MULTAN ELECTRIC POWER CO. LIMITED (MEPCO) VS COMMISSIONER, INLAND REVENUE (WHT), REGIONAL TAX OFFICER, MULTAN, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 2567 (2016)

(a) Income Tax Ordinance (XLIX of 2001)---

----S. 235---Advance tax---Advance tax deductible on electricity consumption---Scope---Appellate Tribunal Inland Revenue and Commissioner Inland Revenue (Appeals) had found that practice of charging withholding tax after including the sales tax was justified---Questions before the High Court were that whether the Appellate Tribunal had failed to appreciate the fact that advance income tax under S. 235 of Income Tax Ordinance, 2001 was deductible on the electricity consumption under S. 235(2) of the Ordinance and not on gross amount of electricity bill as contemplated in S. 235(1) of the Ordnance; that whether the Appellate Tribunal had erred at law and given effect to the interpretation of S. 235 of the Ordinance made in the Judgment of Sindh High Court titled 'Commissioner Inland Revenue Zone-I RTO v. Hyderabad Electric Supply Co. (HESCO)' in ITRA No. 68/2012, and that whether the clarification of Federal Board of Revenue dated 8th June, 2013 regarding charging of Income Tax under S. 235 of the Ordinance on electricity bill had prospective effect and the CIR(A) had erred at law while holding otherwise, that such clarification had retrospective effect, which was against the dictums of the Superior Courts---Division existed between electricity consumption bill and the gross electricity bill; whereas, the advance tax was required to be charged on the basis of electricity consumption only and in the manner electricity consumption charges were charged; therefore, the gross electricity bill, which included excised duty, income tax, G.S.T and N.J, was not relevant for the purposes of charging advance tax at the rates specified in Part-IV of the First Schedule of the Income Tax Ordinance, 2001---Sections 235(1) & 235(2) of the Ordinance were to be read in harmony and not in isolation, and there was no ambiguity or conflict between the two provisions---Subject was not to be taxed unless the charging provision clearly imposed obligation, and even if he came within letter of law, then he had to be taxed to the extent and limitation provided therein, not beyond its scope settled therein---Person sought to be taxed, could only be taxed when he came within the letter of law---In case the revenue seeking to tax could not bring the subject within letter of law, the subject was free, no matter such a construction might cause serious prejudice to the revenue---In case of fiscal statutes, where two reasonable interpretations of a provision were possible, interpretation favouring taxpayer would be adopted in such cases---Charging provisions would be construed strictly, but ambiguity therein would be resolved in favour of the assessee---Charging section in one fiscal statute demands its strict interpretation and application insofar as the revenue was concerned, but where the same was susceptible to two possible interpretations, it should have been liberally construed in favour of the tax payer, particularly, where there was doubt about the true import and application of a charging section---High Court, therefore, answered the questions in affirmative in favour of the petitioners---Reference was disposed of accordingly.

Messrs Fazal Textile Mills Limited, Karachi v. Secretary, Revenue Division, Islamabad 2009 PTD 1983; Messrs A.A. Brothers through Proprietor v. Federation of Pakistan through Secretary, Ministry of Finance (Revenue Division), Islamabad and 3 others 2010 PTD 2101 and Messrs Maverick Petrogas (Pvt.) Limited, Lahore v. A.C.I.R., MAC-01, RTO-II, Lahore 2013 PTD (Trib.) 595 ref.

Abdul Razzaq Khokhar v. Province of Punjab through Secretary to Government of Punjab and others 1990 SCMR 183; Market Committee Khudian through its Administrator v. Town Committee Khudian through its Chairman 1992 SCMR 1403; Qazi Hussain Ahmad Ameer Jamaat-e-Islami Pakistan and others v. General Pervez Musharraf Chief Executive and others PLD 2002 SC 853; Aftab Shahban Mirani and others v. Muhammad Ibrahim and others PLD 2008 SC 779; District Bar Association, Rawalpindi and others v. Federation of Pakistan and others PLD 2015 SC 401; A & B Food Industries Limited v. Commissioner of Income Tax/Sales, Karachi 1992 SCMR 663; Commissioner Inland Revenue, Lahore v. Saritow Spinning Mills Ltd., Lahore 2016 PTD 786; Pakistan Industrial Development Corporation v. Pakistan through the Secretary, Ministry of Finance 1992 SCMR 891; Collector of Customs, Customs House, Lahore and 3 others v. Messrs S.M. Ahmad & Company (Pvt.) Limited, Islamabad 1999 SCMR 138; Pakistan through Secretary Finance and others v. Messrs Lucky Cement and another 2007 SCMR 1367; Accountant-General, Sindh and others v. Ahmed Ali U. Qureshi and others PLD 2008 SC 522; Government of Sindh through Secretary and Director General, Excise and Taxation and another v. Muhammad Shafi and others PLD 2015 SC 380; Azad Jammu and Kashmir Government through Chief Secretary, Muzafarabad and 2 others v. Ch. Khadim Hussain 2005 CLC 1025; The Pakistan Motor Transport and others v. Secretary to Government of Punjab 1991 MLD 1212; Salfi Textile Mills Limited and another v. City District Government of Karachi through D.C.O. and another 2013 CLD 2120; Aftab Ahmed Khan Sherpao v. Commissioner of Income Tax/Wealth Tax, Peshawar 2013 PTD 185; Messrs Nishat Dairy (Pvt.) Ltd. through Company Secretary v. Commissioner Inland Revenue and 4 others 2013 PTD 1883 and Messrs Citibank NA v. Commissioner Inland Revenue and another 2014 PTD 284 rel.

(b) Interpretation of statutes---

----Harmonious construction----Scope---In case of any conflict of two provisions, the rule of harmonious interpretation is followed---Statute must be read as an organic whole and all its provisions must be harmoniously reconciled instead of picking out inconsistency between different provisions---All provisions of a statute have to be read together and harmonious construction is to be placed on such provisions as that no provision is rendered nugatory.

Abdul Razzaq Khokhar v. Province of Punjab through Secretary to Government of Punjab and others 1990 SCMR 183; Market Committee Khudian through its Administrator v. Town Committee Khudian through its Chairman 1992 SCMR 1403; Qazi Hussain Ahmad Ameer Jamaat-e-Islami Pakistan and others v. General Pervez Musharraf Chief Executive and others PLD 2002 SC 853; Aftab Shahban Mirani and others v. Muhammad Ibrahim and others PLD 2008 SC 779 and District Bar Association, Rawalpindi and others v. Federation of Pakistan and others PLD 2015 SC 401 rel.

(c) Interpretation of statutes---

----Intendment or presumption---Scope---One can only look for the intendment or language used in law and there is no room for intendment or presumption on interpretation of law.

A & B Food Industries Limited v. Commissioner of Income Tax/Sales, Karachi 1992 SCMR 663 and Commissioner Inland Revenue, Lahore v. Saritow Spinning Mills Ltd., Lahore 2016 PTD 786 rel.

(d) Interpretation of statutes---

----Words should be read in their ordinary, natural and grammatical meaning, subject to the rider that in construing the words in the legislative instrument/provision of law, the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude.

Pakistan Industrial Development Corporation v. Pakistan through the Secretary, Ministry of Finance 1992 SCMR 891; Collector of Customs, Customs House, Lahore and 3 others v. Messrs S.M. Ahmad & Company (Pvt.) Limited, Islamabad 1999 SCMR 138; Pakistan through Secretary Finance and others v. Messrs Lucky Cement and another 2007 SCMR 1367; Accountant-General, Sindh and others v. Ahmed Ali U. Qureshi and others PLD 2008 SC 522; Government of Sindh through Secretary and Director General, Excise and Taxation and another v. Muhammad Shafi and others PLD 2015 SC 380; Azad Jammu and Kashmir Government through Chief Secretary, Muzafarabad and 2 others v. Ch. Khadim Hussain 2005 CLC 1025; The Pakistan Motor Transport and others v. Secretary to Government of Punjab 1991 MLD 1212; Salfi Textile Mills Limited and another v. City District Government of Karachi through D.C.O. and another 2013 CLD 2120; Aftab Ahmed Khan Sherpao v. Commissioner of Income Tax/Wealth Tax, Peshawar 2013 PTD 185; Messrs Nishat Dairy (Pvt.) Ltd. through Company Secretary v. Commissioner Inland Revenue and 4 others 2013 PTD 1883 and Messrs Citibank NA v. Commissioner Inland Revenue and another 2014 PTD 284 rel.

(e) Interpretation of statutes---

----Fiscal statute---Principles---Where two reasonable interpretations of a provision were possible, interpretation favouring taxpayer would be adopted in such cases---Charging provisions would be construed strictly, but ambiguity therein would be resolved in favour of the assessee---Charging section in one fiscal statute demands its strict interpretation and application insofar as the revenue was concerned, but where the same was susceptible to two possible interpretations, it should have been liberally construed in favour of the tax payer, particularly, where there was doubt about the true import and application of a charging section.

Barrister Malik Kashif Rafiq Rajwana for Applicant.

Agha Muhammad Akmal Khan and Tariq Manzoor Sial for Respondents.

Date of hearing: 6th June, 2016.

JUDGMENT

MUHAMMAD SAJID MEHMOOD SETHI, J.---Through instant reference application under Section 133 of the Income Tax Ordinance, 2001 ("Ordinance"), following questions of law, asserted to have arisen out of order dated 11.06.2014, passed by the Appellate Tribunal Inland Revenue, Camp at Multan ("Appellate Tribunal"), have been proposed and pressed for our opinion:-

i.Whether under the facts and circumstances of the case, the learned ATIR failed to appreciate the fact that Advance Income Tax under section 235 was deductible on the electricity under subsection (2) and not on gross amount of electricity bill as contemplated in subsection (1) of section 235 of the Ordinance, 2001?

ii.Whether learned ATIR and AITR have erred at law and give effect to interpretation of section 235 of the Income Tax Ordinance, 2001 made in the judgment rendered by the Hon'ble Division Bench of Sindh High Court is similar matter of Commissioner Inland Revenue Zone-I, RTO v. Hyderabad Electric Supply Co. (HESCO)" in ITRA No.68/2012 wherein it has been ruled out that "there is distinction between electricity consumption bill and the gross electricity bill, whereas, the advance tax is required to be charged on the basis of electricity consumption only, and in the manner electricity consumption charges are charged, therefore, the gross electricity bill, which includes excise duty, income tax, G.S.T. and N.J., is not relevant for the purposes of charging advance tax at the rates specified in Part-IV of the First Schedule. Court do not see any ambiguity or conflict between the two provisions of subsection (1) and subsection (2) of section 235 of the Income Tax Ordinance, 2001, which otherwise, are to be read in harmony and not in isolation."?

iii.Whether the clarification of FBR dated 8th June 2013 regarding charging of Income Tax under section 235 of the Income Tax Ordinance, 2001, on electricity bill has prospective effect and the learned CIRA has erred at law while holding otherwise that such clarification has the retrospective effect, which is against the dictums of Superior Courts of Pakistan?

2.Brief facts of the case are that respondent department issued a Show Cause Notice ("SCN") dated 09.05.2013, contending that the applicant being a "prescribed person" in terms of section 153(7) of the Ordinance, has made various payments against purchase/supplies to various parties, which were liable to tax deduction and certain discrepancies of tax deductions under various heads were also pointed out. The notice was replied by the applicant company. Being dissatisfied with the aforesaid reply, the Inland Revenue Audit Officer/Assessing Officer passed an Order No.161 of 2005 dated 21.10.2013 against the applicant under sections 161/205 of the Ordinance. Feeling aggrieved, applicant preferred an appeal before Commissioner Inland Revenue (Appeals), who partially confirmed the order of the assessing officer, vide order dated 24.02.2014. Applicant challenged said order by way of filing an appeal before learned Appellate Tribunal, but the same was also dismissed vide order dated 11.06.2014, which has been assailed through instant reference application.

3.Learned counsel for applicant submits that learned Appellate Tribunal failed to appreciate the fact that advance income tax under section 235 of the Ordinance, was deductible under subsection (2) on the electricity consumed and not on gross amount of electricity bill as contemplated in subsection (1) of section 235 of the Ordinance. In support of his contentions, he has placed reliance upon Commissioner Inland Revenue Zone-I RTO v. Hyderabad Electric Supply Co. (HESCO) in ITRA No.68 of 2012. He further submits that clarification of FBR dated 08.06.2013 regarding charging of income tax under section 235 of the Ordinance, on electricity bill has prospective effect and the learned CIR (A) has erred in law while holding otherwise that such clarification has the retrospective effect, which is against the dictum of superior Courts of Pakistan. In this regard, he has placed reliance upon Messrs Fazal Textile Mills Limited, Karachi v. Secretary, Revenue Division, Islamabad (2009 PTD 1983), Messrs A. A. Brothers through Proprietor v. Federation of Pakistan through Secretary Ministry of Finance (Revenue Division), Islamabad and 3 others (2010 PTD 2101) and Messrs Maverick Petrogas (Pvt.) Limited Lahore v. A.C.I.R. MAC-01, RTO-II, Lahore (2013 PTD (Trib.) 595).

4.On the other hand, learned counsel for respondents defends the impugned order passed by learned Appellate Tribunal and submits that applicant failed to point out any illegality or legal infirmity in the impugned order, therefore, same may be upheld in the interest of justice.

5.Arguments heard. Available record perused.

6.In order to better appreciate the contentions of learned counsel for the parties, it would be appropriate to reproduce the operative part of impugned order dated 11.06.2014, which is reproduced hereunder:-

"7. After having considered the orders of the lower fora and explanations submitted by the taxpayer during the course of proceedings, we are of the opinion that the crucial issue in this appeal is inclusion of sales tax amount before calculation of advance income tax liability by the Inland Revenue. The learned CIR(A) has dealt with this issue in detail taking into account the nature of transaction, explanation offered/submitted as well as the issue of applicability of the SRO which is of clarificatory in nature, therefore, we do not find any necessity to dilate upon. The appellant has also adopted the practice of charging Withholding Tax after including the sales tax, therefore, we find no interference with the order of learned CIR(A) which is maintained and the appeal filed by the Taxpayer is hereby dismissed."

7.Perusal of the above reproduced operative part of impugned order shows that learned Appellate Tribunal has agreed with the findings rendered by CIR(A), holding that the practice of charging withholding tax after including the sales tax, is justified and consequently, findings of CIR(A) were upheld. For facility of reference, section 235 of the Ordinance is reproduced hereunder:-

"235. Electricity consumption.-(1) There shall be collected advance tax at the rates specified in Part-IV of the First Schedule on the amount of electricity bill of a commercial or industrial consumer.

(2) The person preparing electricity consumption bill shall charge advance tax under subsection (1) in the manner electricity consumption charges are charged.

(3) Advance tax under this section shall not be collected from a person who produces a certificate from the Commissioner that his income during tax year is exempt from tax.

(4) Under this section.-

(a)in the case of a taxpayer other than a company, tax collected upto bill amount of thirty thousand rupees per month shall be treated as minimum tax on the income of such persons and no refund shall be allowed;

(b)in the case of a taxpayer other than a company, tax collected on monthly bill over and above thirty thousand rupees per month shall be adjustable; and

(c)in the case of a company, tax collected shall be adjustable against tax liability."

8.There is division between electricity consumption bill and the gross electricity bill, whereas the advance tax is required to be charged on the basis of electricity consumption only, and in the manner electricity consumption charges are charged, therefore, the gross electricity bill, which includes excise duty, income tax, G.S.T. and N.J., is not relevant for the purposes of charging advance tax at the rates specified in Part-IV of the First Schedule. There is no ambiguity or conflict between the two provisions of subsection (1) and subsection (2) of section 235 of the Ordinance, which otherwise, are to be read in harmony and not in isolation. Undeniably, the subject matter of the controversy in hand has already been settled by the learned High Court of Sindh in Commissioner Inland Revenue, Zone-I, RTO, Hyderabad v. M/s. Hyderabad Electric Supply Co. (HESCO), Hyderabad (ITRA No.68 of 2012), the operative part of which is reproduced hereunder:-

"6. From combined reading of subsection (1) and subsection (2) of section 235, it may be seen that subsection (1) provides for collection of advance tax at the rates specified in Part-IV of the First Schedule on the amount of electricity bill of a commercial or industrial consumer, whereas subsection (2) of section 235 provides for the mechanism, mode and manner, according to which the advance tax under subsection (1) is to be charged. Subsection (2) of section 235 requires a person preparing electricity consumption bill to charge advance tax under subsection (1) in the manner electricity consumption charges are charged (Emphasis is ours). From plain reading of hereinabove provisions, it is clear that there is distinction between electricity consumption bill and the gross electricity bill, whereas, the advance tax is required to be charged on the basis of electricity consumption only, and in the manner electricity consumption charges are charged, therefore, the gross electricity bill, which includes Excise Duty, Income Tax, G.S.T and N.J., is not relevant for the purposes of charging advance tax at the rates specified in Part-IV of the First Schedule. We do not see any ambiguity or conflict between the two provisions of subsection (1) and subsection (2) of section 235 of the Income Tax Ordinance, 2001, which otherwise, are to be read in harmony and not in isolation.

7. Provisions of statute would have to be construed harmoniously so as to advance purpose of a substantive provision of law and to avoid conflict whereas no provision is to be read in isolation. It is the duty of the Court to attempt to interpretation the statute as a whole so as to avoid conflict between its various provisions. In the instant case, it appears that the Taxation Officer by ignoring the above principle of interpretation of statute, read the provisions of subsection (1) of the section 235 of the Income Tax Ordinance, in isolation without referring the provisions of subsection (2) of section 235, which is relevant for the purposes of charging advance tax in the manner electricity consumption charges are charged.

8. In view of hereinabove, we are of the opinion that the order passed by the Appellate Tribunal Inland Revenue (Pakistan) Karachi, does not suffer from any error or illegality as it depicts correct legal position. Accordingly, we do not find any substance in the instant reference application, which is hereby dismissed. The question proposed by the applicant is answered in affirmative against the applicant and in favour of the respondent."

9.It is settled law that in case of any conflict of two provisions, the rule of harmonious interpretation is followed. Statute must be read as an organic whole and all its provisions must be harmoniously reconciled instead of picking out inconsistency between different provisions. The principle of interpretation of statute is that all provisions of a statute have to be read together and harmonious construction is to be placed on such provisions so that no provision is rendered nugatory. Reliance, in this regard, can be placed upon Abdul Razzaq Khokhar v. Province of Punjab through Secretary to Government of Punjab and others (1990 SCMR 183), Market Committee Khudian through its Administrator v. Town Committee Khudian through its Chairman (1992 SCMR 1403), Qazi Hussain Ahmad Ameer Jamaat-e-Islami Pakistan and others v. General Pervez Musharraf Chief Executive and others (PLD 2002 Supreme Court 853), Aftab Shahban Mirani and others v. Muhammad Ibrahim and others (PLD 2008 Supreme Court 779) and District Bar Association, Rawalpindi and others v. Federation of Pakistan and others (PLD 2015 Supreme Court 401).

10.The subject is not to be taxed unless the charging provision clearly imposes obligation. Even if he comes within letter of law then he has to be taxed to the extent and limitation provided therein, not beyond its scope settled therein. Person sought to be taxed, could only be taxed when he came within the letter of law. If the revenue seeking to tax cannot bring the subject within letter of law, the subject is free, no matter such a construction may cause serious prejudice to the revenue. One can only look for the intendment or language used in law and there is no room for intendment or presumption on interpretation of law. Reference in this regard can be made to A & B Food Industries Limited v. Commissioner of Income Tax/Sales, Karachi (1992 SCMR 663) and Commissioner Inland Revenue, Lahore v. Saritow Spinning Mills Ltd., Lahore (2016 PTD 786).

In the case of Saritow Spinning Mills Ltd., Lahore supra, this Court has held as under:-

"12. We are also conscious of the well-established proposition of law that if a 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 state cannot bring the subject within the letter of the law he is free, however apparent it may be that his case is within what might be called the spirit of the law. Even if two views are possible from reading of the said provisions of law, even then the view which favors the citizen/assessee has to be given preference over the second view for the reason, firstly, that charge upon the subject are to be imposed by clear and unambiguous words, secondly, 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,"

11.Needless to observe here that words should be read in their ordinary, natural and grammatical meaning, subject to the rider that in construing the words in the legislative instrument/provision of law, the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude. As regards fiscal statutes, it is settled law that in case of two reasonable interpretations of a provision being possible, interpretation favoring taxpayer would be adopted in such case. Charging provisions would be construed strictly, but ambiguity therein, if any, would be resolved in favour of assessee. Where two views were possible, one in favour of subject has to be adopted. Charging section in a fiscal statute, demanded its strict interpretation and application insofar as the revenue was concerned, but where it was susceptible to two possible interpretations, it should be liberally construed in favour of the tax payer/citizen; particularly, where there was substantial doubt about the true import and application of a charging section. Such doubt should be resolved in favour of the tax payer/citizen. Any statutory ambivalence or ambiguity must be resolved in favour of the taxpayer. Reliance in this regard can be placed upon Pakistan Industrial Development Corporation v. Pakistan through the Secretary, Ministry of Finance (1992 SCMR 891), Collector of Customs, Customs House, Lahore and 3 others v. Messrs S.M. Ahmad & Company (Pvt.) Limited, Islamabad (1999 SCMR 138), Pakistan through Secretary Finance and others v. Messrs Lucky Cement and another (2007 SCMR 1367), Accountant-General, Sindh and others v. Ahmed Ali U Qureshi and others (PLD 2008 Supreme Court 522), Government of Sindh through Secretary and Director General, Excise and Taxation and another v. Muhammad Shafi and others (PLD 2015 Supreme Court 380), Azad Jammu and Kashmir Government through Chief Secretary, Muzafarabad and 2 others v. Ch. Khadim Hussain (2005 CLC 1025), The Pakistan Motor Transport and others v. Secretary to Government of Punjab (1991 MLD 1212), Salfi Textile Mills Limited and another v. City District Government of Karachi through D.C.O. and another (2013 CLD 2120), Aftab Ahmed Khan Sherpao v. Commissioner of Income Tax/ Wealth Tax, Peshawar (2013 PTD 185), Messrs Nishat Dairy (Pvt.) Ltd. through Company Secretary v. Commissioner Inland Revenue and 4 others (2013 PTD 1883) and Messrs Citibank NA v. Commissioner Inland Revenue and another (2014 PTD 284).

12.Resultantly, our answer to the proposed questions is affirmative i.e. in favour of applicant taxpayer, against the respondent department.

13.Office shall send a copy of this judgment under seal of the Court to the Appellate Tribunal as per section 133(5) of the Ordinance.

SL/M-146/LReference answered.