Income Tax Notice after Five Years and Retrospective Legislation

Income Tax Notice after Five Years and Retrospective Legislation Beneficial Legislation Case Laws Commercial Corporate Corporate Law Curative Statues Income Tax Knowledge – Corporate Law Lahore High Court Limitation Litigation & Arbitration Pending Proceedings Remedial Statutes Retrospective Retrospective Legislation Solutions - Corporate Law Tax Tax Reference Mr. Justice Tariq Saleem Sheikh in his judgment has decided the issue regarding issuance of income tax notice after five years and retrospective legislation in P.T.R No. 197 of 2010.

1. Through this judgment we intend to decide PTR No.197/2010 and the connected Tax References mentioned in Schedule-A filed by the Petitioner Department under Section 133(1) of the Income Tax Ordinance, 2001, as they emanate from consolidated Order dated 22-10-2009 passed by the Income Tax Appellate Tribunal, Lahore, (the “Appellate Tribunal”).

2. The Petitioner Department has urged that the following common question of law arises out of the Appellate Tribunal’s Order dated 22-10-2009 that is required to be determined by this Court:

Whether on the facts and in the circumstances of the case the learned ITAT was justified to cancel the assessments made u/s 62 for the assessment years 1986-87 to 1991-92 on the point of limitation whereas the assessments stood finalized on 30-06-2000 prior to insertion of the proviso through the Finance Ordinance, 2001, which places restriction on issuance of notice u/s 56 beyond five years?

3. Brief facts of the case are that the Respondent is an individual who derives his income from real estate business. On the basis of information received by it, the Department initiated assessment proceedings against him. On 09-02-1998, The Assessing Officer issued statutory notices to him under Sections 56/58(1) of the Income Tax Ordinance, 1979 (the “Repealed Ordinance”) in response to which he furnished returns for the Assessment Years 1986-87 through 1991-92. The Assessing Officer observed that the Respondent purchased a plot at Johar Town, Lahore, and constructed a house thereon. He confronted him with this fact and called upon him to explain the sources of this investment as also the sources of credits in his bank account. The Respondent filed his reply but the Assessing Officer found the same unsatisfactory and, vide order dated 30-06-2000 finalized the assessment under Section 62 by making additions under Section 13(1) (aa) of the Repealed Ordinance. The Respondent preferred an appeal thereagainst before the CIT (Appeals) which was dismissed vide Order dated 04-11-2004. However, his second appeal was accepted and the Appellate Tribunal annulled the orders passed by the authorities below holding that notices under Section 56 could not be issued after the expiry of five years from the end of the Assessment Year for which the return of income was due. The reference applications in hand are directed against the Order of the Appellate Tribunal which is dated 22-10-2009.

4. Section 56 of the Repealed Ordinance provided as under:

56. Notice for furnishing return of total income. The [Deputy Commissioner] may, at any time by notice in writing require any person who in his opinion, is chargeable to tax for any income year to furnish a return of total income for such year within thirty days from the date of service of such notice or income for such year within thirty days from the date of service of such notice or such longer or shorter period as may be specified in such notice or as the [Deputy Commissioner] may allow.

However, the Finance Ordinance, 2001, inserted the following proviso thereto:
Provided that no notice under this section shall be issued after the expiration of five years from the end of the assessment year for which the return of income was due.

5. Finance Ordinance, 2001, came into force on 01-07-2001 while the assessment in the instant case was finalized prior to that on 30-06-2000. The moot point is whether the proviso can be given a retrospective effect to nullify these concluded proceedings on the ground of limitation. This argument is based on the premise that the proviso in question was a remedial and curative enactment which are generally retroactive in their application. One must understand the meaning and scope of beneficial, remedial and curative legislation in order to appreciate this contention.

6. “Beneficial Legislation” may be explained as under:

“A statute which purports to confer a benefit on individuals or a class of persons, by relieving them of onerous obligations under contracts entered into by them or which tend to protect persons against oppressive act from individuals with whom they stand in certain relations.” [N.S. Bindra, Interpretation of Statutes, Tenth Edition]

“Curative statutes” may be explained thus:
“Curative statutes are those which attempt to cure or correct errors and in proceedings particularly which seek to give effect to contracts and other transactions between private persons which otherwise would fail to produce their intended consequences on account of some statutory disability or a failure to comply with some technical requirement.” [Earl T. Crawford, The Construction of Statutes]

“Remedial statutes”, on the other hand, are:
“The statutes which are enacted to improve a prior enactment for some of its defects or even to reform the existing law to meet the new situation covered by the enactment.” [S.M. Zafar, Understanding Statutes, Fourth Edition]

It may be added:
“A Remedial Act is defined by Blackstone, as “one made to supply such defects and abridge such superfluities in the common law as arise, either from the general imperfection of all human laws, from change of time and circumstances, from the mistake and unadvised determinations of unlearned (and even learned) Judges, or from any other cause whatever.” After quoting this definition, Craies, observes this definition is too narrow for the operation of Remedial Acts and is not confined to common law, but extends also to prior enactment. What is known as Remedial Act is an Act introduced by parliament to remedy what parliament perceives to be an existing problem on account of some obscurity in the words of the statute.”
[S.M. Zafar, Understanding Statutes, Fourth Edition]

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