INCOME TAX ORDINANCE, 2001 CONFUSION ABOUT REPEAL AND SAVINGS

INCOME TAX ORDINANCE, 2001 CONFUSION ABOUT REPEAL AND SAVINGS <!--[if gte mso 9]> INCOME TAX ORDINANCE, 2001 CONFUSION ABOUT REPEAL AND SAVINGS By Dr. Ikramul Haq, Advocate, Lahore The Income Tax Ordinance, 2001 (hereinafter: "the new Ordinance") came into force on 1st July, 2002 vide S.R.O. 381(I)/2002 dated 15 June, 2002, issued by the Federal Government in exercise of powers entrusted by subsection (3) of section 1 of the new Ordinance. The new Ordinance has repealed the Income Tax Ordinance, 1979 (hereinafter: "the repealed Ordinance") with certain savings provided in section 239. A lot of controversy has been generated through repeal and saving provisions, especially where proceedings under sections 65 and 66A or revision proceedings under section 138 are to be invoked in respect of assessment/orders pertaining prior to 1st July, 2002. Experts are of the considered opinion that since fresh proceedings under sections 65 and 66A have not been protected/saved in section 239 of the new Ordinance, no action could be taken under these sections for any assessment/order passed under the repealed Ordinance, [1984] 49 Tax 34 (Trib.). However, revision petition under section 138 can be filed where an order is passed under any provision of the repealed Ordinance even after 1st July, 2002, as vested rights of appeal and revision could not be taken away by repeal of a law (Commissioner of Income-tax v. Dharamchand Dalchand 1 ITC 228 (Nagpur)). Subsections (1) to (4) of section 239(4) of the new Ordinance read as under: "(1) Subject to subsection (2), 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any assessment in respect of any income year ending on or before the 30th day of June, 2002, the provisions of the repealed Ordinance insofar as these relate to computation of total income and tax payable thereon shall apply as if this Ordinance had not come into force. (2) The assessment, referred to in subsection (1), shall be made by an income tax authority which is competent under this Ordinance to make an assessment in respect of a tax year ending on any date after the 30th day of June, 2002, and in accordance with the procedure specified in sections 59 or 59A or 61 or 62 or 63, as the case may be, of the repealed Ordinance. (3) The provisions of subsections (1) and (2) shall apply, in like manner, to the imposition or charge of any penalty, additional tax or any other amount, under the repealed Ordinance, as these apply to the assessment, so however that procedure for such imposition or charge shall be in accordance with the corresponding provision of this Ordinance. (4) Any proceeding under the repealed Ordinance pending on the commencement of this Ordinance before any income tax authority, the Appellate Tribunal or any Court by way of appeal, reference, revision or prosecution shall be continued and disposed of as if this Ordinance has not come into force." [Underlined for emphasis] In contrast to above, the parallel saving provisions of the repealed Ordinance contained in sections 166(2)(a) to (f) read as under: "(a) where a return of income has been filed before the commencement of this Ordinance by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Ordinance had not come into force; (b) where a return of income is filed after the commencement of this Ordinance otherwise than in pursuance of any notice under section 34 of the repealed Act, by any person for any assessment year ending on or before the thirtieth day of June, 1979, the assessment of the person for that year shall be made in accordance with the procedure specified in this Ordinance; (c) where in respect of any assessment year,‑ (i) a notice under section 34 of the repealed Act had been issued before the commencement of this Ordinance, the proceedings in pursuance of such notice may be continued and disposed of as if this Ordinance had not come into force; (ii) any income chargeable to tax had escaped assessment, or had been under assessed at too low a rate, or had been the subject of excessive relief or refund or the total income or the total world income and the tax payable had been determined under subsection (1) of section 23 of the repealed Act and no proceedings under section 34 of the said Act in respect of any such income are pending at the commencement of this Ordinance a notice under section 65 may be issued with respect to that assessment year and all the provisions of this Ordinance shall apply accordingly; (d) in making any assessment for any year ending on or before the thirtieth day of June, 1979, the provisions of the repealed Act relating to the computation of total income and the -tax payable shall apply as if this Ordinance had not come into force; (e) in making any assessment for the year beginning on the first day of July, 1979, the income year shall be deemed to include the period, if any, comprised in the previous year, as defined in clause (11) of section 2 of the repealed Act, for which the assessment would have been made, if this Ordinance had not come into force and where such income year exceeds a period of twelve months, the total income and the tax payable shall be prorated on the basis of the average income of a period of twelve months; (f) in making any assessment for any year beginning on or before the first day of July, 1979, the provisions of section 18A and section 26A of the repealed Act shall apply as if this Ordinance had not come into force;" [Underlined for emphasis] A cursory comparison of provisions reproduced above shows that under the repealed Ordinance of 1979 there was a specific saving clause re reopening of cases if not barred by time under the 1922 Act, which is conspicuously absent in the new Ordinance. 4lowever, subsection (1) of section 122 (which now gives power to Commissioner analogous to those available to the DCIT under section 65 and the IAC under section 66A) reads as under: "(1) Subject to this section, the Commissioner may amend an assessment order treated as issued under section 120 or issued under section 121, or issued under sections 59, 62, 63 or 65 of the repealed Ordinance, by making such alterations or additions as the Commissioner considers necessary to ensure that the taxpayer is liable for the correct amount of tax for the tax year to which the assessment order relates." The Finance Ordinance 2002 inserted the words "or issued under sections 59, 59A, 62, 63 and 65 of the repealed Ordinance" in the new Ordinance. Now the Commissioner is empowered to amend any assessment completed under the repealed Ordinance on the fulfillment of the following conditions laid down in different subsections of section 122: (2) An assessment order shall only be amended under subsection (1) within five years after the Commissioner has issued or is treated as having issued the assessment order on the taxpayer. (4) Where an assessment order (hereinafter referred to as the "original assessment") has been amended under subsection (1) or (3), the Commissioner may further amend, as many times as may be necessary, the original assessment within the later of-‑ (a) five years after the Commissioner has issued or is treated as having issued the original assessment order to the taxpayer; or (b) one year after the Commissioner has issued or is treated as having issued the amended assessment order to the taxpayer. (4A) An amended assessment shall only be made within six years of the date of original assessment. (5) An assessment order shall only be amended under subsection (1) and an amended assessment shall only be amended under subsection (4) where the Commissioner- (a) is of the view that this Ordinance or the repealed Ordinance has been incorrectly applied in making the assessment (including the misclassification of an amount under a head of income, incorrect payment of tax with the return of income, an incorrect claim for tax relief or rebate, an incorrect claim for exemption of any amount or an incorrect claim for a refund; or (b) has definite information acquired from an audit or otherwise that the assessment is incorrect." The powers given to the Commissioner in section 122 to reopen completed assessments under the repealed Ordinance (which constitute past and closed transactions) are causing heartburn to the taxpayers. This amounts to retrospective operation of law impairing existing rights and imposing new obligations in respect of past and closed transactions. The new Ordinance applies section 122 to assessments already barred by time from the perspective of sections 65, 66A and 156 of the repealed Ordinance. In the absence of any explicit words in section 239, the new Ordinance cannot be applied to any period prior to its commencement, not to talk of reopening the assessments already completed under the repealed law. These are important issues that need to be addressed vis-a-vis the true scope and import of repeal and saving provisions embodied in the new Ordinance. It is a cardinal principle of law that in the absence of a clear provision to the contrary, a statute must not be construed as disturbing existing rights and orders which have become final. (Per Mackenna, J., Regina v. General Commissioner of I.T. (Ex parte Fysh) 40 TC 225, 228). Applying this principle, the Commissioner cannot reopen a case under section 122 that had attained finality under the repealed Ordinance, as section 239 does not save provisions of section 65 of the repealed Ordinance. It is pertinent to mention that when the 1979 Ordinance repealed the Income Tax Act, 1922, it specifically provided in section 166(2)(c)(ii) that proceedings in terms of section 34 could be taken under section 65. Such a saving provision is completely missing in the new Ordinance. The same is the position with reference to section 66A. Although pending proceedings initiated under section 65 or 66A before the commencement of new Ordinance are protected in section 239(4), but the question is whether similar (fresh) proceedings can be initiated under section 122 for the assessments already completed under the repealed Ordinance or not? It is a well-established rule of interpretation of statutes that words in an amending statute which enable the Department to make an assessment or reassessment in respect of years which were over before the amending law began, are not to be construed as authorizing action in respect of a year for which action was already time-barred at the time when the amending Act came into force; and the position remains the same where an old Act is replaced by a new Act. Only remedial and curative amendments are to be taken as retrospective in nature. Any amending law that takes away accrued/vested rights should not be construed to have retrospective effect by implications (For case-law see page 18 to 20, Vol. I, Law & Practice of Income Tax by Huzaima Bukhari & Dr. Ikramul Haq). If section 122 is analysed in the light of the above principles, it cannot amend any assessment/order that became time-barred on 1st July, 2002. In other words all the assessments finalized up to assessment year 1996-97 that became time-barred for the purpose of section 65 cannot be disturbed under section 122. Likewise all such orders where time limitation of four years expired under section 66A or 156 of the repealed Ordinance on 1st July, 2002 (when the new Ordinance commenced) can no longer be disturbed under section 122 or 221. It is worthwhile to note that limitation under section 122 is six years of the date of original order and under section 221 (Rectification of mistakes) is five years from the date of the order sought to be amended. Can section 122(5)(a) read with section 122(4A) override limitation of 66A? For example an assessment order was passed by the DCIT on 2nd July, 1997 that was erroneous and prejudicial to the revenue. The IAC could have invoked section 66A on or before 1st July, 2002, whereafter it became time-barred. Now the new Ordinance says that action can be taken till 1st July, 2003 (section 122(4A)). Is it not gross violation of law enunciated above? Similarly action under section 65 under the repealed Ordinance in respect of assessment year 1996-97 could have been taken on or before 30th June, 2002. Any notice under section 65 served (and not issued) after 30th June, 2002 in respect of 1996-97 would have been void and unlawful ab inito. It appears mockery of law when section 122(5)(b) read with section 122(4A) says that Commissioner of Income Tax can even amend assessment in such a case "within six years from the date of original assessment." So if assessment for the assessment year 1996-97 was completed on 30-6-1999, action under section 122 can be taken up to 29-6-2004. How an action' that was barred by time on the date of commencement of the new law can be taken under the repealing statute? It proves beyond doubt that the wizards (sic) sitting in the C.B.R. and their so-called foreign and local experts (sic) do not know even the ABC of principles applicable to repeal and savings. What is the Ministry of Law doing? Did it play its role when the new law was submitted for vetting? Where is our brilliant Constitution-expert Attorney General? Does he know how the Constitutional rights of taxpayers are blatantly violated by the stalwarts (sic) of C.B:R. C.B.R. has made a mess of everything in the name of reform agenda. Time and again, taxpayers and professionals raised their voice that there was, no need to rescind the time-tested 1979 Income Tax Law, but our Finance Minister, the IMF-nominee in Pakistan and his lackeys in C.B.R. was bent upon to reform the C.B.R. by just promulgating a new law. In fact, the administrators of law are the real culprits, who are responsible for the present state of affairs, and not the provisions of the repealed Ordinance. The new Ordinance is proving to be such a bad law that already over 400 amendments have been inserted in it and a few hundred more are expected. The rules promulgated consequential to the new Ordinance on 1st July are a national disgrace as these contained hundreds of mistakes. One hopes the newly-elected Parliament is alive to the situation and takes the tax bureaucrats to task by constituting an inquiry committee to determine the responsibility for wasting millions of borrowed funds in the name of "reforms" and causing unprecedented hardships to the citizens of Pakistan. LETTER FROM MUHAMMAD NAEEM SHAH, PRESIDENT, ALL PAKISTAN TAX BAR ASSOCIATION TO THE CHAIRMAN, CENTRAL BOARD OF REVENUE Re: Deletion of cases second time selected for total audit [17th December, 2002] Chairman, Central Board of Revenue, Islamabad. SUB: DELETION OF CASES SECOND TIME SELECTED FOR TOTAL AUDIT: Dear Sir, Please refer to C.B.R. Circular No.15 of 2002 dated 30th November, 2002, whereby RCs. IT have been advised to delete the cases wherein Returns were qualified under. Self-Assessment Scheme and erroneously selected for Total Audit. So that the taxpayers be facilitated and to avoid any hardship. In this connection various Tax Bars of the country have approached APTBA that a request be made to C.B.R., that the cases which were selected for Total Audit in the immediately preceding year and for the current year they have themselves increased their tax by 20% of the last tax assessed under Total Audit and in spite of the fact their cases have been picked up by the computer for Total Audit. It has been suggested that C.B.R. should also facilitate such taxpayers and to avoid any hardship, their cases should also be deleted from Total Audit. All Pakistan Tax Bar Association appreciates this good gesture of the C.B.R. whereby suo motu actions are being taken to facilitate the taxpayers and to avoid any hardship. LETTER FROM MUHAMMAD NAEEM SHAH, PRESIDENT ALL PAKISTAN TAX BAR ASSOCIATION TO THE CHAIRMAN, CENTRAL BOARD OF REVENUE Re: Completion of Assessments in Total Audit Cases [17th December, 2002] Chairman, Central Board of Revenue, Islamabad. SUB: COMPLETION OF ASSESSMENTS IN TOTAL AUDIT CASES: Dear Sir, Computer Ballot for selection of cases for Total Audit has been completed in various Regions of the Country, and number of cases have been selected for Total Audit. In all such cases statutory Notices are going to be issued and assessment proceedings are under process. Various Tax Bars have approached APTBA that a request be made to C.B.R. that there should be fair, reasonable and sympathetic assessments in Total Audit Cases. Taxpayers should not be harassed or law should not be misapplied only due to the reason that a case was selected for Total Audit. It is in the best interest of the country, the C.B.R. and the taxpayers that there should be fair and reasonable assessments, within the Four Corners of law, acceptable to the Department as well as to the taxpayers. This practice will save precious time of the Income-tax Department, reduce unnecessary litigation and ease frequent payment of Government Revenues. In view of the above, I request you to please direct all the worthy Regional Commissioners of Income-tax to ensure that there should be no harassment, deliberate misapplication of law or misuse of power in Total Audit cases in their regions and all such assessments are to be made fairly and reasonably. LETTER FROM RAZA MOHAY-UD-DIN, ADVOCATE, SECRETARY, TAX BAR ASSOCIATION, FAISALABAD TO THE CHAIRMAN CENTRAL BOARD OF REVENUE (Re: Draft notification under section 50 of Sales Tax Act, 1990 read with sections 15 to 21 and section 28 suggestions-Incorporation) [23rd December, 2002] The Chairman, Central Board of Revenue, Islamabad. SUB: DRAFT NOTIFICATION UNDER SECTION 50 OF SALES TAX ACT 1990 READ WITH SECTIONS 15 TO 21 AND SECTION 28 SUGGESTIONS-INCORPORATION. In Rule 2. The definition of registered trade and industrial association may be incorporated. In Rule 7(iv) The words "or of the concerned trade/industrial association or group" may be deleted to avoid hardship to the newly-established trades, as none of the association are registered anywhere under any law of Pakistan. In Rule 7(vii) The words "National Identity Card of the authorized representative" should be substituted by the "words power of attorney of the authorized representative". In Rule 7(viii) The words "or a certificate of sound financial position issued by the bank of the applicant or by president of chamber/respective trade association" be deleted. In Rule 7(X) In rule 7(X) the words "Assistant Collector can forgo any requirement of rule 7 if otherwise satisfied on genuiness of registration" be added. The proposed rules for registration and de- registration are uncalled for and of no use. The existing rules are sufficient to facilitate the full information to the department as well as to trace out the applicant. The fault lies with the implementation for which the department needs trained, honest, vigilante functionary which are not at present. For compulsory registration under section 19 no form or information is required than why those who apply for voluntary registration should be discouraged. Be liberal and let the people come in to network of sales tax. Please do the needful as the proposed rules are in violation of law and source of hardship rather encumberness and without any utility to stop the fake units. Thanking you.