PLJ
2011 Tax Cases (Lah.) 1
Present:
Sh. Azmat Saeed, J.
INDUS
JUTE MILLS LTD.,
versus
FEDERATION
OF PAKISTAN through Secretary Finance,
W.P
No. 8872 of 2008, decided on 15.5.2009.
Constitution
of
----Art.
199--Income Tax Ordinance 2001, S. 235--Recovery of advance tax--Recovery of
tax whether directly from the assessee or indirectly
through collection from expenditure or deduction from receipts did not amount
to assessment of tax nor created any liability to pay the said amount--Mode of
recovery of tax is not the sole determining factor in ascertaining the subject-matter
of tax. [P. 8] A
Income
Tax Ordinance, 2001 (XLIX of 2001)--
----S.
169--Presumptive tax regime--Discharge of liability--Where there was a final
discharge of liability under Section 169, said discharge was limited to the
transaction or income covered by provisions of the presumptive tax regime under
Section 169 of the Ordinance and did not extend to any other income of the assessee under the same or different head. [P. 10] B
Income
Tax Ordinance, 2001 (XLIX of 2001)--
----S.
235--Recovery of advance tax--Amount of advance tax was the property of the assessee and its collection was merely recovery and did not
amount to either assessment or liability to pay the tax. [Pp. 13 & 14] C
Income
Tax Ordinance, 2001 (XLIX of 2001)--
----S.
235--Recovery of advance tax--Any tax collected from persons other than a
company under S. 235(1) after deduction of minimum tax charge levied under
sub-section (4) though in custody of respondents remained the property of the assessee and was available for adjustment of any other
charge under the Ordinance and the surplus was liable to be refunded to the assessee--Order accordingly. [P. 15] D
Mian Ashiq Hussain,
Ch. Anwar-ul-Haq-I, Mr. Muhammad Ajmal
Khan, Mian Tabasam Bashir, Mr. Shahbaz Butt, Mian Mehmood Rashid, Mr. Siraj-ud-Din Khalid, Mr. Mushtaq Ahmed Mughal, Mr.
Muhammad Aslam Khan Dhakar,
Sardar Muhammad Hussain
Khan, Mr. Javed Iqbal Qazi, Mr. Akbar Ali Sheikh, Mr. Zafar Iqbal Chuhan,
Mr. Shehzad Ahmed Durrani, Rana Muhammad Afzal, Sh. Naveed Masud,
Mr. Shafqat Mehmood Chuhan, Mr. Muhamamd Naveed, Barrister Zargam Lakhser, Ch. Mumtaz-ul-Hasan, Mr.
Muhammad Farooq Sheikh, Mr. Ijaz
Ahmed Awan, Mr. Shahbaz Siddique, Mr. Waqar Azeem, Mr. Shahid Mehmood Bhatti, Mr. Shehzada Mazhar, Mr. Javed Mazhar Dhoon,
Mr. Ijaz-ul-Ahsan, Ustad
Muhammad Iqbal, Mr. Muhammad Akram
Shahid, Ch. Mumtaz-ul-Hasan,
Mr. Qamar-uz-Zaman Akhtar Tarar, Rana Munir
Hussain, Mr. Muhammad Akhtar
Rana, Mr. Khalid Nawaz Ghuman, Malik
Imran Nazir Awan, Mr. Javed Iqbal Qazi, Kh.
Saeed-uz-Zafar, Rana
Muhammad Arshad Khan, Mr. Shehzad
Ahmed Durani, Mr. Ijaz Ali Bhatti, Mr. Irtaza Ali Naqvi, Mr. Muhammad Arif Yaqub Khan, Mr. Muhammad Jamil ur Rehman, Mr. Muhammad Waseem, Mr. Aamir Umar Khan, Mr. Zahid Farani Sheikh, Mr. Abdul Razaq Mirza, Mr. Asif Masud Khan, Mr. Ali Mansur Malik, Mr. Muhammad Nadeem, Mr. Umar Alvi, Mr. Abdul Qadoos Mughal, Mr. Ghulam Abbas Sandhu,
Mr. Aamir Ali Khan, Aga Sarfraz, Mr. Muhammad Saqib
Sheikh, Mr. Muhammad Hussain Chutia,
Mr. Tariq Saleem Sheikh,
Mr. Muhammad Aamir Malik
and Mr. Muhammad Shehzad Shaukat,
Advocates for Petitioners.
Mr.
Muhammad Ilyas Khan, Advocate Senior Legal Advisor
Income Tax, Mr. Shahid Jamil
Khan, Mr. Jan Muhammad Chaudhri, Mr. Tahir Mehmood Khokhar
and Mr. Fayyaz Sangera,
Advocate for Respondents and Mr. Muhammad Ashraf
Khan, DAG Mr. Nawaz Waseer
Standing Counsel.
Dates
of hearing: 11.3.2009, 12.3.2009, 13.3.2009, 30.3.2009, 31.3.2009, 1.4.2009,
2.4.2009, 3.4.2009, 6.4.2009, 8.4.2009 and 10.4.2009.
Judgment
Through
this order it is proposed to dispose of all the connected writ petitions
wherein the vires of Section 234 and/or 235 of the
Income Tax Ordinance 2001 have been challenged including Writ Petition Numbers
8872, 9296, 9485, 9295, 6410, 3602-BWP, 2600-BWP, 3473-BWP, 3225-BWP, 3062-BWP,
12213, 12214, 12643, 12901, 12080, 12079, 12081, 12196, 13875, 13997, 13058,
13770, 13145, 13969, 13970, 13971, 13703, 13921,13947, 13928, 13715, 13825,
13827, 13828, 13919, 13816, 13874, 13702, 14038, 14592, 14603, 14533, 14468,
14498, 14488, 14489, 14490, 14491, 14492, 14110, 14736, 14118, 14119, 14295,
14072, 14061, 14476, 14040, 14086, 14182, 14728, 14039, 14469, 14062, 14063,
14067, 14070, 14066, 14064, 14065, 14068, 14069, 14071, 14053, 14052, 14076,
14055, 14054, 14232, 15051, 15701, 15353, 15352, 15217, 15211, 15483, 15147,
15423, 16500, 16634, 16635, 16774, 16858, 16047, 16499, 16596, 16595, 16594,
16695, 16353, 16334, 16732, 16849, 16897, 16910, 16682, 16940, 16208, 16700,
16587, 16818, 16726, 16725, 16598, 16295, 16903, 17826, 17661, 17573, 17549,
17580, 17131, 17025, 17023, 18847, 17848, 17850, 17557, 17849, 17210, 17350,
17271, 17004, 17132, 17523, 18412, 18413, 18374, 18414, 18382, 18375, 18645,
18074, 18591, 18056, 18053, 18462, 18605, 18603, 18604, 18602, 18452, 18451,
18564, 18672, 18407, 18170, 18060, 18164, 18569, 18165 of 2008 and Writ
Petitions No. 82, 83, 801, 822,150, 736, 735, 734, 515,122, 985, 290, BWP, 746,
747, 579, 900, 901, 902, 790, 809, 825, 802, 899, 784, 616, 615, 614, 619, 805,
816, 624, 829, 831, 874, 103, 956, 504, 742, 995, 877, 380, 133, 903, 737,
3180, 3182, 2957, 7386, 1315, 2774, 3179, 2958, 2935, 2936, 2543, 2548, 2586,
1080, 6328, 6329, 6327, 4976, 1456, 5048, 3193, 1449, 1046, 2539, 2946, 2897,
1131, 1130, 1081, 4925, 2934, 3286, 3329, 3503, 5024, 5086, 1772, 3132, 1849,
3131, 1284, 1653, 4548, 3520, 3423, 3660, 3521, 3522, 3523, 4984, 1170, 3052,
1052, 3502, 3501, 5076, 2763, 7387, 1455, 1115, 1119, 2537, 1114, 1120, 2547,
3266, 5727,3037, 1748, 1147, 1146, 7290, 3472, 7335, 7358, 7293, 4778, 4773,
2877, 3774, 7375, 7456, 7378, 2570, 1727, 6529, 5115, 1668, 6249, 3596, 2560,
2321, 6630, 7372, 6688, 7457, 7377, 7376, 7373, 5006, 5005, 5178, 5003, 5004,
3225, 3154, 5041, 2909, 1584, 1079, 3017, 3589, 6551 and 3016 of 2009.
2 & 3. That on
behalf of the petitioners, challenge has been thrown by Mian
Ashiq Hussain Advocate in
addition to Messrs Ch.Anwar-ul-Haq, Siraj-ud-Din Khalid, Shahbaz Butt and Tariq Saleem Sheikh Advocates who also addressed their arguments
which were adopted by the other counsels representing other petitioners.
4. It was contended on behalf of the petitioners
that Section 235 of the Income Tax Ordinance 2001 as amended offends against
Article 142(c) of the Constitution of Islamic Republic of Pakistan 1973. It is
the case of the petitioners that by virtue of the impugned provision
purportedly the tax, which is levied and is being collected on electricity
bills of the assessee in pith and substance is a tax
imposed upon the consumption of electricity which is an expenditure incurred by
the assessees for carrying on business, and such tax
on expenditure does not fall within the pale of any of the items of the Federal
Legislative List of the Constitution. Hence, Majlis-e-Shoora
was not vested with the legislative competence to impose the said tax in view
of Article 142(c) of the Constitution of Islamic Republic of Pakistan, 1973. It
was contended that legislative competence in this behalf at best would vest in
the Provincial Legislature subject to the other contentions raised on behalf of
the petitioners. It is added that the said tax does not come within the
parameters of Item 47 of the Federal Legislative List of the Constitution,
hence, cannot be levied thereunder or in lieu thereof
under Item 52 of the said Legislative List. In this behalf, it is further
contended that it is not the nomenclature employed which is relevant but rather
the pith and substance of the tax.
5. In the alternative it was further contended
that any expenditure incurred may at best be used as a measure for determining
the capacity of an assessee to pay the income tax.
However, in such circumstances there must necessarily be a direct nexus between
the subject matter of tax, (in the instant case income) and the levy. And by
virtue of Section 235 of the Ordinance, the collection is effected in respect of
the electricity consumption bill from a great variety of business concerns
including both commercial and industrial (other than those exempted therefrom) and the cost of electricity as a proportion of
the cost of production in case of industrial units and cost of business in case
of commercial units is of incredible variation ranging from negligible to
overwhelming, hence, no logical and rational nexus can be drawn between the
cost of consumption of electricity and the income generated by consumers thereof.
6. It is next contended on behalf of several of
the petitioners that the cost of electricity consumption as a total cost of
production is extremely high if industrial activity being undertaken is power
intensive as for example foundries. While in other cases, the cost of
electricity consumption as a total cost of business may be very low say for
commercial activities, and the same rate of tax has been levied on both sets of
consumers/assesses. Two assesses in an unequal situation have been treated equally
which is the worst form of discrimination. Hence, Section 235 of the Ordinance
under challenge offends against Article 25 of the Constitution of Islamic
Republic of Pakistan 1973. Furthermore, the said provision is also
discriminatory inasmuch as the collection made from companies is refundable
while in respect of persons other than companies, the same is only adjustable
but not refundable. There is no rationale basis for such discrimination. It is
added that there is no intelligible differentia to sustain the claim of valid
classification in this behalf.
7. It is also the case of the petitioners that
in fact provision of Section 235 of the Income Tax Ordinance 2001 is
confiscatory in nature, hence, offends against Article 24 of the Constitution
of Islamic Republic of Pakistan,
8. It is further added that tax under Ordinance
2001 can only be levied on income and not expenditures, in
the instant case the cost of power or energy cannot be treated as income
especially in the absence of any deeming clause or a charging section.
It is further contended that even otherwise Section 235 is vague and ambiguous.
9. It is also contended that several of the
petitioners are also being dealt with under various other presumptive tax
regimes and deductions effected thereunder are a
final discharge of their tax liability, hence, provision of Section 235 of the
Ordinance cannot be pressed into service as it would constitute double
taxation.
10. Great emphasis was also laid on the fact that
in respect of persons other than companies, the collections effected under
Section 235 of the Income Tax Ordinance are adjustable and the surplus, if any,
left over in the hands of the Revenue is not refundable, hence, respondents are
retaining the said amount without any lawful basis, hence, Section 235 also
offends against Article 77 of the Constitution of Islamic Republic of Pakistan
as there is no charging provision in respect of the said amount.
11. In the above context, it is contended on
behalf of the petitioners that Section 235 of the Income Tax Ordinance 2001
being ultra vires of the Constitution be declared as
such and struck down. In support of their contentions, learned counsels for the
petitioners relied on PLD 1995 SC 66 Pir Sabir Shah vs. Shad Muhammad Khan and another, 1999 SCMR
382 Pakistan Tobacco Company Ltd. and another vs. Federation of Pakistan and
three others, PLD 1997 SC 582 M/s. Elahi Cotton Mills
Ltd. and others vs. Federation of Pakistan and 6 others 1996 SCMR 1470 BP
Biscuit Factory Ltd. Karachi vs. Wealth Tax Officer and another, PLD 1993 SC
176 Government of Pakistan and others vs. Muhamamd Ashraf and others, 1992 PTD 576, Pakistan Industrial
Development Corporation vs. Pakistan through Ministry of Finance, 1993 SCMR
1905 Molasses Trading & Export (Pvt) Ltd. vs.
Federation of Pakistan and others, 2003 PTD 1 M/s. Tanzeb
Textile Industries Faisalabad vs. CIT Faisalabad Zone Faisalabad,
(1989) 3 Supreme Court cases 211 Buxa Dooars Tea Company Ltd. and others vs. State of West Bengal
and others. NLR 1996 Tax 53, Central Board of Revenue Islamabad etc vs. seven
up Bottling Company (Pvt) Ltd., 2008 PTD 838 M/s. Al-Rai Flour Mills Lahore vs. Commissioner of Income Tax/Wealth
Tax Companies Zone-1 Lahore, 2001 PTD 570 Karachi High Court M/s. Continental
Chemical Co. (Pvt) Ltd. vs. Pakistan and others PLD
1997 Lahore 797 M/s. Highway Petroleum Service (Regd)
Lahore vs. Islamic Republic of Pakistan and another, 1992 PTD 576 Pakistan
Industrial Development Corporation vs. Pakistan through Secretary Ministry of
Finance, 2001 PTD 1557 M/s. ICC Textile Ltd. and others vs. Federation of
Pakistan and others and 1992 PTD 726 Haji Muhammad Shafi and others vs. Wealth Tax Officer and others.
12. In defence of the
provision of Section 235 of the Ordinance, Messrs Muhammad Ilyas
Khan, Shahid Jamil Khan
Advocates addressed this Court on behalf of respondents. Learned Deputy
Attorney General as well as Mr. Fayyaz Ahmed Sanghera, and the Standing Counsel also made their
submissions on behalf of the respondents.
13. It is contended on behalf of the respondents
that items of the Federal Legislative List are to be construed liberally. The
impugned provision is within the parameters of Item 47 read with Item 52 of the
Federal Legislative List. It is added that expenditure is an acceptable mode
for determination an assessee's capacity to earn and
can be employed to determine the tax payable under the minimum presumptive tax
regime, as has been held by the Honourable Supreme
Court in the case reported as PLD 1997 Supreme Court 582 Messrs Elahi Cotton Mills Ltd. and others vs. Federation of
Pakistan through Secretary Ministry of Finance Islamabad and 6 others. It is
further added that in matters pertaining to levy of tax, the protection against
discrimination in terms of Article 25 of the Constitution of Islamic Republic
of Pakistan, 1973 is not attracted with the same rigor and force as in other
cases, for in the ultimate analysis, it is the legislative judgment of whom to
tax and how much to tax, which must prevail and due deference may be paid to
such decision of the legislature and in this behalf, judicial self restraint
must be exercised. It is further added with reference to such of the petitioners
who may be subjected to presumptive tax regime under any other provision of
Income Tax Ordinance that the final discharge is only with reference to the
income or the transaction subject thereto. Any other income under the same or a
different head of income would be liable to tax under the law including under
Section 235 of the Income Tax Ordinance 2001 which, it is contended, does not
amount to double taxation. Even otherwise, such double taxation is not
prohibited by law as long as there is an express provision therefor.
It is added that there is presumption of legality with regard to legislative
enactments both with reference to legislative competence as well as being intra
vires the Constitution. Furthermore, a statutory
provision should not be lightly struck down and every effort must be made by
interpreting the same so as to protect and preserve the same. It is further
contended that corporate and non-corporate entities have always been dealt with
differently under the Income Tax Ordinance and the same is a valid
classification. In this behalf vires of the
provisions of the Income Tax Ordinance 2001 were referred. In the above
context, the learned counsels for the respondents prayed that it be held that
Section 235 of the Ordinance as intra vires the
Constitution and the petitions be dismissed accordingly.
14. Counsels for the parties have been heard.
Record perused. It would be appropriate to first advert to the challenge thrown
to the vires of Section 235 of the Income Tax
Ordinance 2001, which is a common ground in all the captioned Constitutional
Petitions. Said provision of law as amended reads as follows:--
(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 sub-section (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) The tax collected under this section (up
to bill amount of twenty thousand rupees per month) shall be minimum tax on the
income of a person (other than a company). There shall be no refund of the tax
collected this section, unless the tax so collected is in excess of the amount
for which the tax payer is chargeable under this Ordinance in the case of a
company)."
15. On examination, the said provisions reveals
that different treatment is being meted out to the companies as opposed to
persons other than companies, and the contentions of the learned counsels for
the parties must necessarily be examined separately with respect to the two
separate species of assesses in the context of the applicability of Section 235
thereto.
16. However, before proceeding further it would
be appropriate to draw a distinction between the collection of tax and its levy
or chargeability. Similarly, the process of assessment of liability also must
be distinguished. The distinction between the subject matter of the tax and the
standard whereby it was measured must also be borne in mind. In the case of Whiteny vs. Inland Revenue Commissioners reported as AIR
...."Now
there are three stages in the imposition of a tax, there is the declaration of
liability, that is the part of the statute which determines what persons in
respect of what property are liable. Next, there is the assessment. Liability
does not depend on assessment. That exhypothesis has
already been fixed. But assessment particularizes the exact sum which a person
liable has to pay. Lastly, come the methods of
recovery, if the person taxed does not voluntarily pay."
17. In the case reported as Elahi
Cotton Mills Ltd. PLD 1997 SC 582, the Honorable Supreme Court held as under:
"(xxvii)
That there is a clear distinction between the subject matter of a tax and the
standard by which the amount of tax is measured keeping in view the practical
difficulties which are encountered by the Revenue to locate the persons and to
collect the tax due in certain trades, if the Legislature in its wisdom thought
that it would facilitate the collection of tax due from specified traders on a
presumptive basis, the same is not violative of the
Fundamental Rights relating to equality"...
18. The aforesaid clearly identifies three stages
of imposition of tax, i.e., Declaration of Liability, Assessment and Recovery.
However, the aforesaid three stages need not necessarily occur in any
particular order. More importantly, the recovery of tax whether directly from
the assessee or indirectly through collection from
expenditure or deduction from receipts, as the case may be, does not amount to
assessment of tax, nor creates any liability to pay the said amount. Advance
tax is merely a provisional payment. Furthermore, the mode of recovery of tax
is not the sole determining factor in ascertaining the subject matter of tax.
19. In respect of the companies the collection
made under Section 235(1) of the Ordinance is an Advance Tax, which by virtue
of Section 235(4) is liable to be adjusted against any charge of tax and
surplus, if any, after such adjustment against the tax liability is available for
refund to the assessee. It is thus clear and obvious
that in respect of the companies, Section 235 of the Ordinance merely provides
for the collection of tax and does not perceive for either its assessment or
its charge or levy. It is a settled law that the mode of collection of tax
through Advance tax is valid and legal, challenges
thereto on the grounds of being violative of
fundamental rights and/or beyond the legislative competence of the Majlis-e-Shoora have been rejected. The Advance Tax
collected under Section 236 of the Income Tax Ordinance 2001 was held to be
valid by the Honorable Sindh High Court in its
judgment reported as Caltel and another vs.
Federation of Pakistan and others (2005 PTD 833) which was upheld by the Apex
Court through its judgment reported as Caltel (Pvt) Ltd. vs. Federation of Pakistan (2004 PTD 3032) by
following its own earlier judgment in the case of Elahi
Cotton Mills PLD 1997 SC 582 holding that a provision for the collection of
Advance Tax was within the legislative competence of Majlis-e-Shoora
in view of Item 47 of the Federal Legislative List. Furthermore, any such
advance tax was not in violation of any of the fundamental rights. It was
further held that collection of Advance Tax on the amount of telephone bills
did not effect the essential subject matter of tax
which remained tax on income.
20. In the instant case, it is clear and obvious
that the Legislature has employed a mode for the collection of tax through the
electricity bills, and the amounts so collected, are liable to be adjusted
against any charge or levy due from the assessee
under the other provisions of the Income Tax Ordinance, 2001 and the surplus if
any refunded. Thus, for all intents and purposes, the subject matter of tax
remains the income of the assessee which is
separately charged and assessed under the other provisions of the Ordinance and
Section 235 of the Ordinance with regard to the companies merely perceives of
mode of collection subject to assessment and charge. Thus this Court in view of
the law laid down by the
21. A feeble attempt was made by the learned
counsel for the petitioners to contend that some companies may be entitled to
final discharge under Section 169 of the Ordinance; hence, Section 235 cannot
be applied to them. Suffice it to say that in case of presumptive tax regimes
where there is a final discharge of liability under Section 169 of the Income
Tax Ordinance 2001, said discharge is limited to the transaction or the income
covered by such provision of the presumptive tax regimes which are enumerated
in Section 169 of the Ordinance. It does not extend to any other income of the assessee under the same or different head. Thus, the tax
collected under Section 235 of the Ordinance can be adjusted against any tax
due with regard to other income of the assessee not
covered under the separate presumptive tax regime, and where no such liability
of tax exists, then obviously the amount collected under Section 235(1) of the
Ordinance would be refunded to the company under Section 235(4) thereof.
22. In view of above, as far as applicability of
Section 235 of the Ordinance qua companies is concerned, no exception can be
taken thereto, as the said provision does not offend against any fundamental
rights of the assessee and is also well within the
legislative competence of Majlis-e-Shoora.
23. With reference to persons other than
companies, treatment being meted out by Section 235 of the Ordinance is
dramatically different. The recovery effected under
Section 235(1) is an advance tax, and the amounts collected up to a bill of Rs. 20,000/- per month it is to be treated as minimum tax
of the income of such person by virtue of Section 235(4) of the Ordinance. With
regard to the amounts collected over and above the bill of Rs.
20,000/- per month in respect of persons other than companies, the same is not
refundable though perhaps adjustable against any charge of income tax. The two
amounts i.e., the collection from bill of upto Rs.20,000/- per month and collections from bills over and above
Rs.20,000/- have been dealt with separately and subjected to a different
treatment and thus the challenge thrown by petitioners would therefore have to
be examined separately in both cases.
MINIMUM
TAX
24. The collections effected by virtue of
sub-section (1) of Section 235 is an advance tax, which in respect of persons
other than the companies is a minimum tax on the income of such persons in
respect of bill upto Rs.20,000/- per month. At the
current rate as specified in Part IV of the Schedule, same is at the rate of
10% and would be a maximum of Rs.2000/- per month. Such a minimum or
presumptive tax is an acceptable mode for broadening the tax base and
eliminating the mal practices in the taxation system both at the official level
and by the assessees. The distinction has already
been drawn between the subject matter of the tax and the measures of tax. The
hallmark of the minimum or presumptive tax regime is that it may not
necessarily be levied directly on the basis of net income but on the basis of
receipts or expenditures as has been held by the Honorable Supreme Court in Elahi Cotton Mills case supra as under:
"The
word "income" is susceptible as to include not only what is in
ordinary parlance it conveys or it is understood, but what is deemed to have
arisen or accrued. It is also manifest that income tax is not only levied in the
conventional manner i.e., by working out the net income after adjusting
admissible expenses and other items, but the same may also be levied on the
basis of gross receipts, expenditure etc. There are new species of income tax,
namely, presumptive tax and minimum tax".
25. In the instant case, presumptive minimum tax
has been levied on the basis of the electricity bill which is an expenditure
and in view of the above quoted ratio of the said judgment of the Apex Court is
valid especially as there is a direct nexus between the energy consumed and the
economic activity conducted resulting in generation of income or the capacity
to earn and pay. The mere fact that the basis of the levy is the electricity
bill does not detract from the essential nature of the tax i.e., a tax on the
income of the assessee.
26. Adverting now to the contentions of the
learned counsel for the petitioners that some of such petitioners which are not
companies are subject to other presumptive tax regime envisaged by the
Ordinance, in terms whereof, collection made on deductions effected are a
complete discharge of their tax liability under Section 169 of the Ordinance
2001, whereby, recoveries effected under the provisions mentioned therein are
treated as final tax, and therefore, the petitioners cannot be subjected to
Section 235 of the Ordinance. In this regard, it was for the petitioners to
establish on a case to case basis as to which of such petitioners was subject
to which particular presumptive tax regime of the Ordinance mentioned in
Section 169, and therefore, there existed a final discharge of liability. Such
information supported and substantiated by verifiable material is conspicuous
by its absence.
27. Be that as it may, in such an eventuality,
the collections made under Section 235 of the Ordinance in respect of persons
other than companies would at best encroach into the territory of double
taxation. There is no Constitutional guarantee against double taxation, nor is
there a Constitutional bar upon the Legislature from imposing the same. The
principle applicable merely is that double taxation should not be presumed in
the absence of clear, express and unequivocal provision as held by the
Honorable Supreme Court of Pakistan in the case of 1992 PTD 576 Pakistan
Industrial Development Corporation vs. Pakistan through Secretary Ministry of
Finance wherein it was held as under:
"It
is thus, clear that unless there is any prohibition or restriction imposed on
the power of Legislature to impose a tax twice on the same subject matter
double taxation though a heavy burden and seemingly oppressive and inequitable
cannot be declared to be void or beyond the powers of the Legislature. It may,
however, be noted that double taxation can be imposed by clear and specific
language to that effect"...
As
discussed above in the absence of any prohibition or limitation by Constitution
or law the legislature can impose tax twice over on the same amount or income.
Super tax has been levied in addition to income tax by a clear and independent
provision for whose charge, assessment and recovery procedure has been provided
by Section 58. The legislature by clear unambiguous and definite terms levied
super tax on the total income determined for purposes of income tax. In these
circumstances even if it amounts to double taxation it cannot be Struck down "... (underlining
mine)
28. In the instant case, the provisions of
Section 235 are crystal clear leaving no room for doubt as to its applicability
with the rate leviable spelt out in part IV of the
1st Schedule of the Ordinance. In this view of the matter, this Court finds itself unable to agree with the contentions of the learned
counsels for the petitioners in this behalf.
29. Before proceeding
further it would be appropriate to advert to the contentions of the learned
counsels for the petitioners that the provisions of Section 235 of the Income
Tax Ordinance 2001 are confiscatory in nature, hence, offends against the
fundamental rights. There can be no escape from the fact that the quantum of
tax to be levied is the prerogative of the Legislature and judicial deference
has to be shown to the legislative judgment in this behalf as long as the tax
imposed does not loose its essential character as a tax so as to result in
acquiring a property of those on whom the incidents of the tax fell. However,
distinction needs to be drawn between mere hardship and actual expropriation as
a consequence of the levy of the tax in question.
30. The mode for determining as to whether a
particular tax is confiscatory or not has been set forth in Elahi
Cotton Mills case supra in the following terms:
"the burden to show that the impugned taxes are confiscatory
or expropriatory, was on the appellants. In our
views, they have failed to bring on record any reliable material on the basis
of which it can be concluded that the same are confiscatory or expropriatory"...
The
question as to whether a particular tax is confiscatory or expropriatory
is to be determined with reference to the actual earning or earning capacity of
an average prudent successful entrepreneur in a particular trade or business.
The fact that a particular assessee has suffered
loss/losses during certain assessment years, is not
germane to the above question."... (underlining
mine)
31. In the instant cases no material was placed
on record so as to enable this Court to adjudicate upon the contentions being
raised on behalf of the petitioners. In all fairness, Mian
Ashiq Hussain Advocate did
furnish some figures before this Court as a samples,
but they were not substantiated/supported by reliable material, which in the
instant case would be audited account and feasibility reports etc. of the
businesses of the petitioners. Furthermore, an individual case is not
representative per se of an average prudent successful entrepreneur. Thus, this
Court is unable to hold Section 235 of the Ordinance as confiscatory in view of
the quantum of tax levied.
SURPLUS
ADVANCE TAX
32. The tax collected under Section 235 of the
Income Tax Ordinance
33. There can be no escape from the fact that the
amount collected in its entirety including the surplus amount over and above
the minimum tax by virtue of sub-section (1) of Section 235 of the Ordinance is
Advance tax as has been categorically stated in the said provision. The legal
status of Advance tax has been held by the Honorable Supreme Court in the case
reported as (1992) 66 Tax 140 (SC Pak) Commissioner of Income Tax vs. Asbestos
Cement Industries Ltd. and others to be:
"The
said amount does not become the property of the Central Government but remains
vested in the assessee company. Undoubtedly, it is an
amount which must be paid in advance in respect of tax before it becomes due.
But it (the tax) becomes due only after regular assessment and if on regular
assessment nothing or a lesser amount is found due and payable, the Government
in that event shall have to return the amount paid of the sum paid in excess
with interest from the date of payment to the date of such assessment.
"... (underlining mine)
34. Thus the amount of advance tax in fact and in
law is the property of the assessee. Its collection is
merely recovery and does not amount to either assessment or liability to pay
the tax, in respect whereof, specific provision must exist as has been held by
the Honorable Supreme Court in the case reported as Lt. Col Nawabzada
Muhammad Amir Khan vs. The Controller of Estate Duty,
Government of Pakistan Karachi and another (PLD 1962 SC 335) in the following
manner:
"The
liability to pay the tax arises by virtue of the charging sections alone,
though quantification of the amount payable may be postponed",
(underlining mine)
35. In view of above it is clear and obvious that
the surplus amount after adjustment of minimum tax in case of persons other
than companies in law and in fact belongs to and vests in the assessee and is the property of the assessee
which can only appropriated by the respondents if the said amount can be
brought within the mischief of a charging provision in respect whereof. Learned
counsels for the respondents have been specifically asked to identify the
charging provision where under the said amount would become liable as a tax.
The response was a deafening silence. Neither the learned counsel for the
respondents could identify any such provision creating a liability of the assessee viz a viz the
said surplus amount nor this Court could discover the same in the Income Tax
Ordinance, 2001. Thus, it is equally clear and obvious that by virtue of
Section 235(4) in case of persons other than companies, the respondents are
retaining and the assessees are being deprived of the
funds and the properties in violation of the law. This act is not only violative of Article 4 of the Constitution but manifestly
offends against the fundamental rights of the petitioners as guaranteed under
Article 24 of the Constitution of Islamic Republic of Pakistan 1973.
36. There is a plenty of authority to support the
view as canvassed by the learned counsels for the respondents that there is a
presumption of legality and validity attached to the Legislative Enactments,
and every effort should be made to save rather than to destroy the law. No doubt,
in taxation matters more than usual latitude is usually accorded to the
Legislature, and judicial deference to legislative judgment is called for by
exercising judicial self-restraint by the Courts. However, in the instant case,
the literal interpretation of the impugned provision of law i.e., Section 235
of the Income Tax Ordinance 2001 leads this Court to an irresistible conclusion
that inasmuch as it purports to deal with the surplus advance tax after the
adjustment of the minimum tax up to a bill of Rs.20,000/-
per month it is ex facie in violation of the Constitution and the fundamental
rights of the assessees, as has been discussed herein
above.
37. In view of above, this Court is confronted
with two possible options; either is to strike
down impugned Section
235 Income Tax Ordinance 2001 being ultra vires the Constitution and fundamental rights of the
citizens or in the alternate, to resort to the time honored rule of
interpretation of employing the theory of reading down and looking beyond the
literal meaning of the provision. (See Elahi Cotton
Mill's case supra). In the instant case, latter course of action appears to be
more appropriate, firstly, because Section 235 ibid in its entirety and in all
its manifestation is not ultra vires the
Constitution, but only in its applicability to persons other than companies in
respect of the surplus of the advance tax left over after deduction of the
minimum tax is questionable. Furthermore, a presumption exists that Legislature
is aware of the limitations imposed by the Constitution qua its competence and
the necessity to legislate so as not to encroach upon the fundamental rights of
citizens, as guaranteed by the Constitution and did not intend to overstep such
limitations. The Courts in such circumstances may reach out beyond the literal
words so as to interpret the law in a manner that it conforms with the Constitutional. In the instant case, the
Legislature should not be attributed the intention of depriving the citizens of
their property without due process and in violation of their fundamental
rights. Consequently this Court is constrained to hold that any tax collected
from the person other than a company under sub-section (1) of Section 235 of
the Income Tax Ordinance 2001 after deduction of minimum tax charged levied
under sub-section (4), though in the custody of respondents, in law and in
fact, is the property of the assessee, and is
available for adjustment against any other charge under the Ordinance and the
surplus, if any, thereafter is liable to be refunded to the assessee.
38. That as a consequence of reading down the
provision of Section 235(4) of the Ordinance it is not necessary for this Court
to adjudicate upon the pleas raised on behalf of the petitioners that the said
provision is discriminatory and hence in violation of Article 25 of the
Constitution of Islamic Republic of Pakistan.
SECTION
234 OF INCOME TAX ORDINANCE, 2001
39. In some of the writ
petitions reflected ibid, challenge has also been thrown to the vires of Section 234-A of the Income Tax Ordinance 2001
which reads as follows:
234-A.
CNG Stations.--(1) There shall be collected advance
tax at the rates specified in Division VIB of Part II of the First Schedule on
the amount of gas bill of a compressed Gas Station.
(2) The person preparing gas consumption
bill shall charge advance tax under sub-section (1) in the manner gas
consumption charges are charged.
(3) The Tax collected under this section
shall be final tax on the income of the CNG Station arising from the consumption
of gas referred to in sub-section (1)
(4) The taxpayers shall not be entitled to
claim any adjustment of the withholding tax collected or deducted under any
other head during the year."
40. Learned counsels representing the petitioners
in these petitions have attempted to argue that the aforesaid tax is
confiscatory and is violative of the fundamental
rights of the petitioners. It is added that in pith and substance it is a tax
levied on expenditure and not on income, hence, beyond the legislative competence
of the Majlis-e-Shoora. Grievance has also been
raised that with reference to sub-section (4) of the aforesaid provision.
41. Learned counsels for the respondents have controverted the contentions being raised on behalf of the
petitioners.
42. As discussed in the preceding paragraphs of
this judgment, reliable material was required to be brought on record to
establish that in fact the tax levied under Section 234-A is confiscatory. Neither the accounts audited or otherwise or any feasibility
report was placed on record so as to enable this Court to come to any such
conclusion. Similarly, as already observed above, there is a difference between
mode of recovery of the tax and the subject matter of tax. Merely because the
tax is collected from expenditure does not make it any less a tax on income
especially as there is a direct nexus between the consumption of natural gas
and the business of CNG Station, as a consequence whereof, the levy does not
loose its essential feature of being a tax on income rather than expenditure as
alleged. It is within the legislative competence of Majlis-e-Shoora
on the accumulative reading of Items 47 and 52 of the Federal Legislative List.
43. With reference to sub-section 4 of Section
44. In the report and parawise
comments filed on behalf of the respondents through Commissioner Income Tax
Legal Division, it has been specifically stated in Para 20 that the tax
collected under Sections 231-A, 234, 236 of the Income Tax Ordinance 2001 is
adjustable/ refundable. The objection of the petitioner is premature".
45. In view of the aforesaid the anxiety being
expressed by the learned counsels
on behalf of
the petitioners is
misconceived and no adjudication by this Court in this context
is called for. In the above context, this Court is not persuaded to hold that
Section 234A or any part thereof is ultra vires the
Constitution of Islamic Republic of Pakistan 1973.
46. For the foregoing facts and reasons, this
Court holds that Section 234A of the Income Tax Ordinance 2001 is intra vires the Constitution of Islamic Republic of Pakistan,
1973 and no exception can be taken thereto.
47. It is further held that Section 235 of the
Ordinance ibid to the extent that it applies to companies it is also intra vires the Constitution. However, it is held that any tax
collected from the person other than a company under sub-section (1) of Section
235 of the Income Tax Ordinance 2001, after deduction of minimum tax charged
and levied under sub-section (4), though in the custody of respondents, in law
and in fact, is the property of the assessee and is
available for adjustment against any other charge under the Ordinance, the
surplus, if any, thereafter is liable to be refunded to the assessee.
Disposed of in terms enumerated ibid.
(A.A.) Petition
disposed of.