2025 PLP 1448 (PTD)

ZAHID SIKANDAR, MEMBER.

Both the titled cross appeals filed at the behest of taxpayer and department are directed against order No.70/A-IV dated 29.06.2016 passed by Commissioner Inland Revenue (Appeals-IV), Lahore. Since agitation is against similar order by both the rival parties, therefore we intend to decide both the cross appeals through this single order.

2. Brief facts of the case are that the taxpayer filed income tax return for tax year 2012 declaring loss at Rs.265,135,701/- which constituted as deemed assessment order in terms of section 120 of the ITO. Subsequently, the deemed assessment order was found erroneous in so far as prejudicial to the interest of revenue, hence proceedings under section 122(5A) were initiated by way of issuing show-cause notice against which reply filed by the taxpayer was found un-satisfactory and the OIR vide order 24.11.2014 amended the self-assessment order whereby tax payable by taxpayer was determined at Rs.125,162,238/-.

3. Aggrieved the taxpayer filed appeal before the Commissioner (Appeals). The CIR(A) while deciding the appeal upheld the tax demand created against heads of 'Inadmissible Financial Charges', 'Reduction in Export Tax' whereas deleted the tax demand created against the heads 'Provisions for other benefits and compensated absences and provident fund contributions', 'Capital nature of expenses'. Rest of the issues pertaining to 'Tax Credit claimed under section 65B', 'Donation', 'Apportionment of expenses' and 'WWF' were remanded back to the OIR for re-examination and decision afresh. Both the taxpayer and department have assailed the first appellate order to the extent of their respective grievance.

4. Arguments heard, orders perused. Our issue wise findings are as under: Tax Credit under section 65B: (Taxpayer's ground)

5. It is alleged by the department that tax credit amounting to Rs.29,501,436/- was wrongly claimed under section 65B of the ITO by the taxpayer. The OIR disallowed the tax credit for reasons as the taxpayer failed to substantiate that investment in purchase of plant and machinery was made during the period from 01.07.2011 to 30.06.2012. Further, besides other reasonings tax credit was denied because amendment in section 65B was made through Finance Act, 2012 to be appliable w.e.f 01.07.2013 and not being applicable in taxpayer's present case of tax year 2012. The CIR(A) remanded back the issue for re-examination after holding that the amendments made in section 65B through Finance Act, 2012 cannot be given retrospective effect hence allowance of tax credit shall not be available against Minimum Tax and tax payable Final Tax Regime. During the hearing, the learned AR did not press the remand order rather only agitated against the impugned order to the extent whereby the CIR(A) held the amendments of Finance Act, 2012 in section 65B as prospective and not retrospective.

6. As per legislative history, section 65B was inserted into the Ordinance vide Finance Act, 2010 and it conferred a tax credit of ten percent upon qualifying companies for investment, provided that the requisite investment and installation of the pertinent plant and machinery took place within a specified time.

7. A tax credit simpliciter is a reduction in the amount of tax to be paid. Section 65B of the Ordinance extended the benefit of ten percent tax credit to qualifying companies, provided that the relevant purchase and installation was undertaken. To consider whether the subsequent amendment made through Finance Act, 2012 whereby words 'extension' and 'expansion' were added and where tax credit was made allowable against tax payable including on account of minimum tax and final taxes carry any retrospective effect as a beneficial legislation, it may be appropriate to seek guidance from the superior Courts upon the concept of beneficial legislation as envisaged through various dictums from time to time. "Beneficial legislation" has been explained by Bindra in the following manner: "A statute which purports to confer a benefit on individuals or a class of persons, by reliving them of onerous obligations under contracts entered into by them or which tend to protect persons against oppressive act from individuals with whom they stand in certain relations, is called a beneficial legislation In interpreting such a statute, the principle established is that there is no room for taking a narrow view but that the court is entitled to be generous towards the persons on whom the benefit has been conferred. It is the duty of the court to interpret a provision, especially a beneficial provision, liberally so as to give it a wider meaning rather than a restrictive meaning which would negate the very object of the rule. It is a well-settled canon of construction that in constructing the provision of beneficent enactments, the court should adopt that construction which advances, fulfils, and furthers the object of the Act rather than the one which would defeat the same and render the protection illusory Beneficial provisions call for liberal and broad interpretation so that the real purpose, underlying such enactments, is achieved and full effect is given to the principles underlying such legislation." Remedial or Curative statutes on the other hand have been explained as: "A remedial statute is one which remedies defect in the pre-existing law, statutory or otherwise. Their purpose is to keep pace with the views of society. They serve to keep our system of jurisprudence up to date and in harmony with new ideas or conceptions of what constitute just and proper human conduct. Their legitimate purpose is to advance human rights and relationships. Unless they do this, they are not entitled to be known as remedial legislation nor to be liberally construed. Manifestly a construction that promotes improvements in the administration of justice and the eradication of defects in the system of jurisprudence should be favoured over one that perpetuates a wrong." Justice Antonin Scalia of the U.S. Supreme Court in his book on Interpretation of Statutes states that: "Remedial statutes are those which are made to supply such defects, and abridge such superfluities, in tile common law, as arise from either the general imperfection of all human law, from change of time and circumstances, from the mistakes and unadvised determinations of unlearned (or even learned) judges, or from any other cause whatsoever."

8. The question is whether beneficial, remedial or curative legislation has a retrospective effect? Retroactive legislation is looked upon with disfavor, as a general rule, and properly so because of its tendency to be unjust and oppressive... Consequently, in the absence of any indication in the statute that the legislature intended for it to operate retroactively, it must not be given retrospective effect. However, where an Act is procedural, declaratory or explanatory or where a statute is passed for the purpose of supplying an obvious omission in a former statute, it is to operate retrospectively obviously because it does not affect vested rights.

9. The legal position that emerges is that generally beneficial legislation is to be given liberal interpretation, however for the said legislation to have a retrospective effect, the beneficial legislation must carry curative or remedial content. Such legislation must, therefore, either clarify an ambiguity or an omission in the existing law and must therefore be explanatory or clarificatory in nature. While beneficial legislation is to be liberally intecpreted, in order to advance the beneficent object of the statute, it in no manner means that "beneficial legislation" or "liberal interpretation" necessarily includes or interchangeably means retrospective application of the statute. Unless the legislation is remedial, curative, explanatory or clarificatory, it cannot be interpreted retrospectively merely on the ground that the legislation is generically beneficial in nature. It is also settled law that an amendment becomes a part of the original statute and must be read together. While an amendment, being considered as the last expression of the will of the legislature, generally prevails, however, such effect is prospective and would not be given any retroactive construction, overriding effect on prior rights, unless the verbiage of the provision makes such construction necessary. Reliance with advantage is placed on "Commissioner of Income Tax v. Shahnawaz Ltd. and others" (1993 SCMR 73) and "State Bank of Pakistan v. Messrs Faisal Spinning Mills Limited" (1997 SCMR 1244), 2014 PTD 320, 2022 PTD 1455, 2019 PTD 381 and 2023 SCMR 1407.

10. In the present case there was no ambiguity or anomaly existing in the law, as it stood prior to Finance Act, 2012. Section 65B of the ITO was and is the section allowing tax credit subject to certain conditions. Amendment in the said section vide Finance Act, 2012 simply introduced additions of words 'extension' and 'expansion' and allowed tax credit against Minimum Tax and payment of tax in Final Tax Regime in section 65B arid that by no means remedy or cure any ambiguity or omission in the law. There is nothing in the language of section 65B as amended by Finance Act, 2012 to suggest that the amendment is retrospective. The amendment merely enlarges the scope of tax credit to be allowed in case of 'extension' and 'expansion' in addition to balancing, modernization and replacement of plot and machinery already installed in an industrial undertaking. Further, it provides tax credit to be allowed for the first time on tax payable on account of minimum tax and final taxes payable under the law, which was not in existence in previous tax years. The same being in the nature of a substantive amendment would be prospective, in the absence of any indication to the contrary. Hence to label the given amendments as remedial or curative legislation is misconceived.

11. The learned AR also relied upon some earlier decision of the tribunal whereby the said amendments were declared as retrospective. We are aware of the divergent decisions of the tribunal on the issue however we may point out here that in one of the earlier decisions of the tribunal in cross appeals ITAs Nos. 1061 and 1066/LB/2015 (Coca Cola company case Tax Year 2011) this tribunal has already decided the similar question whereby amendments made through Finance Act, 2012 in Section 65B of the ITO were declared as prospective having no retrospectivity. Incidentally, both the author of decision and authorized representative of taxpayer in that case happened to be the same as of this judgment (Zahid Sikandar, Member ATIR and Sheikh Aqeel, Learned AR) so having a different view now would be against principles of judicial precedent and the rule of stare decisis. It is also a matter of propriety that courts should follow prior decisions when deciding similar cases. The learned AR also conceded that the matter in particular is pending sub-judice in various tax references before the Hon'ble High Court but no decision on the issue has arrived as yet. Hence, by following the ratio decidendi of the earlier decision of Coca Cola's case ibid we hold that the benefit of amendments in section 65B made through Finance Act, 2012 was not available to the taxpayer for Tax Year 2012 having no retrospective application. The CIR(A) rightly held the amendments in Section 65B through Finance Act, 2012 as of prospective having no retrospectivity. Taxpayer's ground fails. Inadmissible Financial Charges: (Taxpayer's ground]

12. Vide notice under section 122(9), the taxpayer was confronted as under: "As per Note No.09 to the audited accounts, short term loan has been shown at Rs.5,349,510,524/- and mark , up on this borrowing has been claimed at Rs.355,680,548/- (Note No.28). On the other hand, Note No.34 shows that an amount of Rs.3,299,394,249/- was extended to the subsidiary companies. Therefore, the claim of financial charges amounting to Rs.219,371,539/- is liable to be disallowed on proportionate basis being non arms length transaction in terms of section 108 and non incurring the expenditures wholly and exclusively for the business purpose in terms of section 20(1) of the ordinance. Mark up on short term borrowing Loan made to subsidiary companies 355,680,548 * 3,299,394,249=219,371.5395, 349,510,524 In response, it Was asserted that the OIR over-sighted the re-payment of loan amounting to Rs.2,166,894,249/- extended to subsidiary company during the year against figures adopted in the show-cause notice. It was further contended that running finance loan advanced to subsidiary company carried markup @3 months Kibor + 200bps on borrowing cost of the company. Resultantly, income generated from this loan of Rs.28,907,058/- had already been offered for tax under the head income in Note No.28 of the audited accounts. It was clarified that financial expenses against this loan carried mark up from 13.4% to 14.54% and this income carried mark up from 13.91% to 14.54%. In support of contentions, the learned AR submitted working of income on loan from subsidiary company.

13. The taxpayer's reply was found satisfactory to the extent of repayment of loan amounting to the Rs.2,166,894,249 as per Note.34 of the audited accounts as well as offering of interest income amounting to Rs.28,907,058 on the said loan for taxation. However, the taxpayer did not fully offer interest income for taxation with the regards to the loan extended to the subsidiary company as against confronted in Notice amounting to Rs.219,371,539/-. The OIR denied to consider it as an arm's length transaction in terms of Section 108 of the ITO. After cumulative reading of section 108 of ITO and rule 23 of Income Tax Rules, 2002, the OIR held that a loan passed on to an associate as defined in section 85 had to be dealt with at Arm's length principle. Considering the effect of aforesaid repayment of loan and offering of interest income for taxation amounting to Rs.28,905,058/- the OIR recalculated inadmissible financial charges on proportionate basis in terms of section 108 read with section 20(1) as under: Description Reference Amount in Rs. Total financial expense A 355,680,548 Total short term borrowings B 5,349,510,524 Short term loan made to subsidiary C 3,299,394,249 Repayment of said loan by the subsidiary D 2,166,894,249 E=C-D 1,132,500,000 Disallowed finance expense F=(A*E)/B 75,298,145 finance income earned from subsidiary offered for taxation G 28,905,058 Net disallowed finance expense F-G 46,393,087

14. The CIR(A) upheld the impugned disallowance by observing that the taxpayer could not rebut the calculation/basis established by the officer. Further, the taxpayer had not given any calculation to establish that the interest offered for tax at Rs.28,905,058/- was not at Arm's length transaction within terms of section 108 of the ITO.

15. Before us, the learned AR reiterated the contentions which were taken before the learned officers below. It is submitted that the learned CIR(A) erred in confirming the action of the officer by disallowing the financial charges amounting to Rs.46,391,087/- without considering the fact that mark up rate in respect of loan advanced to associated undertaking is higher than mark up paid on the short term borrowing which is not hit by mischief of section 108 read with section 20(1) of the ITO. For ready reference section 108 of ITO is reproduced as under

108. Transactions between associates. - (1) The Commissioner may, in respect of any transaction between persons who are associates, distribute, apportion or allocate income, deductions or tax credits between the persons as is necessary to reflect the income that the persons would have realised in an arm's length transaction. The learned AR submitted summary of calculation of mark up which indicates that loan to subsidiary company vary from date to date but assessment order depicts that the assessing officer misconceived the calculation of mark up of short term borrowing as per record submitted by the AR. Given the facts, we consider it appropriate to remit back the instant issue to the OIR for decision afresh on the basis of working provided by the taxpayer. The learned AR is also directed to submit the complete summary of calculation of mark up to the assessing officer to reach out a just conclusion. The impugned order on this issue is annulled and the matter is remanded back to the assessing officer for reappraisal and decision. Taxpayer's ground is decided as above. Provision for other benefits and compensated absences and Provident fund contributions: (Department's ground.)

16. It was alleged that as per note 24.2, 25.1 and 26.1 provisions of other benefits and compensated absences and provident funds contributions has been claimed at Rs.41.545 million which was included in under the head of salaries. Such provisional expense being inadmissible in terms of section 34(3) was disallowed. The CIR(A) deleted the impugned addition by holding that in mercantile system of accounting expenses is to be allowed when it becomes payable and has been determined with reasonable accuracy. It is a general practice that liability regarding leave encashment, an un availed leaves is calculated at the end of the year and then paid in subsequent year. We are in agreement with CIR(A)'s finding that the addition was made by the OIR without bringing on record any material within terms of section 34(3) of the ITO. Under this provision an amount shall be payable by a person when all the events that determine liability have occurred and the amount of liability can be determined with reasonable accuracy. Similarly, contribution to recognized provident fund is an admissible expense. Given the facts, impugned addition was rightly deleted. No case of interference by the tribunal is made out. Department's ground is rejected. Reduction in Export Tax: (Taxpayer's ground)

17. The taxpayer reduced export tax by 50% of tax liability under section 154- within the terms of clause 41AA of Part IV of Second Schedule of the ITO. The OIR disallowed the claim reduction for the reason that clause 41AA, inserted through Finance Act, 2012 and being prospective in nature, was applicable from the tax year 2013. Agreeing with the findings of OIR, the CIR(A) upheld the treatment given to the OIR and charge of minimum tax at Rs.54,679,369/- on turnover of Rs.5,467,936,875/-. We have discussed in detail the prospectivity / retrospectivity of any legislation while deciding the issue of Tax Credit above. It is well recognized principle of taxation laws that law existing in a particular tax year or tax period is applicable for the purpose of determining tax liability. Reliance is placed on a judgment in a case titled as CIR v. Three Star Rice Factory cited in 2021 PTD

1. Any change of tax whether lowering or enhancing is substantive in nature and cannot be given retrospective effect. Instant appeal pertains to 2012 whereas clause 41AA was inserted through Finance Act, 2012 which was to be applicable from tax year 2013. No benefit can be given to the taxpayer of the said clause being not available in the statute at the relevant time. The order of CIR(A) does not suffer from any legal infirmity and the same is accordingly upheld. Taxpayer's appeal on this issue is rejected. Donation: (Taxpayer's ground)

18. Donation amounting to Rs.3,975,000/- has been disallowed for non-submission of documentary evidence. The CIR(A) remanded back the issue for verification of the learned AR's contentions that taxpayer while making adjustments, the amount in question had already been added towards income while preparing computation of income. The learned AR for the taxpayer could not satisfy us about the fact as to what prejudice has caused to the taxpayer about the CIR(A) order on the issue as the learned Commissioner Appeals only directed to the OIR to decide about the addition after verification of the taxpayer's contentions. Though, it was more appropriate if the CIR(A) concluded the issue there and then as provisions of section 129 does not allow him to pass remand order in respect of assessment orders but he deemed it justified to remit the matter back for verification. By exercising remand powers available to the ATIR, we remit back the matter to the OIR for verification of the fact as to whether the taxpayer had already offered the same while preparing computation of income and then to decide about the impugned addition accordingly. Taxpayer's ground is decided in the manner above. Capital Nature of Expenses: (Department's ground)

19. The taxpayer was confronted with an amount of Rs.398,366/- pertaining to 'expenses on sale of shares of subsidiary company' as inadmissible expense being of capital nature in terms of section 21(n) of the ITO. In response, the taxpayer stated that the said confronted expenses were incurred on sale of shares. Due to non-increase in value of shares, all ancillary expenses were revenue in nature. The OIR discarded the reply and made addition of the confronted expenses being inadmissible under section 21(n). It was held by the officer that the expenses on sale of shares is to be accounted for in calculating the gain/loss of sale of shares. Further, expenses claimed were not wholly and exclusively for business purpose. The CIR(A) deleted the disallowance holding that expenses incurred on the sale of shares had not been charged against business income. We have carefully examined the issue and found that the taxpayer company claimed the said expenses being cost of disposal of shares against the consideration received. Under the head capital gain, the taxpayer deducted the cost from the consideration to reach the value of capital gain. Since shales were held for more than one year hence capital gain was exempt for tax year 2012 given the slab rates prevalent at that time as per Division VII of Part I of First Schedule of the ITO. The CIR(A) rightly deleted the impugned addition under this head which does not warrant any external interveution by us. Impugned order on this issue is confirmed. Department's ground is rejected. Apportionment of Expenses: (Taxpayer's ground)

20. Apportionment made by the officer between local sales and export sales was contested before the CIR(A). The learned commissioner appeals after examining the matter in the light of written arguments submitted by the taxpayer and relevant provisions of ITO remitted back the instant issue to the OIR for re-examination and decision again as per law. Legally speaking, the impugned order on this issue is totally against the law. Firstly, no reasoning can be gathered from impugned order which necessitated the CIR(A) to remand back the issues as after only narrating the submissions of the taxpayer the CIR(A) straight away made directions to the assessing officer. Secondly, the CIR(A) does not hold power to remand back the matters pertaining to assessment orders under the provisions of Section 129 of ITO. Record suggests that the instant issue was duly confronted with details tabulated in the show-cause notice/ONO and in response the learned AR for the taxpayer filed reply which was examined. The OIR denied to concede to the taxpayer's contentions and made apportionment of expenses between local sales and export sales. The taxpayer brought his grievance before the CIR(A) who rather than deciding the appeal on merits casually remanded back the issue to the OIR. Remand orders, besides being illegal and unlawful under section 129, in such casual fashion not only add misery to the taxpayer but also burdens the taxation officers of unnecessary litigation. Even otherwise, the CIR(A) being the first appellate authority is obliged to decide the issues raised before him on merits. The CIR(A) has escaped from his responsibility of deciding the appeal on merits through a speaking order. Needless to mention that the CIR(A) being the first appellate authority has all the powers to conduct detailed inquiry and investigation of the matter as first appeal is always a continuation of proceedings.

21. Not to forget that this is the taxpayer's ground and even dismissal of appeal would upheld the illegal remand order so we do not have any choice but to remit the matter back. The learned AR for the taxpayer has contested the remand order before us as according to him the CIR(A) should have cancelled the action of the assessing officer relating to incorrect proration of common expenses between the incomes covered under Normal Tax Regime and Final Tax Regime. However, the Honble Lahore High Court in crystal distributors case reported in 2023 PTD 758 has held that once it is established that remand order is illegal then despite having power to decide the case on merits the best course for tribunal is to remit the matter back rather than deciding the same on merits to avail the benefits of views of the lower authorities. Given the facts of the case and keeping in view the guidelines of High Court in crystal distributor's case ibid, impugned order is annulled being illegal and against the provisions of section 129 and by exercising power of remand available to the tribunal we remit the matter back to the OIR for re-examination with a direction to decide the matter after providing reasonable opportunity of hearing to the taxpayer. Workers Welfare Fund: (Department's ground)

22. The CIR(A) directed that WWF be charged on the income determined after appeal effect according to the WWF Ordinance prior to amendments made through Finance Acts, 2006 and 2008. The department has challenged this issue on the ground that CIR(A) was not justified to direct the charge of WWF according to provisions of WWF Ordinance prior to amendments made in Finance Act, 2006 and 2008 by ignoring that amendments in WWF Ordinance were not finally declared ultra vires and was still part of the statute.

23. In a case titled as East Pakistan Chrome Tannery (Pvt) Ltd v. FOP passed by Hon'ble Lahore High Court reported in 2011 PTD 2643, the amendments made in W.W. Fund Ordinance, 1971 made through Finance Acts, 2006 and 2008 were declared as unconstitutional. The above referred judgment of the Hon'ble Lahore High Court was assailed before the Hon'ble Supreme Court of Pakistan and another judgment of Hon'ble Sindh High Court whereby the Hon'ble Sindh High Court held the said amendments in WWF Ordinance intra vires of the constitution was also challenged before the Hon'ble Supreme Court. The Hon'ble Supreme Court vide a consolidated judgment reported in PLD 2017 SC 28 upheld the judgment passed by the Hon'ble Lahore High Court and set aside the judgment passed by the Hon'ble Sindh High Court on the issue. The apex court held that the contributions made to the WWF are not in the nature of tax hence the amendment made through Finance Acts, 2006 and 2008 are unconstitutional.

24. Since the amendments made in the WWF fund through Finance Acts, 2006 and 2008 have been declared unconstitutional by the apex courts therefore the ground of the department does not hold water. The CIR(A) rightly directed to charge WWF as existed prior to amendments made through Finance Acts, 2006 and 2008. No case of interference by this bench is made out by the department. Department's appeal fails.

25. Besides above, the taxpayer has raised a ground that the CIR(A) has not decided the issue of 'exchange gain' which was agitated before him. We have examined the orders and found that the issue of exchange gain was discussed under the head 'Apportionment of expenses' as the same was dealt with by the officer under that head. The CIR(A) reproduced the ground pertaining to exchange gain while deciding the issue of apportionment of expenses and eventually remitted back the matter to the OIR. So, the contentions of the learned AR regarding non-decision by the CIR(A) in respect of exchange gain is not correct. Since the issue of apportionment of expenses stands remitted by this bench to the OIR for re-examination hence question of exchange gain being part of apportionment of expenses shall also be dealt with by the OIR in re-assessment proceedings.

26. The titled cross appeals filed at the behest of taxpayer and department for tax year 2012 are decided in the manner indicated above. We order accordingly. MQ/30/Tax(Trib) Order accordingly.