COMMISSIONER INLAND REVENUE, MIRPUR VS SHAKEEL AHMED, 2018 PTD-SUPREME-COURT-AZAD-KASHMIR 2228 (2018)

(On appeal from the judgment of the High Court dated 6.10.2017 in References Nos.18 of 2012, 2, 3, 4, 5, 6, 8, 9, 10, 11 and 13 of 2013).

Income Tax Ordinance (XLIX of 2001)---

----S.133---Adjudication of reference under S.133 of the Income Tax Ordinance, 2001---Determination of all questions of law---Scope---High Court whilst acting under S.133 of the Income Tax Ordinance, 2001 was enjoined to resolve all questions of law---Where High Court had not resolved all material questions of law raised in a reference, order of High Court in the same was not sustainable---Case was remanded to the High Court.

Government of AJ&K and others v. Messrs Kashmir Tobacco Industries Ltd. 1992 SCR 20; Messrs Star Textile Limited and others v. Government of Sindh and others 2002 SCMR 356; Al Noor Textile Mills and others v. Federation of Pakistan and others PLD 1994 SC 568; Rashid Ahmed and another's case Appeal No.26 of 2018; Shahnawaz (Pvt.) Ltd. v. Pakistan through Secretary Ministry of Finance 2011 PTD 1558 and Messrs Progressive Weavers v. CIT Faisalabad 2011 PTD 2026 ref.

Babar Ali Khan, Advocate for Appellant (in Civil Appeals Nos.23, 24, 25, 26, 27, 28, 29, 30, 31, 32 of 2018).

Ch. Liaqat Afzal, Advocate for Respondents (in Civil Appeals Nos.23, 24, 25, 27, 28, 30, 31, 32 of 2018).

Respondent for Ex parte (in Civil Appeal No.29 of 2018).

Mian Sultan Mahmood, Advocate for Respondents (in Civil Appeal No. 26 of 2018).

Date of hearing: 24th April, 2018.

JUDGMENT

CH. MUHAMMAD IBRAHIM ZIA, C.J.---All the captioned appeals by leave of the Court have been addressed against the consolidated judgment of the High Court dated 06.10.2017, involving common legal propositions, hence, the same are being disposed of through this single judgment.

2.The precise facts of the case as alleged are that the respondents filed their tax returns for the tax year 2010 at the concerned/respective forums. At the time of filing of the returns, the rate of tax was 3% in common for Individuals as well as Association of Persons. An amendment in the Income Tax Ordinance, 2001 was introduced through Finance Act, 2010 in Pakistan on 01.07.2010 which provided that "rate of tax imposed on the taxable income of A.O.P. for the tax year 2010 and onward shall be 25%. The concerned Taxation Officers issued the notices to taxpayers-respondents and on finding no plausible explanation issued the amended assessment orders under section 122(1) of the Ordinance, 2001. The taxpayer-respondents claim that the Finance Act, 2010 introduced in Pakistan on 01.07.2010 was adapted in Azad Kashmir on 30.12.2010. They had filed returns of their taxable income much before the adaptation of Finance Act in Azad Jammu and Kashmir, therefore, the Taxation Officers concerned were not competent to propose rate of 25% on their taxable income. The taxpayers-respondents challenged assessment orders passed by the Taxation Officers before the Commissioner Inland Revenue (Appeals), which were dismissed. Feeling aggrieved, they filed appeals before the Income Tax Appellate Tribunal Inland Revenue, Azad Jammu and Kashmir Council, Muzaffarabad (hereinafter to be referred as Appellate Tribunal) which were accepted vide judgments dated 05.01.2012 and 07.02.2013. The appellant filed eleven references before the High Court. The learned High Court dismissed all the references through the impugned judgment dated 06.10.2017, hence, these appeals by leave of the Court.

3.Mr. Babar Ali Khan, Advocate, the learned counsel for the appellants in all the appeals after detailed narration of the facts submitted that the impugned judgment of the learned High Court is against law and the facts. According to the continuous practice, history and legislative process in every year the material changes and amendments are introduced through Finance Act, at the time of passing of the annual budget by the Federal Government and in pursuance of such amendments further legislation as required has to be made. Practically, after enforcement of Finance Act passed by the Government of Pakistan the changes in fiscal laws become operative. In this case, the Finance Act, 2010, was enforced with effect from 1st July, 2010 and in the schedule of Income Tax Ordinance, 2001 the relevant items were substituted, thus, the substituted items become operative from 1st July, 2010, whereas, according to the ordinary course the session of Legislative Assembly of the AJ&K is held late which necessitates to adapt the amendments and changes introduced in the Finance Act with effect from its enforcement. This aspect has not been considered by the learned High Court. Moreover, mere filing of the return is neither final disposal of the matter nor any right accrues to the other party. In the taxation matters all such propositions have to attain finality by exhausting all the remedies provided under law to both the parties. Even otherwise, according to the principle of law enunciated by the superior Courts although the law has to operative prospectively but the legislature is empowered to apply the law with retrospective effect and in this context express provisions are provided. In support of his submissions he referred to the cases reported as Government of AJ&K and others v. Messrs Kashmir Tobacco Industries Ltd. [1992 SCR 20], Messrs Star Textile Limited and others v. Government of Sindh and others [2002 SCMR 356], Al Noor Textile Mills and others v. Federation of Pakistan and others [PLD A994 SC 568] and submitted that the impugned judgment is against law and based upon wrong appreciation of the facts, therefore, while accepting these appeals the same may be recalled.

4.Conversely, Ch. Liaquat Afzal and Mian Sultan Mehmood, Advocates, the learned counsel for the respondents forcefully defended the impugned judgment and submitted that according to the provisions of section 120 of the Income Tax Ordinance, 2001 the tax payer has to file the return for the tax year. The 'tax year' is defined under law. Furthermore, under law the tax return filed as such has to be deemed an assessment order. Thus, when the return attains the status of an assessment order the vested rights are accrued to the tax payers and the same cannot be withdrawn or adversely affected through any incompetent legislation or its enforcement with retrospective effect. The legislature is not vested with the powers to legislate or enforce the law with retrospective effect to deprive the subjects from their vested accrued legal rights, specially, the right of property which is constitutionally guaranteed fundamental right and the same cannot be snatched in the garb of retrospective enforcement of law. Ch. Liaquat Afzal, Advocate, submitted that he has expressed all his arguments in concise statement and the case law referred in paragraphs 5, 6 and 9 of the concise statement is relied upon. Mien Sultan Mehmood, Advocate, further argued that the amendments introduced through the challenged Adaptation Act, are also not applicable to the respondents (Rashid Ahmed and another in Appeal No.26/2018) because the amendments relate to Association of Persons (AOP), whereas, the respondents are individual. Thus, on this ground the orders of the tax authorities were against law. He referred to the cases reported as Shahnawaz Pvt. Ltd. v. Pakistan through Secretary Ministry of Finance [2011 PTD 1558] and Messrs Progressive Weavers v. CIT Faisalabad [2011 PTD 2026].

5.We have heard the learned counsel for the parties and examined the record made available. Before proceeding further we would like to reproduce here the questions of law raised before the High Court in the reference. The same read as follows:--

"1.Whether upon the facts and under the circumstances of the case, the taxpayer was justified to raise an issue for the first time at the second appellant level, which did not arise of the order appealed against i.e. the order of the first appellate authority?

2.Whether upon the facts and under the circumstances of the case, the taxpayer was not estoppels against raising an issue, which did not give any cause of action to the taxpayer through the order of the Commissioner Inland Revenue (Appeals)?

3.Whether upon the facts and under the circumstances of the case, the learned ATIR was justified to entertain and /or adjudicate on the law point, which did not arise out of the order of the first appellate authority?

4.Whether upon the facts and under the circumstances of the case, the learned ATIR was justified in adjudicating on a "common law point" without distinguishing the facts and circumstances of the 03 separate cases in the same consolidated order?

5.Whether upon the facts and under the circumstances of the case, the change in substantive law where such change does not affect the rights of a taxpayer adversely, the learned ATIR was justified to hold that the action carried out by the Department was not valid?

6.Whether upon the facts and under the circumstances of the case, the ATIR was competent to overrule the adaptation of Finance Act, 2010 by AJ&K Council which contained the fact that it shall come into force w.e.f 1st day of July, 2010?"

According to the statutory provisions of section 133 of the Income Tax Ordinance, 2001, the High Court has to decide the questions of law raised in the reference. In our considered view, it was enjoined upon the High Court to attend all the questions of law and resolve the same but the learned High Court except one, has not attended and resolved the material questions of law raised in the reference. Among others, on this ground the impugned judgment is not sustainable.

6.So far as the sole point attended and resolved by the High Court is concerned, the careful examination of the record reveals that it has also not been attended in its legal perspective. Regrettably, the legal proposition involved in these appeals has neither been attended to nor resolved by the High Court or any other forum. At all the stages the findings have been recorded merely on the ground that the AJ&K Income Tax (Adaptation) Act, 2010 with the retrospective effect is invalid. In our considered view, the concerned forums have over sighted the material proposition that with reference to these cases it does not make any difference whether the Finance Act, 2010 has been adapted with effect from 1st July, 2010 or not. The important factor has been ignored that the tax returns filed by the tax payers are related to the tax year ending on 30th June, 2010, thus, mere adaptation or enforcement of Finance Act, 2010 with effect from 1st July, 2010 on the face of it does not has any effect upon the cases in hand.

7.The tax year has been defined under section 74 of the Income Tax Ordinance, 2001 as follows:--

"74. Tax year.---(1) For the purpose of this Ordinance and subject to this section, the tax year shall be a period of twelve months ending on 30th day of June (hereinafter referred to as 'normal tax year') an shall, subject to subsection (3), be denoted by the calendar year in which the said date falls.

(2) ..

(3) ..

To

(11) ."

8.In fact, the relevant statutory provision related to the case in hand is addition of new Division IB relating to the rates of tax for Association of Persons. The same is reproduced as under:--

"Division IB

The rate of tax imposed on the taxable income of Association of Persons for the year, 2010 and onward shall be 25%.

(d) In Division II, in clause (iii) for the figure "20" the figure "25" shall be substituted."

It is clear from this newly added Division that the rate of tax imposed on income of Association of Persons for the year 2010 and onward shall be 25%. It appears that neither the learned Appellate Tribunal in its judgment dated 07.02.2013 nor the High Court in the impugned judgment has resolved the proposition of Association of Persons. It will be useful to reproduce here the paragraph 12 of the judgment of Appellate Tribunal which reads as follows:-

"12. Another point involved in the above cases is that whether the appellants formed AOP? We avoid to comment on this point for the simple reason that the real controversy gets already resolved through foregoing discussion."

As it has been hereinabove referred and observed that according to newly added Division the slab of flat rate of 25% has been applied to the Association of Persons, thus, without determination of the proposition whether in these cases the tax payers fall within the definition of Association of Persons or not the disposal of the appeals by the Appellate Tribunal is against law and the impugned judgment of the High Court is also lacking the same.

9.The learned High Court has also upheld the decision of the learned Appellate Tribunal without proper application of judicial mind. The examination of the judgment of the Appellate Tribunal reveals that the appeals have been decided mainly on the grounds mentioned in paragraphs 10 and 11 of its judgment. In paragraph 11 the learned Tribunal has held that the Assessment order has been issued by an incompetent authority because after promulgation of Finance Act, 2010 the designation of taxation officers has become redundant. It has also been observed that the law cannot be operated retrospectively and at the time of filing of return it will be deemed that the provisions of Finance Act, 2010 were not operative, thus, the Assessment orders have been issued by the authorities who were designated at the time of filing of return according to law, hence, redundancy of designation in Finance Act, 2010 does not attract in the cases in hand. The findings of the learned Tribunal recorded in paragraphs 10 and 11 according to their spirit are self contradictory. This aspect has also not been properly attended by the High Court. The findings recorded by the Tribunal appears to be superficial and without taking into consideration the provisions of section 239-B and subsection (9) of section 209 of the Income Tax Ordinance, 2001. Be that as it may, in view of the proposed decision, any conclusive observation in this context may amount to pre-judge the matter and pre-empt the jurisdiction of subordinate Court.

10.Yet there is another aspect of the matter in view of the legislative competence, mode and practice of Azad Jammu and Kashmir Council in tree light of validation clause of subsection (2) of section 2 read with section 3 of the AJ&K Income Tax (Adaptation, Enforcement and Validation) Act, 2002 (Act IV of 2002). Ordinarily, after enforcement of the Finance Act by the Federal Government, the Azad Jammu and Kashmir Government adapt such Act. Keeping in view this special situation, in Act IV of 2002 (supra) the legislature has intentionally incorporated the validation clause in shape of subsection (2) of section 2 and the Council has been further authorized for removal of the difficulties in order to give effect to the provisions of section 2. In every year while exercising the powers of validation clause read with section 3 of Act IV of 2002 (supra) the Council always with only change of year repeats the Adaptation Act. This important aspect has also not been considered and attended by the High Court or the lower Tribunal. The impugned judgment is not speaking one and also not based upon proper appreciation and resolution of the important material propositions involved in this case. In this state of affairs, as important propositions remained unattended and unresolved, therefore, we are constrained to accept the appeals, set-aside the impugned judgment and remand the references to the High Court for rehearing the parties and deciding the references afresh after proper appreciation of the material propositions involved and raised in these appeals, within a period of 4 months from communication of this judgment.

11.As we have reached to the conclusion that the references have to be remanded to the High Court, therefore, we avoid the detailed discussion of the merits of the case. Same like the case-law referred to and relied upon by both the parties also need not to be discussed.

With these observations all these appeals stand disposed of in the terms indicated hereinabove. No order as to costs.

KMZ/45/SC(AJ&K)References remanded.