impugned exercise of power goes to the very root of the jurisdiction.‖ Tapal Energy Ltd. v. Federation of Pakistan [1999 PTD 4041 (H.C.Kar.)]

344 Principles of Income Tax Law

―We are of the view that the aforesaid Constitutional petitions are maintainable notwithstanding the fact that the adequate and alternate remedy by way of first and second appeal......the pronouncement made in the case of M/s Ahram Builders Ltd. vs. Income Tax Appellate Tribunal (1993 SCMR 29) to the following effect would be attracted: The tendency to bypass the remedy provided under the relevant statute and to press into service the constitutional jurisdiction of the High Court has developed. However, in certain cases invoking constitutional jurisdiction of the High Court instead of availing remedy provided for under the statute may be justified, for example when the impugned order/action is palpably without jurisdiction and/a mala fide. To force an aggrieved person in such a case to approach the forum provided under the relevant statute may not be just and proper.‖ Kawther Grain (Pvt.) Ltd. v. DCIT, Gujranwala [(1999) 80 Tax 262 (H.C.Lah.)] ―As far as the maintainability is concerned, I will agree that the assessment order in question on the face of it is a clear case of misapplication of law. Reliance of the learned counsel in this regard re: M/s. Jullien Hoshanj Dinshaw Trust (supra) is relevant and pertinent. I will also agree that the alternate remedy in the facts and circumstances of the case is only illusory in nature. In such situation the apex Court in re: Collector of Customs vs. S.M. Ahmed & Company (supra) approved the exercise of constitutional jurisdiction by this Court. Learned counsel is correct in pointing out that the Central Board of Revenue having adopted the stated interpretation of the provisions in question no officer in the hierarchy in all probability would show indulgence for the petitioner.‖ Tri Star Industries (Pvt.) Ltd. & 8 others v. CIT, Companies-I, Karachi & 5 others [(1999) 79 Tax 255 (H.C.Kar.) = 1998 PTD 3923]

345 Powers Of Courts/Administrative Jurisdiction

―Keeping in view the allegations of the plaintiffs as levelled in the plaint and for the facts and law stated hereinabove, I am of the considered view that in the peculiar circumstances of this suit, the jurisdiction of this Court is not barred. For this view, I am fortified by the observations made in the case of Al-Ahram Builders (supra), also reported in (1993 SCMR 29) where at page 38/39 it was held that in certain cases invoking of Constitutional jurisdiction of the High Court instead of availing of remedy provided for under the relevant statute may be justified, for example when the impugned order/action is palpably without jurisdiction and/or mala fide. To force an aggrieved person in such a case to approach the forum provided under the relevant statute may not be just and proper.‖ Mrs. Tahmina Daultana v. Hafiz Naeem-ud-Din [(1997) 75 Tax 261 (H.C.Lah.) = 1997 PTD 821] ―I have given my anxious consideration to the arguments addressed at the Bar. No doubt the petitioner directly approached this Court without availing the rights of appeal, revision and reference etc. as provided under Chapter VI of the Act, the present writ petition was still maintainable as in such circumstances where the efficacious and speedy remedy was not available the writ petitions are maintainable. Reliance is placed on Premier Cloth Mills vs. Sales Tax Officer (1974) 29 Tax 199 (S.C.Pak) = PLD 1972 SC 257 and Nagina Silk Mills Ltd. vs. ITO and another (1963) 7 Tax 442 (S.C.Pak) = PLD 1963 SC 322. It is very clear from the impugned notice that the respondent had under Tax Recovery Rules framed under subsection (5) of section 93 of Income Tax Ordinance, 1979, further proceeded to direct that the petitioner shall not sell or deal with any property belonging to her except with the permission in writing to that effect granted by the Tax Recovery Officer. It is clear from the contents of the notice impugned that prejudice in fact was caused to the petitioner and a legal right to appeal which was available to her and which was to be notified to her in Form-C, format of notice u/s 30 of the Wealth Tax Act, was infringed. The provisions of section 45A of Wealth Tax

346 Principles of Income Tax Law

Act, 1963 do not cure the irregularity or omission on the part of the respondent in not issuing the notice in the format prescribed under Wealth Tax Act, 1963, resulting in substantial prejudice to the petitioner. In view of the above the notices issued to the petitioner u/s 85 of Income Tax Ordinance, 1979 on 29-4-1995 for payment of tax assessment at Rs. 1,10,301 for the year 1993-94 and 1,02,138 for the year 1994-95 and notice u/s 93(2) of the said Ordinance for payment of assessed amount u/s 93(2) thereof are declared to be without lawful authority and without any effect against the petitioner.‖ Dawood Hercules Chemical Ltd. v. Collector of Sales Tax Lahore [(1997) 76 Tax 242 (H.C.Lah)] ―The ratio, deduced from the aforesaid discussion, is that doctrine of exhaustion embodied in Article 199 of the Constitution (1973) is not an absolute bar to exercise of jurisdiction under Article 199 of Constitution. This rule is regulatory in nature and ordinarily this court insists that aggrieved person must in the first instance, avail of the statutory remedies available to him and invoke the constitutional jurisdiction of this court after undertaking that exercise. However, this rule is not absolute and if this court comes to conclusion that assailed order/action/ proceedings is/are wholly without jurisdiction or in excess of jurisdiction or is/are manifestly unjust and oppressive, then this court has power to come to rescue of aggrieved party and keep functionaries of the state within defined sphere of their powers.‖ Basharat Ali & Other v. Deputy Superintendent C&E and Sales Tax [(1995) 72 Tax 218 (H.C.Lah.)] ―No doubt the remedy of appeal and revision was provided under Sales Tax Act, 1990 but whether the same was efficacious also is to be seen in the circumstances of the writ petitions. I am of the view that the remedy provided under the law was not efficacious and speedy so far as the carriers were

347 Powers Of Courts/Administrative Jurisdiction

concerned. The efficacy would be lost in the corridors of departmental authority and placing reliance on Premier Cloth Mills vs. Sales Tax Officer (1974) 29 Tax 199 (S.C.Pak) = (1972 SCMR 257), Salahuddin vs. Friend Sugar Mills (PLD 1975 SC 244) and Nagina Silk Mills vs. ITO etc. (1963) 7 Tax 442 (S.C.Pak) = (PLD 1963 SC 322), it is, therefore, held that the writ petitions are maintainable.‖ Gulistan Textile Ltd. v. CBR etc. [(1994) 70 Tax 272 (H.C.Kar)] ―While it is true that where alternative remedy is provided by a statute those remedies should first be resorted to before seeking relief under Article 199 of the Constitution, in cases where an action is alleged to be mala fide or is obviously without jurisdiction or where vires of legislation is in question, the petition under Article 199 would be maintainable.‖ Gulistan Textile Mills Ltd. v. CBR etc. [(1994) 70 Tax 272 (H.C.Kar.)] ―Writ challenging action alleged to be mala fide or without jurisdiction or vires of legislation called into question is maintainable though appeal is pending before the Income Tax Appellate Tribunal.‖ Republic Motors Ltd. v. ITO & others [(1990) 62 Tax 8 (H.C.Kar.) = 1990 PTD 889] ―....where the action of any authority is challenged on the ground of lack of jurisdiction, the aggrieved party is entitled to invoke constitutional jurisdiction without availing or exhausting the alternate remedy.....As notice u/s 65 was without jurisdiction all subsequent orders passed by the same authorities or other authorities the whole series of such orders will be void. How an appellate order which confirms such an order can become valid.‖

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Car Tunes v. ITO etc. [(1989) 59 Tax 115 (H.C.Kar)] ―.... it is quite clear that existence of another remedy under the relevant law was not considered as a bar for issuance of direction under Article 199 of the Constitution. It cannot be denied that interference of notice can be made by this court in exercise of its constitutional jurisdiction where the proposed action lacks jurisdiction on the part of authority initiating the action or on the basis of admitted facts the action proposed by the authority is shown to be unsustainable in law.‖ Abdul Hamid & Others v. Deputy Collector Excise & Taxation [(1988) 57 Tax 14 (H.C.A.J&K)] ―Ordinarily a person aggrieved of an order of a statutory authority under the Income Tax Ordinance, must avail of himself the remedies provided in the Ordinance and he is not entitled to by pass those remedies and seek civil judicial review of the said, right away when the order was passed by the authority, in exercise of the powers vested in him but if the order sought to be reviewed or quashed, was passed by the said authority without jurisdiction or in exercise of a colourful jurisdiction or the spirit of natural justice was violated or the order was passed without providing an opportunity of being heard to the aggrieved person and it was patently illegal and no adequate remedy was available against it, the relief sought for by way of writ petition, cannot be refused.‖ Hussain Sugar Mills v. Islamic Republic of Pakistan and others [(1981) 44 Tax 59 (H.C.Kar.)] ―It is now a settled law that the jurisdiction of this Court under Article 199 is always available to the party in cases where the impugned orders are without lawful authority, partial, unjust and mala fide even in cases where alternate remedy by way of appeal etc., is available.‖

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Begum Nusrat Bhutto v. ITO Circle V, Rawalpindi [(1980) 42 Tax 59 (H.C.Lah.)] ―The writ is not competent where an appeal is pending or where a reference under the provisions of the Income Tax Act can be made to the High Court. Where there is another adequate and efficacious remedy open to the petitioner, a petition under Article 199 of the Constitution of 1973 would be incompetent unless the legal remedies including remedies as provided in the Income Tax Act are exhausted. But one essential condition for applicability of this rule is that alternative remedy should be adequate and efficacious. Where the question of jurisdiction of the authority passing the impugned order is raised, the remedy of appeal is not as adequate or efficacious as the writ jurisdiction of the High Court and consequently in such cases a petition under Article 199 would be competent.‖ Eruch Maneckji & others v. ITO Central Circle III, Karachi [(1980) 41 Tax 25 (H.C.Kar.) = 1979 PTD 461] ―It is, however, well settled that where a statutory functionary and more so, a fiscal authority, acts in a partial, unjust or oppressive manner the High Court in exercise of writ jurisdiction has the power to grant the relief to the aggrieved party.‖ International Body Builders v. Sales Tax Officer, Lahore [(1980) 41 Tax 60 (H.C.Kar.)] ―It is also now well established that it is a rule of practice and not of law for this court to entertain a petition despite the fact that another remedy was available. The question to be considered in all such cases is whether the remedy available under the law is adequate, efficacious, speedier and shall provide a petitioner with the relief claimed?‖ Kundan Bibi & others v. Walayat Hussain, Controller Estate Duty, Karachi & another [(1971) 23 Tax 295 (H.C.Lah.)] ―It is now well established that if an order is without jurisdiction it can be challenged by means of a writ petition even without exhausting the remedies provided by the statute itself. It

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is now well established that no order imposing a liability can be passed unless the person to be affected is afforded a reasonable opportunity to show cause against the same.‖ 66.

Writ is the appropriate remedy where order is void and without lawful authority

Pakistan Oxygen Ltd, Karachi v. CBR, Islamabad and 2 others [2003 88 TAX 108 (H.C.Kar.) = 2003 PTD 1301 ―.....a full Bench of Hon‘ble Supreme Court in the case of Al-Ahram Builders vs. Income Tax Appellate Tribunal [1992] 66 Tax 147 (S.C.Pak.) = 1992 PTD 1671. Mr. Justice Saleem Akhtar speaking for the Bench held as follows: We may now revert to the question, whether the appellant was justified to file above Constitution Petition against the order of the Tribunal instead of invoking section 136 of the Ordinance for making a reference to the High Court. According to Mr. Rehman Hassan Naqvi a reference under the above Provision would not have been adequate and efficacious remedy as it would have taken years before it could have been heard. The same could be true for a Constitution petition. The tendency to by-pass the remedy provided for under the relevant statute and to press into service constitutional jurisdiction of the High Court has developed lately, which is to be discouraged. However, in certain cases invoking of constitutional jurisdiction of the High Court instead of available of remedy provided for under the relevant statute may be justified, for example when the impugned order/action is palpably without jurisdiction and/or mala fide. To force an aggrieved person in such a case to approach the forum provided under the relevant statute may not be just and proper. A perusal of the above dicta laid down by the Hon‘ble Supreme Court clearly shows that, the tendency to bypass the remedy provided under the relevant statute has been deprecated. The learned counsel for the petitioner is not able to show that,

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the impugned order is palpably without jurisdiction or mala fide.‖ Board of Intermediate & Secondary Education v. CBR, etc. [1999] 79 TAX 28 (H.C.Lah.) ―The instant writ petition has been admitted to regular hearing, therefore, the question of alternative remedy is not available to the respondents. The order on its face is a void order and made without lawful authority. The provision of section 50 and the provision of section 48 of the Income Tax Act on its bare reading explain that it relates to a person who is liable to pay tax in excess of what was required from him. It does not apply to one who is exempted from payment of income tax. Therefore, it was incumbent upon the respondents to see and apply conscious mind to the facts that they had wrongly deducted the income tax on the securities belonging to the petitioner which were admittedly exempted from payment of income tax. When an order is void and made without lawful authority this Court has the jurisdiction to deal with the matters in order to determine the legal rights of the parties. In the instant case admittedly the petitioner on coming to know about the illegal deduction had filed numerous reminders and appeal before the respondents and the limitation of four years as envisaged in section 50 and section 48 of the Income Tax Act was obviously not applicable to the petitioner‘s case. Therefore, it was incumbent upon the respondents to refund the income tax on securities illegally deducted by them. The petitioner was not liable to pay income tax, therefore, was not governed by the provisions of Income Tax Act. He was making hectic efforts but all the respondents were misapplying their mind holding that the claim made by the petitioner is time barred which was not time barred as their original action of illegal deduction of income tax, from tax exempted security, was void ab initio, and arbitrary in nature, was not sustainable in law. Where any authority guided and governed by law exceeds jurisdiction and interferes in any person‘s right by passing a void

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order, this Court in the exercise of extraordinary jurisdiction can determine the rights of such party against a void order and writ jurisdiction is available to such party.‖ 67.

In case of writ, political victimization, petition is maintainable

Tharparkar Sugar Mills Ltd. v. Federation of Pakistan through Secretary, Revenue Division and Chairman, CBR, Islamabad and another [1996] 73 TAX 215 (H.C.Kar.) ―I would now like to deal with the objection of the learned D.A.G. that the petition is pre-mature and warrants dismissal since no bill of entry has been filed and no assessment or evaluation thereon has been made by the Respondents to examine whether in the first place the petitioner is or not entitled to the sought exemption. I am of the view that this objection is not tenable. Article 199 of the Constitution clearly spells out that the High Court in a writ jurisdiction has not only the power to pass a corrective order by curing a defect in an existing order but it also has the power to prohibit a functionary from passing an illegal order. In other words the High Court under Article 199 has squarely the power to pass a prohibitory order of restrain against a threatened action as well. Such interpretation is quite apparent from the language employed in Article 199(1)(a)(i). I am of the view that there is nothing wrong with the course adopted by the petitioner who became aggrieved the moment the subsequent notifications dated 4.10.1995 and 29.10.1995 were issued by the CBR. There is every indication that assessment on the bill of entry is a mere formality as is also apparent by the stance taken in the counter affidavit. I, accordingly hold that the petition is not pre-mature while in doing so I may also point out that nowhere in the counter affidavit has this objection been taken. The stance taken by the learned D.A.G. in this regard is quite at variance with the stance taken in the counter-affidavit wherein it had been categorically stated that the petitioner is not entitled to relief under S.R.O. 484.

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I feel that the courts while granting interim relief in a tax mailer ought to consider that It would be completely against the concept of writ jurisdiction to give such terms to the assessee which would amount to directly or indirectly depositing the demand amount. If the assessee is an identifiable person and also holds assets it can be asked not to sell or dispose of that property whereon some lien or charge can be created or otherwise the assessee can be asked to arrange an insurance guarantee to the satisfaction of Nazir of the Court according to the directions given by the Hon‘ble Supreme Court in Trustees of Port of Karachi vs. Manzoor Sons Corporation (1993 SCMR 69). I have also noticed that in income tax matters since the assessees are associated with the exchequer not only in a one-off transaction the courts have been willing to grant unconditional stays. In the end a lot would depend upon the facts and nature of each individual case and the above are only some guidelines. Although I was inclined to direct release of goods upon submission of an insurance guarantee to the satisfaction of Nazir and/or upon an undertaking of the petitioners that till disposal of the petition the factory shall not be sold, however, in identical petitions the Lahore High Court in W.P. No. 1174/95 and W.P. No. 1221/95 has granted an interim relief by directing the Respondents to release goods in terms of S.R.O. 484 subject to the petitioner furnishing an indemnity bond for the disputed amount, interestingly, in another identical matter the Lahore High Court directed the petitioner to submit a bank guarantee instead of indemnity bond while on appeal in that matter the Supreme Court through order dated 11.2.1996 in Civil Petition No. 695-L/96 modified the order of the Lahore High Court and directed release of goods on furnishing of indemnity bond to the satisfaction of Collector of Customs. It would not be out of point to cite Ashique Hussain vs. The State (PLD 1994 SC 879) wherein a full bench of the Supreme Court has sternly admonished the courts below to follow the decisions of the Supreme Court. Accordingly the respondents are directed to release the goods of the petitioners as per list

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enclosed as annexure F-3 and F-4 (i.e. for goods where contracts are finalized prior to 30.6.1995) of the petition in terms of S.R.O. 484(I)/92 dated 14.5.1992 upon the petitioner submitting an indemnity bond to the satisfaction of the Collector of Customs. In view of the delay occasioned in disposing of the listed interim application we direct the Collector of Customs to comply with the instant order as expeditiously as possible without any further delay.‖ 68.

In cases involving fiscal rights even alternate, adequate and effective remedies available to the petitioner, High Court can step in to prevent excess, if any, committed by public functionaries

GEC Avery (Pvt.) Ltd. v. Government of Pakistan through CBR, Islamabad and 2 Others [1995] 72 TAX 81 (H.C.Kar.) ―The Central Board of Revenue has already issued a circular in this regard indicating a process to be followed by the Assessing Officer while applying the provisions of sub-section (5) of section 80C of the Ordinance. By working backward, a figure of income is to be first determined, which if taxed at normal rates, would have resulted into a tax liability equal to the presumptive tax paid. Any sum in excess of that amount is to be regarded as unexplained investment with reference to the relevant provisions of section 13. Now, in view of such clear instructions issued by the Board in the said Circular, it cannot be understood what useful purpose would have been served if the assessee had first availed the remedies provided in the Ordinance. Many instances can be found where even the Income Tax Appellate Tribunal has been found to endorse the opinion held by the Board of Revenue. Even otherwise, as has been held by the Supreme Court in the case of Julian Hoshang Dinshaw Trust, in cases involving fiscal rights, the superior Courts have always stepped in to prevent excess, if any, committed by public functionaries. We are, therefore, not inclined to consider the preliminary objection. 69.

Writ held maintainable even during the pendency of appeals when demand of taxes was huge and ran into

355 Powers Of Courts/Administrative Jurisdiction millions and the department was pressing hard for its recovery but orders passed were against the law as held earlier by courts, though for different years

Hamdard Dawakhana (Waqf) Pakistan v. CIT, Central Zone, „B‟ Karachi and another [1990] 62 TAX 98 (H.C.Kar.) ―Before considering the arguments on merit, in the above cases, it will be appropriate to first decide the preliminary objection raised by the respondents regarding maintainability af the above petitions. The Contention of the learned counsel for the respondents is that the petitioner in all the above cases while filing petitions under Article 199 of the Constitution against the orders of Income Tax Officer had also simultaneously filed the departmental appeals which were subsequently decided during the pendency of these petitions and thereafter, the petitioner filed further departmental appeals before Income Tax Appellate Tribunal which are still pending. It is. accordingly, contended that the petitioner having opted for availing of the departmental remedy in the cases under the Ordinance, was not entitled to invoke the constitutional jurisdiction of this Court without having first exhausted all the remedies provided under the Ordinance. We are in respectful agreement with the above observations of the learned Judges of the Division Bench and applying the test laid down in the above case to the present cases, we are of the view that the above petitions cannot be dismissed as not maintainable. Besides, the fact that the controversy involved in the above petitions rests mainly on the interpretation and effect of the Judgments in case of the petitioner by the Supreme Court, (reported in PLD 1980 SC 84) and that of the Division Bench of this Court in Civil Reference No. 5 of 1966 dated 24.3.1981 with reference to clause (93) of the Second Schedule to the Ordinance, the admitted position in the cases is that the appeals filed before the Tribunal by the petitioner against the order of 1st Appellate Authority in 1986 have not been heard and disposed of as yet and the learned

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counsel for the department is still unable to state when these are likely to be decided. It is also admitted before us that demand of taxes against the petitioner on account of rejection of their claim for exemption is huge and runs into millions and the department is pressing hard for its recovery and as there is no stay, the petitioner had to agree to pay the same in instalments of ten million each. We are, therefore, of the view that the departmental appeals of the petitioner pending before the Income Tax Appellate Tribunal since 1986 in the circumstances of the case can neither be treated efficacious nor a speedy remedy so as to dis-entitled the petitioner from invoking the constitutional jurisdiction of this Court. We, therefore, do not agree with the learned counsel for the department that in the circumstances of the cases, the above writ petitions are not maintainable.‖ 70.

Writ maintainable provided order is unlawful even if an alternate remedy available to the petition

Syed Ghulam Abbass Shah v. ITO, Mirpur and 3 others [1985] 51 TAX 157 (H.C.AJ&K) ―Replying to the point whether there is an alternate remedy, Ch. Muhammad Afzal Advocate has referred to me section 30 of the Income Tax Act of 1922 = section 129 of the Income Tax Ordinance of 1979. The appealable orders are mentioned in this section. The impugned order does not fall under this section, and, therefore, the learned counsel fox the petitioner has submitted that he filed a Revision Petition before the learned Commissioner Income Tax and when the learned Commissioner Income Tax rejected the said revision petition, there was no other remedy available to him, and therefore, he knocked at the doors of the High Court and invoked its constitutional jurisdiction u/s 44 of the Azad Jammu and Kashmir Interim Constitution Act of 1974. I do not think that the petitioner was guilty of any laches or delay. As soon as be came to know about the Recovery Certificates he approached the learned Commissioner Income Tax in Revision Petition but when his revision petitions failed,

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he came to the High Court and invoked its constitutional jurisdiction. Even otherwise, the objection of laches and delay or acquiescence is not available to the respondents in this case because the impugned Recovery Certificates have been issued without a Notice of Demand and have been issued for the recovery of the liabilities against a dead person (assessee). An order which is a nullity in the eye of law is not an order at all and can be ignored all together even if no Writ Petition is moved to impeach it.‖ 71.

Reference application pending disposal before the High Court held not a bar to maintainability of constitutional petition challenging vires of law taxing “free reserve” to Income Tax

Pakistan Industrial Development Corporation v. Pakistan, through Secretary, Ministry of Finance [1984] 49 TAX 76 (H.C.Kar.) ―The above observations on the contrary support the contention of petitioner in the present case as it is an admitted position that the petitioner specifically prayed before the Court while withdrawing the earlier petition that he reserves the right to bring fresh petition on the same cause of action and the Court allowed withdrawal of the earlier petition but did not specifically grant permission to bring the fresh petition. Mr. Fazeel, contended that in view of the fact that the Court did not specifically grant the permission it should be presumed that the permission to bring a fresh petition asked for was declined. We are unable to accept this contention. In our view in the absence of an express order by the Court granting permission to file a fresh proceeding while allowing withdrawal under sub-rule (2) of rule 1 of Order XXIII, C.P.C. it will necessarily follow that such a permission has been granted by the Court or otherwise the court while allowing withdrawal in such a case cannot refuse to grant permission. We may also mention here that Mr. Khalid Anwar the learned counsel of the petitioner also referred us to the case of Durvas and others vs. State of U.P. [AIR 1961 SC 1457] in which the

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Supreme Court of India considered the scope of applicability of principles of res judicata and constructive res judicata to constitutional petition. The following observations were made by the Indian Supreme Court at page 1465 of the report with which we fully agree.‖ 72.

Constitutional petition before High Court challenging vires of taxing “free reserves” to Income Tax held cannot be dismissed on ground of latches in view of nature of relief claimed and the circumstances of the case

Pakistan Industrial Development Corporation v. Pakistan, through Secretary, Ministry of Finance [1984] 49 TAX 76 (H.C.Kar.) ―From the statement made in the counter-affidavit it appears that the objection regarding delay is founded on the ground that the impugned orders are challenged after about 10/12 years of the creation of liability against the petitioner. We may mention here that the respondents did not mention in their counter-affidavit the dates of orders impugned in the petition and from the certified copies of the orders produced in the petition we were unable to ascertain their dates. We, therefore, enquired from the learned counsel for the respondents about the dates of these orders but they were unable to give the same. The petitioner in its rejoinder has denied that 10/12- years period had passed when the liability was created against them and it is claimed that the final order imposing penalty was passed against them only, on 30th May, 1979 and immediately thereafter Petition No. 981/79 was filed by them challenging the action of respondents and the vires of legislation but the petition was subsequently withdrawn in the circumstances stated above and as the matter was not settled amicably the present petition was filed in this Court on 10.1.1980. It is, therefore. contended that there was no delay at all in filing the present petition. Keeping in view the nature of relief claimed in the petition and the circumstances stated above we are satisfied that the present petition cannot be dismissed on the ground of laches alone.‖

359 Powers Of Courts/Administrative Jurisdiction 73.

Where alternate remedy available but not efficacious and statutory functionary acting mala-fide or in a partial, unjust and oppressive manner, High Court in exercise of its writ jurisdiction has power to grant relief to the aggrieved party

Kassam Haji Abbas Patel v. Income Tax Officer, Contractors Circle, Karachi & another [1983] 47 TAX 162 (H.C.Kar.) ―Since show-cause notice has been issued without there being any sufficient reason or legal authority we should not decline to exercise on jurisdiction. The availability of alternate remedy in every case is not a ground to refuse the relief when the remedy is not efficacious, for, if in spite of showing cause any additional amount had been assessed the same could have been recovered through coercive process, on petitioner‘s failure to pay the same. In the case of East and West Steamship Co. vs. Pakistan this Court has held that where a statutory functionary acts mala-fide or in a partial, unjust and oppressive manner, the High Court in the exercise of its writ jurisdiction has power to grant relief to the aggrieved party.‖ 74.

Order passed without lawful authority, partial, unjust and mala-fide held assessee can invoke the extraordinary jurisdiction of the High Court even if alternate remedy is available by way of appeal, etc.

Hussain Sugar Mills v. Islamic Republic of Pakistan and others [(1981) 44 Tax 59 (H.C.Kar.)] ―It is now a settled law that the jurisdiction of this Court tinder Article 199 is always available to the party in cases where the impugned orders are without lawful authority, partial, unjust and mala-fide even in cases where alternate remedy by way of appeal etc., is available. In the present case as observed by us that the impugned orders passed by the Income Tax Officer under the provisions of section 18A and 45A(b)(ii) were without lawful authority and unjust.‖ 75.

In the presence of assessee‟s objection to exercise of jurisdiction on ground of bias assessment was made

360 Principles of Income Tax Law without taking decision on the specific objection held that even existence of alternate remedy would not operate to debar the assessee from invoking extraordinary jurisdiction of High Court

Sheikh Akhtar Ali v. Federation of Pakistan and 4 others [1980] 42 TAX 47 (H.C.Lah.) ―It is contended that the petitioner in this case had an adequate alternate remedy available to him by way of reference under the provisions of section 66 of the Income Tax Act, 1922 and for. that reason it was not open to the petitioner to have invoked the extraordinary jurisdiction of this Court. After giving the matter our anxious consideration we are of the view that the alternate remedy in this case was not adequate and equally efficacious and even the existence of an alternate remedy would not operate to debar a petitioner from invoking the extraordinary jurisdiction of this Court.‖ 76.

Where fact for determination was whether receipts supported by payment certificates produced by assessee were genuine and correct and claim was rejected without application of mind to this aspect, held High Court competent to interfere in its constitutional jurisdiction

Shahid Hameed, Gulberg, Lahore v. Income Tax Officer, Film Circle, Lahore and another [1976] 34 TAX 31 (H.C.Lah.) ―The learned counsel for the respondent finally submitted that in any case the orders passed by the authorities below cannot be said to be without lawful authority and of no legal effect in view of the rule laid down by their Lordships of the Supreme Court in case of Muhammad Hussain Munir and others vs. Sikandar and others (PLD 1974 S.C. 139), the relevant portion of which reads as under: ―It is well-settled that where a Court or tribunal has jurisdiction and it determines that question, it cannot be said that it acted illegally or with material irregularity merely because it came to an

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erroneous decision on a question of fact or even of law.‖ The contention of the learned counsel that the High Court cannot interfere in its constitutional jurisdiction in a case of this nature is not correct. In view of what has been discussed above, I have no option but to declare the impugned orders to be without lawful authority and of no legal effect. The Income Tax Officer is directed to reconsider the return filed by the petitioner and complete the same in accordance with law.‖ 77.

If impugned action is patently without jurisdiction, writ jurisdiction of the High Court can be invoked even if alternate remedy is available

First National City Bank, Karachi v. Income Tax Officer, Karachi and another [1976] 34 TAX 1 (H.C.Kar.) = PLD 1976 Kar. 552 ―Mr. S.A. Nusrat, Advocate for the respondents submitted that the petition is not maintainable as the petitioner had not availed of the other remedies provided under the Income Tax Recovery Rules, 1969 which according to him, afforded adequate remedy. No doubt upon receiving the recovery notice from the Tax Recovery Officer dated 9.5.1975, the petitioner could have objected to the attachment of the money under rule 9(1) of the said Rules, which requires the Tax Recovery Officer to proceed to investigate the objection. The order of the Tax Recovery Officer was also appealable under 74 to the Inspecting Assistant Commissioner of Income Tax, as is also provided in section 30(A) of the Income Tax Act A further revision and review is also provided. But where the impugned action is patently without jurisdiction, relief in Constitutional petition cannot be refused on the ground that an alternate remedy is available.‖ 78.

If assessment is suffering from lack of jurisdiction, writ jurisdiction of the High Court can be invoked, without availing remedies available under the law

Sind Industrial Trading Estate Ltd., Karachi v. Central Board of Revenue and 3 others

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[1975] 31 TAX 114 (H.C.Kar.) ―Mr. S.A. Nusrat, the learned counsel for the Income Tax Department contended that the petitioners should in the first instance, have exhausted the remedies available to them by way of appeal and reference under the Income Tax Act, 1922. Mr. S.A. Nusrat stated that, in fact some appeals filed by the petitioners are still pending for adjudication. But, in our opinion, the act of the Income Tax Department in assessing, or in proposing to assess, the petitioners to income tax is without jurisdiction altogether, and it is, therefore, not incumbent upon the petitioners to avail themselves of the remedies provided to them under the Income Tax Act or even to wait for adjudication of their appeals or references, if any. 79.

Writ admitted during the pendency of appeals held maintainable

Barnala Commission Shop, Chak-Jhumra v. Income Tax Officer, B Ward, Lyallpur [1963] 7 TAX 153 (H.C.Lah.)=1963 PTD 534=1963 PLD 311 ―Failure of Income Tax Officer to comply with provision of condition precedent to issuing notice to assessee u/s 34(1), Income Tax Act (XI of 1922). Objection was not raised to any part of proceedings on any ground at any stage before Income Tax Officer. Petition, otherwise deserving dismissal in limine, admitted to hearing since point of objection arose also in several other petitions. Income tax assessment proceedings u/s 34, Income Tax Act (XI of 1922), completed beyond time. Alternative remedy by appeal under Income Tax Act (XI of 1922) availed but, without waiting for result, assessee preferring petition invoked writ jurisdiction of High Court. Petition otherwise deserving dismissal in limine admitted to hearing, since point of objection arose also in several other petitions.‖

Writs when not maintainable 80.

Writ when not maintainable

Collector of Customs, Lahore and others v. Universal Gateway Trading

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Corporation and another 2005 PTR 45 [S.C. Pak.] = 2005 PTD 123 (S.C. Pak.) = PTCl 2005 CL. 270] ―The Constitutional jurisdiction should not have been exercised for the reason that alternate efficacious remedies should have been invoked as were available under sections 179, 193, 194A and 196 of the Customs Act, 1969, which could have been conveniently availed by the respondents by approaching concerned forum available in the hierarchy of Customs laws. Constitutional jurisdiction should be exercised with extra care and caution bearing in mind that there is a basic difference between want of jurisdiction and an illegal or irregular exercise thereof. The defect, if any, in an order can, according to the procedure established by law, be corrected by appeal or revision. The jurisdiction under this Article will not be made available for interfering with the orders of the Courts below simply on procedural matters or on the plane of propriety. The power under this Article is not intended merely for correcting their errors in law or on facts‖--Dr. Sajjad Ahmad v. Dr. Muhammad Bashir (PLD 1979 Lah. 304). There is no cavil with the proposition that ―the provision as contained in Article 199 does not empower the High Court to interfere with the decision of a Court or Tribunal of inferior jurisdiction merely because the same is wrong as in that case it would make the High Court‘s jurisdiction as that of the Appellate Court‘s jurisdiction as that of the Appellate Court which is not the intention of the Legislature‖-- K.M. Asaf v. Abdullah Malik (PLD 1976 Lahore 158).‖ Adamjee Insurance Co. Ltd. & others v. Pakistan through Secretary Ministry of Finance [(1993) 68 Tax 176 (S.C.Pak)] ―Once the appellant had opted to avail of the hierarchy of forums provided for under the Ordinance upto the stage of filing of appeal before the Tribunal, it would have been proper on his part to have invoked section 136 of the Ordinance for making a

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reference to the High Court instead of filing of constitutional petition. Once a party opts to invoke the remedies provided for under the relevant statute, he cannot, at his sweet will, switch over to constitutional jurisdiction of the High Court in the mind of the proceedings in the absence of any compelling and justifiable reason. Wealth Tax Officer & Other v. Shaukat Afzal & 4 others [(1993) 68 Tax 145 (S.C.Pak)] ―Before parting with the judgment we may observe that in cases where any party resorts to a statutory remedy against an order he cannot abandon or bypass it without any valid and reasonable cause and file constitutional petition challenging the same order. Such practice, in cases where statute provides alternate and efficacious remedy up to High Court, cannot be approved or encouraged.‖ H.M. Abdullah v. ITO Circle-V Karachi [(1993) 68 Tax 29 (S.C.Pak)] ―Income Tax Ordinance is a complete code in itself which creates rights in favour of an assessee, and in certain circumstances in favour of the Revenue as well, and also provides remedy for redress of the grievances of the aggrieved party. In every tax case, Constitutional Jurisdiction as an alternate remedy in terms of Article 199 of the Constitution cannot be availed. Reference in this connection may be made to the following observations appearing in CIT, Companies II, Karachi & others vs. Hamdard Dawakhana (Waqf) Pakistan [1993] 67 TAX 1 (S.C.Pak) = PLD 1992 SC 847 at p.861: ―In cases where any party resorts to statutory remedy against an order he cannot abandon or bypass it without any valid and reasonable cause and file constitutional petition challenging the same order. Such practice, in cases where statute provides alternate and efficacious remedy up to High Court, cannot be approved.‖ Abdul Rehman & Another v. ITO Mirpur & Another

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[(1993) 68 Tax 132 (S.C.AJ&K)] ―It is, therefore, difficult to agree in the light of prevalent constitutional provisions that if an interpretation placed by an executive authority is palpably wrong and leads to miscarriage of justice and High Court can directly entertain a writ petition. The High Court only directly entertain a writ petition if it finds that alternate remedy is not adequate. In our view existence of another adequate remedy is a rule of law which ousts the jurisdiction of the High Court and we hold accordingly.‖ Shagufta Begum v. ITO, Circle XI, Zone B Lahore [(1989) 60 TAX 83 (S.C.Pak.)] ―In all such cases where a Tribunal lacks jurisdiction and this aspect is discoverable on the record, it is permissible for an aggrieved person to go directly to the High Court against the issuance of a notice without approaching the authority concerned in this behalf in the first instance. The oratical speaking it might be correct; mainly, because wastage of time spent before the departmental authorities could be avoided by expeditious disposal of the writ petition in the High Court and if the matter is brought higher up in the Supreme Court it would still be a speedier remedy. We do not agree with this submission. In practice, it takes longer time than the normal departmental remedies. It is accordingly in the interest of litigants themselves first to choose the speedier remedy with departmental authorities and thereafter if need be, invoke the extraordinary jurisdiction of the High Court.‖ Hafiz Mohammad Arif Dar v. ITO [(1989) 60 Tax 52 (S.C.Pak) = (PLD 1989 SC 109)] ―One of the conditions for grant of relief in writ jurisdiction of the High Court is that the petitioner before it should not have any alternate remedy. Since the petitioner has availed the right of appeal, the High Court correctly held that no relief could be granted under Article 199 of the Constitution.‖ Raja Habib Ahmad Khan v. Income Tax Officer [(1974) 29 Tax 208 (S.C.Pak.)]

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―The assessee preferred appeals against the assessment orders, as also filed a petition under Article 98 of the Constitution of 1962. Supreme Court while deciding the petition for leave to appeal held that: ―That the writ petition was misconceived and not maintainable. The petitioner should have been left to pursue his remedy by the appeal which he had already filed. He had elected first to follow that remedy. He should not, therefore, have been allowed to simultaneously pursue an alternate remedy under Article 98 of the Constitution of 1962.‖ Steel Brothers and Company Ltd. v. CBR and others [(1969) 19 Tax 97 (S.C.Pak.)] ―...that it would be circumventing the provisions of the Income Tax Act if parallel proceedings are started, under Article 98 of the Constitution to deal with the same questions.‖ Nagina Dal Factory v. ITO and others [(1968) 18 Tax 1 (S.C.Pak) = (1968 SCMR 1035)] ―That when a statute under which action is taken itself provides remedies, recourse must be had to those remedies first. Direct access to the High Court for relief in writ jurisdiction thus by-passing the special forum, which are created by the special law itself, is not permissible.‖ Crescent Sugar Mill. v. ITO [(1999) 80 Tax 273 (H.C.Lah.) = NLR 1999 TAX 170] ―Writ petition in income tax matter would not be maintainable when petitioner had remedy of seeking reference u/s 136, Income Tax Ordinance 1979. High Court disposing of writ petition with observation that petitioner may apply for reference u/s 136 along with application for condonation of delay on plea that proceedings in writ jurisdiction were pursued with due diligence.‖ Saleem Automotive Industries (Pvt.) Ltd. v. CBR etc. [(1999) 80 Tax 9 (H.C.Lah.)]

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―The petitioner has already travelled through some of the forums provided under the law. His appeal before the Customs Tribunal is still pending in which injunction order restraining the recovery of disputed amount has also been made in his favour. In such situation, the entertainment of the petition or to make the kind of declaration prayed for by the appellant will not only frustrate the whole scheme of the law providing for various stages and forums of appeal but also will amount to pre-suppose an order by a judicial authority namely the Customs Excise and Sales Tax Appellate Tribunal. The view of the Supreme Court as well as of this Court on the issue is quite clear. Two cases decided by the Supreme Court are directly relevant on the issue. These are reported as re: Wealth Tax officer and another vs. Shaukat Afzal and 4 others (1993) 68 Tax 145 (S.C.Pak.) and re: H.M. Abdullah vs. Income Tax Officer, CircleV Karachi and 2 other (1993) 68 Tax 29 (S.C.Pak.). In the first reported judgement the assessee respondents were before the Tribunal for the redressal of their grievances. During the pendency of the appeal, they approached the High Court in its constitutional jurisdiction which was allowed by a Division Bench of Sindh High Court whereby the order passed by the Wealth Tax Officer treating the disputed properties as assets of the assessee was declared as without lawful authority and of no legal effect. Like-wise in a recent judgment reported as re: Sameer Electronics vs. A.C. of Income Tax, Lahore (1996) 73 Tax 106 (H.C.Lah.) this Court refused to entertain a constitutional petition under Article 199 of the Constitution and rejected the contentions similar to those now being made by the learned counsel before me.‖ Navab Sons, Lahore v. The Assistant Commissioner Tax etc. [1999 P.C.T.L.R. 387] ―The contents of the writ petition revealed that the petitioner has concealed material facts from this Hon‘ble Court qua the appeal filed by the petitioner before the appellate authority against assessment order, therefore, petitioner is not

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entitled to get any discretionary relief under Article 199 of the Constitution. I am not inclined to exercise discretion in favour of petitioner who concealed the material facts from this Hon‘ble Supreme Court. I am fortified by the following judgments:C.M. Malik‟s case (1990 CLC 1783); Ronaq Ali‟s case (PLD 1973 SC 326); Saif Ullah‟s case (PLD 1989 SC 166); Rana Arshad‟s case (1998 SCMR 1462); For what has been discussed above, this writ petition is dismissed in limine, as the petitioner did not approach this Court with clean hands as well as the petitioner has availed alternate remedy which is pending adjudication.‖ State Cement Corporation of Pakistan (Pvt.) Ltd. v. CIT [(1997) 76 TAX 110 (H.C.Lah.) = 1997 PTD 1104 = 1998 PCTLR 520] ―Before these petitions could be argued on merits, learned counsel for respondent has raised a preliminary objection that against the decisions of respondent dated 7-8-1994, the petitioner has already filed appeals which are pending before the Income Tax Appellate Tribunal where they have raised the same dispute as to whether or not any income tax is payable on the cement development funds received by the petitioner company under Ordinance, II of 1979. This is not denied by the learned counsel for respondent who has, however, submitted that the petitioner had earlier filed W.P. No. 6584 of 1994 which was disposed of with the direction that the plea raised in the constitutional petition may be repeated before the CIT, before whom the proceedings are pending. Learned counsel for the petitioner has attempted to argue that notwithstanding filing of the appeal by the petitioner, these petitions are maintainable as it has been held by the Supreme court in various cases that it is not essential to file a departmental appeal when the matter relates to the interpretation of statutory instrument and the matter can be brought directly to this Court. There may not be any cavil with this proposition but here the

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position is different as the petitioner has itself invoked the jurisdiction of the Income Tax Appellate Tribunal by filing appeals and there is no reason also as to why the Appellate Tribunal should not be allowed to decide the questions which are arising in these petitions. In view of what has been stated above, these petitions are held to be not maintainable at this stage and dismissed, leaving the parties to bear their own costs. No doubt the petitioner had raised various pleas before the CIT, who by his detailed order dated 7.8.1994 has rejected the same and against his order the petitioner has gone to the Income Tax Appellate Tribunal. As the petitioner has chosen its remedy by filing appeals before the Appellate Tribunal, these petitions are clearly not maintainable. It is also to be noted that if the decision of the Appellate Tribunal goes against the petitioner, it can come to this Court by filing an application u/s 136 of the Income Tax Ordinance, 1979 which is to be heard by a Division Bench of this Court. The petitioner cannot be allowed to bypass the normal procedure.‖ Rehmania Hospital v. Government of Pakistan etc. [(1997) 76 Tax 138 (H.C.Pesh) = 1997 PTD 1805] ―...... it seems the preponderance and the recent trend in the judgments of the Superior Courts ..... is that in the presence of statutory remedy under the Income Tax Ordinance approach to the High Court through a writ petition is disapproved.‖ Haji Gula Khan v. Special Officer, Income Tax and others [(1997) 75 Tax 117 (H.C.Pesh.) = 1997 PTD 7] ―It may be stated at the very outset that the petitioner can file an appeal before respondent No. 3 against the impugned order recorded by respondent No. 1. As an adequate remedy has been made available to the petitioner under the relevant law, therefore, he cannot be allowed to by pass the same and approach this Court straightaway under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973. We are, therefore, of the view that this writ petition is misconceived. The same is dismissed in limine.‖

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Sante International (Pvt.) Ltd. and Another v. CIT, Zone-B, Lahore and Another [(1997) 75 Tax 1 (H.C.Lah.) = 1997 PTD 819] ―Since the petitioner had alternate statutory remedies in the hierarchy of the Income Tax Department, as already mentioned above, this petition is not maintainable. Accordingly, the petition being premature is dismissed in limine. However, all available objections, including the one relating to the jurisdiction of the Income Tax Officer, may be taken before the appropriate forum, if so advised.‖ Shamim Ali and others v. Govt. of Pakistan and another [(1973) 27 Tax 51 (H.C.Lah.)] ―As adequate alternate remedies exist for correcting any assessment made to the detriment of a particular party or made in an unjust and oppressive manner, in a given case, the present writ petition is, therefore, premature.‖ Colony Textile Mills Ltd. Lahore v. Income Tax Appellate Tribunal (Pak) & another [(1972) 25 Tax 140 (H.C.Lah.)] ―The Income Tax Act provides a complete machinery for assessment of tax and for obtaining relief in respect of any improper or illegal order passed by the Income Tax authorities and an assessee cannot unless the order impugned, is without jurisdiction or in excess of jurisdiction, invoke the jurisdiction of the High Court under Article 98 of the Constitution when he had adequate remedy open to him under the Act itself.‖ Taj Din Maula Bux, Lahore v. Sales Tax Officer D-Circle Lahore [(1972) 25 Tax 145 (H.C.Lah.)] ―That remedy provided under Article 98 is a discretionary remedy and when an aggrieved person has an adequate relief elsewhere, there is a bar for the High Court to entertain a petition.‖ 81.

Writ petition is not maintainable in the presence of adequate alternate remedy under the statute

Amin Textile Mills (Pvt.) Ltd. v. CIT, and 2 others

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PTCL 2000 CL. 316 (S.C.Pak) ―The High Court, was right to observe that the petitioner should, in the first instance, approach the hierarchy of the forums provided for under the Ordinance instead of filing a constitutional petition. Apart from the bald assertion that the impugned order is void ab initio there is nothing on record to substantiate the above plea. In the case of Al Ahram Builders (Pvt.) Ltd. vs. Income Tax Appellate Tribunal (1993 SCMR 29), this Court discouraged the tendency to bypass the remedy provided under the relevant statute to press into service constitutional jurisdiction of the High Court.‖ Karachi Properties Investment Co (Pvt.) Ltd, Karachi v. Income Tax Appellate Tribunal, Karachi and another [2004 PTD 948 (H.C. Kar.)] ―First, we would take up the issue pertaining to the maintainability of the petition. By now it is trite law that if remedy by way of appeal/revision is available in statute, the petition under Article 199 of the Islamic Republic of Pakistan, 1973 shall not lie with the exceptions that the orders passed without jurisdiction or where the remedy provided in law is illusory, an aggrieved person can directly invoke the Constitutional jurisdiction of High Court. Since the petitioner could file an appeal against the order of Tribunal, passed under section 156 of the Income Tax Ordinance, 1979 and had actually filed the appeal, which was subsequently withdrawn by the learned counsel for the petitioner on account of wrong perception of law, therefore, it is held that the petition is not maintainable. However, we would not like to dismiss the petition on this score and non-suit the petitioner, because it would amount to technical knockout, which is not a desirable manner of disposing of the proceedings before this Court.‖ Data Distribution Services v. DCIT, and another [2000] 82 TAX 156 (H.C.Lah.) ―In case aforesaid paragraphs of parawise comments and writ petition are put in juxta position, then it brings the case of petitioners in the area of disputed question of facts. It is settled

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proposition of law that this Court has no jurisdiction to resolve the disputed question of facts in constitutional jurisdiction as the principle laid down by the Hon‘ble Supreme Court in Muhammad Younas Khan‟s case (1993 SCMR 618). The petitioner‘s counsel appeared in Pak-Arab Fertilizer (Pvt.) Ltd. vs. Deputy Commissioner Income Tax (2000 PTD 263) and cited almost all the case law which was considered by this Court and laid down the principle that writ petition is not maintainable against show-cause notice and also observed that party cannot be allowed to by-pass jurisdiction vested by law in special Tribunal. As mentioned above I have already dismissed the writ petitions qua the similar controversy on the question of law in Pak-Arab Fertilizer (Pvt.) Ltd.‟s case (supra). It is settled proposition of law that previous decision should have been accepted and binding on me as per principle laid down by the Hon‘ble Supreme Court in Muhammad Muzafar Khan vs. Muhammad Yousaf Khan (PLD 1959 SC (Pakistan) (9).‖ Guarantee Engineers (Pvt.) Ltd. v. Federation of Islamic Republic of Pakistan through Secretary, Ministry of Finance, Islamabad and another [2000] 82 TAX 131 (H.C.Lah.) ―The contents of the writ petition as well as contentions of the learned counsel of the petitioner do not reveal that the petitioner has challenged vires of the provisions of the Finance Act, therefore, responsent No. 2 is well within his right to deduct the income tax from the petitioner to the tune of 5 per cent on the basis of provisions of Finance Act, 1995-96. It is settled proposition of law that Court should save the laws instead of declaring them ultra vires. I am fortified by the following judgements:PLD 1995 SC 432 (Multi National‟s case) PLD 1983 SC 457 (Fauji Foundation‟s case) The learned counsel of the petitioner does not mention any provision of Finance Act in the contents of the writ petition which was framed by the competent authority which is in

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violation of Articles 2A, 3 and Article 25 of the Constitution. It is settled proposition that Constitution should be read as organic whole. The Articles of the Constitution do not reveal prohibition that the Pakistani Legislature/Parliament and Provincial Assembly do not possess the right to make retrospective legislation which every sovereign legislature possesses. The only express limit imposed upon the power of retrospective legislation is that legislatures cannot make retrospective penal laws meaning thereby any other law including Taxation Law may, therefore, be made with retrospective effect under the Constitution. In arriving to this conclusion I am fortified by the leading judgement of the subjection by the Hon‘ble Supreme Court in Salauddin‟s case PLD 1991 SC 546. The aforesaid proposition of law is also supported by the judgement of Hon‘ble Supreme Court in Haider Automobile Ltd. vs. Pakistan (PLD 1969 SC 623). In the present case as mentioned above there is no retrospective effect of the Finance Act since the contention was raised by the learned counsel of the petitioner and the contention of the learned counsel of the petitioner has no force on the basis of the aforesaid judgement of the Hon‘ble Supreme Court. In view of clause 54(2) of the Contract executed between the petitioner and respondent No. 2 principle of Reciprocal Promises is not attracted.‖ Leather Connections (Pvt) Limited v. The Central Board of Revenue Govt. of Pakistan, Islamabad through its Chairman [2000] 82 TAX 42 (H.C.Lah.) ―In view of what has been discussed above, this writ petition is not maintainable. Anyhow the letter issued by respondent No.2 to respondent No. 3 on 16.5.1996 by fixing cost of construction at the rate of Rs.400/- per sq. ft is not borne out and is not in accordance with notification issued by CBR dated 18.7.1993 under the aforesaid section 50(7BB). The letter does not contain any comparative rates of the other departments, therefore, same is not sustainable in the eyes of law. The Notification of CBR is misconstrued by the subordinate functionaries of CBR In view of these

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circumstances, let a copy of this order judgment be sent to Chairman CBR Islamabad, who is directed to issue general instructions to all the functionaries to issue letters to the Administrative Officer concerned in accordance with law and Notification dated 18.7.1993, after comparison of the rates mentioned by different departments in the Notification or the Chairman CBR must issue a notification and fix rate either yearly basis for each area or 2/3 years so that poor citizen should not be penalized. He is also directed to issue direction in the light of Notification, preferably within one month, after receiving the order of this Court.‖ Pak-Arab Fertilizers (Pvt.) Ltd. v. DCIT, and Others [2000] 81 TAX 224 (H.C.Lah.) = 2000 PTD 263 ―The nature of controversy between the parties to the petition by itself falls in the area of factual controversy. In case the contents of writ petitions and parawise comments are put in juxta position which cannot be resolved in constitutional jurisdiction of High Court. Even otherwise writ petition is not maintainable in view of the law laid down by the Hon‘ble Supreme Court in Bashir & Company‟s case [1968] 17 Tax 207 (S.C.Pak) = (1968 SCMR 997) in which it was held that a party cannot be allowed to bypass jurisdiction vested by the law in special tribunal, and writ petition cannot be invoked, special remedy is available under the Income Tax Ordinance. I am fortified by the judgements of Abdul Rehman Mayet‟s case (1988 SCMR 1712).‖ 82.

In presence of arbitration clause in the agreement executed between the parties, the writ petition is not maintainable

Amir Nawaz Khan, etc. v. Government of Pakistan, through Secretary Finance, Islamabad, etc. [2001] 83 TAX 397 (H.C.Lah.) ―It is admitted fact that petitioner executed agreement with the respondent No. 5 of his own free will which contains the arbitration clause. In presence of arbitration clause in the agreement executed between the parties, the writ petition is not maintainable. The

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writ petition is also not maintainable on the well known principle of approbate and reprobate. It is also settled proposition of law that the contract cannot be enforced through constitutional jurisdiction as the petitioner has alternative remedies either to file a civil suit or invoke arbitration clause. It is also settled proposition of law that leave granting order by the Honorable Supreme Court is not judgment.‖ 83.

Writ held not maintainable where disputed question of fact involved

Kohinoor Industries Ltd. v. Government of Pakistan through CBR, Islamabad [2001] 83 TAX 17 (H.C.Lah.) ―In the present case learned counsel for the respondents or any official of the respondents did not give any concession. It is admitted fact that tribunals below have given con-current finding of fact against the petitioner. Therefore, writ petition is not maintainable as per principle laid down by the Hon‘ble Supreme Court in the following judgments: 1974 SCMR 279 (Khuda Bakhsh‟s case) PLD 1981 S.C. 246 (Muhammad Sharif‟s case) PLD 1981 S.C. 522 (Abdul Rehman Bajwa‟s case). It is also settled principle of law that this court has no jurisdiction to substitute its own decision in place of the finding of the tribunal below as per principle laid down by the Division Bench of this court in Mussaduq‟s case PLD 1973 Lahore 600. The tribunals below have given finding of fact against the petitioner that bags were not warehoused at Karachi with the connivance of the petitioner in original condition whereas the case of the petitioner that petitioner is not responsible for that mis-chief. It is the Paul corporation who committed this mischief. This fact brings the case in the area of disputed question of fact and this court has no jurisdiction to resolve the disputed question of fact in a constitutional jurisdiction as per principle laid down by the Hon‘ble Supreme Court in Muhammad Younis‟s

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case 1993 SCMR 618. Petitioner has alternative remedy for resolution of the disputed question of fact by filing civil suit u/s 9 of the CPC before the competent court. In this view of the matter writ petition is also not maintainable as per principle laid down by the Hon‘ble Supreme Court in Muhammad Ismail‟s case PLD 1996 S.C. 246. In view of that has been discussed above, this writ petition is dismissed with no order as to costs.‖ 84.

Writ is not maintainable where parties themselves agreed for arbitration in bilateral contracts

Muhammad Ansar etc. v. Administrator Town Committee Kabirwala District Khanewal and 4 others [2000] 81 TAX 60 (H.C.Lah.) ―It is settled proposition of law that specific arbitration clause has been provided in the agreement as mentioned above and if the petitioners have got any grievance against the contents of the said agreements they can avail their remedies before the appropriate forum as it needs a detail inquiry. Since the petitioners have voluntarily executed an agreement with arbitration clause with the respondents then the petitioners are stopped to challenge the same in writ jurisdiction on the well known principle of approbate and reprobate as the principle laid down by the Hon‘ble Supreme Court in Haji Ghulam Rasool‟s case PLD 1971 S.C. 376. It is settled principle of law that contractual obligations cannot be enforced through a writ petition as the petitioners have alternative remedies to invoke the jurisdiction of a Civil Court by means of regular suit. I am fortified by the following judgements of Hon‘ble Supreme court of Pakistan:(i) PTD 1981 S.C. 604 (Shameer‟s case); (ii) PTD 1986 Quetta 181 (Pakistan Mineral Development Corp‟s case); (iii) PTD 1958 S.C. 387 and PTD 1962 SC 108.‖ 85.

Writ not maintainable in case where no right to appeal or reference is provided in law itself

Islamuddin and 3 others v. ITO and 4 others 2000 PTD 306

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―It is also an established principle that where a statute does not provide the remedy by way of appeal or reference against the order then the same cannot be challenged by way of a constitutional petition as it would amount to rendering the provision of statute which does not provide an appeal for a reference or any other remedy against a particular order. In support of this proposition reliance is placed on the cases of Syed Saghir Ahmed Naqvi vs. Province of Sindh and another reported in 1996 SCMR 1165 and Abdul Wahab Khan vs. Govt. of Punjab and others, reported in PLD 1989 SC 508.‖ 86.

Selection of return for audit challenged through constitutional jurisdiction held not maintainable

Agha Ice Factory, Sheikhupura v. RCIT, Central Region, Lahore and 4 Others [1996] 74 TAX 215 (H.C.Lah.) ―The manner, answers to questions raised in the petition; have been sought by the petitioner is unwarranted and misconceived; as the Income Tax Ordinance itself is a complete code and procedure for referring a question of law to the High Court has been provided u/s 136(1) of the Income Tax Ordinance. The writ petition even otherwise being devoid of merits is not maintainable.‖ 87.

Writ is not maintainable where facts are controversial

Zam Zam Traders v. Income Tax Officer [1996] 74 TAX 21 (H.C.Lah.) ―I am of the opinion that it is a controverted question of fact and such a question cannot be resolved in constitutional jurisdiction of the High Court; without prejudging the issue; the petitioner, who has already submitted the returns in response to the notice u/s 65. and proceedings have already been initiated by the respondent by issuing the mandatory notice u/s 62 of the Ordinance; ft is undesirable for the petitioner to switch over to the constitutional jurisdiction of the High Court at his sweet will in the mid of the proceedings in the absence of any compelling and justifiable reasons.‖

378 Principles of Income Tax Law 88.

Legality and correctness of a factual controversy could not be resolved in the constitutional jurisdiction

Sameer Electronics v. ACIT, Circle-B, Zone-A, Lahore [1996] 73 TAX 106 (H.C.Lah.) ―Section 65(2) of the Income Tax Ordinance provides that no proceedings under sub-section (1) shall be initiated unless definite information has come into the possession of the Income Tax Officer and he has obtained the previous approval of Assistant Commissioner of Income Tax, in writing to do so. The respondent No. 1 positively is in possession of information as indicated in his letter dated 11.3.1995. The respondent No. 1 in the said letter alleged that the petitioner is carrying on the business of releasing Indian films after obtaining expensive master prints from Karachi and hundreds of films are available in the Video Market bearing the name of petitioner‘s concern. The petitioner vide his letter dated 20.3.1995 in response to the said notices denied the fact of ―releasing‖ Hindi films being without any evidence and proof and added that neither the import of Indian films is allowed into Pakistan nor violated any provision of law in that regard; the nature of controversy, particularly the legality and correctness of ―releasing‖ Indian films is a factual controversy; such a question cannot be resolved in constitutional jurisdiction of High Court and refrains (sic) from substituting its own finding of fact as observed by their Lordships in case Muhammad Younus Khan and 12 others vs. Government of N.W.F.P. through Secretary Forest and Agriculture, Peshawar and others (1993 SCMR 618) as it is a consistent view of Supreme Court that in cases where factual controversies are involved, constitutional petition is not the proper remedy.‖ 89.

High Court cannot go in the domain of factual controversy

Saif Nadeem Electro Ltd. v. Collector of Customs and Central Excise/CST, Peshawar and 3 Others [1995] 72 TAX 274 (H.C.Pesh.)

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―(a) In the first instance the questions of fact have been raised and the High Court cannot go in the domain of such controversy. (b) In the next place, the petitioner instead of seeking adequate and alternate remedy from the department concerned, including the CBR has straight away come to this Court, for the redress of his grievance, it may be mentioned here that the petition in hand cannot be entertained unless all the remedies available and open to the petitioner are not exhausted, in the first instance.‖ 90.

Writ petition not maintainable where adequate and alternate remedy available

Muhammad Jameel v. Income Tax Officer [1995] 72 TAX 1 (H.C.Lah.) ―The petitioners were provided proper opportunity to represent their facts and were properly heard by the Assessing Officer; rather the conduct of petitioners remained objectionable and did not appear before him with clean hands. As already observed the Income Tax Ordinance is a complete code in itself. In view of the above observations made by their Lordships, I am of the view keeping in view the conduct of petitioners; who have not come with clean hands before this Court even otherwise have remedy by way of appeal. The instant petition is not entertainable and is dismissed in limine.‖ 91.

Factual inquiry involving controversial facts cannot be undertaken by the High Court in exercise of its constitutional jurisdiction

Deans Associates (Pvt.) Limited v. IAC of Income Tax [2002] 86 TAX 138 (H.C.Lah.) = 2002 PTD 441 ―It is settled proposition of law that this court has no jurisdiction to resolve the disputed questions of fact in Constitutional jurisdiction as the principle laid down by the Hon‘ble Supreme Court in Muhammad Yunus Khan‟s case 1993 SCMR 618. This Court has considered almost all the case-law on the subject and laid down a principle in Messrs Pak-Arab Fertilizer

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vs. Deputy Commissioner of Income [2000] 81 TAX 224 (H.C.Lah.) = 2000 PTD 263 that writ petition is not maintainable against the show-cause notice and also observed that party cannot be allowed to bypass jurisdiction vested by the law in Special Tribunal. It is pertinent to mention here that the learned counsel for the petitioner has laid down much emphasis in Shahab-udDin‟s case [1988] 58 TAX 106 (H.C.Kar,) = PLD 1988 Kar. 587 and in the aforesaid case the writ petitions were dismissed and laid down the following principle: The petitioner has not availed the statutory remedy available to him and he has rushed to the Court at the initial stage when only notice has been served. He will have the opportunity to examine the material if any produced before the Income Tax Authorities and rebut it, before any final order is passed. In the facts and circumstances of the case in our view the notice issued by the respondent No. 2 is neither arbitrary, nor without jurisdiction. We therefore, dismiss the petition with no order as to cost.‖ Allied Cans v. Income Tax Officer, Circle-8, Multan and others [1995] 71 TAX 216 (H.C.Lah.) ―It is a field, experts of which are the Income Tax people, and it is not that pure and simple legal proposition, which calls for a determination by this Court. Estimation of income etc. evidently involves a factual inquiry, which this Court in exercise of its writ jurisdiction cannot possibly undertake. The petitioner concern, if genuinely aggrieved, can avail of the remedies available under the Income Tax Ordinance, 1979, and it would not be correct to say that a writ petition is the only remedy, which could be invoked for redressal of the grievances in question. There is no worth-while explanation forthcoming to the inordinate delay of two years and two months, with which this Court was approached in the matter. This ground alone will disentile the petitioner to the discretionary relief, for the move made is ill-intentioned, as also misconceived and the object is to

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derive an undue advantage, by making the Income Tax Authorities helpless in the matter. I am not at all convinced about the competence of the writ petition, as also bona fides of the petitioner, and proceed to dismiss the petition.‖ 92.

Writ cannot be entertained where adequate remedy is available

Azmat Farooq v. RCIT, Central Region Lahore and another [1993] 68 TAX 74 (H.C.Lah.) ―Be that as it may, it stands admitted that no revision at all was filed by the petitioner before the Commissioner but only a representation was made to the RCIT, who forwarded it to the CIT,. That being so, the Regional Commissioner, to whom the representation was addressed being an officer higher than the CIT, was certainly entitled to interfere. In the end, learned counsel for the petitioner has tried to argue that even on the basis of the material which has been annexed by the respondents alongwith the report to this petition, it is evident that the assertion regarding the undervaluation of the properties is incorrect. If that be so, it is open to the petitioner to demonstrate this fact before the Income Tax Officer and to satisfy him that the properties in question were not undervalued. No interference is, however, called for in the exercise of this Court‘s constitutional jurisdiction at this stage.‖ 93.

If Income Tax Officer‟s action is jurisdictional, writ jurisdiction of the High Court cannot be invoked

Zafar Usman v. Income Tax Officer etc. [1989] 59 TAX 86 (H.C.Kar.) ―We are, therefore, of the view that we cannot at this stage hold that the impugned notice is without jurisdiction as to warrant the interference by this Court in exercise of constitutional jurisdiction and deprive jurisdiction of the hierarchy of the forums provided under the Ordinance.‖ 94.

Issue being controversial involving inquiry into - held not a fit case to be determined under supervisory constitutional jurisdiction of High Court

382 Principles of Income Tax Law

Brilliant Farbics & Silk Factory, Karachi v. Income Tax Officer, West Zone, Karachi & others [1987] 56 TAX 24 (H.C.Kar.) ―His submission was that the person who had appeared before the Income Tax Officer was not authorised by him. On the other hand we find that Mr. Zakaria Loya had appeared before Income Tax Officer in the first instance and had taken time. Moreover, the receipt of notice issued by the Income Tax Officer on 24th January, 1983 to the petitioner is not denied and, therefore, it was incumbent upon the petitioner to keep track of the case and it could not take shelter under the plea that one Mr. Mansoor Ahmed who had appeared for him before the Income Tax Officer was not entitled to appear. No affidavit of Mr. Zakaria Loya has been filed before us to substantiate allegation that Mr. Mansoor was not an associate of Mr. Zakaria Loya. It is common knowledge that different associates of the lawyer firms of the Income Tax Consultants appear before the Courts or the relevant Authorities and they are allowed to appear as such. The petitioner has not sought any damages from Zakaria Loya & Co. for not having represented the petitioner or for having sent a person who was not authorised to represent Zakaria Loya and Co. or the petitioner for that matter. Therefore, the submission that the petitioner was not properly represented is unfounded. The appellate authority has stated that Mr. Mansoor was an associate of Zakaria Loya & Co. and the said finding coming from the concerned department, which has knowledge of such facts, is binding. The position that the petitioner was immune from scrutiny, as shown in this petition, has been taken up by the petitioner from the initial stage, by a letter of 10th, January, 1983/18th January, 1983, is not entirely correct. The Department in its comments has clearly stated that such a letter of the assessee was never received by them and we find that in the rejoinder affidavit filed by the petitioner there is no further contravention in respect of the receipt of the alleged letter of protest allegedly sent by petitioner to the Department. Therefore, this becomes a

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controversial matter of fact and not fit matter of controversy in the supervisory constitutional jurisdiction. Moreover, in the assessment order passed by the Income Tax Officer and the appellate orders the findings are that petitioner has been guilty of concealment and suppression. These findings are findings of facts and they have not been shown to be completely wrong and, therefore, the petitioner is not entitled to seek the intervention of this Court which has supervisory jurisdiction and it should not exercise its discretion in favour of a wrong doer. The learned counsel has also tried to show that certain findings of the Income Tax Officer were not justified but we are afraid that we are not the appellate authority in respect of these findings and, therefore, the same could have been agitated only before the higher Income Tax Authorities. Petitioner had three opportunities in the Department but with no success.‖ 95.

Assessee cannot avail remedy of constitutional petition before High Court being dissatisfied with the notices

Mustafa Prestressed R.C.C. Pipe Works Ltd. Karachi v. Commissioner of Sales Tax (Investigation), Karachi [(1990) 62 Tax 119 (H.C.Kar.)] ―Assessee‘s factory was still in process of erection and installation and had not yet started commercial production. Income Tax Officer made assessment after due scrutiny and tax demand created which was paid by the assessee. Assessee filed appeal before CIT, against the Income Tax Officer‘s order during pendency of appeal Income Tax Officer issued notices which were replied by the assessee. Assessee cannot avail remedy of constitutional petition before High Court being dissatisfied with the notices. Commissioner was satisfied on the material placed before him that an action has to be taken against assessee. The question of satisfaction of the Commissioner could not be challenged in writ petition. Proposition that extraordinary jurisdiction of High Court cannot be sought on each and every case where alternate remedy available is not universal proposition of law. In case where an

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authority had taken action when it had no jurisdiction on subject-matter of dispute and where absence of jurisdiction was apparent on face of record, constitutional remedy could be availed of. So also where alternate remedy was cumbersome and not effectual and would not give proper relief, in that case also High Court might entertain petition. But while dealing with matter on constitutional side, basic principle before Court would be that case could be decided on basis of available material and it did not require a detailed enquiry and facts were admitted and only question of law and its interpretation required decision of Court. In cases where no such conditions exist and an alternate remedy is provided under statute then High Court would not entertain writ petition.‖ 96.

High Court cannot examine the question controversial facts in constitutional jurisdiction

of

Pakistan Industrial Development Corporation v. Pakistan, through Secretary, Ministry of Finance [1984] 49 TAX 76 (H.C.Kar.) ―The learned counsel for the petitioner attempted to argue that the ‗free reserves‘ of the petitioner were consisted of several sums of money received by the company through different sources which may also have included sale of some of the capital assets of petitioner and revaluation of some of the capital assets of the company on account of devaluation of Pakistan currency etc. which may not legitimately fall within the meaning of ‗income‘. No such case is set out by the petitioner in the petition and in the absence of any specific allegation in the petition in this regard we cannot examine the same. We may however, observe that several instructions issued by Central Board of Revenue, issued in this regard were referred by Mr. Khalid Anwar, which laid down the criteria for determining ‗free‘ and ―unfree reserves‖ of the company. If the petitioner feels that its ‗free reserves‘ were not constituted of those items as arc declared by the Central Board of Revenue as ‗free reserves‘ he may agitate it before appropriate forum, if available to him under the law.‖

385 Powers Of Courts/Administrative Jurisdiction 97.

Remedies available under the law should be exhausted before invoking the extraordinary jurisdiction of the High Court

B.P. Biscuit Factory Ltd., Karachi v. Wealth Tax Officer, II-Circle, Karachi & another [1982] 45 TAX 17 (H.C.Kar.) = 1981 PTD 217 ―They clearly lay down that in such a situation an illegality in the exercise of jurisdiction by the assessing authority would confer jurisdictions on this Court in the Constitutional Petition rather than an assumption alone as has been done in the instant case. It would, therefore, be clear that the assessing authority would in the first instance exercise jurisdiction on the basis of the evidence and the documents before it as to whether the property in question is liable to assessment of taxes and to what extent and that the available remedies are exhausted under the ordinary law before the extraordinary jurisdiction of this court is invoked in the constitutional petition.‖ 98.

If question of jurisdiction of the assessing officer is not challenged, writ petition is not maintainable

Meraj Sons, Contractors v. Income Tax Officer Contarctors Circle-Il, Lahore [1982] 45 TAX 2 (H.C.Lah.) ―A preliminary objection has been raised by the learned Deputy Attorney-General that the writ petition under Article 9 of the Provisional Constitution Order No. I of 1981 is not maintainable unless the petitioner exhausts adequate legal remedies of appeal and revision available under the Ordinance. I agree with the learned Deputy Attorney-General that where there is another adequate and efficacious remedy open to the petitioner, a petition under Article 9 of the Provisional Constitution Order, 1981 would be incompetent unless the legal remedies as well as the remedies provided in the Ordinance are exhausted. There is, however, an ample authority on the proposition that where the question of jurisdiction of the authority passing the impugned order is raised, the remedy of appeal is not adequate and efficacious as the writ jurisdiction of

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the High Court and consequently in such cases, a petition under Article 9 of the Provisional Constitution would be competent.‖

387 Powers Of Courts/Administrative Jurisdiction 99.

Where appeal was dismissed by appellate authorities on ground of limitation and this order was in accordance with law, held writ petition against such order was not competent

Ghulam Rasool v. Income Tax Officer, Rahimyarkhan and another [1975] 31 TAX 153 (H.C.Lah.) ―The Appellate Assistant Commissioner dismissed the appeals holding that the appeals were barred by time as the demand notice was served on 29.1.1971 and the appeals were filed on 9.3.1971. The Appellate Tribunal affirmed the decision and held that the delay in filing appeals before the Appellate Assistant Commissioner remained unexplained and the Appellate Assistant Commissioner rightly refused to interfere with the orders of assessment. On these facts the High Court: Held, that the petitioners have not succeeded in bringing their petitions within the ambit of Article 199 of the Constitution. Each one of the orders passed by the authorities in the hierarchy of the Income Tax Department is perfectly within their jurisdiction and in accordance with law. The writ petitions fail and are dismissed.‖ 100. Writ not maintainable in the presence of adequate and efficacious alternate remedy

Sh. Abdul Hakeem v. Centeal Board of Revenue, etc. [1975] 31 TAX 105 (H.C.Lah.) ―The application dated 19.12.1970 submitted by the advocate of the petitioner, clearly shows that the petitioner agreed to be assessed on consolidated income for the ―years agreed at‖ and according to the Authorities he has been assessed to tax strictly according to his agreement. If this be the correct position, then even if the impugned order is found to have been passed without lawful authority, the petitioner is nevertheless disentitled to any relief in the exercise of the equitable writ jurisdiction of the Court.‖

388 Principles of Income Tax Law 101. Constitutional petition does not become competent for the mere fact that order-in-original has become final

Shahtaj Sugar Mills Ltd. through Chief Executive v. G.A. Jahangir and 2 others [2004 PTD 1621 (H.C. Lah.)] ―This Court in extraordinary jurisdiction does not sit as a Court of appeal against the orders of the Tribunals when these have been recorded by a competent authority observing all procedural rules including rule of natural justice….Mere fact that the order-in-original has become final in absence of any appeal before the hierarchy provided for under the law does not make a Constitutional petition competent. The claim that the Revenue refused to make a revision on the aforesaid ground again does not make a Constitutional petition competent.‖ 102. Writ is converted into appeal u/s 136

Karachi Properties Investment Co. (Pvt.) Ltd, Karachi v. Income Tax Appellate Tribunal, Karachi and another [2004 PTD 948 (H.C. Kar.)] ―The request of Mr. Shahenshah Hussain for converting the petition into the appeal is therefore, accepted and the petition is treated as an appeal under section 136 of the Income Tax Ordinance, 1979. However, we would like to clarify that this indulgence is being shown for the reason that appeal was also filed within the period of limitation, which was withdrawn under wrong perception of law and this petition was filed within the period of limitation provided for filing appeal. Any other person ignoring the forum of appeal/reference provided in statute and filing a writ petition only, particularly after expiry of period of limitation for filing appeal/reference, shall not be entitled for this concession. The reason being that such course would tantamount to negate the provisions contained in Article 199 of the Constitution and the period of limitation prescribed in law. It requires no emphasis that the scope of appeal is much wider as compared to the rectification of mistake, as envisaged under section 156 of Income Tax Ordinance, 1979. In

389 Powers Of Courts/Administrative Jurisdiction

Appeal/Reference proceedings, an aggrieved party is allowed to raise all the questions of law, arising out of the findings of facts given by the Tribunal. However, in case of rectification before the Tribunal, the objection, which is allowed to be raised is restricted to the rectification of mistake apparent from the record.‖ 103. Constitutional jurisdiction cannot be invoked for mere fact that no further remedy by way of appeal/revision is available

Mehtab Industries Ltd. Sahiwal v. DCIT/WT and 3 others [2002] 86 TAX 65 (H.C.Lah.) = 2002 PTD 324 ―Learned counsel for the petitioner is correct in point out that after the order of the Tribunal, the assessee has no further remedy to avail. However, that fact alone will not require this Court to sit as a Court of appeal while exercising Constitutional Jurisdiction to decide contentions matters both on fact as well as on application of certain provisions of law in the given facts. Where the law contemplates an end to proceedings after a decision in appeal or revision, this Court will not convert itself into a Court of further appeal where the law has not provided one.‖

Chapter XII Rule of Evidence 1.

Income Tax Authorities to establish by positive evidence that assessee‟s accounts are unreliable

Amin Bricks Company v. CIT, (Revision) etc. [(1996) 74 Tax 227 (H.C.Lah)] ―The contention of the learned counsel for the department that no obligation is cast on Income Tax authorities to establish by positive evidence that the assessee‘s accounts are unrealisable, seems to be misconceived; the power of assessing officer under the law is not merely discretionary power but amounts to a statutory duty; it is not a purely subjective or arbitrary exercise of discretion and is required to be exercised judicially and adverse inference cannot be drawn unless the assessing officer is satisfied that the accounts have been suppressed by the assessee.‖ 2.

Standard of proof

Syed Akhtar Ali v. CIT, Hyderabad [(1994) 69 Tax 38 (H.C.Kar)] ―It is always to be remembered that the standard of proof applicable to prove a positive fact and the one which is required to prove a negative fact cannot be the same. A high standard is always applied for the proof of a positive fact while the standard of preponderance of probability is sufficient to prove a negative fact. The assessee is required to prove that the failure to return correct income did not arise from any fraud or gross or wilful neglect. The assessee merely has to place materials of the primary facts or the circumstances which in all reasonable probability would show that he was not guilty of any fraud or gross or wilful neglect. He may discharge this onus by placing the facts 393

found in the assessment order to show that the facts found therein had not in the least given an inkling of fraud or gross or wilful

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neglect, on the part of the assessee and, therefore, it must be held without proof of any other fact that there was no fraud committed by the assessee in his failure to return the correct income nor was he acting grossly or wilfully negligently.‖ 3.

Qanoon-e-Shahadat Ordinance is applicable to Income Tax Ordinance, 1979

Mrs. Rani v. Commissioner of Wealth Tax Lahore [(1992) 66 Tax 89 (H.C.Lah.)] ―The Qanoon-e-Shahadat Order, 1984 has been made applicable to all judicial proceedings before any court, a tribunal or any other authority exercising judicial or quasi-judicial powers or jurisdiction except an arbitrator. The scope of applicability of Qanoon-e-Shahadat Order, 1984, is thus much larger than that of Evidence Act, 1972. It cannot be doubted that the proceedings before the Income Tax Authorities are judicial in nature and further that they are exercising quasi-judicial, if not judicial powers.‖ The applicability of the Qanoon-e-Shahadat Order, 1984 to tax proceedings under the Income Tax Ordinance, 1979 is, therefore, established. 4.

A judge cannot be compelled to accept a piece of evidence

Miss Asia v. Income Tax Appellate Tribunal etc. [(1980) 41 Tax 1 (S.C.Pak)] ―There is no rule of law compelling a judge to accept evidence, even though it is uncontradicted, which he believes to be a pack of lies.‖ 5.

Provisions of Evidence Act not proceedings under Income Tax Act

applicable

to

CST/CIT, Rawalpindi v. Pakistan Television Corporation Ltd. [(1978) 38 Tax 181 (H.C.Lah.)] ―It is correct that the Evidence Act is not applicable to the proceedings under the Income Tax Act.‖ 6.

Fresh evidence cannot be admitted in appeal unless requirements of section 131(4) are fulfilled

395 Rule Of Evidence

[2003 PTD (Trib.) 307] ―After hearing both the parties we are of the opinion that the provisions of section 131(4) are mandatory inasmuch as these bar the AAC from admitting an evidence, except in special circumstances which did not exist in this case. As learned DR rightly argued neither the appellant was prevented by sufficient cause from producing any evidence, nor the AAC has mentioned any such eventuality in his order. Further, it is also evident that during the hearing of the appeal of the assessee the AAC totally ignored the written reply/comments of the DCIT. He even did not allow her attendance to represent the departmental case during hearing of the appeal. Note: This case is applicable prior to promulgation of Qanun-iShahadat Order 1984. 7.

Statement in power of attorney not proof in itself

Siva Pratab Bhattadua v. CIT [1 ITC 323 (Madras)] ―It is argued that the power of attorney, which was filed by the agent, stated that it was a joint family, but a statement in a power of attorney would not prove itself. It will be like any other statement made by a person.‖

Chapter XIII Doctrine of Binding Precedent (Stare decisis) The doctrine of stare decisis is one of the policy grounded on the theory that justice and certainty require that the established legal principle, under which right may accrue, be recognised and followed. In Constitution of Pakistan, this doctrine is reflected in Article 189 and 201 which read as under: ―189. Any decision of the Supreme Court shall, to the extent that it decides a question of law or is based upon or enunciates a principle of law, be binding on all other courts in Pakistan.‖ ―201. Subject to Article 189, any decision of a High Court shall, to the extent that it decides a question of law or is based upon or enunciates a principle of law, be binding on all courts subordinate to it.‖ 1.

Division Bench of a High Court cannot disagree with another Division Bench without reference to a larger bench or should leave the matter to be decided by Supreme Court

Multiline Associates v. Ardeshir Cowasjee [PLD 1995 SC 423] ―In such circumstances, legal position which emerges is that the Second Division Bench of the High Court should not have given finding contrary to the findings of the 1st Division Bench of the same court on the same point and should have adopted the correct method by making a request for constitution of a larger Bench, if a contrary view had to be taken. In support reference can be made to the cases of the Province of East Pakistan vs. Azizul Islam PLD 1963 SC 296 and Sindheswar Ganguly vs. State of West Bengal 397

398 Principles of Income Tax Law

PLD 1958 SC (Ind.) 337, which is the case of Indian Jurisdiction. We, therefore, hold that the earlier judgement of equal Bench in the High Court on the same point is binding upon the Second Bench and if a contrary view had to be taken, then request for constitution of a larger Bench should have been made.‖ Province of East Pakistan v. Dr. Azizul Islam [PLD 1963 SC 296] ―If there is decision which constitutes direct authority on a question by High Court another Bench of same strength of the High Court if inclined to take to a different view they should have referred the matter to a larger Bench. Alternately, they could have expressed their doubts regarding the view taken in the precedent case in a court of equal strength, while yet following the view and left the matter to be raised in appeal before Supreme Court.‖ 2.

In case of difference of opinion between benches of equal strength, larger bench should be formed

Government Employees Cooperative Society, Lahore v. Income Tax Officer, Circle-07, Lahore [2004 PTD 62 (H.C. Lah.)] ―Now we advert to the third question as to whether the learned Tribunal should have referred the matter for decision to a larger Bench in view of earlier judgment of a co-equal Bench in I.T.A. Nos. 3381-3391/LB of 1984-85 and I.T.A. Nos. 36863693/LB of 1984-85. It has been contended that in the above referred judgments, dated 31.3.1986 and 20.11.1989 passed by a learned Division Bench of Income Tax Appellate Tribunal in earlier case, deduction on account of overhead expenses at flat rate of 10% was allowed to Cooperative Housing Societies like Lahore Cantonment Housing Society from bank interest income, which could not have been denied by a subsequent Division Bench through impugned order, dated 23.5.1995 to the present assessee. In the referred judgments of Hon‘ble Supreme Court of Pakistan in the cases of “Province of East Pakistan v. Dr. Aziz Islam” (PLD 1963 SC 296), and ―Multiline Associates v. Ardeshir Cawasjee and 2 others” (PLD 1995 SC 223), it has been held that

399 Doctrine of Binding Precedent (Stare Decisis)

where a different or contrary rule was reached by an equal Bench in co-equal jurisdiction from an earlier judgment of the same Court, the matter should normally be referred to a larger Bench for decision or should be left to be raised in appeal before he Hon‘ble Supreme Court of Pakistan. The ratio of these judgments is that when a Bench of co-equal jurisdiction adopts a view different or contrary to the view earlier expressed on principles by a Bench of equal jurisdiction, the legal propriety demands reference of the case for constitution of a larger Bench or be left to be settled in appeal by the higher Court.‖ 3.

All judges of a High Court sitting together much less to say of a Judge in Chambers cannot declare a judgment of the apex Court to be per incuriam

Messrs International Tanners & Industries (Pvt.) Ltd. Lahore v. Federation of Pakistan through Secretary Finance, Government of Pakistan, Islamabad and 2 others [2004 PTD 2180 (H.C. Lah.)] ―All judges of a High Court sitting together much less to say of a Judge in Chambers cannot declare a judgment of the apex Court to ber per incuriam. The term ―per incuriam‖ in Concise Law Dictionary by Osborn 1964 Edition is defined as ―a decision of the Court which is mistaken‖. A decision of the Court is not a binding precedent if given per incuriam, i.e., without the Court‘s attention having been drawn to the relevant authorities, or statutes.‖ The Dictionary of English Law by Earl Jowitt, 1959 Edition defines the word ―per incuriam‖ through want of care, a decision or dictum of a Judge which clearly is the result of some oversight.‖ In Halsbury‘s Laws of England, Third Edition, Vol. XXII, P-800 as summarized by Mr. S.M. Zafar, Advocate in his book/Judge made Laws the subject has been treated as follows:– ―A decision is given per incuriam when the Court has acted in ignorance of a previous decision of the House of Lords, of its own or of a Court of coordinate jurisdiction which covers the case before it.

400 Principles of Income Tax Law

(2) A decision may also be given per incuriam when it is given in ignorance of the terms of same inconsistent statute or a rule having the force of a statute.‖ 4.

Pre-partition judgements are binding unless overruled by Pakistani courts

Ramkola Sugar Mills Ltd. v. CIT, Punjab & NWFP [(1960) 2-Tax (Suppl.-29) (S.C.Pak)] ―The judgement of Indian courts are binding, unless overruled by Pakistani Courts, having being pronounced prior to the partition of the Sub-Continent.‖ 5.

Where judgments of the Pakistani Courts are available they will prevail over the Indian judgments.

[(2004) 90 TAX 128 (Trib.)] ―Now I come to the last para 29 of the learned Accountant Member‘s order whereby he supported initiation of proceedings u/s 66A at the behest of audit and inspection report. In observing so he relied upon a case law reported as [(2000) 81 Tax 135 (HC)]. With due respect to learned Accountant Member I am of the considered opinion that initiation of provisions of section 66A is suo moto by the IAC and not on the direction, report information, instruction etc. of some other authority including the appellate authorities or the agency. It is a settled principle of law and the learned Accountant Member has unsettled the well established principle of law whereas in other cases the learned Accountant Member has approved this principle. It may be observed here that the case law relied upon firstly relates to section 147(b) of the Income Tax Act which corresponds to section 65 of the Income Tax Ordinance, 1979 whereas the proceedings in the present case have been initiated u/s 66A which are quite distinct to section 65. Therefore, so many judgments have been delivered by the Pakistan as well as those of Indian Origin on this score which are in favour of the appellant. Thirdly, when the judgments of the Pakistani Courts are available those will prevail over the Indian Judgments. In the case reported as [1989 PTD 591] it has been held that when a case law of our country is available then there is no need to

401 Doctrine of Binding Precedent (Stare Decisis)

follow the judgments of Indian origin. Fourthly, the facts and circumstances of that case are distinguishable biz the available in the present case. Further, the issue of initiation of proceedings u/s 66A at the behest of the audit party/audit note has never been approved by the higher courts. In this regard a case law reported as [NTR 1991 Trib 21] is cited wherein it was observed as under: ―A bare perusal of the language of section 66A leaves us in no doubt that power u/s 66A of the Ordinance is independent and suo moto as it apparent from the use of words ―if he considers‖. There is no doubt in concluding that consideration is of the learned IAC without any directions and after perusal and examination of record of any proceedings. In PLD 1972 Lahore 316 it was laid down that the officer having power is required to decide himself without any directions. Same view was taken in 1990 PTD 974. In this view of the matter issuance of notice and assumption of powers by the learned IAC u/s 66A of the Ordinance on the directions of the learned CIT (A) was without any lawful authority. Assumption of powers by the learned IAC u/s 66A of the Ordinance on the directions of the learned CIT(A) was without any lawful authority.‖

402 Principles of Income Tax Law 6.

Per incuriam judgement of even the highest court is not binding

Abdul Razzak v. The Collectors of Customs [1995 CLC 1435 (Karachi High Court)] ―A per incuriam decision, even of the highest court, does not bind any other court and it matters little that such court itself be at the lowest rung of the hierarchy of courts.‖ [(1999) 79 Tax 1 (Trib.)] ―.... Therefore, its conclusion which was otherwise based upon the alleged commercial expediency, a term borrowed from the aforesaid judgement from Indian jurisdiction, resulted in a decision which can only be described as per incuriam.... We accordingly, overrule the decision on this issue, of the Division Bench.....‖ [(1999) 79 Tax 153 (Trib.)] ―We are, therefore, not persuaded to agree with the contentions of the learned representatives for the Department that the issue already stands decided by the judgements of earlier Division Benches and Full Bench of this Tribunal, which is biding on us. It has been held by the erstwhile West Pakistan High Court, Karachi Bench in the judgement reported as PLD 1963 (W.P.) Karachi, 280 that the law of precedent is not applicable to per incuriam judgements, which carry no binding force.‖ 7.

Deviation from an earlier finding without reference to the same also makes a judgment per incuriam.

[(2004) 89 TAX 418 (Trib.) = 2004 PTD (Trib.) 752] ―Unfortunately this judgment [1998 PTD 3718 (Trib.) has also not been produced by the either side before the said D.B./Deviation from an earlier findings without reference to the same also makes a judgment per incuriam. In this regard it is worth-mentioning here the learned AR later conceded to the extent that this acknowledgement slip is an order as have been so declared by the Legislature. However, he repeated that the same being not on the record of the Department, cannot be

403 Doctrine of Binding Precedent (Stare Decisis)

cancelled. This argument is also not of any help. In fact the return form is in triplicate, the first copy of which is kept by the bank and the duplicate one is returned to the taxpayer after due seal and signatures of the Income Tax Authority while the third copy which is also duly filled in and stamped by the bank is retained in the assessment record. It also bears the same language as is obtaining in the other copies. It is subsequently entered in Demand and Collection Register and all other departmental formalities are also completed except dictating an order by the designated departmental officer, which requirement has already been completed in the prescribed pro forma by the Legislature. One more factor which requires mentioning is that in the second part of the said return which deals in total income and payment of tax etc. the words used are ―total income and Tax Assessed‖ it means that the pro forma has been prescribed ultimately to make the same more as an order than an income tax return.‖ 8.

Reliance on foreign cases in the presence of contrary view taken by Pakistani courts is strongly disapproved

Nishat Talkies Karachi v. CIT [(1989) 60 Tax 45 (H.C.Kar.) = PTCL 1989 CL 660] ―We disapprove the practice of not considering and relying upon the judgements of our Superior Courts. It is the duty of every court and tribunal in Pakistan to follow the judgements of Supreme Court. Under Article 189 of the Constitution any judgement of the Supreme Court which decides a question of law or enunciates a principle of law is binding on all Courts in Pakistan. Likewise and in the same terms, Article 201 provides that subject to Article 189 all judgements of the High Court are binding on all the Courts subordinate to it. We hope in future learned Tribunal will be careful in this regard.‖

404 Principles of Income Tax Law 9.

Principles of “stare decisis”

Shahtaj Sugar Mills Ltd. through Chief Executive v. G.A. Jahangir and 2 others [2004 PTD 1621 (H.C. Lah.)] ―Even in Messrs Pfizer Laboratories Ltd. (supra) the Hon‘ble apex Court observed that a petitioner should not suffer from laches which may defeat the claim. Further that a party could not claim/refund of an amount paid to a Government functionary under a mistake without any constraint of limitation as that would adversely affect the good governance in financial matters. The judgment of the Hon‘ble Supreme Court of Pakistan in re: Pir Bakhsh v. Chairman, Allotment Committee (PLD 1987 SC 145) gives most valuable reading of the law of precedent, stare decisis and res judicata.‖ CIT, Lahore Zone, Lahore v. Badar Ice Factory, Lahore [1981] 43 TAX 100 (H.C.Lah.) ―The Tribunal agreed with the departmental representative‘s assertion that each assessment is final and conclusive and should not be allowed to operate as estoppel or res judicata on the other assessments, but it was of the view that as a general rule it would not be permissible to abandon a consistently applied formula. It accordingly directed the Income Tax Officer to work out the assessee‘s income on the tank capacity basis, after taking into consideration admissible allowance. The Income Tax Officer had in this particular case, rejected the prevailing 1/3rd tank capacity formula and applied his own formula, which according to him was a better one. The formula suggested by the Income Tax Officer did not find favour with the Tribunal, and we have no doubt that a more accurate formula could have found favour with the Tribunal, as it itself rejected the department‘s plea of stare decisis. Having found that the formula suggested by the Income Tax Officer was neither lucid nor certain and that it was dependent upon varied and uncertain factors, which in turn were capable of manipulation, and adoption of such a formula could result in

405 Doctrine of Binding Precedent (Stare Decisis)

arbitrariness, it was within the competence of the Tribunal to reject the same.‖ 10.

Binding judgements and conduct of different Benches

Murad Ali v. Collector of Central Excise & Land Customs [PLD 1963 W.P. Karachi 280] ―The decorum and dignity requires that a Division Bench should have respect for the decision given by the other Division Benches and in case it intends to take a different view it should made a reference to a Full Bench.‖ Bashir Ahmad v. State [PLD 1960 Lahore 687] ―(1) The decision of the Full Bench of the Court cannot be dissented from by a Division Bench or a Single Bench. (2) The decision of a Division Bench of the Court cannot be dissented from by a Single Bench. (3) The decision of a Division Bench of the Court can be dissented from by another Division Bench or even by the same Bench and may be overruled by a Full Bench but it cannot be dissented from by a Single Bench and (4) The decision of a Single Bench can be dissented from by another or the same Single Bench and can be overruled by a Division Bench or a Full Bench.‖ Jamal v. The State [PLD 1960 Lahore 1962] ―....a decision of a Division Bench was not binding on another Division Bench. It is unnecessary to give here elaborate reasons for that view and all that needs to be said is that it is not obligatory for a Division Bench if it does not agree with the view of another Division Bench to follow the views it does not agree with, and in case it is not prepared to do this, to refer the case to a Full Bench.‖ 11.

Controversy prevailing between two Division Benches resolved

[2004 PTD (Trib.) 2786]

406 Principles of Income Tax Law

―This answer to the proposition in hand settled the controversy hat arose because of two different views given by the two Division Benches of the Income Tax Appellate Tribunal. However, the other issue in this case shall be decided by the concerned Division Bench, as the same were not subjectmatter of the Full Bench.‖ 12.

“Stare decisis”, meaning of

[2003 PTD (Trib.) 835] ―What emerges from the above in relation to per incuriam is that any judgment, a statute or a precedent or given as a result of lack of care or through inadvertence shall be said to be per incuriam. 13.

Even obiter dictum of Supreme Court is binding on all courts in Pakistan

[(1999) 79 Tax 100 (Trib.)] ―....but even if such pleas is raised for the reason that the reference of revisional order in the judgement of Honourable Supreme Court is an obiter dictum, the contention would not be acceptable for the reason that even obiter dictum of the Honourable Supreme Court is binding on all courts in Pakistan. Thus after the above observation of Honourable Supreme Court in the case of Glaxo Laboratories, no discretion is left with any court in Pakistan to take any contrary view.‖ 14.

Decisions of Income Tax Appellate Tribunal are binding on all subordinate authorities

[(1996) 73 Tax 132 (Trib.)] ―.....a judgement of the Income Tax Appellate Tribunal has the force of precedent which can be inferred from the fact that the judgements of those Courts and Tribunal which are reported in the law journals under the Law Reports Act, 1875 which have the force of precedent. Explanation to Section 5 of the Law Reports Act, 1875 reads as follows:―Explanation: For the purpose of this Act the expression, Court or Tribunal includes the Federal Shariat Court, A Service Tribunal, the Income Tax

407 Doctrine of Binding Precedent (Stare Decisis)

Appellate Tribunal and the National Industrial Relations Commission‖.‖ 15.

English decisions in pari materia and their binding value

Commr. Income Tax v. Anantapur Gold Mines [1 ITC 133 (Madras)] ―As regards this particular case, I will only say that while the Commissioner has rightly based his decision on the language of the Indian section, which differs materially from the corresponding section of the English Act, he has fallen into error in supposing that in Imambandi vs. Mutsaddi [(1918) I.L.R. 45 Cal. 878; 45 I.A. 73: 35 M.L.J. 422; 16 A. L.J. 800: 24 M. L.T. 330; 28 C.L.J. 409; 23 C.W. N. 50; 5 P.L.W. 276; 20 Bom. L.R. 1022; (1919) M. W.N. 91; 9 L.W. 518; 47 Ind. Cas. 513], the Privy Council deprecated the practice of referring to English decisions, which are the basis of so much of our law in India. The decisions in question were American decisions and were correctly described as foreign, an adjective which is inapplicable and would certainly not have been applied by the Privy Council to the decisions of the English Courts. As regards income tax, the Indian Act generally follows the lines of the English Act, and where the provisions are similar, English decisions are the best guide to their meaning. The revenue authority no doubt may not always find it easy to apply them, and that is one reason why the Act empowers and requires it to make a reference to the High Court in appropriate cases.‖

408 Principles of Income Tax Law 16.

Difference of opinion vis-à-vis controversy explained

[2004 PTD (Trib.) 2300] ―Per SYED NADEEM SAQLAIN (Judicial Member). – I have gone through the observations made by my learned brother the Accountant Member and examined the questions framed by him. I would like to say that present appeal has not been accepted for the reason that the Assessing Officer failed to obtain double approval from the IAC and also that this issue has not been discussed or made basis for adjudicating the appeals. It is to be noted that current appeals were decided for the reason that the Assessing Officer did not comply with the statutory provisions of section 13, which fact stands admitted by the learned CIT(A) in his impugned judgment and I am of the considered view that he erred in law to set aside the case and remand it back to the Assessing Officer, to provide him an opportunity to make up the deficiencies which is not permissible under the law. Therefore, in my view the question for adjudication of a 3rd Member should be framed as under: Since difference of opinion has arisen between the two members, the Honourable Chairman is requested to mark this case to a 3rd Member for his opinion on the following question:―Whether on the facts and circumstances of the case the assessee‘s appeal should be accepted or rejected?‖ 17.

A case is only an authority for what it actually decides and cannot be relied on for a proposition that may logically arise from it

Shahtaj Sugar Mills Ltd. through Chief Executive v. G.A. Jahangir and 2 others [2004 PTD 1621 (H.C. Lah.)] ―In re: Trustees of the Port of Karachi v. Muhammad Saleem (1991 SCMR 2213) the Hon‘ble Supreme Court of Pakistan referred to the dictum settled in (1898) ACT 375 and Quinn v. Leathem (1901) AC 495 to affirm the basic principle of law of precedent, as we understand it in common law, that every judgment must be read as applicable to the peculiar facts proved,

409 Doctrine of Binding Precedent (Stare Decisis)

or assumed to be proved. Further that generality of the expressions which may be found in the judgment are not intended to be expositions of the whole law, that governed and qualified by the particular facts of the case in which such expressions are to be found. In view of their Lordships a case was only an authority for what it actually decided and that it would not be quoted for a proposition that may seem to follow logically from it. Both the petitioners paid taxes and levies in accordance with law or at least their understanding of law at the relevant time without any objection on their part. Had there been any reservation or objection on their party the would have agitated the same whereupon the process of raising of demand on recording of an assessment order would have started. The principle settled by the Hon‘ble apex Court in the judgments relied upon was therefore, not available to them as they were not party to it. The matter as far their cases were concerned matured into a past and closed transaction after the expiry of the statutory period to make an application for refund. According to rule 11 of the Central Excise Rules, 1944 and section 66 of the Sales Tax Act, 1990 refund of levy paid through inadvertence, error or misconstruction can be claimed and made only within a period of one year. The inadvertence, error or misconstruction contemplated in the rule as well as section 66 of the Act refers to the inadvertence, error or misconstruction on the part of any of the parties, the taxpayers or the Revenue, as it existed on the date of issuance of a notice or actual payment of the levy. In both cases there cannot be said to be an inadvertence, error or misconstruction on the part of the petitioners or the Revenue as on the date the payment was made or a demand was raised through an order-in-original. The findings of the Hon‘ble Supreme Court recorded subsequently though in similar facts cannot be made a reason or a basis to allege existence of inadvertence, error or misconstruction on the part of any of the parties at the relevant time.‖

Chapter XIV Doctrine of Merger 1.

Doctrine of Merger

Glaxo Laboratories Ltd. v. IAC of Income Tax, & Others [(1992) 66 TAX 74 (S.C.Pak.) = 1992 PTD 932 = PLD 1992 SC 549] ―Section 66A authorises IAC to examine and initiate action if the decision is erroneous and prejudicial to the interest of revenue. The IAC did not have the jurisdiction or power to initiate same action in respect of the orders passed by the appellant authorities or the Tribunal. However, as observed above such power has now been vested in IAC from the year 1991. The controversy is whether after the appellate authority has passed an order the IAC can still go to take action u/s 66A. In Corpus Juris Secundum, Volume 57, at page 1067 words Merge and Merger have been defined as follows:―The verb to merge has been defined as meaning to sink or disappear in something else, to be lost to view or absorbed into something else, to become absorbed or extinguished, to be combined or be swallowed up. Merger is defined generally as the absorption of a thing of lesser importance by a greater, whereby the lesser ceases to exist, but the greater is not increased, an absorption or swallowing up so as to involve a loss of identity and individuality.‖ CIT v. Farrokh Chemical Industries [(1992) 65 TAX 239 (S.C.Pak) = 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 assessment order made by ITO was 411

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reopened u/s 65 and a revised assessment was framed which has been set aside by the Tribunal. Thus, the order of the ITO has merged in the order of the Tribunal which holds the field.‖ CIT, Karachi v. Sadruddin [(1985) 51 Tax 83 (H.C.Kar.)] ―The view that has consistently been prevailing and has been followed is that after the Appellate Court has passed an order, the order of the Original Court is merged into it.‖ 2.

On appeal original order ceases to exist and merges itself in the appellate order

CIT, Faisalabad v. Chief Glass House [(1992) 65 Tax 205 (H.C.Lah.)] ―Indeed it is well recognised general principle that on appeal the original order ceases to exist and merges itself in the appellate order of variance. As a necessary corollary, with all the proceedings taken in pursuance to the original order would be washed away and obliterated.‖

Chapter XV Legal Maxims 1.

Audi alteram partem

CIT, Pakistan v. Fazlur Rehman & Sayeedur Rehman [(1964) 10 Tax 49 (S.C.Pak) ―No man should be condemned unheard is not confined to courts but extends to all proceeding by whomsoever held which may affect the person a property or other rights of the parties concerned in the dispute, and the maxim [audi alterm partem] will apply with no less force to proceedings which affect liability to pay a tax.‖ Siemens Pakistan Engineering Ltd. v. Federation of Pakistan & other [(1999) 79 Tax 605 (H.C.Kar.) = 1999 PTD 1358] ―Audi alteram partem i.e. no one shall be condemned unheard is a universally established principle of law. This rule is applicable to both judicial and non-judicial proceedings (1994) SCMR 2232).‖ Anisa Rehman v. PIAC [1994 SCMR 2232] ―No order is maintainable if affected person is denied his right of audi alteram partem.‖ Mian Aziz Ahmad, Lahore v. CIT, Lahore [(1979) 39 Tax 1 (H.C.Lah.)] ―The right to be heard is not confined to proceedings which are judicial in form. The maxim no man shall be condemned unheard is not confined to courts but extends to all proceedings, by whomsoever held which may affect the person or property or other right of the parties concerned in the dispute, and the maxim will apply with no less force to proceedings which affect liability to pay a tax.‖ 413

414 Principles of Income Tax Law

Muhammad Khan and Others v. Ghazanfar Ali & Others [AIR 1920 Lahore 247] ―Orders violating the principles of audi alterm partem are void.‖ [2003 PTD (Trib.) 307] ―The learned DR argued that dictum audi alteram partem applies to all proceedings of judicial or quasi-judicial nature and it squarely applies even when an appeal of the assessee against the department is heard by the AAC or Commissioner of Income Tax (Appeals), as the department is a party to the case. In view of the above observations we set aside, the order of the AAC with the direction to the first Appellate Authority to examine the written reply/comments of the DCIT, the author of the assessment order, and also give the DCIT a fair opportunity of being heard and represent the case of the department. He should, after hearing both the sides, pass such a judicious order as required under the law.‖ 2.

Approbate and reprobate

Guarantee Engineers (Pvt.) Ltd. v. Federation of Islamic Republic of Pakistan through Secretary, Ministry of Finance, Islamabad and another [2000] 82 TAX 131 (H.C.Lah.) ―Mere reading of sub-clause (2) of clause (54) clearly reveals that petitioner has to pay income tax in accordance with the prevailing Income Tax Law of the Government of Pakistan, therefore, petitioner is estopped to agitate the matter before High Court on the well-known principle of approbate and reprobate as per rule laid down by the Hon‘ble Supreme Court in Ghulam Rasool‟s case (PLD 1971 SC 376). The petitioner wants enforcement of contract, through constitutional jurisdiction which is not permissible as per principle laid down by the Hon‘ble Supreme Court in the following judgements:PLD 1958 SC 267 (The Chandpur Mills Ltd. vs. The District Magistrate, Tippera etc.).

415 Legal Maxims

PLD 1962 SC 108 (Messrs Momin Motors Co. vs. The Regional Transport Authority, Dacca etc.). 1999 YLR 950 (Muhammad Insar etc. vs. Administrator, Town Committee, Kabirwala and 4 others).‖ 3.

Casus Omissus

State Cement of Corporation (Pvt.) Ltd. v. Collector of Customs Karachi [PTCL 1999 CL 1] ―We are not impressed by this argument.... The provision in question being clear and unambiguous it was not a case of casus omissus.‖ Hansraj Gupta v. Dhera Dun Mussorai Electric & Tramway Co. Ltd. [AIR 1933 PC 63, 65] ―A casus omissus cannot be supplied by the court except in the case of clear necessity and when reason for it is found in the four corners of statutes itself....‖ 4.

Ejusdem generis

Jamat-i-Islami Pakistan through Syed Munawar Hassan, Secretary General v. Federation of Pakistan through Secretary, Law, Justice and Parliamentary Affairs & Muttahida Qaumi Movement (MQM) through Deputy Convener, Senator Aftab Ahmad Sheikh v. Federation of Pakistan through Secretary, Ministry of Interior, PLD 2000 S.C. 111 ―The doctrine of ejusdem generis is well-settled. It means that where general words follow an enumeration of persons or things, by words of a particular and specific meaning such general words are not to be construed in their widest extent, but are to be held as applying only to persons or things of the same general kind or class as those specifically mentioned. However, the doctrine will apply when there is nothing in the provision or Act to show a wider sense was not intended or the intention to give to the general term a broader meaning than the doctrine requires was not manifested.

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General terms following particular ones apply only to such persons or things as are ejusdem generis with those comprehended in the language of the legislature. In other words, the general expression is to be read as comprehending only things of the same kind as that designated by the preceding particular expressions, unless there is something to show that a wider sense was intended. The rule of doctrine of ‗ejusdem generis‘ will apply unless intention to the contrary is clearly shown. Where general words follow the enumeration of particular classes of persons or things, the general words, under the rule or maxim of construction known as ‗ejusdem generis‘, will be construed as applicable only to persons or things of the same general nature or class as those enumerated unless an intention to the contrary is clearly shown. The doctrine applies when the following five conditions exist: (1) The statute contains an enumeration by specific words; (2) the members of the enumeration constitute a class; (3) the class is not exhausted by the enumeration; (4) a general term follows the enumeration; and (5) there is not clearly manifested an intent that the general term be given a broader meaning than the doctrine requires.‖ Prime Commercial Bank and others v. ACIT [(1997) 75 Tax 1 (H.C.Lah.) = 1997 PTD 605 = PTCL 1997 CL 29] ―....the provision itself which if read as a whole leaves no room to hold that the words (special deposit receipt) must be interpreted ejusdem generis and must take colour from the preceding and subsequent words.‖ 5.

“Expressio unius est exclusio alterius”

Micropak (Pvt.) Ltd., Lahore v. Income Tax Appellate Tribunal, Lahore and 2 others

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[2001] 83 TAX 451 (H.C.Lah.) = 2001 PTD 1180 ―In the present case at the relevant time the express mention of the word ―loan‖ excluded all other similar or equivalent terms, transactions, or nature of the receipts. No maxim of law was of more general and uniform application than ―expressio unius est exclusio alterius‖. Whenever a statute limits a thing to be done in a particular form, it necessarily includes in itself a negative, viz. that the thing shall not be done otherwise. The purpose of introduction of the provisions of section 12(18) of the Ordinance at the relevant time was to check fictitious loans and it was after quite some time that it was realized that the scope of the provisions needed to be expanded. No addition of the kind could possibly be made nor the defence taken by the assessees rejected without recording a finding of fact that these sums were injected in the business and were used as capital, circulating or otherwise. In other words the defence of the assessees could have been demolished only by recording a finding of fact that the alleged share deposit monies were factually used in the business and therefore, could be taken as ―loan‖ taken for catering the capital needs of the companies.‖ 6.

“Expressio unius est exclusio alterius” (express mention of one thing implies the exclusion of another) was neither absolute nor was of universal application

CIT/WT, Multan Zone, Multan v. Allah Yar Cotton Ginning & Pressing Mills (Pvt.) Limited, Multan Road, Vehari [2000] 82 TAX 433 (H.C.Lah.) = 2000 PTD 2958 ―The rule that express mention of one is exclusion of the rest is neither absolute nor is of universal application.‖

418 Principles of Income Tax Law 7.

Ex abundanti cautela

Beli Ram & Bros. v. CIT [(1935) 3 ITR 103 (Lah) & AG v. Aramago [(1925) 9 TC 445 (HL) ―An assessment which is made ex abundanti cautela by the assessing authority is called protective or precautionary assessment or alternative assessment. When the department has any doubt as to person who is or will be deemed to be in receipt of the income, protective or alternative assessment is permitted. Thus there is no double assessment if the first assessment is void.‖ 8.

Generalia specialibus non derogant

CIT, East Pakistan, Dacca v. Engineers Limited, Dacca [1967] 16 TAX 81 (S.C.Pak.) ―The scope of clause (xvi) [parallel to section 23(i)(xviii) of Income Tax Ordinance, 1979] which is residuary in nature is thus wholly different from the sums included in clauses (xii), (xiv) and (xv). There being no similarity of subject matter between clauses (xii), (xiv) and (xvi) of section 10(2) the rule generalia specialibus non derogant was clearly not attracted.‖ Emperor v. Probhat Chandra Barua [1 ITC 284 (Calcutta)] ―No doubt the maxim generalia specialibus non derogant may be regarded as embodying a good working rule of construction, but when the intention of the legislature to abrogate or modify existing rights is manifest as a necessary implication from the language used, it matters not, in my opinion, that the existing rights are not therein expressly and specifically modified or cancelled.‖ 9.

Mens rea

Pakistan Hardcastle Wand (Pak) v. Federation of Pakistan etc. [PLD 1967 SC 1] ―Even in the case of statutory offence, the presumption is that mens rea is an essential ingredient.‖

419 Legal Maxims 10.

Noscitur a sociis

Kohinoor Industries Ltd. v. Government of Pakistan Etc. [(1994) 70 Tax 11 (H.C.Lah)] ―The words used in statute are to receive the meaning which the context in which they appear admits. Maxwell on Interpretation of Statute 12th Edition at page 289 explains the principle of noscitur a sociis:―Where two or more words which are susceptible of analogous meaning are coupled together, noscitur a sociis. They are understood to be used in their cognate sense. They take, as it were, colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general‖.‖ 11.

No one can be judge in his own cause

New Jubilee Insurance Company Ltd., Karachi v. National Bank of Pakistan, Karachi [PLD 1999 S.C. 1126] ―Before delisting the name of the Insurance Company from the list of approved Insurance Companies, the Bank was not obliged to obtain adjudication as to the genuineness of its claim against the Insurance Policy. The basic question was as to whether there was material available on record on the basis of which a reasonable unbiased person could have concluded that there was no basis for rejection of the claim. In the present case if the Bank would have invoked section 44-B, of the Insurance Act, and if the second surveyor would have given report to the effect that the Insurance Company‘s rejection of the Banks claim was unjustified/unwarranted by law, it would have been justified to delist the Company from the list of approved Insurance Companies. Bank did not opt to get an independent surveyor appointed by the Controller of Insurance under sub-section (1) of section 44-B of the Act, nor it had recourse to the remedies provided under the Insurance Policy, namely, arbitration, nor it invoked the jurisdiction of a competent court of law. The Bank had itself adjudicated upon the question of genuineness and

420 Principles of Income Tax Law

correctness of its claim. In other words it had become a judge in its own cause and delisted the Company‘s name from the list of approved Insurance Companies, and in consequence thereof it carried with it a stigma to the effect that the Company was an Insurance Company which did not honour its legal obligation under the Insurance Policies. The Bank not only delisted the Company from the list of approved Insurance Companies, but circulated the copy of the same inter alia to all of their offices and branches.‖ 12.

Things should be done as per law as not to be done at all

Muhammad Saleem Chotia, Advocate v. Zafar Iqbal Owasi, Advocate, Bahawalnagar and 4 others [PLD 1999 Lahore 446] ―Where law had provided a thing to be done in a particular manner then it ought to be done in that manner and all other modes of doing it would stand excluded.‖ 13.

Ut res valeat quam pereat

CIT v. Mahaliram Ramjidas [1940) 8 ITR 442 (PC)] ―It is a crucial rule of interpretation of statutes that the words of the statute should be given a sensible meaning so as to make them effective ..... The provisions in a taxing statute dealing with machinery for assessment have to be construed according to the ordinary rules of construction, that is to say, in accordance with the clear intention of the legislature which is to make a charge levied effectively.‖

Chapter XVI Doctrine of res judicata/estoppel 1.

Principle of res judicata - not applicable

CIT, Central Zone B, Karachi v. Farrokh Chemical Industries [(1992) 65 Tax 239 (S.C.Pak) = 1992 PTD 523] ―The doctrine of res judicata does not strictly apply to income tax cases. The previous decisions or findings can be reopened if fresh facts come to light which on investigation would lead to a conclusion different from that of his predecessor.‖ 2.

Doctrine of res judicata not applicable to income tax proceedings

CIT v. Pakistan Industrial Engineering Agencies Ltd. [(1992) 65 TAX 84 (S.C.Pak.) = 1992 PTD 576 = PLD 1992 SC 562] ―It is now well-settled that principles of res judicata cannot be applied to the cases on assessments under the Income Tax Act in the same manner as it is applied in civil proceedings. Reference can be made to CIT vs. Waheeduzzaman PLD 1965 SC 171, which was followed in a recent judgement namely Commissioner of Income Centre Zone B vs. Farrokh Chemical Industries, CAs Nos. 104 to 111 K of 1984. In both the cases the applicability of principles of res judicata was restricted and in the later case following Waheeduzzaman‘s case it was observed as follows: ―It may be reiterated that a previous decision of an Income Tax Authority will not be a bar in the following cases: (i) Where the earlier decision is clearly open to some objections; (ii) if it is a decision which is not reached after proper inquiry; 421

422 Principles of Income Tax Law

(iii) if it is a decision as could not reasonably have been reached on the material before the authority; (iv) it is a decision which suffers from a defect which falls within the purview of the ground mentioned in section 100, CPC and liable to correction thereunder in second appeal, if it were a decision of a Civil Court; and (v) if fresh evidence having a material bearing on the point decided in the previous decision is available. 3.

Income tax officer when not bound by res judicata

CIT, East Pakistan Dacca v. Wahiduzzaman [(1965) 11 TAX 296 (S.C.Pak.) = PLD 1965 SC 171] ―Where there is no statutory provision barring reopening of a matter the applicability of the principle of res-judicata depends on the necessity of giving finality to litigation and the injustice of vexing a person twice in respect of the same matter and these being only general considerations relating to administration of justice with no technical and defined limits the applicability of res judicata in such cases will be governed by considerations arising with respect to the particular statute under which a matter has been determined. The dominant consideration always being that the cause of the justice be advanced ..... under the circumstances the ends of justice will be served by confining the bar of res judicata in relation to decision of Income Tax Authorities to cases where the decision is not clearly open to some objection. On the basis of assessments for the year 1945-46 and 194647, it was contended that the findings of the Income Tax Appellate Tribunal, so far as the amounts in question were concerned, operated as res judicata and these questions could not be re-agitated in the subsequent assessment proceedings of the same assessee. The Bombay High Court held in Seth Ram Nath Daga vs. CIT, (1971, 82 ITR 287) that the question of res judicata need not detain us long, as there is a plethora of decisions holding that the income tax authority is not a court and the decision of an income

423 Doctrine of Res Judicata/Estoppel

tax authority in a prior year does not operate as res judicata in the assessment proceedings of the subsequent years. To quote a few, they are: Perianna Pillai vs. CIT, (1929, 4 TRC 217), Kaniram Ganpat Rai vs. CIT, (1929, ITR 332 (Pat.), Tejmal Bhojraj vs. CIT, (1941, 22 ITR 208) (Nag.) Omar Salay Mohammad Sait vs. CIT, etc. vs. CIT,; Colombo (1961, 2 All S.R. 436 (PC) and Joint Family of Udayan Chinubhai, etc. vs. CIT, (1967, 63 ITR 416). In Kaniram Ganpat Rai vs. CIT, (1941, 9 ITR 332) the Patna High Court held that the Income Tax Officer is not bound by rule of res judicata or estoppel and he can reopen the assessment if fresh facts came to light which on investigation would entitle the officer to come to a conclusion different from that of his predecessor. Similarly, in Tejmal Bhojraj vs. CIT, (1952, 22 ITR 108) (Nag.) it has been held that the principle of res judicata or estoppel by record has no application and the previous finding or decision may be re-open by the department when the previous decision has not been arrived at after due enquiry, or the said decision is arbitrary or fresh facts come to light. In view of this, if the assessee in a subsequent year is able to satisfy the income tax authority that the previous finding is not correct either because it was not arrived at after due enquiry or because it is arbitrary or if the assessee has put before the income tax authority fresh facts from which a different conclusion can be arrived at, then in that case the income tax authority would be justified in arriving at a different conclusion than what was arrived at in the previous proceeding.‖ 4.

Doctrine of promissory expectation applies to SAS

estoppel

and

legitimate

Ikhlaq Cloth House, Faisalabad v. ACIT, Circle-12, Faisalabad Zone, Faisalabad and 3 others [2001 PTD 3121] ―Besides the doctrine of adherence to the promise as enunciated by Islam our judicial system has also evolved doctrine of promissory estoppel and legitimate expectation. Reference for this is made to ―Federation of Pakistan vs. Muhammad Aslam 1986 SCMR 916, Salah-ud-Din vs. Federation of Pakistan PLD 1991 SC 546, Army Welfare Trust vs. Central Board of Revenue and another 1996 MLD 980.

424 Principles of Income Tax Law

The principle of promissory estoppel though based on modern jurisprudential trends of various systems of law but it is merely a shade of doctrine of adherence to the promise enunciated by Islam. The parametric computer ballot is also violative of principle of promissory estoppel and legitimate expectation. It, therefore, cannot countenance the just and fair exercise of jurisdiction and it is accordingly held that it is not only violative of promissory estoppel and legitimate expectation but is unjust, unfair and arbitrary and cannot be approved. In view of the conclusion drawn the selection of the case of the petitioner through parametric method of selection is held to be violative of para 6 of Self-Assessment Scheme for the year 2000-2001 and the same is declared to be without lawful authority and of no legal effect and in consequences thereof the notices issued to petitioners are also held to be illegal and of no legal effect.‖ 5.

Principles of waiver or estoppel do not apply against a provision of law

CWT, Southern Region, Karachi v. Abid Hussain [(1999) 80 Tax 89 (H.C.Kar.) = 1999 PTD 2895] ―There is no waiver or estoppel against a provision of law and furthermore the question of exemption, being a question of law, it could be raised at any stage of the proceedings. If any authority is required in support of this it is to be found in the case of Shad Muhammad vs. Pir Sabir Shah, reported in PLD 1995 SC 66.‖ 6.

Doctrine of promissory estoppel could not be invoked against the legislature and the laws framed by it

Moin Sons (Pvt.). Ltd., Rawalpindi v. Capital Development Authority, Islamabad [1998] 78 TAX 168 (H.C.Lah.) ―The Capital Development Authority would be under an obligation under the law to deduct income tax on all the bills to be paid to the petitioner in accordance with the rate or rates specified in the First Schedule to the Income Tax Ordinance, 1979, pursuant to sub-section (4) of section 50 thereof. In the case of failure to deduct tax in accordance with the rate specified in the First Schedule to the Ordinance, the Capital Development Authority will be liable to penal action specified in section 52 of

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the Income Tax Ordinance, 1979, meaning thereby that irrespective of sub-clause 73.1 of the agreement between the petitioner and the Capital Development Authority the liability of payment of tax at the rate or rates specified in the First Schedule to the Ordinance will remain intact. As held by the Supreme Court in Pakistan through Secretary Ministry of Commerce and 2 Others vs. Salahuddin and 3 others (PLD 1991 SC 546). The doctrine of promissory estoppel cannot be invoked against the legislature or the laws framed by it. It was held by the Court that payments received by the contractors are deemed to be their income in terms of section 80C of the Income Tax Ordinance, 1979, which does not contain any provision that the rate of tax shall relate back to the date on which agreement was entered into and not when the payments were received. It was, thus, held therein that the contractors were liable to, pay tax on the‘ payments received by them under the contracts of the nature specified by sub-section (2) of section 80C of the Income Tax Ordinance, 1979, at the rate prevailing at the time of receipt of payments and not on the date the contract under which these payments were made were entered into. In the instant case, the petitioner is not being asked to pay tax at the enhanced rate on the payments which had been made to him prior to the first of July, 1995, but the tax at the prevailing rate of 5% is being collected on the payments to be received by him on and after the first July, 1995, when the rate of tax was enhanced under the Finance Act, 1995, from 3% to 5% on the payments to be made to the contractors. Hence, in view thereof, the deduction of tax at the enhanced rate cannot be claimed to have been given retroactive operation.‖ 7.

Executive actions are not excluded from the operation of promissory estoppel

Ahmed Maritime Breakers Ltd. v. Central Board of Revenue etc. [(1992) 65 Tax 268 (H.C.Kar.)]

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―Bare perusal of the above citation would make it clear that executive actions are not excluded from the operation of the doctrine of promissory estoppel.‖ 8.

Equitable doctrine of estoppel

Afzal Construction Co. (Pvt.) Ltd. v. Chairman CBR [(1990) 62 Tax 91 (H.C.Lah.)] ―As regards technical objection to the sustenance of the writ petition, it may be observed that estoppel does not flow out of the proceedings which are violative of law. The rule that a litigant on account of his conduct may be disentitled to discretionary relief under writ jurisdiction, is an equitable doctrine by which the court regulates its jurisdiction and is not an absolute rule.‖ 9.

Principle of res judicata and estoppel

S.M. Abdullah v. CIT [(1966) 14 Tax 161 (H.C.Kar.)] ―The doctrine of res judicata or estoppel by record cannot be applied to proceedings pending before the Income Tax authorities. Admittedly the proceedings before them are not judicial proceedings in the sense that they are before the courts of law. The assessment of Income Tax authorities for a particular year is binding on the parties to the extent of that assessment. But the question is whether the Income Tax authorities are entitled to change the basis of assessment or the footing on which the previous assessment was made in subsequent years. In other words, whether they are entitled to blow hot and cold in the same breath. On principles of natural justice, finality and certainty of decision is expected and desirable even before quasijudicial tribunals like the Income Tax authorities, and if such a tribunal arbitrarily and capriciously comes to a different conclusion from another tribunal on the same question, it will create uncertainty in the minds of the assessee. In order to avoid resulting injustice, there is an implied limitation on the power of such tribunal, namely, that it cannot reopen a question unless some fresh facts come to its notice or the previous decision was

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arrived at without equity and is perverse. This implied restriction is inherent in every quasi judicial tribunal and there is no reason why it should not be applied in the case of Income Tax Authority.‖ 10.

“Res judicata” and “merger” explained

Karachi Properties Investment Co. (Pvt.) Limited, Karachi v. Income Tax Appellate Tribunal, Karachi and another [2004 PTD 948 (H.C. Kar.)] ―Keeping the above principles in view we will examine, whether the Tribunal committed any illegality, irregularity or impropriety in dismissing the Rectification Application. The admitted facts are that, during the course of hearing of appeals before the Tribunal, it was contended that the issue pertaining to ALV of property held by the appellants was already decided by the Tribunal vide judgment, dated 12.1.1989, pertaining to the assessment year 1978-79 to 1985-86 (reported as 1989 PTD (Trib.) 859 and therefore, Inspecting Additional Commissioner had no jurisdiction to take action under section 66A of the Income Tax Ordinance, 1979 and that the assessment orders, revised by the Inspecting Additional Commissioner, were not erroneous as the Assessing Officer had merely followed the orders of the Tribunal for the earlier years. This contention was fully considered by the learned Members of Division Bench of Tribunal, who after consideration of contentions and the earlier order of the Tribunal gave deliberate and conscious findings to the effect that later judgment of the Tribunal 1996 PTD (Trib.) 122 was applicable. Same contentions were reiterated through Rectification Application and while deciding Rectification Application vide order, dated 14.7.1997 impugned in these appeals, it was observed that:―Most of submissions made at the bar for the assess pertains to the merits of the case which cannot be considered or ruled upon in these applications under section 156 of the Ordinance.‖ The submission is totally fallacious. The concept of merger in judicial/quasi-judicial proceedings is based on the principle

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that the appeal is a continuation of original proceedings and when an Appellate Authority hears appeal against the order of original/lower forum, all the issues, considered and adjudicated upon by the Appellate Court; merge in the order of the Appellate Court. The condition precedent for the law of merger is the existence of an original/lower forum order, and the appeal against the said order. Now coming to the facts of the present case, we find that the earlier order of the Tribunal is dated 12.1.1989 relating to the assessment years 1978-79 to 1985-86 and assessment orders for the assessment years 1991-92 to 199394 have been completed several years after the orders, dated 12.1.1989 and no appeal was preferred against the said assessment orders before any appellate forum. The law of merger is, therefore, not attracted at all. There is another important aspect, which is always to be kept in view. The principle of res judicata is not applicable to the Income Tax Law. Every assessment year and order is an independent unit. The Assessment order has to be made on the basis of facts, obtaining in that particular year. If the facts and circumstances are changed in the subsequent year then neither Assessing Officer nor assessee are bound by any assessment order or any finding by the Appellate Court given in the earlier assessment years. With the changed facts and circumstances, the assessment and the finding can also be changed, to which no exception can be taken. (CIT, Central, Zone “B”, Karachi v. Farrokh Chemical Industries, 1991 SCC 805).‖

Chapter XVII Doctrine of mutuality 1.

Five-point criteria for applying “doctrine of mutuality”

CIT, Lahore v. The Lyallpur Central Co-operative Bank Ltd., Lyallpur [1959] 1-TAX (III-150) (H.C.West Pakistan, Lahore Bench) =1959 PTD 639 = 1959 PLD 627 ―The assessee was registered under the Co-operative Societies Act 1912. Up to 1948, income of all co-operative societies and banks was exempt from payment of tax, but on the 20th August 1948, the exemption was withdrawn. Shortly after this, the Central Board of Revenue issued a circular that profits earned by co-operative credit societies registered under the Cooperative Societies‘ Act 1912 from dealing with their own members would continue to be exempt under the doctrine of mutuality. The Income Tax Officer while making assessment for the charge year 1950-51 declined to exclude such profits from the income of the assessee on the ground that it was not derived on the basis of mutuality. The Appellate Assistant Commissioner upheld the Income Tax Officer‘s order on the ground that since the assessee‘s business consisted of financing Co-operative Societies and other parties and loans were not restricted exclusively to members, the income in question had arisen not because of the relationship between the assessee and its members but because of the loans advanced to them. The Appellate Tribunal accepted the assessee‘s contention that doctrine of mutuality was applicable in case of income derived from members because one could not assess income arising to oneself. After discussing a good deal of the case law the Department‘s reference failed and the Tribunal‘s finding was upheld. 429

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Their Lordships while examining the cases cited, observed that each of those cases was based on its own peculiar facts. Judicial review : This is perhaps the only case in Pakistan where their Lordships have considered the doctrine of mutuality at a great length, considering a number of cases cited at Bar. Their Lordships laid down five point criteria in determining the applicability of the doctrine of mutuality. After applying the said criterion, their Lordships observed that interest on loans advanced to members of the assessee should be exempt from tax.”

Chapter XVIII Natural justice/duties of court 1.

True meaning of statute vis-a-vis duty of court

Jamat-i-Islami Pakistan through Syed Munawar Hassan, Secretary General v. Federation of Pakistan through Secretary, Law, Justice and Parliamentary Affairs & Muttahida Qaumi Movement (MQM) through Deputy Convener, Senator Aftab Ahmad Sheikh v. Federation of Pakistan through Secretary, Ministry of Interior, PLD 2000 S.C. 111 ―It is the duty of the Court to find out the true meaning of a statute while interpreting the same. The general rule is that the Courts adopt as uniform an approach as possible to the reading of ambiguous Acts of Parliament which are sometimes imperfect, obscure and vague. The primary rule of interpretation of statutes is that the meaning of the legislature is to be sought in the actual words used by him which are to be interpreted in their ordinary and natural meanings. The cardinal rule for the construction of Acts of Parliament is that they should be construed according to the intention expressed in the Acts themselves. Where the language of the statute is plain and unambiguous, and conveys a clear and definite meaning, there is no occasion for resorting to the rules of statutory interpretation, and the Court has no right to impose another meaning or to read into its limitations which are not there, based on a prior reasoning as to the probable intention of the legislature. Court can resort to the proceedings of the legislature when the language employed is ambiguous.‖ 431

432 Principles of Income Tax Law 2.

Opportunity of being heard is a must even in quasijudicial proceedings

Munir Mushtaq v. Collector of Customs (Exports), Customs House, Karachi and another [PLD 1999 S.C.1111] ―Due opportunity of hearing and furnishing of the necessary particulars for which the allegations emanating from the Customs directly arose was a requirement of such proceedings notwithstanding the fact that the proceedings at best were of a quasi-judicial nature.‖ 3.

Article 4 of Constitution of Pakistan 1973 vis-a-vis “due process of law”

New Jubilee Insurance Company Ltd., Karachi v. National Bank of Pakistan, Karachi [PLD 1999 S.C.1126] ―There are certain basic norms of justice. One of the cardinal principles of such basic norms is that one cannot be a judge in his own cause. The breach of the said cardinal principle of jurisprudence will in fact be violative of the right of access to justice to all which is a well-recognised inviolable right enshrined in Article 4 of the Constitution. This right is equally founded in the doctrine of due process of law. The right of access to justice includes the right to be treated according to law, the right to have a fair and proper trial and the right to have an impartial court or tribunal. The term due process of law can be summarised as follows: (1) A person shall have notice of proceedings which affect his rights. (2) He shall be given reasonable opportunity to defend. (3) That the tribunal or court before which his rights are adjudicated is so constituted as to give reasonable assurance of its honesty and impartiality, and (4) That it is a court of competent jurisdiction. Above are the basic requirements of the doctrine due process of law which is enshrined, inter alia, in Article 4 of the

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Constitution. It is intrinsically linked with the right to have access to justice which is a fundamental right. This right, inter alia, includes the right to have a fair and proper trial and a right to have an impartial Court or Tribunal. A person cannot be said to have been given a fair and proper trial unless he is provided a reasonable opportunity to defend the allegation made against him.‖ 4.

Affording of an opportunity is a prerequisite for taking penal action

CIT, East Pakistan & 2 others v. Aswab Ali & others [(1975) 31 Tax 101 (S.C.Pak)] ―It is an elementary principle of law that no person can be subjected to an obligation without affording him an opportunity to show cause. Similarly, an order favouring a person passed by a competent authority cannot be varied to his disadvantage without hearing him.‖ 5.

An order affecting the rights of a party cannot be passed without an opportunity of hearing to that party

CIT, East Pakistan v. Fazlur Rahman & Saeedur Rahman [(1964) 10 Tax 49 (S.C.Pak)] ―We do not think the mere absence of a provision as to notice can override the principle of natural justice that an order affecting the rights of party cannot be passed without an opportunity of hearing to that party. Yet it cannot be said that it is not necessary to hear the parties affected in a proceeding u/s 115, CPC. The fact that the proceedings are judicial or quasijudicial in nature is sufficient to entitle a party to a hearing in the absence of specific provision to the contrary.‖ 6.

Mere technicalities should not be allowed to defeat the ends of justice

Haji Mehr Din, Lahore v. CIT, Zone-A, Lahore [(2001) 84 TAX 471 (H.C.Lah.)] ―The rules of procedure are meant to advance the cause of administration of justice than to thwart it. These technicalities should never undermine the advancement of purpose for which

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judicial or law establishes quasi-judicial forums. Every kind of such technicality can even be ignored if directly or in-directly it hinders the process of justice or due relief to which a party is found entitled to. The Hon‘ble Supreme Court of Pakistan while considering the place of these technicalities in the administration of justice observed that laws some time are called an ass, but the judge should, as far as possible, try not to become one. This view of the Court is stated in re: Manager Jammu and Kashmir State Property in Pakistan vs. Khuda Yar and another (PLD 1975 SC 678). The apex Court in that case reiterated that mere technicalities should not be allowed to defeat the ends of justice and a departure could justifiably be made if required by the circumstances of the case.‖ 7.

If a person charged with a simple crime to felony can be the most favourite child of law then why an assessee should not be facilitated in his defence against revenue

Haji Mehr Din, Lahore v. CIT, Zone-A, Lahore [(2001) 84 TAX 471 (H.C.Lah.)] ―The interpretation of the rules of a court or judicial forum is totally different from the Rules by which the administrative wings of the State proceed to curb crime, regulate the conduct of a particular relationship between the citizens or ensures peace, tranquility, franchise, enjoyment of civil liabilities etc. The rules of a court or a judicial forum must have only one aim it is that the person approaching to seek justice must be facilitated and the rules of Court or procedure should not be used against his adversary or to destroy the credibility of the forum itself. If a person charged with a simple crime to felony can be the most favourite child of law then why an assessee should not be facilitated in his defence against revenue. A person contributing a single peny to the exchequer but contesting the remaining pound deserves more respect than a person who will be acquitted of killing a human being merely for some minor discrepancy in the evidence here and there.‖ 8.

Rules must not take away a right conferred by the relevant statute and should be struck down if found to be arbitrary or unreasonable

435 Natural Justice/Duties Of Court

Haji Mehr Din, Lahore v. CIT, Zone-A, Lahore [(2001) 84 TAX 471 (H.C.Lah.)] ―A negative and restrictive interpretation of rules of the Court or a judicial tribunal in fact abridges the right of an appellant conferred by a statute. In re: Cannon Products Ltd. and others vs. Income Tax Officer and others (1985) 51 Tax 114 their Lordships were of the view that the rules could not take away or abridge a right conferred by the relevant statute. Also that rule could be struck down if it is found to be arbitrary or unreasonable. In a recent judgment while interpreting various rules of the Income Tax Tribunal a Division Bench of this Court in re: Pakistan Industrial Gases Ltd. vs. CIT and another (2002) 82 Tax 126 (H.C. Lah.)=(2002 PTD 2903) disapproved the dismissal of appeal by the Tribunal for the reason that memo of appeal contained arguments which were violative of rule 10 of the said rules. In another recent judgment in re: CIT vs. Muhammad Tariq Javaid (2002) 82 Tax 67 this Court observed that in matters of collection of revenue the dispute should not be allowed to be determined in a perfunctory manner as had been done by the Tribunal. In that case the Tribunal proceeded to dismiss a departmental appeal on the ground that certified copy of the impugned order was not attached with the memo of appeal. Since the refusal of audience by a judicial Tribunal is an extreme step, it should not normally be resorted to as a matter of course. The Tribunal in this case having done the same in a casual manner. Resultantly, the appeal of the assessee/petitioner to the extent of impugned addition u/s 13(1)(d) of the Income Tax Ordinance, 1979 shall be deemed pending and will be decided on merits after allowing the assessee an opportunity of being heard.‖ 9.

Departmental instructions in conflict with the statutory law or tends to undo any such law have no legal effect

United Refrigeration Industries (Pvt.) Ltd. through General Manager v. Federation of Pakistan through Secretary, Ministry of Finance, Government of Pakistan, Islamabad and another

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[PTCL 2001 CL. 423] ―In absence of any evidence of the sale of compressors by PEL in the market, the mere establishment of a plant of compressors by the PEL for the use of the same in the refrigerators being manufactured in its industrial unit would not permit the respondents to take away the concession of customs duty on the import of compressors under the S.R.O. No. 504(I)/90 in question, which would amount to restrict the market to the refrigerators being manufactured by the PEL and allow the said Unit to create monopoly in the business at the cost of healthy and free competition in violation of Constitution for providing fair opportunity of lawful business under Article 18 of the Constitution of Islamic Republic of Pakistan, 1973. Without technical interpretation of the term ―knocked down condition‖ withdrawal of the concession through Custom General Order was violative of S.R.O. 504(I)/90, dated 07.06.1990 and such withdrawal is of no consequence. The refusal of the legitimate statutory concession made available by the Government through the departmental instructions in the form of Customs General Order would amount to undo the effect of notification issued u/s 19 of the Customs Act, 1969. The departmental instructions such as Customs General Order is issued for guidance of the field staff to achieve the purpose of the Statute, and if such departmental instructions are issued in conflict to Statutory law or to undo any such law, the same would not have any legal effect.‖ 10.

In presence of a specific provision of law applicable to the situation, the Assessing Officer could not have resort to any other provision of law

CIT, Zone-A, Lahore v. Sohaib Nasir [PTCL 2001 CL. 405] ―In presence of a specific provision of law applicable to the situation, the Assessing Officer could not have resort to any other provision of law as the method of calculation of amount of penalty was totally different from the applicable provisions of section 110 of the Ordinance, the view adopted by tribunal that

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no penalty for default could be imposed u/s 108 was therefore justified.‖ 11.

Public power and administrative discretion ought to be exercised fairly

Neelam Textile Mills Ltd. v. State Bank of Pakistan and 2 others [PLD 1999 Karachi 433] ―We may further observe that it is by now settled law that all public power and administrative discretion ought to be exercised fairly and reasonably and a burden imposed must bear a reasonable nexus with the harm caused. The concept of proportionality in the exercise of public power has been recognised and approved by our Courts and in the case of Independent Newspaper Corporation vs. Chairman Fourth Wage Board (1993 SCMR 1533) the Honourable Supreme Court observed the principle is well-settled that when express statutory power is conferred on a public functionary, it could not be pushed too far, for such conferment implies a restraint in operating that power, so as to exercise it justly and reasonably. In the words of Scarman, L.J excessive use of lawful powers is itself unlawful.‖ 12.

Duties of courts in administration of justice

Mustafa Prestressed R.C.C. Pipe Works Ltd., Karachi v. CST, (Investigation), Karachi [(1990) 62 Tax 119 (H.C.Kar.)] ―The Courts and quasi-judicial officers are required not only to do justice but to perform their duties in such a manner that justice is seen to have been done. In discharge of such duties no steps should be taken which may create apprehension in the mind of a litigant that justice may not be done. If a subordinate officer submits his proposed order to his revisional appellate or superior authority and after his approval announces it then it will furnish a strong ground for challenging it, although such authority may not have amended the order. Such reference indicates that the judicial mind of the officer passing the judgment was not free and sufficiently tainted as he had in the mind the feeling that he has to submit the proposed order to his

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superior officer and thus may have thought fit to make such an order which may be acceptable to him. ....if the documents are such which a party has to produce the same may not be looked into if not produced at the relevant time, but if reference is to be made to the notifications or gazettes then they have to be treated differently from the documents which require proof. Duly notified order can be referred by looking to the gazettes. It is the primary duty of every party to produce all the records and documents relevant to the case. But so statute, rules and notifications which are notified and gazetted are concerned they should not escape notice of the court and all efforts should be made to find them out so that a wrong order may not be passed. Therefore, the court should not entirely rely upon the parties and their advocates for producing these documents, but should make search, to find out the state of law applicable to a case.‖ 13.

Public functionaries are duty bound to decide controversies between parties after application of independent mind, supported with reasons

Wapda v. C.I.T., Companies Zone-I, Lahore and 2 others [(2004) 90 TAX 246 (H.C. Lah.) = 2004 PTD 1973 (H.C. Lah.)] ―It is admitted fact that the petitioner has filed Constitutional Petition No. 3250 of 1996, which was disposed of by this court vide order, dated 23.1.1997 in the following terms:―The learned counsel of the Department assures the Court that the revision petition sent to the Commissioner of Income Tax Peshawar will be withdrawn with necessary record and will be decided by the Commissioner of Income Tax, Companies Zone I, Lahore/herein respondent No. 1 within the period of two months. He further assures the Court that the aforesaid authority shall determine the grievance of the petitioner strictly in accordance with law and not otherwise. In this view of the matter, learned counsel for the petitioner does not want to

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press this petition at this stage and reserves his right to come to this court again if his grievance is not redressed within the parameters of law.‖ It is pertinent to mention here that the aforesaid order was passed by this Court with the consent of the learned counsel for the parties, therefore, order, dated 23.1.1997 is final between the parties, thus, the Commissioner of Income Tax has to decide the revision petition of the petitioner within parameters prescribed by this Court vide order, dated 23.1.1997. The Revisional Authority has decided the revision petition without application of mind and counter-signed the order of the Assessing Authority, which is not sustainable in the eye of law, as per principle laid down by the Honourable Supreme Court in “Ghulam Mohy-ud-Din‟s case (PLD 1964 SC 829). Even otherwise, after addition of section 24A in the General Clauses Act which is procedural in character and has retrospective effect, the public functionaries are duty bound to decide the controversy between the parties after application of independent mind with reasons, as per principle laid down by the Honourable Supreme Court in the following judgments:“Messres Airport Suport Service v. Airport Manager” (1998 SCMR 2268) and “Zainyar Khan v. Chief Engineer, C.R.& B.C.” (1998 SCMR 2419.‖ It is also settled principle of law that the public functionaries are duty bound to decide the controversy between the parties in accordance with law, as per principle laid down by the Honourable Supreme Court in ―Utility Store‟s case” (PLD 1987 SC 447). This Court has ample jurisdiction to give direction to the public functionaries to act in accordance with law in view of Article 4 of the Constitution, while exercising powers under Article 199 of the Constitution, as per principle laid down by the Honourable Supreme Court in ―H.M. Rizvi‟s case” (PLD 1981 SC 612) and ―Gull Muhammad Hajuano‟s case” (2003 SCMR 325). In view of what has been discussed above, this writ petition is accepted and impugned order is set aside, meaning thereby the revision petition filed by the petitioner before

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Commissioner Income Tax (Respondent No. 1) shall be deemed to be pending adjudication. Parties are directed to appear before Respondent No. 1 in his office at 11:00 a.m. on 28.4.2004, who is directed to decide the revision petition of the petitioner afresh in terms of aforesaid direction of this court, after applying his independent mind in accordance with law as expeditiously as possible. 14.

Public functionaries must act justly, fairly and honestly and cannot seek refuge in irrational and arbitrary classification

Bank Al-Habib and another v. Central Board of Revenue [(2004) 90 TAX 9 (H.C. Lah.)] ―Examination of the aforementioned precedents leads me to conclude that public functionary like the respondent cannot treat with discrimination to persons equally placed. The public functionaries are required to act justly, fairly evenly, honestly and cannot seek refuge on the plea of classification which is arbitrary or not found on rational basis. The argument of the learned counsel for the respondent that the assessment stood completed under the law, then in force, the same cannot be re-opened now, being past and close transaction, has been responded by the petitioner that the proceedings are still pending in the hierarchy established under the Income Tax Ordinance. The petitioner can seek benefit in the proceedings pending adjudication before the Income Tax Forums and the repeal, will not affect its right, if the same was available and could be granted legitimately by the respondent. In view of the above discussion, this constitutional petition is allowed, the impugned order dated 10.11.1999 passed by the respondent is declared to be illegal and without lawful authority. Resultantly, the respondents are directed to approve the Special Reserve created by the petitioner in terms of section 23(1)(ix) of the Income Tax Ordinance.‖ 15.

No adverse order should be passed against a party without affording an opportunity to meet the case

Karachi, Textile Dyeing and Printing Works, Karachi v.

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CIT, (Central), Karachi [(1984) 49 Tax 18 (H.C.Kar.)] ―No party can be condemned on basis of evidence or information adduced behind his back and without any notice to him. It is true that technicalities of Evidence Act cannot fetter the exercise of power of the Assessing Authority but rule of justice demands that before any adverse order, penalty or liability is passed or imposed upon a party he should be afforded full opportunity to meet the case and rebut the evidence used against him.‖ 16.

Justice should not only be done but must also appear to have been done

Sheikh Akhtar Ali v. Federation of Pakistan and 4 others [(1980) 42 Tax 47 (H.C.Lah.)] ―Justice should not only be done but must also appear to have been done.‖ 17.

Principles of natural justice should be read in all statutes unless the same are expressly excluded

Kundan Bibi and others v. Walayat Hussain, Controller of Estate Duty [(1976) 34 Tax 219 (H.C.Lah.)] ―It is well-established by authority that principles of natural justice should be read in all statutes unless the same are expressly excluded.‖ 18.

The court must consider the intention and not merely the form, while examining a document

Crown Bus Service Ltd. Lahore v. CBR and others [(1976) 34 Tax 54 (H.C.Lah.)] ―We may observe as a matter of principle, all that the courts of law are required to examine while considering a document or an instrument is the intention and not merely the form of any order or direction continued therein depending upon the facts, circumstances and the context of each case.‖ 19.

Judicious exercise of discretion

CIT, Rawalpindi Zone, Rawalpindi v.

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New Afza Hotel Rawalpindi [(1973) 27 Tax 212 (H.C.Lah.)] ―Since the discretion is objective it is to be exercised according to the rules of reason and justice and not according to the private opinion, according to law, and not humour. It is to be not arbitrary, vogue and fanciful but legal and regular. And it must be exercised within the limit to which an honest man competent to the discharge of his office ought to exercise.‖ 20.

Discretion in law exercised by competent authority is not open to any exception

Allied Motors Ltd. through Manager Finance v. Commissioner of Income Tax and another [2004 PTD 1173 (H.C. Kar.) = (2004) 90 Tax 24 (H.C. Kar.)] ―In the context of the facts and law involved in this case, the Income Tax Authority competent under the Income Tax Ordinance, 2001, to exercise the power of IAC is the Commissioner of Income Tax. Although he is empowered to delegate his authority to an IAC but the non-delegation of power to IAC cannot be objected to, as it is within the discretion of Commissioner of Income Tax and when discretion in law is exercised by competent authority, it is not open to any exception. Consequent, to above view it is held that the respondent No. 1, (Commissioner of Income Tax) has complied with direction of Hon‘ble Supreme Court in accordance with law and has passed the order under section 66A of the repealed Ordinance, in accordance with the substantive law contained n the said Ordinance in the capacity of IAC. Such order is open to appeal before the Income Tax Appellate Tribunal, where the appeal has been preferred and is pending. The Income Tax Appellate Tribunal shall decide the appeal on merits in accordance with law. The impugned order passed by the respondent No. 1, does not suffer from any lack of jurisdiction and consequently, the appeal stands dismissed in limine.‖ 21.

Once an authority has jurisdiction, an irregularity in exercising it will not vitiate the decision

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[(2004) 89 TAX 372 (Trib.) = 2004 PTD (Trib.) 769] ―The Court or Tribunal is always clothed with certain jurisdiction, which is defined as power of Court to hear and determine a cause to adjudicate or exercise power in relation to it which includes power to hear and determine issues of law and fact in accordance with settled provision of law. Once the Court or Tribunal has jurisdiction, it possess inherent power to decide the question of their own jurisdiction and its adjudication right or wrong is binding upon the parties and the remedy against incorrect or wrong decision is provided by way of appeal, revision and review and in case remedies are not exhausted, the order, even if erroneous, will attain finality, and shall be binding upon the parties. However, if the term jurisdiction refers to be legal authority to administer justice in accordance with the means provided by law subject to the limitation imposed by law and subject to certain terms, such terms must be complied with in its real spirit while recording order and in case mandatory conditions for the rightful exercise of jurisdiction are not fulfilled, the order would not be treated as void but voidable and in such circumstances, the proceedings cannot be termed as illegal and without jurisdiction. Absence of inherent jurisdiction is distinguished from exercise of jurisdiction ignoring law of procedure, the former would render judgment a nullity and the latter would be an irregularity and if not objected to in time, would be accepted as a legal order. In our opinion, jurisdiction vests with the Panel but Panel has improperly exercised its jurisdiction and while making distinction between the existence of jurisdiction and the exercise of jurisdiction in an irregular manner, the law shall not permit to declare the proceedings to be impugned at the behest of the person who invoked it in an irregular manner. Reliance is placed on case-law reported as PLD 1979 SC (AJ&K) 109. In the circumstances supra, we find that once an authority has jurisdiction, an irregularity in the exercise of it will not vitiate the decision. Even otherwise it is a procedural lacuna which is curable by all means.‖

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Principles of natural justice are part and parcel of every statute unless there is specific provision in a particular statute to the contrary

Sh. Diwan Muhammad Mushtaq Amad, Karachi v. CBR & others [(1969) 19 Tax 198 (H.C.Kar.)] ―It has been irrevocably held by decisions of the Supreme Court that the rules of natural justice are to be read as part and parcel of every statute unless and until there is a specific provision in a particular statute to the contrary.‖

445 Natural Justice/Duties Of Court 23.

Principles of natural justice cannot be invoked in deciding a legal issue with reference to the statutory provision

CIT v. Surridge and Beecheno [(1968) 18 Tax 72 (H.C.Kar.)] ―We are doubtful of the application of the principles of natural justice by the learned Tribunal inasmuch as the matter has to be decided in the first instance strictly in legal plane with reference to the statutory provision whose proper application clinches the issue.‖

Chapter XIX Rule of Limitation 1.

Where a judgment has not been conveyed to a party limitation starts running from the date of knowledge

Qureshi Vegetable Ghee Mills Ltd. v. CIT, and 3 others [2002] 85 TAX 397 (S.C.AJ&K) = 2002 PTD 399 ―It is well settled by now that where a judgment has not been conveyed to a party limitation starts running from the date of knowledge. The proposition canvassed on behalf of the appellantcompany is that unless result of the appeal is communicated limitation would not start running cannot be accepted because then it would mean that it will not be possible to file an appeal if the Tribunal does not intimate the result to the party. In that case even the appellant‘s appeal before the High Court was defective because it has not been filed on the basis of intimation but on the basis of knowledge. There is no averment in the memorandum that the decision of the Tribunal was not in the knowledge of the directors of the company. Consequently there was no affidavit on this point. As already stated, on behalf of the company the plea taken in the memorandum of appeal was that the appeal was within time because decision of the Tribunal was not communicated to the appellant as required u/s 135(8).‖ 2.

Time limitation for filing appeal u/s 136 vis-a-vis section 5 of Limitation Act

CIT, Sukkur Zone, Sukkur, through DCIT v. Gatron (Industries) Ltd. [(1999) 79 Tax 161 (H.C.Qut.)] ―It is an admitted feature of the case that the order of Appellate Tribunal was received on14-5-1997, and reference application could have been made within 60 days, but it was made on 21-7-1997 which is time-barred and it should have 447

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been filed on or before 14-7-1997 and as such, it is time-barred by 7 days for which no explanation whatsoever has been given but factum of delay has been taken very lightly and even the exact number of days were not mentioned regarding which condonation is required. Insofar as section 5 of Limitation Act is concerned it is well-settled by now that once limitation starts running no subsequent event can stop or suspend it and that matters dealt with by the Limitation Act shall be determined according to the true construction of the word used by the legislature and the doctrine of equity, justice and good conscience cannot be applied as to over-ride and abrogate the express provisions of the Limitation Act. The statutes of limitation should consequently be applied without regard to equitable consideration.‖ 3.

The provisions of Limitation Act are mandatory and cannot be waived

CIT, Companies Zone Lahore v. Mst. Khursheed Begum [(1995) 71 Tax 280 (H.C.Kar.)]] ―The words of section 3 of the Limitation Act are mandatory in nature and that every suit or application instituted after period of limitation shall, subject to the provisions of section 4 to 25 of that Act, be dismissed although limitation has not been set up as defence. The law, therefore, does not leave the matter of limitation to the pleadings of the parties as it imposes a duty in this regard upon the court itself. The limitation being a matter of statute and the provisions being mandatory cannot be waived and even if waived can be taken up by the party waiving it and by the Courts themselves.‖ 4.

Period of Limitation - factors to be considered while computing period of limitation

Eastern Poutry Services v. Govt. of Pakistan and others [1993] 68 TAX 171 (H.C.Kar.) ―Section 160(b) of the Income Tax Ordinance provides that the period during which any assessment or other

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proceedings under the Ordinance are stayed by any Court shall be excluded while computing the period of limitation.‖ 5.

A reference application made beyond the prescribed time should be dismissed

CIT, Central Zone A Karachi v. S.M. Naseem Allahwala [(1991) 64 Tax 31 (H.C.Kar.)] ―So far as the second issue is concerned, it has been dealt with in several cases, holding that if the reference application is made beyond the prescribed time Tribunal has no discretion but to dismiss the same unless the statutory provision to the contrary is made.‖ 6.

Where a matter is barred by limitation each and every days delay must be explained

CST Zone A Lahore v. Chenab Textile Mills Ltd., Lahore [(1980) 42 Tax 140 (S.C.Pak.)] ―We have repeatedly held that where a matter is barred by limitation each and every day‘s delay must be explained before it can be condoned.‖ 7.

Delay of each day must be explained

Khalid Cotton Factory, Multan v. ITO A Circle Multan [(1979) 40 Tax 60 (H.C.Kar.)] ―It is settled principle of law of limitation that each days delay in filing of reference application has to be explained.‖ 8.

Time spent in obtaining a certified copy should be excluded while computing period of limitation

CIT/CST Rawalpindi v. Pakistan Television Corp. Ltd. Rawalpindi [(1978) 38 Tax 181 (H.C.Lah.)] ―An intending appellant has got the right to get excluded the time requisite for obtaining a certified copy even though an attested copy had been supplied to him by the Income Tax Officer, alongwith the notice of demand or even if he is not required to file one with an application for reference.‖ 9.

Application of provisions of Limitation proceedings under Income Tax Law

Act

to

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Aftab Medical Stores, Dera Ghazi Khan v. CIT, Lahore [(1976) 34 Tax 10 (H.C.Lah.)] ―We are, therefore, of the considered opinion that section 14 of the Limitation Act is applicable to the proceedings before the Income Tax Authorities.‖ 10.

Court holidays falling on the day of expiry of the prescribed period of limitation should be excluded in counting the period of limitation

Alyani Cotton Ginning and Pressing Factory, Rahimyar Khan v. Assistant Income Tax Officer and another [(1974) 29 Tax 238 (H.C.Lah.)] ―Only court holidays which are to be allowed in addition to the prescribed period of limitation for filing suit, appeal or application are those which fall on the day of the expiry of that period or immediately following it. If the period of limitation is still running when the court re-opens, the plaintiff or the appellant cannot claim the exclusion of such holidays.‖ 11

Time required for obtaining certified copy should extend the period of limitation

Alyani Cotton Ginning and Pressing Factory, Rahimyar Khan v. Assistant Income Tax Officer and another [(1974) 29 Tax 238 (H.C.Lah.)] ―The principle, that the period of limitation comprises two elements namely, the primary period plus the periods allowed by the various provisions of the Limitation Act itself, is certainly not open to any exception, and as long as this period has not expired, the right of appeal subsists. Such being the case an application for obtaining a certified copy of the judgement or decree can be made within this period, with the result that the period shall stop running until such time as the copy is delivered. To put it more simply, the period of limitation would stand extended by the time requisite, for obtaining the certified copy.‖

Chapter XX Miscellaneous 1.

Claim for refund of money paid under mistake is not barred by time

Pfizer Laboratories Ltd. v. Federation of Pakistan [(1998) 77 Tax 172 (S.C.Pak)] ―The above resume of the case-law of Indian, English and Pakistani jurisdiction, indicates that the latest judicial trend is to deprecate and to discourage withholding of a citizens money by a public functionary on the plea of limitation or any other technical plea if it was not legally payable by him. It is also evident that the claims for the refund of the amount paid as a tax or other levy on account of mistake as to want of constitutional/legal backing or because of exemption are at par. It is also apparent that such payments are held to be not covered by rule 11 of the Central Excise Rules, 1944, or section 27(1) of the Indian Customs Act, 1951, or section 33 of the Act etc. The refunds of such amounts are allowed by the Superior Courts inter alia in India on the basis of section 72 of the Contract Act which provides that a person to whom money has been paid or anything delivered by mistake or under coersion must repay or return it. Such refunds can be claimed either by filing a suit for the recovery of the amount for which the period of limitation applicable would be three years under Article 96 of the First Schedule to the Limitation Act (which provides period of three years from the date mistake becomes known to the plaintiff) or the same can be recovered through a constitutional petition if no disputed fact is involved. The Indian Supreme Court and the various High Courts referred to in the cited case-law, hereinabove had ordered the refund of the amounts involved in exercise of their constitutional jurisdiction under Article 226 of the 451

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Indian Constitution. In Pakistan, Sindh and Lahore High Courts have also allowed the refund of such amounts under Article 199 of the Constitution in exercise of their constitutional jurisdiction in the cases of Ghulam Abbas vs. Member (Judicial), CBR and Kohinoor Industries Ltd. Faisalabad vs. Ministry of Finance. But it may not be understood that we are laying down that a party is free to claim refund of a tax or any other levy paid under a mistake of fact or law at his sweet will at any time even after the expiry of 20 years. If a suit is to be filed for the refund, it should be within statutory period provided under the relevant Article of the First Schedule to the Limitation Act, or if the refund of the same is to be claimed by invoking in aid the constitutional jurisdiction of a High Court, the petitioner should approach the court promptly. The petition should not suffer from laches which may defeat the claim. We can‘t approve the view that a party can claim the refund of an amount paid to a Government functionary under a mistake without any constraint of limitation as it would adversely affect the good governance in financial matters.‖ 2.

Power to levy taxes is an attribute of sovereignty of a state

Elahi Cotton Mills Ltd. & others v. Federation of Pakistan through Secretary Finance, Islamabad [(1997) 76 Tax 5 (S.C.Pak) = 1997 PTD 1555 = PTCL 1997 CL 260 = PCTLR SC(Pak) 845] ―The power to levy taxes is sine qua non for a state. In fact it is an attribute of sovereignty of a state. It is a mandatory requirement of a state as it generates fiscal resources which are needed for running a state and for achieving the cherished goal, namely, to establish a welfare state. In this view of the matter, the legislature enjoys plenary power to impose such conditions as to liability or as to exemption as it chooses, so long as they do not exceed the mandate of the Constitution. It is also apparent that the entries in the legislative list of the Constitution are not powers of legislature but only fields of legislative needs. The allocation of the subjects to the lists is not by way of scientific or

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logical definition by way of mere simple enumeration of broad catalogue. A single tax may derive its sanction from one or more entries and many taxes may emanate from one single entry. It is needless to reiterate that it is a well settled proposition of law that an entry in the legislative list must be given a very wide and liberal interpretation. The word income is susceptible as to include not only what is in ordinary parlance it conveys or it is understood, but what is deemed to have arisen or accrued. It is also manifest that income tax is not only levied in conventional manner i.e. by working out the net income after adjudicating admissible expenses and other items, but the same may also be levied on the basis of gross receipts, expenditure etc. There are new species of income tax, namely presumptive tax and minimum tax.‖ 3.

Legislature, particularly in economic activities, enjoys wide latitude in the matter of selection of person, subject-matters, events etc., for taxation

Call Tell (Pvt.) Limited through Authorized Representative and another v. Federation of Pakistan through Secretary, Ministry of Law Justice and Human Rights Division, Islamabad and others [2004 3032 (S.C. Pak.) = (2005) 91 TAX 1 (S.C. Pak.)] ―The learned counsel pointed out that the Chief Automation (D.T.), Data Processing Centre, Income Tax Department, Karachi, by letter dated 15.8.2002, had pointed out that it was not practicable or humanly possible to provide names and addresses, NTN etc., for the purpose of collection of income-tax. It was lastly contended that the Central Board of Revenue had failed to provide any structure for the workability and collection of tax. Therefore, this Court was required to lay down necessary guiding principles by applying doctrine of reading down a statute so as to make the provisions of section 236 of the Ordinance workable and practicable. Reliance was placed on the cases Elahi Cotton Mills Limited (supra), Rauf Bakhsh Qadri v. the State (2003 MLD 777) and Sunil Batra v. Delhi Administration (AIR 1978 SC 1675).

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On the other hand, Mr. Makhdoom Ali Khan, the learned Attorney General of Pakistan submitted that the other companies dealing with the pre-paid telephone cards were collecting and paying tax without any difficulty as required under section 236 of the Ordinance. It was pointed out that letter dated 15.8.2002 by the Chief Automation (D.T.), had nothing to do with the workability or otherwise of the provisions of section 236 of the Ordinance or the collection of advance tax on the pre-paid cards. The charging provisions of the tax did not suffer from any taint of invalidity. Therefore, the machinery provisions of the statute providing the manner and method for collection of such a tax were to be construed so that it would not defect a tax. In this regard, the learned Attorney General relied on the cases of Commissioner of Income Tax Bengal v. Mahaliram Ramjidas (AIR 1940 PC 12) and Khan Abdul Ghafoor Khan DAHA v. Controller of Estate Duty, Government of Pakistan (1969 PTD 128). It was brought to our notice that as against 4.6 million P.T.C.L. line phones and three million mobile phones there were only one million taxpayers in the country. As many as 279 companies had been authorized by the Pakistan Telecommunication Authority to extend the facility of Public Call Offices. The amount of advance tax deducted from the value of the pre-paid telephone cards was automatically collected by the petitioner and other companies for onward payment to the Income Tax Department. The inter-city telephone cards were used through the PTCL lines. It was argued that the plain duty of the Court was to ascertain the intention of the Legislature and to carry it out. It was not for the Courts to question the policy or motive of the Legislature or to refuse to give effect to a statute merely because it appeared to be harsh or unreasonable. Reference was made to the cases of the Punjab Province v. Malik Khizar Hayat Khan Tiwana (PLD 1956 Federal Court 200) and Air League of PIA Employees Union and another v. Federal of Pakistan/The President/Chief Executive and another 2003 PLC (C.S.) 145). It was lastly argued that the tax on ―deemed income‖ were examined and upheld by this Court in cases of Elahi Cotton Mills Limited (supra) and Commissioner of

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Income Tax v. Asbestos Cement Industries Limited and others 1993 PTD 343. The question of Constitutional validity of advance tax was exhaustively considered and upheld by this Court in the case of Elahi Cotton Mills Limited (supra) while interpreting the provisions of section 80C, 80CC and 80D of the Income Tax Ordinance, 1979. It will be useful to reproduce, in extensor, the relevant portions of the aforesaid judgments:―(17) We may now refer to the background which necessitated the enactment of the impugned sections. In this regard, it may be pertinent to refer to the final report of the National Taxation Reforms Commission, hereinafter referred to as the NTRC, or December, 1986, which mostly comprised the representatives of business community representing various trade associations. NTRC in the above report commented upon the corruption obtaining in the Government and semi-Government department as under:―So far as corruption is concerned, there is no doubt in the mind of the public that most Government and semi-Government departments are corrupt; many know it from personal experience, while others have just to look at the standard of living of the comparatively low-paid officials, their cars, their houses, the type of parties they give, the expensive schools their children attend and the clothes and jewelry their wives wear to realize that all this costs a lost of money and that such expenses could not be covered by the emoluments of the officials concerned. Inquiries, suspensions and periodic wholesale removals have been tried but the basic weapon against corruption is confiscation of the ill-

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gotten gains. This has not been practiced so far.‖ The menace of tax evasion is not a new discovery but it has been so since the imposition of the same but the degree of tax evasion has alarmingly increased and so also the malpractices in the Income Tax Department entrusted with the levy and collection of tax. Lord Green in the case of Lord De Walden VIR TC 134 (CA) (1942) 10 ITR Suppl 90, 94 touched upon the question of tax evasion as follows:―For years a battle of maneuver has been waged between the Legislature and those who are minded to throw the burden of taxation off their own shoulders on to those of their fellow subjects. In that battle the Legislature has often been worsted by the skill, determination and resourcefulness of its opponents, of whom the present appellant has not been the least successful. It would not shock us in the least to find that the Legislature has determined to put an end to the struggle by imposing the severest of penalties. It scarcely lies in the mouth of the taxpayer who plays with fire to complain of burnt figures.‖ From the above case-law and the treaties, inter alia the following principles of law deductible:(vii) That the policy of a tax, in its operation, may result in hardships or advantages or disadvantages to individual assessees which are accidental and inevitable. Simpliciter this fact will not constitute violation of any of the fundamental rights. (viii) That while interpreting Constitutional provisions Courts should keep in mind, social setting of the country, growing requirements of

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the society/nation, burning problems of the day and the complex issue facing the people which the Legislature in its wisdom through legislation seeks to solve. The judicial approach should be dynamic rather than static, pragmatic and not pedantic and elastic rather than rigid. (ix) That the law should be saved rather than be destroyed and the Court must lean in favour of upholding the constitutionality of a legislation keeping in view that the rule of Constitutional interpretation is that there is a presumption in favour of the constitutionality of the legislative enactments unless ex facie it is violative of a Constitutional provision. (xii) That what is not ―income‖ under the Income Tax Act can be made ―income‖ by a Finance Act. An exemption granted by the Income Tax Act can be withdrawn by the Finance Act or the efficacy of that exemption may be reduced by the imposition of a new charge, of course, subject to Constitutional limitations. (xvii) That generally the effect of a deeming provision in a taxing statute is that it brings within the tax net an amount which ordinarily would not have been treated as an income. In other words, it brings within the net of chargeability income not actually accrued but which supposed to have accrued notionally. (xviii) That when a statute enacts that something shall be deemed to have been done which in fact and in truth was not done, the Court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to.

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(xix) That where a person is deemed to be something the only meaning possible is that whereas he is not in reality that something, the Act requires him to be treated as he were with all inevitable corollaries of that state of affairs. (xxx) That the theory of reading down is a rule of interpretation which is resorted to by the Courts when they find a provision read literally seems to offend a fundamental right or falls outside the competence of the particular Legislature. (xxxi) That though the Legislature has the prerogative to decide the questions of quantum of tax, the conditions subject to which it is levied, the manner in which it is sought to be recovered, but if a taxing statute is plainly discriminatory or provides no procedural machinery for assessment and levy of the tax or that is confiscatory, the Court may strike down the impugned statute as unconstitutional. (xxxii) That the rule of interpretation that while interpreting an entry in a Legislative List it should be given widest possible meaning does not mean that Parliament can choose to tax as income as item which in no rational sense can be regarded as a citizen‘s income. The item taxed should rationally be capable of being considered as the income of a citizen. (xxxiii) That before charging tax, an assessee must be shown to have received income or the same has arisen and accrued or deemed to be so under the statute. Any amount which cannot be treated as above is not an income and, therefore, cannot be subject to tax. (xxxiv) That there is a marked distinction between a tax on gross revenue and a tax on income, which

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for taxation purposes, means gains and profits. There may be considerable gross revenues, but no income taxable by an income tax in the accepted sense. (32) we have summarized hereinabove in para 31 the ratio decidendi of the above discussed cases and certain pertinent observations made therein. A perusal of above sub-paras (i) to (xxx) of para. 31 indicates that the same does not advance the case of the appellants. On the contrary, they reinforce the principle of law that the Legislature, particularly in economic activities, enjoys a wide latitude in the matter of selection of person, subject-matters, events etc., for taxation. The presumption is in favour of the validity of the legislation. The burden to prove that the same is invalid is on the person who alleges it. However, one can urge that the general observations contained in sub-paras (xxxi) to (xxiv) of para 31 lend support to some extent to the appellants case. However, it should not be overlooked that in none of the cases from the judgments of which the above observations have been lifted the questions, as to whether there can be presumptive tax or the minimum tax, in view of Entries 47 and 52 of the Legislative List, was in issue. In this view of the matter, it would be inappropriate to apply the tests traditionally prescribed by the Income Tax Act and/or any other statute. (34) Keeping in view the above case-law and the treaties and the aforesaid legal inference drawn therefrom, we may now revert to the question of vires of impugned sections. It may again be observed that the power to levy taxes is a sine qua non for a State. In fact it is an attribute of sovereignty of State. It is mandatory requirement of a State as it generates financial resources which are needed for running a State and

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for achieving the cherished goal, namely, to establish a welfare State. In this view of the matter, the Legislature enjoys plenary power to impose taxes within the framework of the Constitution. It has prima facie power to tax whom it chooses, power to exempt whom it chooses, power to impose such conditions as to liability or as to exemption as it chooses, so long as they do not exceed the mandate of the Constitution. It is also apparent that the entries in the Legislative List of the Constitution are not powers of legislation but only fields of legislative heads. The allocation of the subjects to the lists is not by way of scientific or logical definition but by way of mere simple enumeration of broad catalogue. A single tax may derive its sanction from one or more entries and many taxes may emanate from one single entry. It is needless to reiterate that it is a well-settled proposition of law that an entry in the Legislative List must be given a very wide and liberal interpretation. The word ―income‖ is susceptible as to include not only what is in ordinary parlance it conveys or it is understood, but what is deemed to have arisen or accrued. It is by working out the net income tax after adjusting admissible expenses and other items, but the same may also be levied on the basis of gross receipts, expenditure etc. There are new species of income tax, namely, presumptive tax and minimum tax. (42) We may again point out that the NTRC, which mostly comprised the representatives of business community representing various trade associations, in its report of December, 1986, quoted hereinabove in para 17, highlighted the corruption obtaining in Government and semi-government departments and so also to dishonest tendency on the part of the tax-payers to evade the payment of lawful taxes by using unfair means. In such a scenario, the Legislature is bound to

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adopt modern and progressive approach with the object to eliminate leakage of public revenues and to generate revenue which may be used for running of the State and welfare of its people. The imposition of minimum tax under section 80D is designed and intended to achieve the above objectives. The rate of half per cent of minimum tax adopted under section 80D seems to be on the basis of the minimum rate of tax suggested by the Exports Enhancement Committee. In our view the above provision falls within the Legislative competence under Entry 47 read with Entry 52. The approach of this Court while interpreting the Constitution should be dynamic, progressive and oriented with the desire to meet the situation effectively which has arisen keeping in view the requirement of ever changing society. Applying the above rule of interpretation, we do not find any infirmity in the impugned section 80D of the Ordinance.‖ A somewhat similar view was taken by this Court in the case of Commissioner of Income Tax versus Asbestos Cement Industries Ltd. and others (supra). The learned Judges of the High Court of Sindh came to the following conclusion in para. 11 of the impugned judgment that:―The advance tax impugned in this petition does not fall within the purview of presumptive tax regime. The advance tax collected by the petitioner No. 1 from the petitioner No. 2 and all other buyers of the pre-paid telephone cards shall be merely credited with the Government which can be utilized and adjusted to the extent found necessary towards the ultimate liability of income tax due, after it has been determined and the excess amount if any is to be refunded to the purchasers of pre-paid telephone cards…‖

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In our view, the impugned judgment by the High Court of Sindh is in conformity with the ratio laid down by this Court in the case of Elahi Cotton Mills Limited (supra) and he same does not suffer from any legal infirmity so as to warrant interference by this Court.‖ 4.

Assessment order passed by ITO can‟t be called a final order

CBR & others v. Chanda Motors [(1992) 66 Tax 132 (S.C.Pak.) = 1992 PTD 1681] ―Legally speaking order of assessment passed by Income Tax Officer is an order of original authority but is not final for the reason that it can be challenged in appeal or revision as the case may be and would be final only when it goes through all the forums and the finding of the last forum shall be binding as conclusive. It can be said without fear of contradiction that order passed in original proceedings is not final unless it crosses all the forums set up under that law in which it can be challenged and the order of the last forum would become final.‖ 5.

IT-30 cannot be a substituted for an assessment order

CIT/WT, Zone-C, Lahore v. Haroon Medical Store, Sheikhupura [2003] 88 TAX 50 (H.C.Lah.) = 2003 PTD 1530 ―An IT-30 form simply comprises of different blocks and columns meant to be filled in containing all information with regard to nature, volume and extent of business or occupation of an assessee and also other relevant information, which department will normally require of an assessee. This printed form owes its legitimacy to ingenious arrangement of a host of information needed by department, rather than any provisions of law or the rules framed thereunder. In law, there is a concept of an assessment order in writing, which not only betrays an application of mind, but also the fact that concerned human mind was adequately possessed with faculty to demonstrate its application. An IT-30 form filed in by subordinate officials in the Department and though signed by an officer will not answer

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the legal requirement of an order in writing, which goes to ―determine‖ the tax payable on the basis of an assessment made prior thereto.‖ 6.

Islamic jurisprudence and rules of law are equally applicable to fiscal laws

CIT, Peshawar Zone, Peshawar v. Siemen A.G. [(1991) 63 TAX 130 (S.C.Pak.) = PLD 1991 SC 368] ―So long as the existing statutes were not brought in conformity with the injunction of Islam [Article 227 of the Constitution of Pakistan, 1973] their interpretation, application and enforcement wherein discretionary judicial elements were involved, only that course will be adopted which was in accord with the Islamic philosophy, its common law and jurisprudence. It was noted that the courts were bound to apply Islamic rules of interpretation. Unless excluded otherwise, in preference to the contrary so-called accepted rules of interpretation under the other jurisprudential concepts and fiscal laws were no exception in that behalf. As a necessary conclusion drawn from the foregoing, it can be safely held in this case also that on the touchstone of Islamic rules of interpretation, which unless excluded otherwise, under the present Constitutional set-up the courts are bound to apply in preference to the contrary so-called accepted rules of interpretation under the other jurisprudential concepts (and the fiscal laws are no exception in this behalf), the income tax authorities cannot change the nature of the contract intended by the parties thereto, under the pretext that the rule of interpretation of a fiscal law in this behalf, is different.‖ Mian Aziz A. Sheikh v. CIT, Investigation Lahore [(1989) 60 Tax 106 (S.C.Pak)] ―Article 227(1) not only requires that all existing laws shall be brought in conformity with the injunctions of Islam but it also commands as a mandate that ―no law shall be enacted which is repugnant to such injunctions‖. It is command to all law-making bodies and functionaries. It will be anomalous to

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assume that although in Article 227 there is a command to all the legislative bodies not to enact any law which is repugnant to Islamic injunctions, nevertheless it permits the functionaries of the State at all levels to go on enacting rules like those of evidence which have the force of law and which are repugnant to the injunctions of Islam. It is in this context that the earlier made remarks about the conduct of State functionaries in Pakistan get illustrated, i.e., none would ever assert that he has power or would lay down a rule having the force of law, which is repugnant to Injunctions of Islam. In the context of the present case, neither the legislature, under the command contained in Article 227(1), has the power to enact a law in any field including those relating to taxes, which is repugnant to injunctions of Islam; nor any other functionary including the Income Tax Authorities have any such power to lay down any un-Islamic rule which has a force of law. It is true that with regard to the statutory enactments Article 227 in its clause (2) commands that: effect shall be given to the aforediscussed negative command in clause (1), ―only in the manner provided in this part (Part IX)‖. And thus it may be argued, it also applies to statutory rule. But, this prohibition in clause (2) of Article 227 does not apply to decisions by functionaries of State where in the judicial, quasi-judicial or other spheres involving exercise of judgment, as distinguished from exercise of law-making or statutory rule-making authority, they take decisions. In other words whatever decision is contained in any such judgment of any such functionary which lays down a rule of law or declares so as a rule of law the superior Courts, shall be within their competence in a properly instituted proceedings to strike it down both under the general mandate contained in Clause (1) of Article 227 as well as under Article 2A read with the Objectives Resolutions. This is in addition to the reasoning which prevailed in the case: Muhammad Bashir vs. The State (PLD 1982 S.C. 139) which had approved the judgment of the Lahore High Court in the case of Haji Nizam Khan vs. Additional District Judge, Lyallpur and

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others (PLD 1976 Lahore 930). The approach then was that although it was not possible for the Courts to enforce Islamic Law in those fields which were fully occupied by statutory dispensation, yet, it was not only open to the Courts but they were duty bound to apply common law of Islam, its jurisprudence and philosophy, in fields which were not occupied by statutory dispensation. Various examples of those subjects are enumerated in the concluding part of the judgment of Haji Nizam‟s case. What was held in Muhammad Bashir‟s case and for that matter Haji Nizam‟s case, can now be further supported with reference to Articles 2A and 227(1) of the Constitution; as also, what has been held and enforced from amongst the principles of policy by this Court, in the case of Miss Benazir Bhutto. The foregoing rules of interpretation, would apply to the present case, to the decision of the Income Tax Authorities laying down in their judgment, a rule of evidence which goes against Islamic Law and jurisprudence. It was upheld by the High Court, though with respect wrongly, It has to be set aside and declared as of no effect. That being so, while setting aside the High Court judgment the question referred to the High Court, quoted in Paragraph 5 supra, is answered in the negative. The result is that the Income Tax Tribunal was not ‗right in holding that the sum of Rs.50,072 was properly included in the income of the assessee u/s 16(3)(iii) of the Income Tax‘.‖ 7.

Remedy to be sought within four corners of Act

Batala Engineering Ltd. v. ITO Lahore [(1974) 29 Tax 190 (S.C.Pak)] ―In the first place, prima facie, a suit does not lie u/s 67 of Income Tax Act. The Income Tax Act is a complete code by itself and any grievance in regard to the assessment can be remedied within the four corners of that Act. Besides, the petitioner had a remedy under the Income Tax Act u/s 30 and 33.‖ 8.

Realistic approach should be determination of value of property

applied

Sitex Spinning Mills, Lahore v. CIT, Zone-3, Lahore [2003 PTD 808 (H.C.Lah.)]

for

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―In the cases of the kind in hand an Assessing Officer must identify the source where from the understated funds emanated. That will obviously mean that excess amount was expended by directors and an addition, if it could be made, would be possible only in their hands and not in the hands of the company which is yet to start business. However, as observed earlier, the idea that the directors of a public limited company will understate the value of the property purchased immediately on the incorporation of the company appears farfetched, unrealistic and unsupported by general human experience. Also we are of the view that generally the sale price of a property cannot be measured by any hard and fast rule inasmuch as mostly it is the need of the seller and desire of the purchaser that determines the real value. In case of real estate particularly, the location or situation of an immovable property merits high in settling the price.‖ 9.

Payments (golden handshake etc.) on termination of services held taxable

Iftikhar Ahmad Butt and 4 others v. Government of Islamic Republic of Pakistan through Secretary, Ministry of Finance, Economic Affairs and Statistics, Islamabad and 5 others 2002 PTD 562 (H.C.Lah.) ―The argument that the payment for loss of employment cannot be taken as salary is of no avail at all. It is repeated that the law has created a legal fiction that amounts received as compensation on termination of employment or modification of a contract of employment will amount to salary and to that proposition the clear words of the statute bear witness. It is equally immaterial if subsection (2) of section 16 of the Ordinance first created a legal fiction of profits in lieu of salary and then proceeded to extend the same further. We are not aware of any rule of interpretation which restricts the power of legislature to create legal fictions one after the other or to presume the existence of another fact when a fact presumed has come into existence. Learned counsel for the Revenue is correct in pointing out the extreme situation as contemplated in the

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definition clause that the provision as framed will bring into tax net any amount of compensation which is only due to an employee and has not even been from the employer.‖ 10.

Scope of protection under the Economic Reforms Protection Act of 1992 - Special Law vs. Income Tax

Zahur Textile Mills Limited v. CBR through Chairman, Government of Pakistan, Islamabad and 2 others [2000] 82 TAX 275 (H.C.Lah.) = 2000 PTD 303 ―From a perusal of various provisions of Act, 1992 it becomes clear that it provides protection to the various economic measures taken on or after 7.11.1990. Although it is true that section 6 of the Act, 1992 does not use the words ―economic reforms‖ but it is to be seen that this word does not appear anywhere except in the preamble and the definition clause. In case of doubt about interpretation of this statutory provision preamble can validly be referred to. It reads as under:―Whereas it is necessary to create a liberal environment for savings and investments and other matters relating thereto; And whereas a number of economic reforms have been introduced and are in the process of being introduced to achieve the aforesaid objectives; And whereas it is necessary to provide legal protection to these reforms in order to create confidence in the establishment and continuity of the liberal economic environment created thereby.‖ The definition of ―economic reforms‖ in the Protection of Economic Reforms Act, 1992 is contained in section 2(b) which reads as under:2(b) ‗economic reforms‘ means economic policies and programmes, laws and regulations announced, promulgated or implemented by the Government on and after the seventh day of November, 1990, relating to privatization of public sector, enterprises, and nationalized banks, promotion of savings and

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investments, introduction of fiscal incentives for industrialization and deregulation of investment, banking, finance, exchange and payment systems, holding and transfer of currencies; and;‖ A cumulative reading of section 2(b) and the preamble would show that the saving clause apply only to the economic measures taken after 5th November, 1990 pursuant to the economic policy of the Government which granted the incentives. The intention of the legislature becomes manifest from a perusal of the Schedule. If the argument of the learned counsel is correct that section 6 applies to all the notifications issued before the promulgation of the Act, then there was no necessity of specifically mentioning two notifications in the Schedule. It is thus obvious that what section 6 says is the measures taken by the Government after 5th November, 1990 which was the date on which the then Government came into power.‖ 11.

Civil suit in the absence of mala fide order is not maintainable

Chemitex Industries Ltd v. Superintendent of Sales Tax and 3 others [1999 PTD 1184] ―It is settled law that where the legislators have provided a particular forum for redressal of the grievance, the same could not be circumvented by invoking jurisdiction of the Civil Court. It is not shown in the plaint that the authority which passed the impugned order was not lawfully constituted; that the order under challenge is mala fide and without jurisdiction or that the plaintiff‘s right to natural justice was violated while passing impugned order. All these ingredients being missing in the plaint, the ouster of jurisdiction of a Civil Court as provided in section 51 of the Act, 1990 is complete and this Court has no jurisdiction. Reliance is placed on a Full Bench case of Honble Supreme Court in Abbasia Cooperative Bank and another vs. Hakeem Hafiz Muhammad Ghaus and 5 others PLD 1997 SC 3. This suit being incompetent and barred u/s 51 of the Act, 1990, is liable to be buried at the initial stage.‖ 12.

Power to make rules is subject to certain limitations

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Pakistan through Secretary Finance, Islamabad and 5 others v. Aryan Petro Chemical Industries (Pvt.) Ltd. Peshawar and others 2003 PTD 505 (S.C.Pak.) ―A statutory rule cannot enlarge the scope of the section under which it is framed and if a rule goes beyond what the section contemplates, the rule must yield to the statute. The authority of executive to make rules and regulations in order to effectuate the intention and policy of the Legislature must be exercised within the limits of mandate given to the rule making authority and the rules framed under an enactment must be consistent with the provisions of said enactment. The rules framed under a statute, if are inconsistent with the provisions of the statute and defeat the intention of Legislature expressed in the main statute, same shall be invalid. The rule-making authority cannot clothe itself with power which is not given to it under the statute and thus the rules made under a statute, neither enlarge the scope of the Act nor can go beyond the Act and must not be in conflict with the provisions of statute or repugnant to any other law in force.‖ Munir Ahmad & Others v. Federation of Pakistan [(1998) 78 Tax 217 (H.C.Lah) = 1998 PTD 3900] ―The power has been delegated to the Board to frame rules so as to determine the market value of the asset. The use of the word market is not without significance, for it requires that the value should be such which a willing buyer shall pay to a willing purchaser. If in a rule, valuation fixed has no reference to the market value, it would be ultra vires of the Act as it is against section 46.‖ 13.

Discrimination in rule-making is ultra vires

Munir Ahmad & Others v. Federation of Pakistan [(1998) 78 Tax 217 (H.C.Lah) = 1998 PTD 3900] ―The rule provides for working out the market value i.e. break up value of the share. If this measure has been adopted for fixing the value of the share, there could possibly be no objection. Furthermore, if in the case of listed companies it is

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either the listed value or the face value whichever is less which constitutes the market value, the same treatment should have been meted out in case of non-listed companies by providing that the value shall be either the face value or the break up value worked out by the Wealth Tax Officer whichever is less. The rule is thus clearly discriminatory.‖ 14.

Civil suit does not lie against tax authorities unless order is malafide or illegal

Abbas S. Sharoff and another v. Income Tax Officer and others [(1998) 78 Tax 119 (H.C.Kar.) = 1998 PTD 2884] ―I am of the considered view that a suit seeking setting aside or annulment of an assessment order passed by Income Tax Authority will not be maintainable. In order to maintain a suit challenging any order passed under the Income Tax Ordinance, 1979, it is incumbent upon the plaintiff to show presence of these three elements i.e. mala fides, illegality and absence of jurisdiction to pass such order, otherwise provisions of Section 162 of the Ordinance, 1979 will come into play.‖ 15.

Basis of taxation in Islam

Khawaja Textile Mills Ltd. v. DCIT & 2 others [(1998) 77 Tax 1 (H.C.AJ&K)] ―In so far as the violation of Islamic provision is concerned, it was argued that money collected on a turnover of business become the property of the individual and cannot be snatched away through the imposition of taxes. Even in Islam, the imposition of taxes has a background, Zakat, Ushr, Jaziah are various forms of taxes. Zakat is not realized only on new income of the individuals rather it is levied on the entire belongings of an individual even if there is no income. The tax on the turnover of a business is thus of a lesser gravity than that of Zakat. Jaziah is realized from non-Muslims, for defence services rendered by the state. In the present day world, the state is managing various affairs and also provides different services to the people in the shape of, defence, health, education and so many other

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developments for the benefits of the citizens. All this requires a huge sum of money which has to be collected from the people. Without taxes, it is not possible for a Government to defend the country and to provide other services and facilities or perform certain functions for the welfare and well being of the people. Thus the taxes have to be levied for different purposes in different shapes on different classes of persons. The question of classification has been discussed in detail in the judgement delivered by the Supreme Court and justified. The Islamic Shariah does not prohibit the collection of taxes, from any particular class of persons in the Islamic Society. The categorization of the people for the purpose of realizing the tax is not against the injunctions of Islam. The learned council for the petitioners had argued that realization of this type of tax is fraud, lie, deception, cheating, falsification, injustice and switching of the property of the petitioners through Zulam. The various references made by the learned counsel to the books on Islamic jurisprudence, do not support his contention.‖ 16.

Provisions of Economic Reforms Act, 1992 overrides Income Tax Law to the extent protections are provided in the former enactment

Hudabiya Engineering (Pvt.) Ltd., Lahore v. Pakistan through Secretary, Ministry of Interior, Govt. of Pakistan, Islamabad [(1997) 76 Tax 302 (H.C.Lah.)] ―In our opinion on its plain reading, section 5 not only grants full immunity to the holders of foreign currency accounts but also provides that complete secrecy be maintained in respect of the transactions in these accounts. We are also of the view that section 5 and 9 of the Act have different scope and operate in different fields and are, therefore, not complementary to each other. While section 5 of the Act in itself provides complete code so far as foreign currency accounts are concerned, section 9 applies to transactions other than those in foreign currency. There may be no cavil with the principle of interpretation relied upon by the learned single Judge that various provisions in the Act must be read together and the Act should be construed as a

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whole but that principle has no application in the present case. Be that as it may, all principles of interpretation of statutes are nothing but tools which the courts employ to find true legislative intent which cannot be defeated by relying upon some abstract principle. It will be seen from the above that Protection of Economic Reforms Act, 1992 was promulgated pursuant to the Policy of the Federal Government to protect various economic reforms undertaken by it in order to provide incentives to investors and to encourage inflow of foreign currency into Pakistan. While interpreting such a law relating to economic matters the Courts should so far as possible adopt that interpretation which furthers the object for which the same has been promulgated. The grant of immunity to the foreign exchange accounts is not something new or unique. In the past, the Government time and again introduced various schemes with a view to attract investment particularly in foreign currency in the country. These include the issuance of foreign exchange bearer certificates, foreign currency bearer certificates and foreign deposit bearer certificates. All these measures are part of fiscal policies which a Government is entitled to lay down keeping in view the national and economic interest. It is also to be seen that as section 4 and 5 of the Act, both deal with foreign currency, while interpreting section 5, section 4 of the Act cannot be lost sight of. It provides complete freedom to all citizens of Pakistan and all other persons to bring, hold, sell and take out foreign currency in any form. It specifically provides that no person shall be required to make any foreign currency declared at any stage and also ordains that no one shall be questioned in regard to the same. This clearly brings out the legislative intent that no question can be asked from the person holding any foreign currency in respect of the same. That being so, no inquiry either into the source or the holding of the foreign currency can be initiated or made by any agency especially when non-obstante clause in section 3 of the Act provides that the Act shall over-ride all other laws.

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On consideration of various provisions of the Protection of Economic Reforms Act, 1992, we have reached the conclusion that so far as foreign currency accounts are concerned, the holders thereof, have complete immunity from inquiry and scrutiny and complete secrecy must be maintained in respect of those accounts which cannot be violated by any Agency or functionary. That being so, neither the Income Tax Authorities nor Federal Investigation agency had any jurisdiction to hold any inquiry in respect of the transactions in the foreign currency accounts nor could the same be made basis of criminal prosecution.‖ 17.

If notice is prima facie defective and error is incurable, the entire proceedings are null and void

Baby-own v. Income Tax Officer [1997 PTD 47] ―Provisions of section 65 stipulate three conditions for issuance of notice u/s 65 of the Ordinance; firstly, the income chargeable to tax has escaped; secondly income has been underassessed; or assessed at too low a rate or has been the subject of excessive relief for a refund and thirdly if assessment is made u/s 59(1) and there are reasons to believe that any of the aforementioned defects exists in assessment order. The notice, dated 21-2-1995 u/s 65 aforementioned issued to the petitioner does not indicate under what subsection of the section has been issued; when confronted, the learned counsel for the department contended that as already show-cause notice was 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 u/s 65(1) under what reason his assessment is sought to be reopened as reopening of a case to some extent 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 reason to

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reassess the said income already assessed in the hands of the petitioner. The entire proceedings are null and void.‖ 18.

Powers of jurisdiction

CBR

-

territorial

&

administrative

National Electric Co. (Pvt.) Ltd. Gujranwala v. CIT, Gujranwala Zone [(1996) 74 Tax 89 (H.C.Lah.)] ―Learned counsel for the petitioner has argued that the Tribunal was not justified in holding that Central Board of Revenue had exercised its authority with law by assigning the cases to the Inspecting Assistant Commissioner of Central Zone, Lahore. This argument need not be adverted to as almost on the similar ground the petitioner had challenged the order of the Central Board of Revenue by filing writ petition which was dismissed with the following observations: I do not think I can accept the contention of the learned counsel. Apportionment or distribution of work among the various officers of the Income Tax Department is essentially an administrative matter and is to be regulated by considerations mainly of convenience. The Central Board of Revenue stands at the apex in the hierarchy of Income Tax Authorities. Under section 8 of the Income Tax Ordinance it can give binding directions to all other Income Tax Authorities. It is, therefore, difficult to accept the contention of the learned counsel that in exercise of its powers u/s 8, it cannot transfer a case or a class of cases from one authority to another. The order passed by this court was upheld by the Supreme Court. The petitioner cannot, therefore, be allowed to reagitate the same matter again.‖ 19.

Budget speech has no legal sanctity

Metro Shipbreakers and another v. Pakistan through the Secretary, Ministry of Finance, Islamabad, etc. [1996] 73 TAX 85 (H.C.Queeta)

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―We have also focused our attention to the budget speech of the Minister made before National Assembly and the relief claimed for also revolves around it. Insofar as such speeches are concerned, in our view the same are without legal sanctity behind it and the Minister‘s speech is of no importance till the policies as highlighted in such speeches are given legal effect or cover by way of notification or instruction duly issued by Ministry concerned. Such speeches are usually motivated by political consideration and there is considerable difference in between such speeches and that of a policy recognized by some statute or enactment. The possibility of exaggeration in such speeches cannot be ruled out. The pivotal question is whether the points as highlighted in the speech or the policy intended to be formulated was subsequently given effect by issuance of a notification based on some enactment or statute meaning thereby that whether any legal coverage was given or otherwise. The Minister‘s speech can be termed as representation made on behalf of Government to highlight certain fiscal policies intended to be formulated but it must not be lost sight of that a representation must relate to an existing fact or a past event; mere statement of intention or a promise-de futuro does not create an estoppel. A representation, in order to give rise to an estoppel must be a statement which purports to affirm, deny, describe, or which otherwise relates to, an existing fact, circumstances or thing, or any past event. No doubt that the Minister‘s speech has created false hopes and high expectations which could not be materialized but the speech having no legal sanctity behind it at the best it can be declared as promise-de futuro which cannot be enforced by invoking the constitutional jurisdiction of this court.‖ 20.

Duty of Government employees working in non-taxable territories to pay income tax

Sanaullah Khan etc. v. Province of Balochistan etc. [(1995) 71 Tax 45 (H.C.Quetta)]

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―Perusal of above provision manifestly discloses that every Government employee, receiving salary from Federal Government, Provincial Government or any local authority of Pakistan is bound to pay income tax at prescribed rates irrespective of his status of residence, place of posting or nature of work. The question about applicability of Income Tax Ordinance, 1979 in tribal areas has absolutely no relevancy because income tax deductions are based upon entitlement of persons for receiving salaries from State exchequer. Therefore, we are inclined to respectfully observe that reference to above quoted judgment or bar under Article 227 of the Constitution which considering liability of Government employees regarding payment of Income Tax has no nexus with the proposition under consideration. We, therefore, feel no difficulty in concluding that once Government employee is receiving his salary from State exchequer, he automatically becomes liable to pay tax on his income, without any bar of locality, place of service or nature of duties unless specifically exempted.‖

477 Miscellaneous 21.

The de facto doctrine

ITO, Mirpur & 2 others v. Ch. Muhammad Bashir [(1994) 69 Tax 109 (S.C.AJ&K)] ―The de facto doctrine which is to the effect that if an appointment order is found to be defective the acts performed by a functionary are not invalidated. However, it has been clearly laid down in the judgement that this doctrine has no application to a person who has not been appointed to a post and starts functioning without any order, valid or invalid. Coram non judice functions performed by such a person would not qualify for validation under the de facto doctrine.‖ 22.

Proceeding taken subsequent to grant of stay order are nullity in the eyes of law

Shoaib Bilal Corp. Faisalabad v. CIT, Faisalabad & another [(1993) 67 tax 233 (H.C.Lah.)] ―It is well-settled that stay order, unlike injunctions, operates from the moment, it is passed irrespective of the time of its communication ........ legally speaking, the communication of the stay order granted by this court is not relevant. Even if the Income Tax Officer was not aware of the stay order granted by this court, all the proceedings taken subsequent to it are nullity in the eye of law.‖ 23.

Appeal is continuation of original proceedings

Chanda Motors, Karachi v. CBR [(1990) 62 Tax 67 (H.C.Kar.)] ―.... appeal is merely a continuation of the original proceedings. Supreme Court of India reported in [PLD 1957 SC India (448)] wherein the SC of India after an exhaustive review of cases held that the legal pursuit of a remedy, suit, appeal and second appeal are really but steps in a series of proceedings all connected by an intrinsic unity and are to be regarded as one legal proceedings. It is well settled legal position that an order of the original authority when challenged in appeal or revision and the appellate

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or the revisional authority disposes of that appeal or revision, the original order is merged in the appellate or revisional order, must also challenge the appellate or the revisional order are too elementary and admit and no doubt and formerly concluded by the Superior Courts.‖ 24.

Only natural/legal persons have the vested rights and not the government/state

CIT v. Olympia [(1988) 57 Tax 71* (H.C.Kar.)] ―We may observe here that when reference is made in any law, legal document, legal language or law book or dictionary, about vested rights, the reference is to the vested right of a person natural or legal, and never to vested right of the state. Legal theories relating to vested rights never contemplate vested rights of state.‖ 25.

It is the duty of the legislature to save income from escaping assessment

Highland Manufacturers (Pak) Ltd. v. CIT, (West), Karachi [(1985) 51 Tax 66 (H.C.Kar.)] ―We may observe here that the appellate tribunal or the courts can barely assume themselves the position of saving the income from escaping assessment. That jurisdiction vests in the legislature and those problems are, therefore, really for the legislature to solve and not for the courts and tribunals to worry about.‖ 26.

Caption given to a particular provision of law would not change purport of the provision

[(1983) 47 Tax 5 (Trib.)] ―In our view, the mere caption given to a particular provision of law would not legally change the real intention and purport of the provision.‖ 27.

*

Inordinate delay in seeking discretionary relief under Article 199 of the Constitution - hit by laches

Wrongly appeared as “46” in the Journal.

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S. Muhammad Din & Sons Ltd. v. STO, Special Circle I, Lahore [(1977) 36 Tax 74 (H.C.Lah.)] ―Regardless of whether the respondents raised this objection in the written statement or not, the court may refuse to grant a discretionary relief under Article 199 of the Constitution if the petitioner is found to be negligent in seeking it. The fact that the wrong sought to be redressed is a continuing one does not in the circumstances of this case detract from the effect of laches.‖ 28.

Proceedings under the Income Tax Act are judicial proceedings

Sh.Diwan Mohammad Mushtaq Ahmad, Karachi v. CBR & others [(1969) 19 Tax 198 (H.C.Kar.)] ―The proceedings under the Income Tax Act are judicial proceedings.....‖ 29.

General Act - whether overrides the provisions of Specific Act - held no

Essential Industries, Dacca v. CIT, East Pakistan, Dacca [1969] 19 TAX 3 (H.C.Dacca) ―For the charge year 1958-59 an application for registration u/s 26A was made on behalf of the assessee-firm comprising of five partners and constituted under a partnership deed dated the 12th February. 1954. Applications for renewal of registration for the subsequent two years were also made on the basis of the same partnership deed. The Income Tax Officer refused to grant registration and renewal of registration for all these years on the ground that these applications were not signed by all the partners of the firm. When the matter reached the High Court it was contended on behalf of the assessee that (i) the provisions of subsections (1) and (2) of section 26A and section 18 of the Partnership Act do not provide that application for registration or renewal of registration should be signed by all the partners; (ii) Rule 3 of the Income Tax Rules which requires that such as application shall be signed by all the partners is ultra vires of sub-section (1) and (2) of section 26A of the Income Tax Act;

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and (iii) if the application for registration had not been decided after a lapse of over four years the assessee could have filed the subsequent applications duly signed by all the partners well within the period of limitation. Held, that (i) the expression such person or persons occurring in sub-section (2) of section 26A clearly shows that the power of fixing the number of persons requiring to file such application has been delegated to the rule making authorities. Therefore, the contention that rule 3 of the Income Tax Rules is ultra vires of section 26A is of no substance; (ii) it is clearly laid down in the Rules that the application should be signed by the partners and the Income Tax authorities have, therefore, rightly refused to entertain this application in question; (iii) the Partnership Act is a General law which will govern the business transaction of the firm but it cannot override a specific provision. In fact, this specific provision shall override the general provisions made in the Partnership Act; and (iv) it is indeed deplorable that such applications are left unattended by the department for years and then are turned down for technical defects. Had this application been disposed of expeditiously the assessee would have been spared some financial loss. At the same time it is also true that a firm should be vigilant about its rights and should be aware of the rules required to file.‖ 30.

Where a withholding agent fails to deposit tax in the Treasury, the department instead of penalizing the taxpayer should take action against the defaulting withholding agent

[(2004) 89 TAX 365 (Trib.) = 2004 PTD (Trib.) 441]

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―Before parting with the appeal we would like to observe that under section 50(8) of the Ordinance the sums deducted or collected, or purported to have been deducted or collected under section 50 are to be treated as payment of tax on behalf of assessee and under section 51 of the Ordinance every person deducting or collecting tax under section 50 is to issue a certificate at the time of making payment of the sum from which tax has been deducted or collected, and therefore, an assessee becomes entitled to the credit of tax when withholding agent as representative of the Federal Government withholds tax from the payment made to the payee. In case the withholding agent does not comply with the statutory requirements of timely depositing the tax into the Government exchequer, then the department can proceed against the withholding agent with all consequences as provided under the law.‖ 31.

Right of appeal is a creature of statute and there can be no right of appeal unless the statute confers it

Sui Southern Gas Company v. Federation of Pakistan [2002] 86 TAX 254 (H.C.Kar.) = 2002 PTD 150 ―As such the petition is misconceived and without jurisdiction. We do not however agree with the learned counsel for the respondent as what has been impugned is an order passed under section 53 of the Ordinance according to which advance income tax of the 1st quarter for the assessment year 2001-2002 has been adjusted/recovered from the determined refund due to the petitioner. The said order is an order passed under section 53 of the Ordinance is not appealable as has been held by the Hon‘ble Supreme Court of Pakistan in re: Chairman, Central Board of Revenue, Islamabad and 3 others vs. Messrs Pak-Saudi Fertilizer Ltd. reported as [2001] 83 TAX 119 (S.C.Pak) = 2000 PTD 3748 (S.C.Pak) which is as under: The right of appeal is a creature of statute and there can be no right of appeal unless it is conferred by the statute. Perusal of section 129 of Ordinance, 1979 would show that the Legislature has purposely not mentioned section 53 of the Ordinance, 1979 in

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respect of payment of advance income-tax so as not to make it appealable, considering that non-payment of the advance income-tax was to be subsequently dealt with under section 87 of the Ordinance, 1979, which order if passed would have the effect of enhancement or increase of liability of the assessee/the respondent. The instant case is not even of the charge of additional tax for failure to pay advance income-tax under section 87 of the Ordinance so as to treat the impugned order to be one of increase or enhancement of the liability of the assessee or part of process of assessment. In the circumstances, we are of the view that the petition under Article 199 of the Constitution was maintainable and the learned members of Division Bench of Sindh High Court rightly held so. Perusal of section 129 of the Ordinance, 1979 would show that the legislature has purposely not mentioned section 53 of this Ordinance, 1979 in respect of payment of advance income tax so as not to a make it appealable. Considering that non-payment of the advance income tax was to subsequently dealt with under section 87 of the Ordinance, 1979, which order if passed would have the effect of enhancement or increase of liability of the assessee the respondent. In view of the enunciation of law on the subject by the Hon‘ble Supreme Court of Pakistan and the circumstances of the case, we are the considered view that the petition is maintainable and the preliminary objection advanced by the learned counsel for the respondents repelled. In our view the contention of the learned counsel for the petitioner has force and therefore, the ratio of income tax for the purpose of computing advance income tax installment under section 53 of the Ordinance for the first quarter is 0.57% of turnover and should be calculated accordingly.‖ 32.

Once the assessee had supported the claim on the basis of a receipt issued by the Postal Authorities burden of proof shifted on the Department to rebut

483 Miscellaneous

Noble Petroleum Co. (Pvt.) Ltd., Lahore v. IT/WTO and 3 others [2003] 87 TAX 100 (H.C.Lah.) ―After hearing the learned counsel for the parties and on going through the postal receipt issued by the concerned Departmental Authorities, we are of the view that it sufficiently supports the case of the assessee. Once the assessee had supported the claim on the basis of a receipt issued by the Postal Authorities burden of proof shifted on the Department to rebut that no such statement was ever sent through post as alleged. Instead the Assessing Officer relied upon the reply of his alleged query made to the staff of RCIT Office if such statement had ever been received in that office. The assessee in response to a notice, dated 19.2.1997 took up the plea that the required statement was submitted to RCIT Office which was well in time. A photocopy of the postal receipt was also submitted with the reply. Neither the Revenue authorities nor the learned Tribunal ever disputed that Postal Authorities did not indicate the receipt of a registered letter by them. Instead they attempted to discard the receipt on the basis which were totally irrelevant to the fact in hand. Admittedly the postal receipt was issued on receipt of a letter addressed to RCIT. Therefore, a presumption did arise that the said letter must have reached its destination in usual course of business. That being so we are of the view that after discharge of the initial burden by the assessee the Revenue could not bring home in clear terms that no statement under section 143B of the Ordinance was ever sent to the Revenue.‖ 33

In the presumptive tax regime notice under section 61/62 of the Income Tax Ordinance, 1979 cannot be issued

Gear Hobbing Limited v. CIT and another [2003] 88 TAX 38 (H.C.Kar.) = 2003 PTD 739 ―The presumptive tax regime is entirely different to the normal assessment of tax and in the presumptive tax regime neither any total income is computed nor any expenses are allowed. No total income is determined and the entire sales are deemed to be income on which fix rate of tax is recovered. In the presumptive tax regime there is no concept of probe, inquiry

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or proceedings enunciated under section 61 and 62 of the Income Tax Ordinance, 1979, and therefore the question of issuing any notice under section 61/62 of the Income Tax Ordinance, 1979 does not arise. In the facts and circumstances of the case when presumptive tax regime is adhered to there is no question of issuance of notice under section 61/62 of the Income Tax Ordinance, 1979. Mr. Ather Saeed has further submitted that, he was not confronted on the point that, the income was covered under the presumptive tax regime. In view of the admitted position that, the appellant/assessee was served with the notice for reopening of assessment and the appellant choose not to file the return and not to appear initially before the Assessing Officer and subsequently addressed a letter only to the Deputy Commissioner of Income Tax, the Assessing Officer had no option but to finalise the assessment in the absence of the appellant. The appellant disentitled himself from the benefits which he could have availed by making compliance of the notice issued to him by Assessing Officer. No body can be allowed to take advantage of his own wrong. In the above circumstances, when the assessment has been finalized under section 80C of the Income Tax Ordinance, 1979 under presumptive tax regime, the question of issuance of notices under section 61/62 does not arise. No substantial question of law arises, requiring any consideration or interpretation by this Court and consequently the appeal is dismissed in limine.‖ 34.

Presumption as to service by post is available only where posting by registered post is proved

Hussain Food Corporation, Multan v. CIT, Multan Zone, Multan [2003] 88 TAX 44 (H.C.Lah.) = 2003 PTD 1516 ―The provisions of section 154 of the late Ordinance provided for service of notice, order or requisition on a person named therein ―either by post or in the manner provided for service of a summons issued by a Court under the Code of Civil Procedure‖. Section 27 of the General Clauses Act, 1897 provides that where-ever in a Provincial or a Central Statute the expression ―served by post‖ or any others similar expression is used, then ―the service shall be deemed to be effected by

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properly addressing, prepaying and posting by registered post a letter containing the document‖. This section further provides for raising of a presumption in that specific background. It is laid down that unless the contrary is proved the service of addressee shall be deemed to have been effected at the time at which the letter would be delivered in the ordinary course of post. It naturally means two things. Firstly, that where a letter containing the document is posted in the manner laid down in the section, it shall be presumed to have reached the addressee at the time it would be delivered in the ordinary course of post. Secondly, that the presumption raised is rebuttable which was so found by this Court in a case reported as re: Messrs Muhammad Abdullah and Sons vs. The Commissioner of Income Tax Lahore (PLD 1955 Lah. 417). Where a letter has been addressed in the manner given in the section, a person denying service shall have to prove that service of notice was not in fact effected on him. In the aforesaid judgment this Court expressed the opinion that a further presumption arose on account of an endorsement made on the letter by the postal authorities. It was held that where a postal notice served in accordance with the requirements of Displaced Persons (Compensation and Rehabilitation) Act, 1958 was returned with the endorsement ―refused‖ on it, there was preponderance of authority in favour of raising a presumption and holding that the registered cover has been refused by the assessee. However, the presumption so drawn was again held to be rebuttable and the onus for which rebuttal was held on the addressee. In re: Messrs Sampak Paper & Board Mills (Pvt.) Limited vs. Rana Maqsood Ahmad 1995 PLC 429 this Court expressed the view that presumption as to service by post would not be available when posting by registered post was not proved.‖ 35.

Legality of service through Postal Certificate cannot be challenged after compliance as section 154(6)

Hussain Food Corporation, Multan v. CIT, Multan Zone, Multan [2003] 88 TAX 44 (H.C.Lah.) = 2003 PTD 1516 ―The provisions of section 154(i) of the late Ordinance and those of section 27 of the General Clauses Act, 1897 when read

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together mean that presumption of effective service will arise only if the method explained in section 27 of the Act has been strictly followed. This naturally means that a notice, order and requisition issued in a manner not prescribed in that section will not give rise to a presumption of effective service. It will however, be seen at the same time that if an assessee, witness or other person actually appears or is represented after receipt of a notice issued under UPC then sub-section (6) of section 154 providing for a bar to challenge the validity of service will come into play.‖ 36.

Legal formalities for proper services of notice are to be fulfilled

Hussain Food Corporation, Multan v. CIT, Multan Zone, Multan [2003] 88 TAX 44 (H.C.Lah.) = 2003 PTD 1516 ―The second mode of service of summons provided for in section 154 is explained in Rules 17 and 20 of Order-V of CPC. This method can be resorted to both as alternative as well as alongwith the method provided for service through post. Rule 17 of Order-V of CPC provides for service of notice upon an agent of a party while rule 20 of that Order provides for substituted service. The provisions of sub-section (1) of section 154 to our understanding do not contemplate any bar that a notice, order or requisition must first be served through post and if that method does not succeed then in the manner provided for Order-V CPC. The purpose of law obviously being to employ every mode so that the respondent, a party or a witness has sufficient knowledge that some proceedings are pending before Income Tax Authorities including the Tribunal. The two methods given in the section are, therefore, not exclusive of each other. However, the requirement of law or the presumption of service given in section 27 of the General Clauses Act, 1897 will be available if the procedure in sending that notice under section has been followed.‖ 37.

Issuance of a notice under postal certificate is neither illegal nor improper

Hussain Food Corporation, Multan v. CIT, Multan Zone, Multan

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[2003] 88 TAX 44 (H.C.Lah.) = 2003 PTD 1516 ―The upshot of the above is that issuance of a notice under postal certificate is neither illegal nor improper. Therefore, a person appearing in response to notice will be hit by the mischief of sub-section (6) of section 154 of the late Ordinance. However, a presumption of effective service under these provisions of Ordinance read with section 27 of the General Clauses Act, 1897 will arise only if the letter, document or summonses are sent in the manner given in the section. The presumption of effective service will arise at the time at which the letter would be delivered in the ordinary course of post.‖ 38.

SAS and maxim ubi jus ibi remendium explained

Mian Travel and Trade Pvt. Ltd. v. Federation of Pakistan [2003] 88 TAX 69 (H.C.Lah.) = 2003 PTD 1821 ―Ubi Jus Ibi Remendium is an elementary maxim, which means that if a person has a right, he should also have a means to vindicate and maintain it, and a remedy if he is injured in the exercise and enjoyment of it; and, indeed, it is a vain thing to imagine a right without a remedy, for want of right and want of remedy are reciprocal. Obviously, entitling every assessee to submit his assessment under the Self-Assessment Scheme, in bestowing a right on him which is of course subject to the condition that if there was any skepticism about it, may fail on ground of eligibility. But this skepticism has to be well based and calls for scrutiny and check. Otherwise, the rights bestowed would be nullified on basis of guess, whims and bias, and this way the progressive ideas needing caress and protection would get destroyed.‖ 39.

Selection of SAS cases for total audit remanded back to a three-member committee for de novo action

Mian Travel and Trade Pvt. Ltd. v. Federation of Pakistan [2003] 88 TAX 69 (H.C.Lah.) = 2003 PTD 1821 ―As this Court has not been informed whether such a body exists, it would like to remit all these cases to a body of three person to be constituted by the Board of Revenue for each zone

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headed by a Regional Commissioner and Membered by the Commissioners for taking a majority decisions through a speaking order on the question of validity of the objections raised by a assessee before this case is put to total audit. This can be the minimum safeguard to be provided to a citizen in our difficult system. As in these cases before embarking upon setting aside of the returns under SAS no hearing was afforded to the assessee for personal explanation, the Committee to be formed in the next fourteen days shall study each of the cases aforementioned and will then determine in the light of the observations aforementioned the guidelines, the rationale of SAS and the instructions issued from time to time by the Board of Revenue the merits of each case. The Committee shall finalize all these cases after passing speaking and objective orders to be signed by all the members within a period of ten weeks from today and during which time the orders impugned through these writ petitions shall be kept in abeyance. Copy of the orders thus passed shall be sent to this Court through its Deputy Registrar (Judicial).‖ 40.

Compensation not for an injury to the capital asset is not capital receipt

Model Town Cooperative Society Limited, Lahore v. ITAT, Lahore and 2 others [2003] 88 TAX 96 (H.C.Lah.) = 2003 PTD 1436 ―Having heard the parties we will agree with the Revenue that the learned Members of the Tribunal rightly distinguished the Judgment of the Kerala High Court in re: CIT vs. Periyar and Pareekanni Rubbers Ltd. (supra). Also they were right in maintaining that the principle applicable to the facts in hand was the one as settled by the Hon‘ble Supreme Court of India in at least four cases referred to in para-8 of this order. The case of Kerala High Court in re: CIT Kerala vs. Periyar and Pareekanni Rubbers Ltd. (supra) on which the learned counsel for the appellant heavily relies rather supports the case of the Revenue. The payment of interest was not a part of the sale price or a compensation for an injury to the capital asset as rightly held by

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the learned Members of the Tribunal. It was a compensation for depriving the owner of the sale price of the land for some period. The amount of interest could not be held as part of the sale price for another two reasons as well. Firstly, the amount of interest was not fixed as such because it was to decrease after payment of every instalment and secondly, the transferee Messrs Lahore Development Authority could always avoid the payment of interest by paying the remaining sale price in lump sum at any time after the execution of the agreement. In cases of such nature the recitals of the transfer deed are crucial. The relevant portion of the agreement as reproduced above does not support the proposition that the interest for delayed payment was in any manner directly or indirectly related to the proprietary interest of the seller or the price of the land earlier settled between the parties at Rs.7,32,38,280. It was not a compensation for an injury to the capital asset either. It is only the actual value of the capital asset that forms a capital receipts. The learned Members therefore, correctly stated the law that any payment made either as disturbance for earlier vacation of land or as compensation for postponement of the payment of price not being itself a capital asset the amount received in lieu thereof will also not be a capital receipt. The view so held finds support from a number of precedents of the Courts. In re: CIT, Bengal Muffassil vs. Burdhan Kuti Wards‟ Estate [1960] 2-TAX (Suppl.-1) 285 the Hon‘ble Supreme Court of India held that compensation paid for compulsory vacation of premises after acquisition of building by the Government for disturbance and loss of business was a revenue and not a capital receipt.‖ 41.

Justice cannot be denied on technicalities

Saleem Haji Rehmatullah Dada, Karachi v CIT, Companies-V, Karachi [2003] 88 TAX 137 (H.C.Kar.) = 2003 PTD 593 ―In the facts and circumstances of the case the provision contained in section 96(2) is to be read with section 100 of the Income Tax Ordinance, 1979.

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The learned CIT(A) and the learned Income Tax Appellate Tribunal proceeded in the same direction, little realizing that relief available to a person in law is not to be denied on account of technicalities. It is the duty of the tax officials to act in accordance with the spirit of law and keeping the principles of justice in view. The justice should not be crucified on the altar of technicalities and an assessee should not be required to perform the impossibilities, which in itself amounts to negation of justice. We are, of the considered opinion that, in the facts and circumstances of the case, the period of limitation provided in section 99 is not attracted because this period shall be relevant when a refund is assessed in the assessment order for a particular period. It was not a case of rectification as well, because assessment for the assessment year 1987-88 was completed on the basis of facts and circumstances as prevailing on 30th April, 1988. At that time neither any addition under section 2(20)(e) of the Income Tax Ordinance, was made in any assessment year prior to the assessment year 1987-88, nor any claim for the refund could be made on 30.4.1988. The refund became available when the addition under section 2(20)(e) of the Income Tax Ordinance, 1979, attained finality on 31.3.1998. Thus, it is a case of consequential relief to the appellant as a result of assessment for the assessment year 1986-87, dated 31.3.1998. In the facts and circumstances of the present case, we are of the considered opinion that, the refund became available to the appellant as a consequential relief on account of addition made under section 2(20)(e) of the Income Tax Ordinance, 1979 vide assessment order, dated 31.3.1998 and the issue pertaining to the refund in this case is not governed by the provisions contained in section 99 and 156 of the Income Tax Ordinance, 1979, therefore, the period of limitation provided in these two sections are not relevant at all. We are of the opinion that, the learned ITAT, failed to consider the issue of refund of the appellant in its right perspective and thereby fell in error in

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holding that, the application for consequential relief was an application for rectification and that, the refund was rightly refused by the Assessing Officer, because of the provisions contained in sections 99 and 156 of the Income Tax Ordinance, 1979. We, further hold that, the appellant is entitled to the refund of addition made under section 2(20)(e) of the Income Tax Ordinance by way of consequential relief. Consequential to the above findings, the question formulated above, is replied in affirmative and the appeal is allowed accordingly. A copy of this judgment be sent under the seal of the Registrar High Court, to the Registrar of the Income Tax Appellate Tribunal Karachi. The ITAT shall pass necessary orders to dispose of the case conformably to this judgment.‖ 42.

Prosecution proceedings can be taken under the repealed ITO 1979 in view of section 239(6) of ITO, 2001

Suleman Spinning Mills Ltd., Lahore v. IAC of Income Tax, Lahore and another [2003] 88 TAX 147 (H.C.Lah.) = 2003 PTD 1343 ―Hearing the learned counsel for the parties, the record annexed with the petitions as well as the provisions of law referred to were examined with able assistance of the learned counsel for the parties. The chronology of events and facts re-counted above shows that the facts in the present case are not disputed. Petitioners specifically admit having deducted tax under section 50(4)(a) of repealed Income Tax Ordinance, 1979 for the assessment year 1998-99 from the payments made to Messrs Zafa Farhat Industries (Pvt.) Ltd., who had supplied goods to the petitioners and that the petitioners did not pay the same in the Government treasury for about a period of four years. As a result of this non-payment of the deducted amount, Zafa Farhat Industries (Pvt.) Ltd. was not given the credit on account of the tax so deducted from their proceeds and Department delayed or failed to refund all the deducted amounts in excess of their assessed liability. Zafa Farhat Industries (Pvt.) Limited thus filed Complaint No. 1596 of 2001 before learned Federal Tax Ombudsman. Proceedings upon this complaint were initiated. These proceedings ultimately culminated in order, dated

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10.6.2002, relevant parts of which have been reproduced in para 3 above. Adequate to state here that learned Federal Tax Ombudsman taking serious view of non-timely payment of the deducted amounts by the petitioners to the credit of the Government, termed such action as unlawful retention, embezzlement and misuse of Government money by withholding agents like petitioners, who were observed to have deducted a huge sum of Rs.45,43,675 from the payment of the said complainant in 1997-98, but did not deposit the same till 8.2.2002 i.e. for a period of about four years. Learned Federal Tax Ombudsman holding action of the Revenue in nonrecovery of Government funds as maladministration, recommended reference of the matter by CIT ―to the Legal Advisor for prosecution proceedings against them‖, (the petitioner) it was upon the recommendation that respondent No.1 referred the matter to Legal Advisor under section 117 of the repealed Ordinance, 1979 for advice, who, on the basis of facts and law, recommended proceedings for recovery of additional tax under section 86 and also for prosecution under section 117 read with section 124 of the repealed Ordinance. Computer copy of the advice has been placed on record during hearing. Upon receipt of such advice, respective show-cause notices were issued by respondent No.1 to the petitioners in the second week of July, 2002. Reply was given by each of the petitioners. Their defence was that Zafa Farhat Industries (Pvt.) Ltd. verbally requested them not to deposit the deducted tax as they had obtained Exemption Certificate from the Commissioner of Income Tax (Companies), Multan, but it was upon non-production of the Certificate that the amount was deposited and delay so caused, was because of the verbal request and non-production by Zafa Farhat Industries of the Exemption Certificate. Bare reading of the above said reproduced provision shows that proceedings for prosecution in respect of an income tax year ending on or before 30th June, 2002, have specifically been permitted by the above said subsection (6) of section 239 of Income Tax ordinance, 2001 ―to be taken and continued as if this Ordinance has not come into force.‖ 43.

Impositions of additional tax or prosecution for an offence are independent actions

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Suleman Spinning Mills Ltd., Lahore v. IAC of Income Tax, Lahore and another [2003] 88 TAX 147 (H.C.Lah.) = 2003 PTD 1343 ―The petitioner‘s action attracted provisions of section 86 as well as those of section 117(a) of the repealed Ordinance, 1979. Section 86 relates to imposition of additional tax on the amount not paid. Additional tax has been imposed upon the petitioners. Additional tax is admittedly in the nature of interest for delayed payment of the amounts due and is a civil liability. Such imposition does not, in any way, affect the liability of the petitioners to be criminally prosecuted under section 117 ibid. Section 86 itself provides that imposition of additional tax for violation of the provisions of section 50 ―shall be without prejudice to any other liability‖ which such person may incur. Furthermore, section 124 of repealed Income Tax Ordinance, 1979 caters for a converse situation. It states that a prosecution for an offence against the Ordinance may be instituted ―without prejudice to any other liability incurred by any person under this Ordinance...‖ As such, provisions of section 86 and 124 ibid read together show that imposition of additional tax or prosecution for an offence are independent actions which do not, in any way, affect or prejudice or exclude each other and can both be resorted to at the same time in appropriate cases.‖ 44.

Proper and regularly-employed method of accounting cannot be rejected on mere surmises and conjectures

[2003] 87 TAX 148 (Trib.) = 2003 PTD (Trib.) 1146 ―The first case relied upon by the learned A.R. to substantiate his contentions was reported as (1993) 68 Tax 41 (S.C. Pak) in Re: Commissioner of Income Tax, Companies-III, Karachi vs. Krudd Sons Ltd. wherein it was held: It is the duty of the Income Tax Officer to determine whether the assessee has adopted method of accounting from which income, profits and gains can properly be deduced. In this case the Assessing Officer did not proceed in the indicated manner although from the accounts laid and on its

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examination true income and profit could be deduced. This judgment is of no help to the appellant. There can be no cavil that a regular method of accounting in the past cannot be accepted as a matter of routine without examining it and if the Assessing Authority comes to be conclusion that it is defective and true income, profit and gain cannot be deducted from it then on the principle, stated above it can be rejected. In the present case the reasons given for rejecting the accounts are not proper, sufficient and valid. Perusal of the above mentioned paragraph of supra judgment clearly shows that if income, profit and gain are properly deducted from the method of accounting adopted by the assessee and reasons given for rejecting the account are not sufficient and valid then the same cannot be discarded without assigning any cogent reason.‖ [2003] 87 TAX 193 (Trib.) = 2003 PTD (Trib.) 1189 ―The respondent is employing mercantile system therefore, the liability will be incurred the moment, any expense or payment is entered in the books of account. The respondent has made provision for payment of bonus and thus incurred the payment in terms of section 10(5). We may further observe that actual payment made afterwards in the next assessment year will deprive the assessee of the benefits of section 10(2)(x) provided he has adopted mercantile method of accounting and entry has been made during the relevant assessment year. The provision for bonus in the present case, therefore, cannot just be disallowed. The department having no case with regard to its unverificability or that it is not as per terms of the employment or that it is against the previous practice of the Bank or a part of which has not been paid in the subsequent year, cannot disallow the same under the garb that it is only a provision. The amount of bonus, therefore, having properly been claimed as per terms of the employment with the employees and normal practice of the Bank and also for the reason that the bank has mercantile method of accounts is allowed full. The parameters fixed by us

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in the above paras, therefore, leave no doubt in holding that the addition was illegal. The same is hereby deleted.‖ 45.

Miscellaneous application can only be filed if the final order has been passed by the bench and there arises a mistake, which is apparent from the record

[2003] 88 TAX 114 (Trib.) ―It is imperative to mention here that at the first place, while adjudicating the questions posed by the dissenting members, this Bench will act as a ―third member‖ or as a ―referee‖ and in the second place, while disposing of the Misc. Applications, this Bench will step into the shoes of the Division Bench which was earlier constituted in order to dispose of the main appeals. Hence, this bench is fully competent to settle the issue of maintainability of these miscellaneous applications. According to section 156 of the Income Tax Ordinance, 1979, a misc. application can only be filed if the final order has been passed by the bench and there arises a mistake, which is apparent from the record, and that mistake is being brought to its notice either by the assessee or by the Income Tax Authority. So, this is the only occasion upon which the provisions of section 156 can be invoked and not otherwise. Even sub-section (2) of section 135 of the Income Tax Ordinance would not come at the assessee‘s rescue particularly when the final order is in pipeline. This sub-section only refers to affording an opportunity of being heard to each one of the parties who are in appeal before the Tribunal and nothing else, which is duly being afforded to the applicant. In fact, the assessee should have waited till the receipt of the final order by the Tribunal and if he finds that any mistake has arisen therein, only then he could file the Misc. Application against that order in terms of section 156 of the Ordinance. In view of foregoing scenario we are of the considered view that the miscellaneous applications filed at the instance of the assessee applicant are pre-mature and as such are not maintainable.‖ 46.

ITAT is fully competent to adjudicate upon the point or points stated by the dissenting members after having taken regard to the real controversy of the case

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[2003] 88 TAX 114 (Trib.) ―According to sub-section (7) of section 133 of the Income Tax Ordinance, 1979, if there arises a difference of opinion in between the learned members, they shall state point or points on which they differ and the case shall be referred by the Chairman of the Tribunal for hearing on such point or points by one or more of the opinion of the majority of the members of the Tribunal who have heard the case including those who first heard it. Viewing the assessee‘s contentions in this perspective, the third member is not competent to modify the questions proposed by the dissenting members. Anyhow, the decision on all those points shall rest after thrashing out and evaluating legal as well as factual controversy arisen therein. Hence, this contention of the assessee is not sustainable as well. This Tribunal is fully competent to adjudicate upon the point or points stated by the dissenting members after having taken regard to the real controversy of the case. So far as the questions appearing at Serial Nos. 1 to 4 are concerned, these are duly covered in the questions proposed by the dissenting members in their orders. As regards Question No. 5, this is the question, which should be taken up by the assessee in the reference application and not by way of filing miscellaneous application. But this could only be done once the final order is passed by the Tribunal, and not when the final order is in the offing. In no way this question can be posed at this stage. We therefore, feel satisfied that the questions proposed by the dissenting members do cover the real controversy set out by the assessee in its reframed questions re-produced supra.‖ 47.

In the absence of final order by ITAT, provisions of section 135(2) read with section 156 do not come into play

[2003] 88 TAX 114 (Trib.) ―In fact, there is no final order in existence. Rather, formulation of points by the dissenting members is in the nature of issue(s) framed on which the learned Members differed. Once this has been done and the third member(s) has/have heard the parties and expressed his/their opinion, the point or the points are to be decided in accordance with the opinion of the majority. The final result or decision in accordance with the opinion of the

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majority is to be recorded and singed by all the members who had heard the case. Since the opinion of the dissenting members has yet to attain finality meaning thereby no final order is in the field at this stage, therefore, the provisions of section 135(2) read with section 156 will not come into play at this juncture.‖ 48.

Tribunal is competent to grant stay of demand created as a result of reassessment order provided the main appeal is pending before it

[2003] 88 TAX 127 (Trib.) = 2003 PTD (Trib.) 2410 ―We have heard both the learned representatives appearing at the bar and find the prayer of the learned AR to be quite legitimate. Though the appeal against the reassessment order made under sections 62/65/132 of the Income Tax Ordinance, 1979 is pending for adjudication before the first appellate authority yet the facts remain that if the Tribunal ultimately declares reopening of the assessment under sections 62/65 of the I.T. Ordinance, 1979 to be made without lawful jurisdiction in the appeal pending before it the entire structure built on the reassessment order made under sections 62/65/132 of the Income Tax Ordinance, 1979 would dash to the ground. This would also result into striking down the illegal tax demand created against the assessee. It is also pertinent to mention that reassessment proceedings initiated by the assessing officer u/s 62/65/132 of the Income Tax Ordinance, 1979 are ancillary or incidental to the main appeal pending for adjudication before the Tribunal under sections 62/65 of the Income Tax Ordinance, 1979, therefore, the Tribunal is competent to grant stay of outstanding tax demand created as a result of reassessment order made under sections 62/65/132 of the Income Tax Ordinance, 1979 provided the main appeal is pending for adjudication before it. The case of the present assessee involves legal repercussion and also substantial amount of tax. So, we direct that recovery proceedings against the assessee, initiated by way of issuing notice under section 93(2) of the Income Tax Ordinance, 1979 dated 2.10.2001 will be stayed for a period of 45 days from the date of passing this order or till he final

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disposal of the assessee‘s appeal whichever is earlier. Let the assessee‘s appeal be fixed for hearing before any available Division Bench of the Tribunal in the 2nd week of November, 2001.‖ 49.

Order passed consequent to proceedings under section 66A unless reaches ITAT cannot be taken cognizance of for granting stay by the Tribunal

[2003 PTD (Trib.) 1941] ―The Income Tax Appellate Tribunal comes into picture after an appeal has been filed by the assessee or by the Department under section 134(1). It is now within its power to modify, cancel, reject or set aside the order impugned. The Tribunal does have inherent power to grant stay of demand or of proceedings. It is a trite law that one who has the power to give a decision can also grant temporary injunction. It is for the same reason that the legislature has not provided any specific provision to that respect. It has in respect only created an embargo on the power of stay of demand by restricting it to six months in aggregate. The Income Tax Appellate Tribunal, therefore, cannot extend its arms so as to include what is not intended by the legislation. So a combined reading of the two subsection of section 134 leads to the conclusion that an order passed consequent to the order under section 66A unless reaches ITAT by itself cannot be considered as contiguous or ancillary or auxiliary to an order under section 66A so as to invoke the power of granting stay by the Tribunal. In this regard the judgment referred by A.R. registered as M.A. (Stay) No.597/LB/2001, is distinguishable in the manner that the Assessing Officer had issued order and the same had been served on the assessee. Furthermore, the language produced above is very clear. These miscellaneous applications, therefore, are considered devoid of any legal sanction and the same are dismissed.‖ 50.

Agreement between parties cannot overrule the law

Messrs Mahmood & Company v. Assistant Collector, Sales Tax (Enforcement & Collection), Shalimar

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Division, Lahore and 2 others 2005 PTR 89 [H.C. Lah.] = 2005 PTD 67 (H..C Lah.)] ―As the agreement between the Association and the Revenue was never converted into law through the process prescribed in that behalf, no person could be forced to comply with the same. The plea that a person did for some time accepted the terms of an agreement and acted upon the same would not convert that agreement into a law.‖ 51.

Statutory order must be speaking and judicial

2005 PTR 1 [Trib.] = 2005 PTD (Trib.) 135] ―There is yet another aspect of the case, which cannot be ignored. After the examination of the impugned order we find that the same is sketchy, slip shod and devoid of reason. The said order is not at all a speaking order and cannot be called a ―quasi judicial order‖ within the parameters set up by law. The tenor of the order amply manifests non-application of judicial mind and no reasons have been assigned by the learned Adjudicating Officer in coming to the impugned conclusions. Even it has been enjoined upon an executive authority, as per section 24A of General Clauses Act, 1897 (inserted by General Clauses Amendment Act, 1997, Act No. XI of 1997) to give reasons for making the order. The Honourable Supreme Court of Pakistan has time and again disapproved the passing of such perfunctory orders in the cases ―involving valuable rights of the parties. It is settled law that a quasi-judicial order must be a speaking order manifesting by itself that the Tribunal has applied its judicial mind to the issues and the points of controversy involved in the cases. Furthermore, when the reasons would not be forthcoming, obviously the Appellate Court would be deprived of the views of the subordinate forum. Anyways the impugned order, which is not a speaking order and devoid of reasons is not sustainable in law.

Chapter XXI Workers’ Welfare Fund 1.

Workers‟ Welfare Fund Ordinance authorises the Income Tax officer to levy WWF

CIT v. Kamran Model Factory [2002] 86 TAX 39 (H.C.Kar.) = 2002 PTD 14 ―From perusal of the aforesaid subsection 4 of section of the Workers‘ Welfare Fund Ordinance it is absolutely clear that the Assessing Officer has been authorized to deal with the question/issue of charge/levy of Workers‘ Welfare Fund while finalizing the assessment proceedings of an assessee, who had furnished a return of income under section 55 of the Income Tax Ordinance. Thus the aforesaid section 4 has empowered or conferred the powers on the Assessing Officers in their capacity as Income Tax Assessing Officers exercising powers under the Income Tax Ordinance. The order relating to charge/levy of Workers‘ Welfare Fund being part of the assessment order made by the Assessing Officer could be challenged by an aggrieved party only in accordance with the provisions of the Income Tax Ordinance as the same would be incapable of being separated from rest of the assessment order. It is also pertinent to note that there is no provision in the Workers‘ Welfare Fund Ordinance providing a forum for challenging the order relating to the charge/levy of Workers‘ Welfare Fund by the Assessing Officer and this fact also leads to a strong inference that a grievance of an assessee with regard to an order/finding relating to the charge/levy of Workers‘ Welfare Fund under section 4(1) of the Workers‘ Welfare Fund Ordinance can be challenged by filing an appeal against the assessment order containing the finding/order relating to the charge/levy of Workers‘ Welfare Fund, else the aggrieved party would have no alternate forum or 503

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authority for redress of his grievances relating to any illegality or irregularity in charging/levying Workers‘ Welfare Fund by the Assessing Officer.‖ 2.

Appeal does lie against the WWF as if levy under the Income Tax

CIT v. Kamran Model Factory [2002] 86 TAX 39 (H.C.Kar.) = 2002 PTD 14 ―In view of our above observation it follows that an appeal under section 129 of the Income Tax Ordinance would be maintainable then an appeal under section 134 of the Income Tax Ordinance by a party aggrieved by the order passed by the Appellate Authority under section 129 of the Income Tax Ordinance would be further appealable before the Income Tax Appellate Tribunal under section 134 of the Income Tax Ordinance.‖ 3.

No Workers‟ Welfare Fund on income exempt under any provision of the Income Tax Ordinance

CIT v. Kamran Model Factory [2002] 86 TAX 39 (H.C.Kar.) = 2002 PTD 14 ―Mr. Muhammad Fareed does not controvert the arguments advanced by the learned counsel for the assessees/respondents and conceded that in view of the pronouncement made by the Supreme Court in the afore-cited petitions the question had to decide and that Workers‘ Welfare Fund would not be charged/levied on income of an assessee which was exempt from charge to tax under any of the clauses of the 2nd Schedule to the Income Tax Ordinance. Accordingly, this question stands decided/ answered in the negative and no Workers‘ Welfare Fund would be charged/levied on income exempted under any of the clauses of the 2nd schedule to the Income Tax Ordinance. In view of the contentions advanced by the learned counsel for the parties, we are of the view that there is no dispute with regard to the contention advanced on behalf of the assesses/respondents as the learned counsel appearing on behalf of the department/appellant had conceded that the assessees

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would be entitled to the benefit or claim of set off in respect of the losses, which they had declared in the earlier years and which had been determined/settled/ computed as losses by the Assessing Officers in accordance with section 34 and carried forward in accordance with section 35 of the Income Tax Ordinance. Accordingly, this question stands decided/answered in the affirmative.‖ 4.

Assessees not required to file return relating to presumptive tax regime cannot be subjected to the charge/levy of Workers‟ Welfare Fund

CIT v. Kamran Model Factory [2002] 86 TAX 39 (H.C.Kar.) = 2002 PTD 14 ―Words ―total income as is assessable‖ appearing in section 4(1) of the Workers‘ Welfare Fund Ordinance and no Workers‘ Welfare Fund would be charged/levied thereon. We have come to the above conclusion as according to the principles of the interpretation of the statutes this is the only possible interpretation, which can be had. The general principle of interpretation is that the words used in a section of the statute are to be given their ordinary meaning if not already defined in the statute. By giving the ordinary meaning of the word ―assessable‖ there can be no other possible interpretation than the one which we had arrived at hereinabove. From the above discussion the only conclusion which can be had is that assessees who are not required to file return of total income under the Income Tax Ordinance, relating to presumptive tax regime cannot be subjected to the charge/levy of Workers‘ Welfare Fund. According this question stands decided/answered in the negative.‖ 5.

Issue relating to non-levy or wrong levy of WWF fall within the ambit of mistakes apparent from record

CIT v. Kamran Model Factory [2002] 86 TAX 39 (H.C.Kar.) = 2002 PTD 14 ―The Assessing Officer is under a statutory obligation/duty to make an order for levy of Workers‘ Welfare Fund while finalizing the assessment under the Income Tax Ordinance. When a statute imposes duties/obligations on a person or

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authority then they are bound to perform the same diligently, prudently and in accordance with provisions of the statute, which has conferred such duties/obligations on them and such duties and obligations would not be brought to an end or vanish on technicalities, inadvertence or negligence more so when such duty/obligations is for the welfare of a particular class. Provisions of laws of beneficial nature are to be interpreted with a view to facilitate the adjudication on merits as propounded by the Supreme Court in the case of (i) Muhammad Hanif and others vs. Muhammad and other reported in PLD 1990 SC 859; and (ii) Jameel Ahmad vs. Late Saifuddin through Legal Representatives reported in 1997 SCMR 260. Order for levy of Workers‘ Welfare Fund if not made within thirty days of the framing of assessment, such an omission would not only be violative of the provisions of the Workers‘ Welfare Fund Ordinance but would also render the income tax assessment order illegal and contrary to the provisions of the Income Tax Ordinance inasmuch as it would not be possible to calculate the correct income tax payable by an assessee in view of the method of determining Workers‘ Welfare Fund on the total/taxable income, deduction of such fund from the total/taxable income and calculation of income tax on the total/taxable income after deduction of Workers‘ Welfare Fund as laid down by the Supreme Court in the case of Pakistan Tobacco Company (Pvt.) Ltd. vs. Commissioner of Income Tax, reported in 1992 PTD 1648. Such assessment order would suffer from an error or a mistake, which as discussed above, would be patently apparent on the face of the record, would be floating in the order would be so clear and manifest as could not be permitted by any Court to remain on record, which for its correction would not require long drawn arguments, reassessment or re-examination of the material on record or interpretation of any provision either of the Income Tax Ordinance or the Workers‘ Welfare Fund Ordinance and would be rectifiable in accordance with the provision of section 156 of the Income Tax Ordinance. It is immaterial as to whether such mistake or error is a mistake of fact or of law and the

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requirement is whether it is a mistake of fact or of law, it must self-evident and floating on surface. It will be appropriate to sum up our answers/decisions on all the four questions referred to in the aforesaid I.T.As. and I.T.C. as under: Question No. 1: Negative, Workers‘ Welfare Fund would not be leviable on income exempted under the various clauses of the 2nd Schedule to the Income Tax Ordinance. Question No. 2: Affirmative. An assessee would be entitled to the benefit of set-off of the losses, which have been determined/settled in accordance with provisions of sections 34 and 35 of the Income Tax Ordinance. Question No. 3: Negative. The Workers‘ Welfare Fund would not be leviable on the income declared under the presumptive tax regime which is not to be subjected to assessment for determining the total/ taxable income as such not coming within the scope of the words ―total income as is assessable‖ used in section 4(1) of the Workers‘ Welfare Fund Ordinance; and Question No. 4: A period of 30 days would be a reasonable period during which the Assessing Officer would be required to make an order for levy of Workers‘ Welfare Fund on this failure to do so in the assessment order. However, if such order is not made even within thirty days of the original assessment order, then on expiry of thirty days the provisions of section 156 of the Income Tax Ordinance would be attracted and the error/mistake in not levying Workers‘ Welfare Fund would be rectifiable thereunder.

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All the aforesaid Income-tax Appeals and Income-tax Case stand disposed of in terms of the above observations and decisions.‖ 6.

WWF is not leviable on incomes covered under presumptive tax regime

CIT/WT, Sialkot v. Thapur (Pvt.) Ltd. [2002] 86 TAX 274 (H.C.Lah.) = 2002 PTD 2112 ―The change brought about by the presumptive tax regime has been overwhelming inasmuch as not only that second proviso the sub-section (1) of section 55 has done away with the liability of an assessee covered by section 80C or 80CC to file a return but also the other procedural requirements prescribed for returns have undergone a complete change. The presumptive tax regime having done away with the concept of assessment of ―total income‖ of an assessee, the levy contemplated in section 4 of the W.W.F. has necessarily faltered away in respect of the assessees covered by such regime. As noted earlier, sub-section (7) of section 4 of W.W.F. Ordinance allows the payment made by an industrial establishment to the Fund to be treated as an expense for the purpose of assessment of income tax. However, in cases covered by section 80CC since no assessment is made the question of allowing of such payment as an expense does not arise at all. The provisions of section 80CC are clear that where any amount referred to under various sub-sections of section 50 has been received by a person the whole of such amount is to be deemed the income of that person and tax therefore is charged at the rates specified in the First Schedule. Sub-section (2) of section 80CC creates a bar to claim or to authorise any allowance or deduction against the income so presumed. Under sub-section (3), the tax so deducted is deemed to be the final discharge of the tax liability of the person covered by these provisions and he ―shall not be required to file the return of total income under section 55‖. The charging provisions of section 4 of W.W.F. Ordinance and those of presumptive tax regime under section 80CC to our

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mind cannot be reconciled or be interpreted in a way to justify a charge. The charge as noted earlier necessarily bears a reference to and follows pattern of a regular assessment framed on observation of usual formalities and following computation of income keeping in view the different provisions of the Income Tax Ordinance. Since that does not happen in cases covered by section 80CC, the charge and computation of Fund in such cases is neither legally justified nor otherwise possible. The charging provision of section 4 of W.W.F. Ordinance are clear that the legislature intended the charge on the real income of an industrial concern. There is nothing in these provisions which can possibly be extended, enlarged or stretched to hold that the levy was contemplated on presumptive income as well. That an industrial establishment covered by provisions of section 80CC of the Income Tax Ordinance, 1979 is not liable to the charge of the Fund contemplated in section 4 of the W.W.F.‖

Chapter XXII Income Tax Appellate Tribunal 1.

Tribunal has powers and jurisdiction to remand the case to assessing officer.

Karim Aziz Industries Ltd., Hasanabad v. Commissioner of Income Tax, Rawalpindi Zone, Rawalpindi [(1997) 75 Tax 90 (H.C. Lah.)] ―If the Appellate Tribunal is not satisfied with the orders passed by the forum below, it has the power to cancel or vary such orders and can pass necessary consequential directions as the situation may warrant. …..the powers of the Tribunal …..have very wide amplitude and are almost to the power of Civil Court under Order XCI, rule 33, C.P.C. The ratio, deductible from the foregoing discussion is that the power of Appellate Income Tax Tribunal under section 135 of the Ordinance are almost analogous to the powers of Civil Court under order XLLI, rule 33, C.P.C. These powers are of a wide sweep and arm the Appellate Court with power to pass an order of remand if it comes to a finding that the orders of the courts below are illegal and there is an occasion for fresh proceedings before the first authority/Court. This power is expressly embodied in the language of conclusion, we find that question referred to by the Tribunal is of academic nature and need no further examination. On the above conclusion, we find that the Appellate Income Tax Tribunal had jurisdiction to remand the case of applicant-Company to the Income Tax Officer for de novo proceedings under section 156 of the Ordinance.‖ 2.

Tribunal is not empowered to award damages decree against the assessing officer

[(1999) 80 TAX 7 (Trib.)] ―The assessee company be paid damages of Rs. 70,000/per month as the assessing officer violated the provisions of 511

512 Principles of Income Tax Law

section 81 of the Ordinance. This contention of the assessee is misconceived. This Tribunal is not empowered to award damages decree against the assessing officer. Actually no remedy is available with the assessee within the four corners of the Income Tax Ordinance for this purpose. It is worth mentioning that where the assessing office has made or passed any order, the appropriate remedy available in the Income Tax Ordinance is either to institute appeals before the appellate forums or revisional jurisdictional can be invoked before the Tax Authorities. In any case, section 81 of the Ordinance does not relate to finalization of assessment within 15 days from the date of service of the notice upon the assessing officer under subsection (1) of this section, where a person is likely to leave Pakistan. In fact, the assessee was obliged to accompany return or returns of income alongwith the notice as is laid down under section 81(2) of the Ordinance but it failed to do so.‖ 3.

Appeals and judicial process explained

[(1999) 79 TAX 145 (Trib.)] ―In addition to the question of right of appeal conferred on a particular person it pertains to the authority vested in an appellate court Tribunal. If it is conceded that any person can file appeal in respect of any assessment order it would not only be manifest by against the specific provisions of law but would be destruction of the entire judicial discipline. Secondly the appeal is the continuation of an original proceeding and if any person who is not an assessee, as such; and is not liable to pay tax under an assessment order is conceded the right of appeal, then necessarily such person has to be conceded a right to make any statement during the course of appellate proceedings and we fail to understand as to how any statement by or on behalf of any person other than the assessee itself can be binding on an assessee. Moreover, if such right is conceded in appeal, a similar right has to be conceded in the original proceedings also on the analogy that appeal is the continuation of the original proceedings and we are of the considered opinion that no such right can be allowed to be exercised in the original proceedings. No body except the assessee

513 Income Tax Appellate Tribunal

or its authorized representative can participate in the assessment proceedings and give any statement of binding nature. It will be seen that the consequences of allowing such course would be violative of several substantive and procedural laws and would be of far reaching undesirable consequence. Thirdly, it is bound to create anomalies and confusing consequences.‖ 4.

Duty of the registrar to return appeal if deficient

Allied Bank of Pakistan Ltd., Azad Kashmir Branches, Mirpur through Inam Elahi Azhar, EVP and Provincial Chief, PHQ (Punjab) v. Income-Tax Appellate Tribunal, AJK Council, Muzaffarabad and others [2000 PTD 2872] ―Where the memo of appeal is not filed in the manner specified, then, the Registrar or the Officer authorized under rule 7, may return it to the appellant or his authorized representative, if any, to bring it in conformity with the provisions of the said Rules within such time as he may think.‖ 5.

Rule 11-Dispensation of justice

Commissioner of Income-Tax v. Messrs Rehman Traders 2005 PTR 110 [H.C. Lah.] = 2005 PTD 116 (H.C. Lah.)] ―After hearing the learned counsel, we will agree at the outset that the issue in hand already stands resolved in favour of the petitioner/Revenue by a Division Bench of this Court in re: CIT vs. Muhammad Tariq Javaid 2000 PTD 2165. In that case, it was inter alia, held that Rule 11 of the ITAT Rules, 1981 had an independent status having no nexus with Order XLI, Rule 1 of C.P.C. 6.

Rule 11 of ITAT Rules, 1981 – Scope of

Commissioner of Income-Tax v. Messrs Rehman Traders 2005 PTR 110 [H.C. Lah.] = 2005 PTD 116 (H.C. Lah.)] In matters of collection of Revenue the disputes could not be allowed to be determined in a perfunctory manner as had been done by the Tribunal. In another recent judgment in re: Pakistan Industrial Gases Ltd. vs. CIT and another 2000 PTD 2903 another Division Bench of this Court disapproved the dismissal of appeal by the Tribunal for the reason that memo

514 Principles of Income Tax Law

of appeal contained argumentative grounds which was violative of rule 10 of the said rules.‖ 7.

Tribunal must pass speaking order

Mahmood Barni vs. Inspecting Additional Commissioner of Income-Tax, Gujranwala and another 2005 PTR 134 [H.C. Lah.] = 2005 PTD 165 (H.C. Lah.)] ―Respondent No. 2 is not an administrative Tribunal and discharges judicial functions and such an order is not expected from it. The settled principles regarding administration of justice are that officials/authorities dispensing justice and exercising judicial powers are supposed to apply their mind to the cases and to determine respective stances taken by the parties and after evaluating those to give their own verdict justified by reasons, I am sorry that I am remarking with a very heavy heart that the order impugned can in no manner be placed in the arena of judicial orders.‖

Subject-Index A Accounts rejection through positive evidence 393 standard of proof for rejection 393 Accrue and arise meaning of 109 vis-a-vis effect of book entries 110 Actual and futuro liability distinction between 44 Adjudicate necessarily implies settling a matter 110 Adjudication requires passing of a speaking order 111 Administration of justice duties of courts 437 Affording of an opportunity a prerequisite for taking a penal action 433 Agreed assessment framed outside the four corners of Act 116 violative of contract act will be avoidable 117 Agricultural income when remains to be exempt in the hands of recipient 112 Agriculture and agricultural purposes meaning of 112 Ambiguity in language be resolved in the favour of taxpayer 212 must go in favour of taxpayer 211 non-application of literal rule 212 statement of objects and reason, can be relied upon 212 Ambiguous words proceedings of the Legislature can be resorted to 226 Amending law cannot reopen past and closed transactions 88 Annual value meaning of 113 515

516 Principles of Income Tax Law Appeal rejection for non-fulfillment of relevant provisions of law 300 continuation of original proceedings 478 Appeal in Supreme Court governed by Income Tax Law 313 relevant procedure 299 Appealable orders every order increasing tax obligation of an assessee or reducing the refund is appealable 318 Appellate Tribunal powers of 324 Application of law as on first day of assessment year 220 duty of the officer to apply correctly notwithstanding the claim of assessee 46 for the purposes of assessment of income as in force on the first day of the relevant assessment year 221 not one in existence during the income year 220 in presence of a specific provision of law applicable to the situation, the assessing officer could not have resort to any other provision of law 437 in the case of government employees working in non-taxable territories 477 Application of tax rates through a Finance Act 53 Approbate and reprobate meaning of 414 Approval and permission are not synonymous 113 Article 165 & 165A of Constitution corporations created by provincial statutes are not governments 90 constitutional power of Federation to tax certain corporations 95 Artificial juridical person meaning of 114 Assess meaning of 114 Assessable income meaning of 115 Assessment meaning of 115 Assessment consciously completed meaning of 239

517 Subject Index Assessment year stable interpretation of term should be adopted Audi alteram partem meaning of 413

117

B Best judgements must reflect fair and proper estimate Binding judgements conduct of different Benches 404 Business meaning of 118 Business connection meaning of 118

117

C Capital and dividend distinguished 118 Capital losses not allowable unless specifically provided 68 Case meaning of 119 Casus Omissus meaning of 415 CBR no authority to file representation against Wafaqi Mohtasib (Ombudsman) 320 CBR instructions binding on tax authorities 325 held illegal re taxation of Golden Handshake payments 322 Certified copy meaning of 119 Change of previous year condition when held unlawful 106 Charging and machinery provisions interpretation of 220 interpretation of machinery provisions of a fiscal statute 220 Charging section cannot be overlooked on hypothesis of history of exemption 48

518 Principles of Income Tax Law effect of subsequent provision 48 scope of 48 Charitable purposes meaning of 119 Charity and charitable purposes meaning of 120 Circulars/Administrative instructions departmental instructions in conflict with statutory provisions have no legal effect 305 Civil suit does not lie against tax authorities unless order is malafide or illegal 323 in the absence of mala fide order is not maintainable 322 Commerce meaning of 122 Commercial meaning of 122 Company and shareholders relationship between 122 Company limited by guarantee meaning of 123 Complete meaning of 124 Computer balloting held contrary to the law 240 Constitution remedy cannot be enforced when rights were suspended 229 Constitutional issues judicial approach should be dynamic 205 Constitutional powers of levying taxes by Federation and provinces 218 Constitutionality of provisions public interest must prevail 92 Construction of statutes in general 21 internal aids 21 explanation 21 marginal notes 22 punctuation marks 22 preamble 22 title of a chapter 22 long title 23

519 Subject Index non-obstante clause 23 proviso 23 context 24 ambiguity in amending legislation 24 external aids 24 dictionary meanings, when applicable when not applicable 25 interpretation of a statute 25 - tax committee report not relevant 25 - statement of objects and reasons appended to a Finance Bill not to be considered 25 - memoranda prefixed to bills 25 - minister‟s speech 26 - contemporanea exposition 26 - definition from other statutes 27 Construction of statute benefit of ambiguity should go to the assessee 124 benefit of doubt is the right of taxpayer 126 caption given to a particular provision of law would not change purport of the provision 330 courts while interpreting a statute must adhere to the plain meaning of the words 126 doubtful words - how to be construed 126 imposition of tax by clear words only 128 in fiscal laws no addition or omission is permissible 127 must be taken in its true perspective 117 not to lead to startling results 128 rule of strict construction applies to charging provisions 123 rule of strict construction does not apply to machinery provisions 123 tax must be imposed by clear and unambiguous language 124 when not ambiguous should be construed strictly 123 Consultancy fee falls under industrial and commercial profits 125 Courts have inherent jurisdiction in the interest of orderly dispensation of justice 332 have no concern with disputable questions of distributive justice 332 not allowed to deviate from the definition given in the statute 314

D „Debt‟, „loan‟, „owe‟ and „due‟ difference between 127

520 Principles of Income Tax Law Declaratory statutes generally apply retrospectively 190 Deemed income scope of 104 Deemed order scope of 129 Deeming provisions in the Ordinance 30, 32 significance of 27 section 80C: gross receipts excludes value of material supplied 43 in respect of income 101 to be construed strictly 77 how to be construed 103 Default meaning of 129 Definite Information meaning of 130 Definitions restricted and cannot be extended to other laws 232 restricted to the statute in which provided 175 Determination of value of property realistic approach should be applied 466 Direct tax distinction with indirect tax 39 Discard meaning of 133 Discretion ought to be exercised fairly 306 judicious exercise 309 Dispute between government only Supreme Court is competent to adjudicate 211 Dividend meaning of 134 Division Bench bound to follow orders of other Benches 277 in case of disagreement case to be referred to larger Bench 277 Doctrine of de facto meaning of 478 Doctrine of estoppel

421

521 Subject Index Doctrine of exhaustion explanation of 321 Doctrine of favourable interpretation applies to charging and not machinery provisions 135 in case of exemption clause must favour revenue 135 in the case of ambiguous words, one leading to injustice should be avoided 135 Doctrine of merger how to be applied 411 on appeal original order ceases to exist and merges itself in the appellate order 412 Doctrine of mutuality five-point criteria for applying 429 Documents be examined by the Court in substance 308 Double taxation income cannot be taxed twice 39 imposition of income tax and super tax on the same income is constitutional 71 presumption against 53 Doubtful words should be interpreted by reference to meaning of words associated with it 200 Due process of law Article 4 of Constitution of Pakistan 1973 302 Duty of the legislature to save income from escapement 479

E Ejusdem generis meaning of 415 Employee meaning of 135 Enduring benefit meaning of 135 „Enemy‟, „enemy territory‟ and „aggrieved party‟ meaning of 136 Equality in fiscal laws principle of 40 Erroneous meaning of 137

522 Principles of Income Tax Law Evasion and Avoidance difference between 138 Evasion of tax meaning of 138 Evidence a Judge cannot be compelled to accept a piece of 274 Evidence Act not applicable to income tax proceedings 394

Ex abundanti cautela meaning of 418 Execution of contract meaning of 139 Executive actions not excluded from the operation of promissory estoppel 297 Executive orders/notifications can be given a retrospective effect 185 Exemption clauses rules of interpretation of 187, 230 provided under industrial incentives should be construed liberally 225 to be construed strictly 245 Exemptions cannot be allowed if not claimed 197 claimant to prove beyond ambiguity 241 modification must be express and not by implication 57 to be allowed if claimed 48 Expenditure & reserves meaning of 139 Explanation as a general principle applies retrospectively 190 applies retrospectively 192 object of 18, 166 to elaborate the meanings 166 to facilitate its proper interpretation 166 to remove any possible confusion or misunderstanding 166 Explanatory amendment always applicable retrospectively 191 applies to pending cases 191 Explanatory clarificatory amendments to apply retrospectively 188

Expressio unius est exclusio alterius meaning of 417

523 Subject Index

F Failed and default are not synonymous 140 Failure meaning of 141 Fiction of law is restricted to the extent specified in statute and its scope is not to be extended 231 Finality of proceedings assessment order passed by ITO cannot be called a final order Financial liabilities determination of 41 Fiscal statute be construed strictly 187 no room for any intendment, inference or presumption 187 rule of strict interpretation 244 Fixed capital meaning of 141 Fixed capital and circulating capital meaning of 141 Foreign case-law cautious approach is necessary when adopting 152 Foreign cases reliance in the presence of Pakistani contrary judgements strongly disapproved 279 Fresh evidence cannot be entertained in appeal 395

G General Act does not override Special Act 480 General and specific words how to be construed 227 General language not infrequently intended sub modo 216 General public meaninf of 142

Generalia specialibus non derogant meaning of 418

462

524 Principles of Income Tax Law Goods do not include immovable property Goodwill meaning of 143 Guess work meaning of 144

142

H Harmonious construction of statutes rule of 228 Hearing meaning of 144 High Court only holds advisory jurisdiction under Income Tax Law

302

I Immovable property not included in goods 142 Immunity meaning of 145 Include, includes, including meaning of 104, 145, 146 Income meaning of 146 Income Tax Authority ITAT is not covered 149 Income Tax Act provisions can be challenged on constitutional grounds Income Tax Law basic features of 1 scheme of the Ordinance 2 chapters & schedules 2 division of 6 sections 6 sub-sections 6 clauses 6 definitions 8 kinds of 14 - exclusive 14 - inclusive 15

224

525 Subject Index - exclusive as well as inclusive 15 inconsistencies are in-built in income tax 140 Indirect tax distinction with direct tax 31 Individual & association of persons meaning of 149 Individual and such individual meaning of 150 Industrial undertaking meaning of 150 Interest meaning of 152 Interpretation of fiscal statutes principles of 45 natural meanings be adopted 45 Interpretation of law CBR and Federal government has no power to resort to 307 CBR is not competent to issue instructions of judicial/quasi judicial nature 308 duty of the courts 431 language employed should be adopted 314 no authority to add, delete or subtract any word 314 two equally possible interpretation emerge leave to appeal granted 206 Interpretation of statute basic rules to construe charging and machinery provisions 251 be considered in totality and not in isolation 235 be interpreted strictly in accordance with letter of law 216 budget speech has no legal sanctity 476 court can‟t imply anything 229 court must stick to letter of law 203 departmental construction can be used in aid of interpretation departmental instructions cannot be used in aid of interpretation 261 equitable construction is not permitted 190 fiscal statutes to be strained in favour of the subject, if at all 51 for rule of golden principle 157 harmonious construction is recommended 228 inapt and inaccurate phraseology of draftsman cannot nullify a provision made by legislature 170 interpretation leading to destructive ends should be avoided by Courts 254 marginal notes to the section of an Act cannot be referred to for the purpose of construing the Act 257

254

526 Principles of Income Tax Law -

must be intelligibly expressed and reasonably definite and certain 223 no equitable construction in fiscal statutes 52 no provision of a statute should be considered in isolation 235 not CBR‟s domain 226 not for the Courts to supply for deficiency in the language of law as framed 157 not to be adopted as abrogating International Law 230 nothing is to be read in and nothing is to be implied 176 person sought to be taxed must come within the letter of law 153 provisions should be interpretated in accordance with the plain meaning of the language used therein 261 punctuation marks and construction 262 role of history of legislation in interpreting a provision of law/statute 170 rule of fair and reasonable construction 51 rule of literal approach 191 should be given its ordinary meaning 261 speech of the Federal Minister has no legal consequences or effect 252 subject must fall within letter of law 203 subject not taxable just within spirit of law 203 subject to be taxed on strict rule of interpretation 202 when intention of legislature is clear 262 words used in a section of the statute are to be given their ordinary meaning 236 Interpretation of taxing statutes no room for any intendment 40 Interpretation of words cautious approach needed while interpreting another statute 258 Islamic jurisprudence rules of law are equally applicable to fiscal laws 463

J Judicial interpretation of law CBR has no authority to place judicial interpretation 322 Jurisdiction effect of where its lacking 312 objections in relation to are to be decided before adjudication 319 objection as to jurisdiction can be raised at any stage 320 transfer of 209 Justice not to be defeated on mere technicalities 433 should not only be done but must also appear to have been done 441

527 Subject Index

L Laws when can be strike down 302 when held not retrospective 288, 290 Leave to appeal rule of consistency is to be followed 32 Legal fiction 26 fiction upon fiction 33 miscellaneous 32 regarding receipts 30 regarding place of accrual 30 regarding time in which income should be deemed to have accrued or arisen 31 regarding certain incomes deemed to be income of the transferor, despite the transfer 32 in one act does not extend to the other 34 Legal Maxims audi alteram partem 413 approbate and reprobate 414 casus Omissus 415 ejusdem generis 415 expressio unius est exclusio alterius 417 ex abundanti cautela 418 generalia specialibus non derogant 418 mens rea 418 noscitur a Sociis 419 no one can be judge in his own cause 290 things should be done as per law as not to be done at all 420 ut res valeat quam pereat 420 Legal plea can be raised at any stage if going to the root of the case 224 Legality of an action if an action is deemed illegal, the whole superstructure built upon it is also illegal 39 Legislative entries words occurring in constitutional entries to be construed liberally 38, 71 Liable meaning of 153

528 Principles of Income Tax Law Life meaning of 154 Limitation Act applies to income tax proceedings 450 provisions are mandatory 448 Loss of source of income Capital receipt; when taxable 320 golden handshake payments held taxable

467

M Machinery provisions amendments being procedural apply to pending proceedings 197 cannot be construed to go beyond the spirit of law 240 rule of liberal construction of 243 should be construed so as not to destroy recovery mechanism 241 to be construed liberally 193 Mandatory or directory provision of law principles for determining 237 Manufacture meaning of 154 Material meaning of 156 May meaning of 156 sometime be construed as “shall” 104 Mens rea meaning of 290 Merge & Merger meaning of 156 Mistake apparent from record scope of section 156 157

N Natural justice an order affecting the rights of a party cannot be passed without an opportunity of hearing to that party 433 No one can be judge in his own cause meaning of 419 Non-obstante clause effect of 225

529 Subject Index -

overrides conflicting provision 225

Noscitur a Sociis meaning of 419 Notice meaning of 157 not curable if prima fiacie defective 326 Notifications guiding principles 224 no undue advantage for scholarly interpretation 224 plain language to be read 224 imposing new liability cannot operate retrospectively 276

O Occupation meaning of 159 Official acts cannot be challenged on vague allegation of mala fide Omission of provision from statutes not to operate retrospectively 293 Opinion meaning of 159 Opportunity of being heard order denying the same is not maintainable 334 a must even in quasi-judicial proceedings 432 Or meaning of 159 Owners, ownership and own meaning of 159

P Paid meaning of 160 Party in default meaning of 161 Pay meaning of 162 Penalty meaning of 162 Pending meaning of 165

329

530 Principles of Income Tax Law not only means actually pending but also what is proposed 165 revision petition repealed ITO 164 Per incuriam judgement not binding of even the highest court 399, 401 Period of Limitation factors to be considered while computing period of limitation 448 Permanent establishment meaning of 163 Person meaning of 165 Plain words and patent meanings court must confine itself to language of law 215 liability of withholding agent is restricted to plain language of statute 215 no patent meanings are allowed 215 Power of assessing officer unveiling of colourful transaction 48 Power of attorney statement itself is not proof 395 Power of legislature authority to promulgate Ordinance include power to levy tax 99 can enact law having retroactive application 288 competent to levy presumptive taxes 81 court cannot question its wisdom 328 curative legislation is allowed 98 double taxation is its prerogative 89 for framing laws 71 levy of Corporate Asset Tax is constitutionally valid 90 levy of minimum tax upheld 83 levy of presumptive taxation 81 limitation of framing 86 new change can be introduced in tax code or through Finance Act 96 of taxing „non-residents‟ 89 redundancy cannot be readily attributed 97 restriction on power to levy tax 77 should not be violative of fundamental rights 77 unlimited rights so long not confiscatory 80 Power to levy tax an attribute of sovereignty of a state 452 no taxation except by express words 58 Power to make rules subject to certain limitations 470

531 Subject Index Powers of CBR territorial & administrative jurisdiction 475 Pre-partition judgements binding unless overruled 399 Presumptive tax regime meaning of 166 Previous year meaning of 166 Principles of interpretation court cannot make up for any deficiency of legislature 57 courts are not to be influenced by doctrine of hardship 57 in dubio construction which imposes burden on taxpayer should be avoided 57 new obligation cannot be extracted 57 no scope for equitable construction 56 Principles of natural justice be read in all statutes unless the same are expressly excluded 442 cannot be invoked in deciding a legal issue with reference to the statutory provision 445 part and parcel of every statute unless there is specific provision in a particular statute to the contrary 445 Proceedings and pending proceeding difference of 167 Proceedings under the Income Tax are judicial proceedings 331 Processing meaning of 166 Profit meaning of 169 Promissory estoppel doctrine of 423, 424 and legitimate expectation 423 applies to SAS 423 could not be invoked against the legislature and the laws framed by it Property meaning of 170 Provisions of earlier Act when become part of later Act 53 Proviso scope of 45 object of 17

424

532 Principles of Income Tax Law

Q Qanoon-e-Shahadat Ordinance applicable to income tax 394 Question not raised before the Appellate Tribunal cannot be raised before the High Court 331 Question of law declined lacking substance and being academic in nature 317 in case of anomalies should be sent back to ITAT for clarification 311

R Recalling of orders courts/tribunal have inherent powers independent of any statutory provisions 320 Receivable means actually received and not due 170 Received a person cannot receive a thing from himself 172 Reconstruction of sections and rules 33 Redundancy should not be readily assigned by courts 244 Reference when a finding of fact can be challenged 336 Reference to High Court only question of law which has substance in it to be referred 311 Refund due claim is not barred even if law so provides 451 Remedial and curative laws should be applied retrospectively unless specifically debarred 272 Remedy to be sought within four corners of Act 466 Repeal & amendment meaning of 172 Repeal of law rights once conferred cannot be taken back 294 vested rights cannot be destroyed 67

533 Subject Index Repealed statute history of decisions may be an aid for new statute 61 Repealing law cannot cover any period prior to coming into force of the Act/Ordinance 293 Res judicata doctrine of 493 income tax officer when not bound by 494 not applicable to tax proceedings 493 and principle of estoppel 493 Reserve meaning of 172 Retroactivity of the law limitation period extended retrospectively by legislation held not valid 288 Retrospective application of law must be by explicit words 266 Retrospective laws should be avoided if results in injustice 272 Retrospective legislation benefit can be given in pending proceedings 269 parliament is competent to apply law with retrospective effect 269 scope of 266 Retrospectivity application in fiscal laws 265 not applicable to penal provisions 285 rules for determination 466 Right of appeal correct interpretation of Rule 15 238 Right to be heard no adverse order should be passed against a party without affording an opportunity to meet the case 441 Rights of taxpayers a delinquent taxpayer deserves a favourable treatment 412 Role of certain expressions 16 Rule generalibus specialia derogant application of 219 Rule of benefit in favour of taxpayer if two interpretations possible 208 where two interpretation possible, one favouring taxpayer is to be adopted 208

534 Principles of Income Tax Law Rules of interpretation in general 21, 42 statute should be read as a whole 55 of words and expressions 189 Rule of law things should be done as required by law 244 Rule of limitation a reference application made beyond the prescribed time should be dismissed 449 court holidays falling on the day of expiry of the prescribed period of limitation should be excluded 450 delay of each day must be explained 449 time limitation for filing appeal u/s 136 vis-a-vis section 5 of Limitation Act 447 time required for obtaining certified copy should extend the period of limitation 448 time spent in obtaining a certified copy should be excluded while computing period of limitation 449 where a judgment has not been conveyed to a party limitation starts running from the date of knowledge 447 where a matter is barred by limitation each and every days delay must be explained 449 Rule of reading documents to be read as a whole and not in piece 237 Rule-making no discrimination is allowed 470 Rules cannot take away the vested rights 435 delegated authority can frame rules if permitted expressly 99 in case of discrepancy in language of section and rules, section is to prevail 47 limitation of 43, 47 rule of interpretation 43

S Sales and supplies meaning of 175 Shall use in section 134(5) of the Income Tax Ordinance, 1979 does not make it mandatory in nature 175 Shall be deemed to be included meaning of 78

535 Subject Index Specify meaning of 175 Stare decisis decisions of Income Tax Appellate Tribunal are binding on all subordinate authorities 405 even obiter dictum of Supreme Court is binding on all courts in Pakistan 405 English decisions in pari materia and their binding value 406 meaning of 405 principles of 403

-

per incuriam

-

All judges of a High Court sitting together much less to say of a Judge in Chambers cannot declare a judgment of the apex Court to be per incuriam 399 Per incuriam judgement of even the highest court is not binding 402 Deviation from an earlier finding without reference to the same also makes a judgment per incuriam 402 Statutory construction practice as a guide 62 practice of revenue authorities as contemporanea expositio 62 practice not a guide where language of statute is clear 63 practice under repealed Act as an aid for construction of later Act 65 principle of contemporary exposition 63 Stay order proceeding taken subsequent to grant of stay order are nullity in the eyes of law 478 Subordinate legislation can be applied retrospectively only if expressly mentioned 285 Subsequent general law not to interfere with special provision 61 Supply meaning of 176 Supreme Court limited jurisdiction in tax matters 313

T Tax meaning of 177 Tax and fee distinction between

177

536 Principles of Income Tax Law Tax on income scope of 102 Tax paid and tax payable distinction between 177 Tax payable on the basis of such return scope of 236 Taxable for total world income taxation of “resident” 49 Taxation in Islam basis of 471 Taxation of “resident” Taxable for total world income 49 Technical words 34 example of “minor child” 34 how to be construed 34 significance 34 Terms and phrases prima facie should be construed in their popular sense 260 The Protection of Economic Reforms Act of 1992 overrides Income Tax Law to the extent protections are provided in the former enactment 471 scope of 468 Special Law vs. Income Tax 468 Things should be done as per law as not to be done at all meaning of 420 Time limitation does not apply to illegal orders 335 True meaning of statute duty of court 431 Turnkey project meaning of 178 Turnover meaning of 181

U Unjustified enrichment not attracted 42 Unlawful action -

does not force any law of limitation

173

537 Subject Index

Ut res valeat quam pereat meaning of 420

V Vested rights cannot be taken away by implication 221 only natural persons/legal persons possess and not the government 479

W Wafaqi Mohtasib (Ombudsman) CBR has no authority to file representation against its orders 216 powers of 216 Waiver or estoppel do not apply against a provision of law 424 principles of 424 Word and phrases accrue and arise 109 effect of book entries 110 agreed assessment assessment at par 116 violative of Contract Act will be voidable 117 agricultural income when remains to be such in the hands of recipient 112 agriculture and agricultural purposes 112 annual value 113 approval and permission are not synonymous 113 artificial juridical person 114 assess 114 assessable income 115 assessment 115 assessment year stable interpretation of term should be adopted 117 best judgment assessment 117 business 118 business connection 118 capital and dividend distinguished 118 case 119 certified copy 119 charitable purposes 119 charity and charitable purposes 120

538 Principles of Income Tax Law -

commercial 122 commerce 122 company and shareholder relationship between 122 company limited by guarantee 123 complete 124 consultancy fee 125 debt, loan, owe and du difference between 127 deemed order 129 default 129 definite Information 130 discard 133 dividend 134 employee 135 enduring benefit 135 enemy, enemy territory and aggrieved party 136 erroneous 137 evasion and avoidance difference between 138 evasion of tax 138 execution of contract 139 expenditure & reserves 139 failed and default 140 failure 141 fixed capital 141 fixed capital and circulating capital 141 general public 142 goodwill 143 guess work 144 hearing 144 immovable property does not cover “goods” 142 immunity 145 includes 145 including 146 income 146 income tax authority 149 individual & association of persons 149 individual and such individual 150 industrial undertaking 150 interest 152 liable 153 life 154 manufacture 154 material 156 may 156 merge & merger 156

539 Subject Index -

mistake apparent from record scope of section 156 157 notice, give notice and opportunity 157 occupation 159 opinion 159 or 159 owners, ownership and own 159 paid 160 party in default 161 pay 162 penalty 162 permanent establishment 163 pending 164, 165 person 165 presumptive tax regime…166 previous year 166 processing 166 proceeding and pending proceeding 167 profit 169 property 170 receivable 170 received a person cannot receive a thing from himself 172 repeal & amendment 172 reserve 172 sales and supplies 175 shall use in section 134(5) of the Income Tax Ordinance, 1979 does not make it mandatory in nature 175 specify 175 supply 176 tax 177 tax and fee, distinction between 177 tax paid and payable 177 turnkey project 178 turnover 181 working capital, current assets and current liability 183 year how to be understood 185 Words in statutes cannot be treated as surplusage or redundant 227 no assumption for surplusage 229 Working capital, current assets and current liability meaning of 183 Writ admitted during the pendency of appeals 365

540 Principles of Income Tax Law -

alternate remedy no bar where order is unlawful 358 appropriate remedy 352 appropriate remedy where order is void and without lawful authority 352 assessee cannot avail remedy of constitutional petition before High Court being dissatisfied with the notices 387 assessee has other options like filing a complaint with Ombudsman 334 cannot be entertained where adequate remedy is available 384 cannot be invoked when ITO‟s action is within jurisdiction 385 challenge to vires of law having perpetual effect laches not applied 359 conditions for maintainability 333 could not be invoked without first availing the remedies available under the relevant law 340 court cannot assume jurisdiction of income tax department 341 extra-ordinary jurisdiction 340 factual inquiry involving controversial facts cannot be undertaken by the High Court in exercise of its constitutional jurisdiction 383 granting of stay order only after listening the prescribed law officer 300 High Court cannot go in the domain of factual controversy 382 in case of excess committed by public functionaries adequate remedy is no bar 365 in presence of arbitration clause in the agreement executed between the parties, the writ petition is not maintainable 378 inordinate delay in seeking discretionary relief under Article 199 of the Constitution - hit by laches 480 interim stay should be given once admitted 325 issue being controversial involving inquiry into held not a fit case 385 legality and correctness of a factual controversy could not be resolved in constitutional Jurisdiction 382 limitation for grant of stay 339 maintainable if assessment is suffering from lack of jurisdiction 364 maintainable when impugned order is patently without jurisdiction 363 maintainable where interpretation of law is involved 318 maintainable where order is lawful 359 maintainable where order is partial and unjust even if alternate remedy is available 361 not competent where order is in accordance with law 390 not maintainable if jurisdiction of assessing officer is not challenged 389

541 Subject Index -

not maintainable in case where no right to appeal or reference is provided in law itself 380 not maintainable in the presence of adequate alternate remedy 375 not maintainable in the presence of adequate and efficacious alternate remedy 390 not maintainable where adequate and alternate remedy available 382 not maintainable where alternate and equally efficacious remedy is available 341 not maintainable where disputed question of fact involved 379 not maintainable where facts are controversial 381 not maintainable where parties themselves agreed for arbitration in bilateral contracts 379 political victimization, petition is maintainable 354 question of controversial facts in constitutional jurisdiction 388 reasonable interim relief when due 336 remedies available under the law should be exhausted before invoking the extraordinary jurisdiction 389 selection of return for audit challenged through constitutional jurisdiction - held not maintainable 380 when doctrine of exhaustion is no bar 343 when maintainable 333 when maintainable even during the pendency of appeals 357 when not maintainable 365 where alternate remedy is no bar 362 where order is illegal alternate remedy is no bar 362 where there has been suppression of material/facts, writ of prohibition cannot be issued 341 where vires of law challenged, pendency of reference is no bar 359 Writ jurisdiction of High Court confined only to consideration whether authority had acted with or without jurisdiction 341 Writ petition dismissed as withdrawn, second petition on the same issue is maintainable 311 not maintained when disputed questions of facts involved 316

Y Year how to be understood

185