SECTION 122 OF THE INCOME TAX ORDINANCE, 2001 A PATENT ABUSE OF `DUE PROCESS OF LAW'

SECTION 122 OF THE INCOME TAX ORDINANCE, 2001 A PATENT ABUSE OF `DUE PROCESS OF LAW' <!--[if gte mso 10]> SECTION 122 OF THE INCOME TAX ORDINANCE, 2001 A PATENT ABUSE OF `DUE PROCESS OF LAW' By Dr. Ikramul Haq, Advocate, Lahore Section 122 of the new Income Tax Ordinance, 2001 [hereinafter: "the new Ordinance"] is proving to be a lethal weapon in the hands of Pakistani tax officials who have taken it as a licence to destroy the sanctity of past and closed transactions that constitute taxpayers' vested right under the law. They are using it in a hardnosed manner by finding' fault with every order passed by their predecessors under the repealed Income Tax Ordinance, 1979 [hereinafter: "the repealed Ordinance"] and in some cases even by themselves. This is an open mockery of law and unashamed violation of basic norms of justice. This provision of law to the extent it applies to the period prior to coming into force of the new Ordinance is void ab initio and violative of fundamental rights guaranteed in the Constitution of Pakistan. I. Illegality on account of abuse of powers: The new Ordinance cannot operate for any period prior to 1st July, 2002, the date from which it became operative, unless there is a saving, provision in the law itself. The following points re-scope of section 122(5) and analogous provisions of section 65 and 66A of the repealed Ordinance deserve attention: (1) There is no saving provision in section 239 of the new Ordinance for issuance of fresh notices under section 65 or 66A in respect of any order passed under the repealed Ordinance. Pending proceedings are, however, covered under section 239(4) of the new Ordinance. Hence any notice under section 122(5)(a) or 122(5)(b), having the characteristics of section 65 or 66A of the repealed Ordinance, issued for assessments already completed or other orders that have attained finality is void ab initio. (2) A new law cannot be applied to any period prior to the date of its coming in force unless a specific saving provision is provided in the repealing law [(1984) 49 Tax 34 (Trib.)], which is conspicuous by its absence in the new Ordinance. The .provision to reopen/unsettle the past and closed transactions through an amendment in section 122 (vide Finance Ordinance 2002), without first saving the retroactive application of sections 65 and 66A in the saving clause itself, is violative of law as is being explained in the forthcoming paragraphs. Section 122(5) of the new Ordinance reads as follows: Section 122(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 income has been concealed or inaccurate particulars of income has been concealed or inaccurate particulars of income have been furnished or the assessment is otherwise - incorrect. Notification No. S.R.O. 633(I)/2002 dated 4th September, 2002 issued by the Federal Government in exercise of powers conferred by section 240 of the new Ordinance inserted the words "or the repealed Ordinance" in section 122(5). The power given under section 240 to the Federal Government is: 240. Removal of difficulties.---(1) Subject to subsection (2), if any difficulty arise in giving effect to any of the provisions of this Ordinance, the Federal Government may, by notification in the official Gazette, make such order, not inconsistent with the provisions of this Ordinance, as may appear to it to be necessary for the purpose of removing the difficulty. [underlined for emphasis] As evident from above, the Federal Government has abused the powers under section 240, inter alia, for the following: (i) in the garb of "removal of difficulties" substantial legislation has been resorted to; (ii) the insertion of words "under the repealed Ordinance" is inconsistent with provision of the new Ordinance as evident from section 239 which does not save any fresh action under section 65 or 65A of the repealed Ordinance for the completed assessments and finalized orders. (iii) a retrospective amendment has been made through S.R.O. issued under a delegated authority, which is against the law. The Federal Government enjoys no authority to insert any provision in the new Ordinance retrospectively destroying the vested rights of the taxpayers. Section 6 of the General Clause Act, 1897 clearly provides that a repealing statute cannot alive any provision of the repealed law "unless a different intention appears". (4) In the saving clause i.e. section 239 of the new Ordinance, there is no different intention expressed, hence any action under section 122(5) for assessments completed under the repealed law is- unlawful. (5) In section 239 there is no mention that the Legislature wants to revive section 65 or. 66A for assessments/orders passed under the repealed Ordinance, hence subsequent amendment in section 122(5) read with 240 is inconsistent hence of no legal effect. In the light of above, it can be concluded that proceedings initiated under section 122 by the Taxation Officers for earlier years are unlawful, coram non judice and violative of fundamental rights guaranteed under the Constitution of Pakistan. II. Past and closed Transaction & their Sanctity It is an established law that past and closed transactions cannot be disturbed/unsettled unless allowed under the law. The honourable apex Court in ITO, Central Circle II, Karachi and another v. Cement Agencies Ltd. PLD 1969 SC 322 strongly disapproved the act of disturbing past and closed transactions in the following terms: "I do not see how on the basis of the judgment of this in Octavious Steel & Company Ltd.'s case past and closed transactions could be reopened...Mr. Nusrat has not been able to refer to any authority which lends support to the course adopted by the Income-tax Officer. A decision given by a High Court in another case cannot be ground for re-opening an issue which stood finally determined by a decision of a subordinate Court or authority". This judgment of the honourable Supreme Court is unequivocal on the issue that after an order is passed and attained finality, the same cannot be disturbed if even a contrary order of the highest Court in the country later on pronounced in another case. If tax officials are issuing notices under section 122 (5) on the basis of some later cases, formulating the opinion that at the time of passing original order their predecessors applied the law "incorrectly", they should reconsider it as in such a case their actions would be totally unlawful, unwarranted and uncalled for. The judgment(s) they have in mind must be sub judice at the moment and if later on the higher Courts reverse the same, how the Department would compensate irreparable loss suffered by taxpayers? How can Taxation Officers claim that the assessing officer misapplied law when no contrary judgment was in existence at the said point of time? The language of section 122(5)(a) cast a heavy burden on Taxation Officers to prove that "law was incorrectly applied" by the Assessing Officer at the time of making assessments. The divergence of views that the Assessing Officer who passed the earlier order should have completed the assessment in a different' way cannot be construed as "incorrect application of law". The past and closed transactions cannot be disturbed by just alleging that law was incorrectly applied. First of all they will have to prove beyond any shadow of doubt that while making the assessments in question the provisions of the repealed Ordinance `were incorrectly applied. In fact their action under section 122(5) is illegal unless first of all this provision is made legal by an amendment through a legislative process providing a specific saving clause as to invocation of section 65 or 66A for the earlier years.. In a recent case reported as 2003 PTD 808, the honourable Lahore High Court once again highlighted the .sanctity of finalised assessments which cannot be disturbed on mere views, gossips, conjectures or surmises and in a light manner as is being attempted by the Taxation Officers these days through issuing notices under section 122(5) indiscriminately, erratically and irresponsibly. It is worthwhile to mention that the honourable Supreme Court in Income Tax Officer v. Cement Agencies Ltd. (1969) 20 TAX 1 (SC Pak.) held that: "...even a legislature measure like an Ordinance expressly given retroactive effect could not operate so as to annul a valid and existing judgment as between parties whose rights had been determined and according to law which existed before the new Ordinance was passed." In another case Central Insurance Company and others v. C.B:R. 1993 SCMR 1232= (1993) 68 Tax 86 (SC Pak.), it is categorical held by the honourable apex Court that in para. 27 that `any subsequent decision. after the disposal of the case by the Assessing Office; cannot be said to be the discovery of a new important matter or of a mistake or an error on the face of record and that mere conflict and divergence of opinion cannot give rise to review of the judgment'. These judgments of the honourable apex Courts: confirm that even the new-Ordinance cannot apply retrospectively to annul a valid and existing judgment as between parties whose rights had been determined and according to law which existed before the new Ordinance was passed [see my article Confusion about repeal and saving on this subject in Tax Review (October-December 2002) published by Lahore Law Publications or visit the website. III. Retrospective application is not permissible It is an established law that any provision, which is not procedural in nature, cannot be applied retrospectively unless inserted by explicit words to apply so by the Legislature itself. The honourable Lahore High Court in the case of Messers Monnoo Industries Ltd. v. The Commissioner of Income Tax, Central Zone, Lahore 2001 PTD 1525 held as under: "Section 66A of the Income Tax Ordinance, 1979 is not procedural in nature, and therefore, it could not have retrospective effect to touch the completed assessments before its introduction on the statute book. The interpretation made by the C.B.R. through the Circular No.1 (48)/11-1-1979 dated 17-2-1981 appears to be more in consonance with law. Particularly in view of the fact that revisional provisions were not saved by section 166 of the Income Tax Ordinance providing for repeal and saving of the late Income Tax Act, 1922". Section 122(5)(a) is almost pari materia to section 66A with the difference that the Commissioner., is not even required to establish that the order passed by the Assessing Officer was also prejudicial to the Revenue. In the new Ordinance provisions of section 66A as such have not been saved in section 239. But C.B.R. has certainly forgotten its Circular No.1 (48)/11-1-1979 dated 17-2-1981 referred to in the above judgment. It shows beyond any doubt that notice under section 122(5)(a) cannot be issued for any order made prior to 1st July, 2001. The honourable apex Court in a recent case, Zakaria H.A. Sattar Bilwani and another v. Inspecting Additional Commissioner of Wealth Tax, Range-II, Karachi 2003 PTD 52 (SC Pak.), while examining the application of the similar provision of the erstwhile Wealth Tax Act, 1963 [section 17B] held as under: "The learned High Court may have examined the question of the application of section 17-B Wealth Tax Act, 1963 concerning its effect retrospectively or prospectively by applying the principle of interpretation of statutes namely where any statute effects, substantive right it would operate prospectively unless by express enactment or necessary intendment, retrospectively unless by express enactment or necessary intendment, retrospective operation has been given. This Court elaborately examined identical question in respect of section 2 as amended by, Banking Companies (Recovery of Loans) (Amendment) Act (XVIII of 1992) in the case of Malik Gul Hassan & Co. and 5 others v. Allied Bank of Pakistan (1996 SCMR 237). Relevant para therefrom is reproduced hereinbelow for convenience:‑ "7. It is well-settled principle of interpretation of statute that where "a statute effects a substantive right, it operates prospectively unless 'by express enactment or necessary intendment' retrospective operation has been given-- Muhammad Ishaq v. State PLD 1956 SC (Pak.) 256 and State V. Maulvi Muhammad Jamil, PLD 1965 SC 681. This principle was affirmed in Abdul Rehman v. Settlement Commissioner (PLD 1966 SC 362). However, statute, which is procedural in nature, operates retrospectively unless it affects an existing right on the date of promulgation or causes injustice or prejudice to a substantive right...." The assessments concluded under the repealed Ordinance of 1979 and other proceedings finalised cannot be disturbed/unsettled through section 122(5)(a) which is not a procedural section and amendment made in the law through S.R.O. 633(I)/2002 dated 14th September, 2002 is unlawful as discussed above. Earlier the honourable Lahore High Court held in Commissioner of Income Tax v. M. Fahad Amin (2002) 86 Tax 165 (HC Lah.) = 2002 PTD 248 that: "In the present case admittedly section 17-B empowering an IAC was inserted by Finance Act, 1922 and was to take effect from 1st July, 1992. Therefore, the power vested in IAC through amended provisions was available for the assessment year 1992-93 onwards only. The IAC's action in touching the assessment order prior to the aforesaid assessment years when power that vested only in the Commissioner of Wealth Tax certainly not in accordance with law." It is an irrefutable principle that an amendment in law or a repealing enactment cannot destroy the vested right, yet the Taxation Officers are issuing notices under sections 122 for earlier years violating the explicit law and precedents of the higher Courts which are, biding on them under Articles 189 and 201 of the Constitution of Pakistan. IV. Article 4 of Constitution and due process of Law There are certain basic norms of justice that have to be adhered to in all the judicial and quasi-judicial proceedings. One of the cardinal principles of such basic norms is that one cannot be a judge of his own cause. 'Section 122 as it stands now make the Commissioner of Income Tax a judge of his own cause as first of all he delegates all his powers to a Taxation Officer and once an order is made by him, he would declare that the delegated officer applied the law incorrectly! What a mockery of `due process of law' that in fact he is posing as Judge of his own cause. How can he declare his own orders [though passed by somebody else on his behalf as envisaged in section 211] as incorrect? This would certainly be a wanton breach of the basic norm of the justice that no one can be a judge of his own cause. This breach will in fact be violative of 'the right of access to justice' which is well-recognised inviolable fundamental right enshrined in Article 4 of the Constitution. This right is equally founded in the doctrine of 'due process of law' New. Jubilee Insurance Company Limited, Karachi v. National Bank of Pakistan, Karachi PLD 1999 SC 1126. The 'right of access to justice' includes the right to be treated according to law, the right to have a fair and proper opportunity of being hard and trial and the right to have a fair and impartial Court/Tribunal/Authority.. The term due process of law, as elaborated by the honourable apex Court in the case of New Jubilee Insurance Company Ltd. (supra) can be summarised as under: (1) A person shall have notice of the proceedings which effect his rights; (2) He shall be given reasonable opportunity to defend; (3) That the Tribunal, .Court of authority before which his rights are adjudicated is so appointed/constituted as to give reasonable assurance of its honesty and impartiality; and (4) That it is a Court/Authority of competent jurisdiction. These are the basic requirements of the doctrine 'due process of law' that are embodied inter alia in Article 4 of the Constitution. It is intrinsically linked with the right to have access to justice which is a' fundamental right. This right, inter alia, includes the right to have protection against abuse of powers. The Commissioner of Income Tax under section 122 has assumed the role of a Judge of his own cause and, therefore, any action under this provision of the new Ordinance amounts to a manifest and blatant violation of due process of law. Needless to say that this provision as it stands now is un-constitutional in view of Article 4 of the 1973 Constitution.