Harmonization of Inconsistent Provisions

HARMONISATION OF INCONSISTENT PROVISIONS HARMONISATION OF INCONSISTENT PROVISIONS By Dr. Ilyas Zafar, Advocate Supreme Court In parliamentary systems of government, there are two main types of legislation (i) primary legislation and (ii) secondary legislation, the former may also referred as Substantive Legislation usually through Act of Parliament and the latter called delegated legislation or subordinate legislation, are two forms of law, created respectively by the legislative and executive branches of government. Primary legislation generally consists of statutes, also known as "Acts" and in case of immediate action, the President can promulgate "Ordinances" that set out broad outlines and principles, but delegate specific authority to an Executive branch to make more specific laws under the aegis of the principal Act. The delegated legislation derives its power and legality from the principal/primary legislation and any delegated legislation in contravention of primary legislation is ultra vires to the Act. The executive branch can issue secondary legislation (mainly via its regulatory agencies), creating legally enforceable regulations and the procedures for implement-ing them and for the sake of any clarity or to fill grey areas in Principal legislation. The known instruments of delegated legislation are Rules, Regulations, Bye-Laws, Statutory Notifications, and Circulars etc. It is cardinal principle of law that the instruments made under delegated legislation has force of law and are equally enforceable as primary legislation. At present, I'm facing hardship due to misinterpretation of the formerly inserted provisos of section 153 of the Income Tax Ordinance, 2001 vide Finance Act, 2009, in the case of one of my clients and like to bring it to the notice of legal fraternity for their help that how they construe it. The relevant subsections of section 153 prior to substitution under Finance Act, 2011 promulgated on July 01, 2011 have been reproduced hereunder: S. 153. Payments for goods and services-- (1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person--- (a) for the sale of goods; (b) for the rendering of or providing of services; (c) on the execution of a contract, other than a contract for the sale of goods or the rendering of or providing of services, shall, at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division III of Part III of the First Schedule. (2) (5) ----------------------------------------------------------------------- (6) The tax deducted under this section shall be a final tax on the income of a resident person arising from transactions referred to in subsection (1) or (1A): Provided that subsection (6) shall not apply to companies in respect of transactions of referred to in clause (b) of subsection (1): (emphasis added) Provided further that this subsection shall not apply to payments received on account of--- (i) Advertisement services, by owners of newspapers and magazines; (ii) sale of goods and execution of contracts by a public company listed on a registered stock exchange in Pakistan; and (iii) the rendering of or providing of services referred to in sub-clause (b) of subsection (1): Provided that tax deducted under sub-clause (b) of sub-section (1) of section 153 shall be minimum tax. It is pertinent to mention here that subsection (6) along with First Proviso has been inserted vide Finance Act, 2006, whereas colon at the end of the First proviso was substituted for full stop and the Second proviso was inserted vide Finance Act, 2007. The word "and" at the end of Second Proviso was substituted for full stop and clause (iii) along with proviso was added after clause (ii) of the Second Proviso vide Finance Act, 2009. Now, the matter before me is that whether the first proviso is said to be controlled by second or third proviso and the company would be made amenable to Minimum Tax in terms of clause (b) of subsection (1) to section 153 of the Income Tax Ordinance, 2001. I hereunder discuss the impact of these provisos in the light of settled rules of interpretation of Fiscal Statute and Circulars issued by the Federal Board of Revenue. INTERPRETATION OF STATUTE It is settled principle of law that proviso is added to an enactment to qualify or create an exception to what is in the enactment, and ordinarily, a proviso is not interpreted as stating a general rule. A proviso is subject to main provision and is not an independent enactment and is prima facie to be read and considered in relation to the principal clause to which it is attached (2001 SCMR 914). Thus, keeping in view the above definition of proviso, if I read clause (iii) to the Second Proviso, I find that it ended with a colon and a proviso. The colon represents continuity/explanation to the clause (iii) and is followed by a proviso. The use of punctuation and ending of clause (iii) with a proviso itself make it evident that the said proviso is not meant for enumerating qualification as to the applicability of main enactment/subsection (6) of section 153 of the Income Tax Ordinance, 2001 rather to clause (iii) of Second Proviso to which it is a proviso, thus couldn't be construed as third proviso to main enactment. It is pertinent to mention here that colon is substituted for full stop at the end of First Proviso vide Finance Act, 2007, when the Second Proviso is inserted. However, the substitution of colon at the end of first proviso, under the circumstances, make the former subject to latter. The reason being that the First Proviso starts with the phrase "Provided" and Second Proviso starts with the phrase "Provided further", which denotes that in addition to first proviso there is another exception/ exclusion to subsection (6). Furthermore, both the provisos explicity oust the applicability of subsection (6). It is because of specially ejecting the applicability of subsection (6) of section 153 that the Second proviso can't be said to curtail or give away the effects of First proviso nor could be interpreted to render explanation of First Proviso. The first Proviso expressly and specifically excluded the companies from the domain of subsection (6) of section 153. The Second proviso, further provides an exception to subsection (6) by stating that the said subsection doesn't apply to the advertisement services by owners of newspapers and magazine, sales of goods and execution of contracts by a Public Listed Company and the rendering of or providing of services referred to in sub-clause (b) of subsection (1). It is significant to mention here that in the existence of First Proviso and that too as an independent exclusion to subsection (6) of section 153, clause (iii) of Second Proviso and its appended proviso could only be interpreted to refer to exclusion of services rendered by non-corporate sector, so as to avoid inconsistency between the two provisos and for the purpose of rendering harmonious construction. The First proviso if be read with clause (iii) of Second proviso, make it evident that the latter one to the main enactment applies only to those cases which are not covered under First Proviso i.e. upon non-corporate Sector. The First proviso is in no manner made subject to Second proviso thus both provisos are independent and object of both provisos are to restrict the applicability of subsection (6) to certain establishments. In such a case extending the interpretation of the second proviso so as to include corporate sector within its domain is against the set principles of interpretation of fiscal statutes and that of harmonised construction. It is trite law that inconsistent provisos, if any, should be harmonized and no provision should become redundant. It is also a principle that English words should be given their true meanings and should drive their colour from those words which surround them. Statute has to be read as a whole and a particular provision can not be read in isolation. But it is a trite law that the special law (subsection (6) excludes application of general law in the context in which the former provision has been enacted. Object and reason for enactment should be considered and interpretation should advance the remedy and not to negate it. The judges should iron out the creases, if any. The principle to be followed in the construction of fiscal stature is expressed by Rolatt in Cape Brandy Syndicate v. Inland Revenue Commissioner cited as [1921] 1 K.B. 64, as follows: "In a taxing Statute one has to look at what is clearly said. There is no room for an intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can fairly look at the language used." This rule is also enunciated in Attorney General v. Selborne [(1902) 1 K.B. 388 at p.396] "therefore, the Crown fails, if the case is not brought within the words of the statute interpreted according to their natural meaning; and if there is a case which is not covered by the statute so interpreted, that can only be cured by legislation, and not by an attempt to construe the statute benevolently in favour of the Crown." For interpretation of the taxing provision, the following principles are well-settled. a. Tax can't be imposed without the clear and express language. The subject to be taxed must be brought not merely within the spirit but within the letters of law also. Unless, the words are clear, a fiscal enactment should not be construed as imposing tax by implication. 2016 PTD (Trib.) 57, 2015 PTD (Trib.) 319 1972 SCMR 116 and 1971 PTD 200. b. The interpretation, in fiscal statutes, has to be according to the strict letter of the law; and not only in case of doubt, but also in case of beneficial interpretation, the rule is to tend in favour of the subject rather the exchequer. 2015 PTD 884, 2015 PTD (Trib.) 654, 2000 PTD 280, 1977 SCMR 371, 1989 PTD 1048 and 1996 SCMR 1470. c. There is no equity about a tax in the sense that a provision, by which a tax is imposed, has to be construed strictly, regardless of the hardship that such a construction may cause either to the treasury or to the tax payer. 2015 PTD (Trib.) 319 and 1993 SCMR 274 = 1993 PTD 69. d. While construing taxing Statute, the Courts must look to the words of the Statute and interpret them in the light of what is clearly expressed. It cannot imply anything which is not expressed, it cannot import provisions in the Statute so as to support assumed deficiency. 1992 SCMR 663, 2000 PTD 280, 1977 SCMR 371. The subject can be taxed only if the revenue satisfies the court that the case falls strictly within the provisions of the law. (pg. 403 of the D.P., Bittal book). e. It is well accepted canon of interpretation of statutes that Courts are presumed that the law giver has used each word with a purpose and the same canon applies when the Court has to interpret the language used in an Ordinance. In other words, judges are not legislators or lawmakers, but adjudicators interpreting the text of the law laid out by legislators and stating what the text means. (1990 PTD (Trib.) 121) f. If any provision of a fiscal statute admits of two meanings the more beneficial to the assessee/public is to be adopted. Doubt if any is always to be resolved in favour of subject and not in favour of the State. It has been held in many cases if the provision is capable of two alternative meanings, the court will prefer that meaning more favourable to the subject. (2007 PTD 921, 1990 PTD (Trib.) 121, 1989 PTD 905 and PLD 1977 Lah. 797 (806). g. Further, even if two interpretations are equally possible, the one that saves vested rights would be adopted in the interest of justice, especially where we are dealing with a taxing statute. Reference can be given in this connection to page 206 of Maxwell on the Interpretation of Statutes, Eleventh Edition. CIRCULARS: Section 206 of the Income Tax Ordinance, 2001, empowers the Board of Revenue to set out the interpretation of this Ordinance through Circulars for the purpose of achieving consistency in the administration of this Ordinance and to provide guidance to the tax payers and the officers of the Board. Under aforesaid Section, it is clearly stated that the Circulars issued by the Board shall be binding on all Income Tax Authorities other than Commissioner of Income Tax (Appeals) and Taxpayer. Section 206 is reproduced as under: 206. Circulars: 1) To achieve consistency in the administration of this Ordinance and to provide guidance to taxpayers and officers of the Board, the Board may issue Circulars setting the Board's interpretation of this Ordinance. 2) A Circular issued by the Board shall be binding on all Income Tax Authorities and other persons employed in the execution of the Ordinance, under the control of the said Board other than Commissioners of Income Tax (Appeals). 3) A Circular shall not be binding on a tax payer. It was in exercise of said powers conferred by Statute under section 206 ibid, that after substitution of "and" for full stop at the end of Second Proviso and insertion of clause (iii) along with proviso after clause (ii) of the Second Proviso vide Finance Act, 2009, the Federal Board of Revenue issued following guidelines/instructions regarding the aforesaid amendments: (i) Instructions dated July 01, 2009 in which LTUs/RTOs were advised that the tax deducted under section 153(1)(b) of the Income Tax Ordinance, 2001 was a 'minimum tax'; (ii) Circular No. 3 of 2009 dated July 17, 2009 in which it was clarified that" .. tax deducted on payments made for rendering or providing of services will be considered as minimum tax and henceforth all the taxpayers falling in the ambit of section 153(1)(b) shall file return under the normal tax regime instead of statement under final tax regime"; and (iii) Circular No. 6 of 2009 dated Aug. 18, 2009 in which it was clarified that the 'proviso' treating the tax deducted as 'minimum tax' was not applicable to corporate sector and as such for these taxpayers the provisions of section 113 of the Income Tax Ordinance, 2001 would remain applicable regarding 'minimum tax' No further guidelines/instructions/circulars were issued in the context of the aforesaid provisions/amendments until April 26, 2011 when further clarifications in respect of amendment made in subsection (6) of section 153 of the Income Tax Ordinance, 2001 were issued by the Federal Board of Revenue vide C.No.1 (25) WHT/2009 in which it was clarified that: "The provisions of subsection (6) of section 153 of the Income Tax Ordinance, 2001 has been amended through Finance Act, 2009 by adding sub-clause (iii) and provisions thereto which read as under: (iii) the rendering of or providing of services referred to in sub-clause (b) of subsection (1); Provided that tax deducted under sub-clause (b) of sub-section (1) of section 153 shall be minimum tax" These amendments are aimed at excluding the tax chargeable on services from the ambit of "Final Tax Regime". However, it has been observed that various interpretations as to the treatment of tax on services, after its exclusion from "Final Tax Regime", are being adopted. The matter has been examined again and in order to ensure a correct and uniform treatment, in supersession of the earlier instructions issued through Circular No. 6 of 2009 dated August 18, 2009, it is clarified that in view of the amendments made through Finance Act, 2009 as referred above, tax deducted on payments made for rendering or providing of service is to be treated as "minimum tax" and henceforth taxpayer falling in the ambit of section 153(1)(b) shall file return of income, instead of a statement under Final Tax Regime." The aforementioned Circular letter bearing No. C. No.1(25) WHT/ 2009 though have thwarted the effect of Circular No. 06 of 2009 but the clarification rendered by the Board under said Circular seems to have been rendered in a perfunctory and arbitrary manner, as while rendering the said clarification the Department has only considered and taken into account proviso to clause (iii) of Second proviso to subsection (6) of section 153 and have deliberately ignored to give any reference to first proviso to sub-clause (6) of section 153. In addition, thereto, the Board has stated that in view of the amendments made through Finance Act, 2009 as referred above, tax deducted on payments made for rendering or providing of service is to be treated as "minimum tax" and henceforth taxpayer falling in the ambit of section 153(1)(b) shall file return of income, instead of a statement under Final Tax Regime. It is significant to highlight the fact that Circular letter bearing No. C. No. 1(25) WHT/2009 dated 26th April, 2011 is said by the Board to have superseded the earlier instructions issued through Circular No. 6 of 2009 dated August 18, 2009 but they have failed to appreciate the fact that the clarification rendered by them under the subject Circular doesn't rip-off the effect of Circular No. 6 of 2009. In this clarification Board has stated that tax deducted on payments made for rendering or providing of service is to be treated as "minimum tax" and henceforth taxpayer falling in the ambit of section 153(1)(b) shall file return of income, instead of a statement under Final Tax Regime. The Board has malevolently referred to the subject "Tax payer" and have not given any indication to corporate sector. In order to supersede Circular No. 6 of 2009, the Board have to state that the Corporate Sector as well as Non-Corporate Sector falling in the ambit of section 153(1)(b) are liable to minimum tax, but instead of rendering a clear clarification, the Board has come up with the vague statement. The term "Taxpayer" as used by the Board further required interpretation in the light of section 153 read with its subsections and provisos. It is the canon rule of interpretation that the Statute is to be read as a whole and not in bit and pieces and that the courts have to proceed on the assumption that each word therein was used with a purpose. (PLD 2016 SC 730, 2016 CLD 410). While issuing the Circular letter bearing No. C. No. 1(25) WHT/2009 dated 26th April, 2011 and undoing the effect of Circular No. 06 of 2009, the Board has to render explanation to first proviso to sub-clause (6) of section 153 or at-least have to refer to the Corporate Sector instead of using the term Taxpayer. From the above discussion, I can safely state that the subsequent clarification rendered by the Board on April 26, 2011 vide Circular letter bearing No. C. No. 1(25) WHT/2009 to give away to the effects of earlier clarification rendered under Circular No. 6 of 2009 dated Aug. 18, 2009 lacks the element of judiciousness and tainted by the colourable exercise of power and authority. It is pertinent to highlight the fact that vide Clause (79) (added/inserted on 31st Oct. 2011 in Part IV of Schedule II of the Income Tax Ordinance, 2001 vide S.R.O. 1003(I)/2011 dated 31-10-2011 and now has been omitted by Finance Act. 2015, the provision of clause (b) of the proviso to subsection (3) of section 153 has been made inapplicable to the tax withheld on payments received by a company for providing or rendering of services, thus vide insertion of said clause, the pith and substance of Circular No. 6 of 2009 was incorporated in law in the shape of Clause (79), Part IV of Schedule II of the Income Tax Ordinance, 2001. The assessee is not supposed to presume that the Clause (79) was inserted mistakenly and have the vested right to take the benefit as it was a part of the statute. Court cannot supply omissions to the statute and no omissions are to be inferred on the part of the legislature. Clause (79) of Pt. IV of Second Schedule to the Income Tax Ordinance, 2001 reads as under: (79) The Provisions of Clause (b) of the proviso to subsection (3) of section 153 shall not be applicable to the tax withheld on payments received by a company for providing or rendering services. Further, from the text of Section 206 of the Income Tax Ordinance, 2001, it is clear that Circulars issued by the board are binding on the Department and the Department is precluded from advancing any argument that is contrary to that interpretation or otherwise challenging the correctness of said circulars even on the ground of the same being inconsistent with the statutory provision (2007 PTD 921, 2001 PTD 2587 = 248 ITR 338 Supreme Court of India and 2001 PTD 2253 = 247 ITR 128 Supreme Court of India). On the contrary, the Circular is not binding on the Tax payer which means that the Tax payer could challenge the same, if desires to do so. It is now established principle of law that if a Circular is of benevolent nature, the same would go to the assistance of the assessee. (2002 PTD 63). Correctness of Circulars cannot be challenged by Department even on the ground of their being inconsistent with statutory provision. 2001 PTD 2253 = 247 ITR 128. In case of inefficiency of Dept., the benefit should be given to assessee. 1993 PTD 717. The Govt. can't withdraw its concessions granted. 1989 PTD 839. Nevertheless, under the rule of locus poenitentiae, where by virtue of Circulars issued by the Board of Revenue, a right is created in favour of an individual then that cannot be taken away by the Board by exercising the power of modification, rescission, reliance in this respect is placed upon 2015 PTD 1714, 1993 PTD (Trib.) 147. Furthermore, it is an established proposition of law that in fiscal matters the case of a taxpayer cannot be re-opened merely on account of change in opinion on the part of the revenue authorities (2007 PTD 921) There is also a Legal Maxim, QUAE NON FIERI DEBENT, FACTA VALENT (Things that ought not to be done are held valid when they have been done). In the light of above settled principles of interpretation, the Order passed by the learned Inland Revenue Appellate Tribunal cited as 2014 PTD (Trib.) 484 seems to be justified, speaking, proper and passed with application of judicious mind and rational approach. In the light of above submissions, I am of the view that section 153(1)(b) and (6) prior to F.A. 2011, are interpreted wrongly through Circular dated 26th April 2011, as subsection (6) has excluded its application to the companies. I welcome the views of my friends on this issue through izafar@zallp.co