Commissioner of Income Tax, Peshawar vs. Messrs. Islamic Investment Bank Ltd (Supreme Court)

Commissioner of Income Tax, Peshawar vs. Messrs. Islamic Investment Bank Ltd

Citation: 2016 SCMR 816

Facts:

An assessment was made against the Respondent on tax return for the year 2001-02 which was finalized by tax officer on 14.05.2003 under section 62 of the Income Tax Ordinance 1979 (“1979 Ordinance”). The assessment was made under the 1979 Ordinance, despite being repealed by the Income Tax Ordinance 2001 (“2001 Ordinance”) on 01.07.2002 because section 239(1) of the 2001 Ordinance provided that any assessment in respect of income year ending on or before 30.06.2002 the provisions of the 1979 Ordinance will apply.

The Additional Commissioner Peshawar (“Addl. Commissioner”), however, considered the assessment order made by tax officer to be erroneous and prejudicial to the interest of revenue. Consequently, in order to amend it, the Commissioner served a notice on the respondent under section 122(5A) of the 2001 Ordinance (This section gave the commissioner power to amend an assessment order if it is erroneous). After the hearing, the assessment order was amended whereby the income earned by the Respondent was enhanced by two million rupees. The Respondent filed appeal against such order before Commissioner Income Tax (Appeals) (“Commissioner (Appeals)”). Upon appeal the notice under section 122(5A) was held to be illegal and the same was vacated on the ground that the original assessment was finalized on 14.05.2003, i.e. at a time when section 122(5A) had not been inserted in the 2001 Ordinance. Therefore, it was held that it could not be applied retrospectively (reliance was placed on Honda Shahrah-e-Faisal Association of Persons vs. Regional Commissoiner of Income Tax, Karachi (2005 PTD 1316 Kar) (“Honda Case”)). In the Honda Case it was held that (i) section 122(5A) cannot be given retrospective application, and (ii) section 66A of the 1979 Ordinance, which also gave the Commissioner power to amend an assessment order, was not saved under the Saving Clause (section 239(1)).

Order of Commissioner (Appeals) was challenged by Addl. Commissioner before the Income Tax Appellate Tribunal, Peshawar. The tribunal concurred with decision of the Commissioner (Appeals). The Addl. Commissioner then filed tax reference before the Peshawar High Court, which was also dismissed. Thereafter CPLA was filed before the Supreme Court, which was granted and petition was converted into present appeal.

Arguments:

The counsel for the Appellant contended that:

·??????The assessment order was rightly amended because, as per section 239(1) of the 2001 Ordinance, for year ending before 30.6.2002 the 1979 Ordinance shall apply. Therefore, even if notice issued under section 122(5A) is regarded as not maintainable, such notice ought to have been treated as notice under section 66A of the repealed 1979 Ordinance (section 66A also allows a reassessment similar to 122(5A)).

The counsel for the Respondent contended that:

·??????The issuance of notice under section 122(5A) of the 2001 Ordinance was rightly declared as illegal as section 122(5A) was incorporated on 01.07.2003 whereas the assessment of the tax return by the tax officer was finalized on 14.05.2003, i.e. at a time when section 122(5A) had not been inserted in the 2001 Ordinance.

Key Issue: Whether the assessment order of income was rightly amended by the Addl. Commissioner under section 122(5A) of the 2001 Ordinance given that the original assessment was made on 14.05.2003 which was prior to the insertion of section 122(5A) in the 2001 Ordinance?

Held: The assessment order of income was rightly amended by the Addl. Commissioner under section 122(5A) of the 2001 Ordinance despite the fact that the original assessment was made prior to the insertion of section 122(5A) in the 2001 Ordinance.

Reasoning:

Savings Clause

·??????When a Statute repeals an earlier Statute and it is an unqualified repeal, the effect is that the earlier legislation is entirely repealed. However, where the legislature intends to preserve any section of the repealed statute, a saving clause is incorporated in the repealing Statute whereby certain provisions are preserved. The 1979 Ordinance was repealed with effect from 30.06.2002 with the 2001 Ordinance coming into operation on 01.07.2002. Section 239(1) of 2001 Ordinance provides that any assessment that was to be made for income years ending on or before 30.06.2002 the same had to be made under the 1979 Ordinance.

·??????When section 239(1) of 2001 Ordinance states "the provisions of the repealed Ordinance, in so far as these relates to computation of total income and tax payable thereon shall apply as if this Ordinance had not come into force", it in fact saves the entire set of procedures prescribed under the repealed law for calculating total income tax and tax payable in respect thereof. This meant that section 66A of the 1979 Ordinance continued to apply for tax years up till 30.06.2002 which allowed the revision of an assessment (like section 122A of the 2001 Ordinance).

Retrospective Effect of Procedural Law

·??????Section 239(1) of the 2001 Ordinance was intended to preserve the powers and procedures contained in the 1979 Ordinance (including section 66A). When a provision is incorporated in any statute through an amendment that is procedural in nature then such law is to apply retrospectively. In other words, such a provision has to be construed as if it was incorporated on the date when the main enactment reached the statute book.

·??????A declaratory enactment (relating to procedure), in contrast to a substantive enactment, always has retrospective effect (1993 SCMR 1276). The decision in the Honda Case is, therefore, contrary to the plethora of decisions of this Court wherein it has been held that where procedural provisions are incorporated through amendment then the same have retrospective application.

General Clauses Act?

·??????Apart from section 239(1), the controversy can be looked at from a different perspective. The state has a vested right created at the end of each accounting year through making and revising tax assessments on the income of taxpayers. These procedural exercises are taken to reach the correct calculation of yearly income but the liability to pay the tax already accrues on the last day of each income year which under the 1979 Ordinance accrued up till 30.06.2002. Thus seeking a revision of tax has nothing to do with the vested right of the State in creation of a charge on tax-payers’ income. This right cannot be taken away, even if there was no saving clause in the 2001 Ordinance as such right automatically gets protected under section 6 of the General Clauses Act 1897 (“General Clauses Act”).

·??????As per section 6 of the General Clauses Act where a law is repealed, it will not inter alia affect any investigation, legal proceedings or remedy in respect of any right or obligation, and any such investigation, legal proceeding or remedy may be enforced as if the law had not been repealed unless there is contrary intention, as expressed in the amending legislation. In the current case, there was no intention by the legislature in promulgating the 2001 Ordinance to destroy the rights and obligations under the 1979 Ordinance.

Validity of Notice sent under section 122(5A)

·??????As to the validity of the notice sent to the Respondent under the label section 122(5A) of the 2001 Ordinance, just because the notice was so labeled, instead of referring to section 66A of the 1979 Ordinance, does not make it invalid.

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