Charge on Incomes Accrued under Repealed Income Tax Ordinance 1979

Charge on Incomes Accrued under Repealed Income Tax Ordinance 1979 Case Laws Civil Law Constitutional Law Corporate Law Income Tax Interpretation - Tax Law Interpretation of Statutes Knowledge - Civil Law Knowledge - Constitutional Law Litigation & Arbitration Per Incuriam - Bad Law Repealed Law Solutions - Civil Law Solutions - Constitutional Law Supreme Court Tax Mr. Justice Faisal Arab in his judgment has decided the issue regarding charge on incomes accrued under repealed Income Tax Ordinance 1979 in Civil Appeal No. 1086 of 2009.

1. The controversy in this appeal relates to the income tax return that was filed by the respondent for the income year that ended on 30.6.2001. Corresponding to such income year, the assessment year was 2001-02. The assessment on the tax return was finalized by the taxation officer on 14.05.2003 under the provisions of Section 62 of the repealed Income Tax Ordinance, 1979, on the strength of Section 239(1) of the Income Tax Ordinance, 2001, which states “in making any assessment in respect of any income year ending on or before the 30th day of June, 2002, the provisions of the repealed Ordinance ….shall apply as if this Ordinance had not come into force.” We may mention here that the Income Tax Ordinance, 1979 was repealed with effect from 30.06.2002 and replaced by Income Tax Ordinance, 2001 which came into operation on 01.07.2002.

2. When the Additional Commissioner, Income Tax, Range II, Companies Zone, Peshawar considered the assessment order in question to be prejudicial to the interest of the revenue, so he, in order to amend it, served a notice dated 23.08.2004 on the respondent under Section 122(5A) of the Income Tax Ordinance, 2001. After hearing the respondent, the original assessment order was amended vide order dated 08.04.2005 whereby the income earned by the respondent from the sale of membership card of Islamabad Stock Exchange was enhanced by two million rupees. The respondent preferred appeal against such order which was dismissed on 30.10.2006 by the Commissioner, Income Tax (Appeals), Peshawar. He held that notice under Section 122(5A) of the Income Tax Ordinance, 2001, was illegal and vacated the same 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 Income Tax Ordinance, 2001, therefore, it cannot be applied retrospectively. While reaching at such decision, the Commissioner (Appeals) placed reliance on the case of Honda Shahrah-e-Faisal Association of Persons, Karachi Vs. Regional Commissioner of Income Tax, Karachi (2005 PTD 1316). In the said case, the Division bench of the Sindh High Court had held as follows:

“the provisions contained in sub section (5-A) of Section 122 of the Income Tax Ordinance, 2001, inserted with effect from 1.7.2003, is not retrospective in operation. Consequently, the assessments finalized before 1.7.2003 cannot be reopened/revised/amended in exercise of jurisdiction under the above provisions. Admittedly, all the notices impugned in these petitions are in respect of the assessments finalized before 1.7.2003, and consequently all the impugned notices are without jurisdiction, illegal, therefore, hereby quashed along with proceedings in pursuance thereof. The petitions are allowed accordingly.”

3. The order of the Commissioner Income Tax (Appeals) was challenged by the department through the Commissioner Income Tax before the Income Tax Appellate Tribunal, Peshawar. The tribunal also concurred with the decision of the Commissioner Income Tax (Appeals) and dismissed the appeal vide order dated 08.02.2007. In doing so it also placed reliance on the case of Honda Shahrah-e-Faisal. The concerned Commissioner, Income Tax then filed Tax Reference No. 48 of 2007 before the Peshawar High Court, which too was dismissed vide impugned order dated 29.01.2009. The Peshawar High Court also placed reliance on the case of Honda Shahrah-e-Faisal apart from placing reliance on judgments of the Lahore High Court reported in PTD 2008 Lahore 1420 and of the Peshawar High Court rendered on 22.10.2008 in Tax Reference No. 61/2007. The tax department being aggrieved by the impugned decision of the Peshawar High Court dated 29.01.2009 filed CPLA No. 432/2009 before this Court, following which leave was granted on 05.01.2009 and the petition was converted into present appeal. While granting leave, this Court observed that where the Commissioner has been given the power to amend an assessment order, in case he considers the same to be erroneous to the extent that it was prejudicial to the interest of the revenue, then how could such a provision be held to be only prospective in nature?

4. Learned counsel for the appellant argued that the assessment order was rightly amended by the Additional Commissioner Income Tax Range-II, Company Zone, Peshawar, on the basis of Section 239 (1) of the Ordinance of 2001, however on appeal filed by the respondent, the very notice issued under the provisions of Section 122(5A) of the Income Tax Ordinance, 2001, was considered to be unlawful and this decision was maintained up to the Peshawar High Court. He contended that the main reason for rejection of appellant’s notice was the decision of the Sindh High Court rendered in Honda Shahrah-e-Faisal’s case, a decision which has also been affirmed by this Court in the case of Commissioner of Income Tax Vs. Eli Lilly Pakistan (Pvt) Ltd (2009 SCMR 1279). Appellant’s counsel next contended that as Section 239(1) of the Income Tax Ordinance, 2001, provides that for the purpose of assessing any income year ending on or before the 30.6.2002, the provisions of the repealed Income Tax Ordinance, 1979, shall apply as if the Income Tax Ordinance, 2001, had not come into force, therefore, even if the issuance of notice dated 23.8.2004 under the provisions of Section 122(5A) of the Income Tax Ordinance, 2001, is regarded as not maintainable, such notice, on the strength of Section 239(1) of Income Tax Ordinance, 2001, ought to have been treated as notice under Section 66A of the repealed Income Tax Ordinance, 1979, instead of its outright rejection. Based on this argument, he submitted that this Court may treat the notice in question as notice under Section 66A of the Income Tax Ordinance, 1979, and remand the matter back to the Commissioner (Appeal) for his decision on merits.

5. In rebuttal, learned counsel for the respondent contended that the issuance of notice under Section 122(5A) of the Income Tax Ordinance, 2001, was rightly declared as illegal as Section 122(5A) was incorporated in the Income Tax Ordinance, 2001 on 01.07.2003 whereas the assessment of the tax return of the respondent was finalized on 14.05.2003, hence the provisions of Section 122(5A) were not even part of the Statute at the relevant time and thus could not have been invoked for any matter relating to a date prior to 01.07.2003. In addition to this argument, counsel for the respondent also contended that the respondent Company has gone into liquidation and in terms of Section 316 of the Companies Ordinance, 1984, before initiating any legal proceedings, permission ought to have been obtained from the Company Judge that is seized of the winding up proceedings. He submitted that this appeal may be dismissed.

6. When a Statute repeals an earlier Statute and it is an unqualified repeal, then the effect of such repeal is that the earlier Statue gets repealed in its entirety. However, where the Legislature intends to preserve any power or inchoate right in relation to the repealed Statute, then a saving clause is incorporated in the repealing Statute whereby certain provisions are preserved from getting repealed to the extent and with regard to the subject mentioned in the saving clause. The provisions of the repealed law that are so preserved are to be regarded as if the repealed Statute was still in operation. Now the Income Tax Ordinance, 1979, stood repealed with effect from 30.06.2002 and was replaced by the Income Tax Ordinance, 2001, which came into operation immediately thereafter i.e. with effect from 01.07.2002. Section 239 (1) of the Income Tax Ordinance, 2001, provides that any assessment that was to be made for the income years ending on or before 30.06.2002, the same had to be made under the provisions of the repealed Income Tax Ordinance, 1979, as if Income Tax Ordinance, 2001, has not come into force.

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