2013 PLP (Trib (PTD)

NAZIR AHMAD, JUDICIAL MEMBER.

The above titled cross appeals pertaining to tax year 2004 have been filed at the instance of the taxpayer as well as department against the appellant order dated 20-9-2010 recorded by CIR (Appeals-I), Lahore. As per memo. of appeal, the taxpayer has agitated the confirmation of amended assessment order passed dated 31-12-2009 under section 122(5A) of the Income Tax Ordinance, 2001 (hereinafter called 'the Ordinance') whereas the department has come up in appeal against the reduction of addition made under section 21(c) of the Ordinance from Rs.514,500 to Rs.250,000.

2. Brief facts emanating from record are that the taxpayer a private limited company, filed return for the year under consideration on 30-12-2004 disclosing net income at Rs.2,652,643, which was taken to be an assessment order in terms of section 120(1) of the Ordinance. Subsequently, on examination of record, it was observed by the Additional Commissioner Inland Revenue that the original assessment was erroneous in so far as prejudicial to the interest of Revenue. Therefore, statutory notices were issued and served upon the taxpayer. Resultantly, the original assessment was amended by the Additional Commissioner by resorting to provisions of section 122(5A) of the Ordinance and income of the taxpayer was determined at Rs.3,167,

143. Feeling aggrieved, the taxpayer preferred appeal before CIR(Appeals-I), Lahore, contesting the legal points of jurisdiction, limitation as well as merits of the case, which was partially accepted by way of reduction in addition under section 21 of the Ordinance from Rs.514,500 to Rs.250,000 but action taken under section 122(5A) was confirmed. Against the treatment meted out by both authorities below, the taxpayer has come upon in appeal before this Tribunal.

3. During the course of hearing, the learned counsel has opted to contest the legal point of limitation first. He has apprised the court that income tax return in the case in hand was filed on 30-12-2004, which was taken to be an assessment order in terms of section 120(1) of the Ordinance. At the time of filing of return, the limitation for amending the assessment framed under section 120(1) was provided by the statute as five years before amendment in subsection (4) of section 122 of the Ordinance. Therefore, assessment framed under section 120(1) of Ordinance could only be amended up to 29-12-2009 but in the case in hand the amended assessment order under section 122(5A) of the Ordinance has been recorded on 31-12-2009, which is absolutely time barred being passed after the time limitation of five years. It is also the contention of learned counsel that amendment made in subsection (4) in section 122 of the Ordinance is substantive in nature having no retrospective effect. He has further contended that legal point raised by the taxpayer before first appellate authority was rejected simply for the reason that at the time of recording amended assessment order under section 122(5A), the extended limitation was available with the departmental authorities under the law. He has stressed that extended time limitation will not be applicable in the case of the taxpayer, who filed income tax return on 30-12-2004, when time limitation of five years was prevailing. He has asserted that while rejecting the plea on the point of limitation, the learned CIR(A) has miserably failed to follow the judgment of Supreme Court of Pakistan reported as 1963 PTD 633, wherein it has been, held as under:-- "It is a well recognized principle of law of limitation that once time begins to run from a specified date it cannot be interrupted or extended unless the legislature intervene and makes express provision to the contrary." According to him, while rejecting the plea of limitation taken by the taxpayer, the learned CIR(A) has placed reliance on some reported judgments as enumerated in the body of impugned order, which are irrelevant. By lending credence from the above settled ratio settled by the Apex Court of Pakistan, he has laid emphasis on this point that at the time of filing return on 31-12-2004, the vested right had created on the point of limitation in favour of taxpayer, which cannot be snatched by the subsequent legislation. He also threw light on merits of the case by asserting that while confirming the action of the taxation officer regarding addition made under section 21(c) of the Ordinance, the learned CIR(A) failed to appreciate the position on facts as well as law, according to which the provisions of the said section could not be invoked for the reason that payments made on account of freight charges are not included in the definition of services as envisaged under section 153(9) of the Ordinance. According to him, the reduction in addition made under section 21(c) of the Ordinance by learned CIT (Appeals) is also without any basis but it should have been deleted. He, therefore, prays for vacation of the orders passed by both authorities below by way of acceptance of the appeal filed by the taxpayer.

4. On the other hand, the learned DR has fully supported the impugned order on the point of limitation as well as on facts simply reiterating the basis evolved therein.

5. We have heard the arguments advanced by rival parties and also carefully gone through the relevant record along with case-laws referred before us at Bar. Before giving our opinion on the issue under consideration, we deem it appropriate to reproduce the provisions contained in subsection (4) of the section 122 of the Ordinance before amendment and after amendment, which read as under:-- Section 122(4) Before Amendment:- 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 Section 122(4) After Amendment:- Where an assessment order (hereinafter referred to as the "original assessment") has been amended under subsection (1) [] (3) [or (5A)], the Commissioner may further amend [as many times as may be necessary] the original assessment within the later of (a) five years [from the end of the financial year in which] the Commissioner has issued or is treated as having issued the original assessment order to the taxpayer, or

6. From the perusal of above, it can easily be followed that section 122(4) of the Ordinance deals with the limitation of time period. Before amendment in the said section, which was inserted through Finance Act, 2009 w.e.f., 1-7-2009, the time limitation for amending the assessment order was five years from the date of order (date of filing of return) whereas after amendment ibid, the time limitation was extended. Furthermore, subsection (4) of section 122 of the Ordinance was amended subsequently whereby limitation for passing amended assessment order under section 122(5A) was extended, which is not applicable to the case in hand simply for the reason that by filing of income tax return on 30-12-2004 a vested right had created on the point of limitation in favour of the taxpayer, who cannot be deprived of it by the subsequent legislation. The stance taken by us stands endorsed by the Apex Court of Pakistan vide reported judgment cited as 1963 PTD 633 referred by learned counsel given below:-- 1963 PTD 633 (S.C. Pak) "The courts must lean against giving a statute retrospective operation on the presumption that the Legislature does not intend what is unjust. It is chiefly where the enactment would prejudicially affect vested rights or the legality of past transactions, or impair existing contracts, that the rule in question prevails. Reference may be made in this connection to page 206 of Naxwell on the Interpretation of Statutes, Eleventh Edition, Even if two interpretations are equally possible, the one that saves vested right would be adopted in the interest of justice, specially where we are dealing with a taxing statute. The appellant herein had already acquired the vested right of escaping assessment, by lapse of time, when the 1960 Ordinance was enforced."

7. Similarly Honourable Apex Court in another reported judgment cited as 1996 SCMR 237 has dilated on this aspect and observed that any statue, which did not take away, curtail or affect any vested or substantive right, would operate retrospectively unless the contrary was expressed in other words, retrospective operation of law would only apply if vested rights are not disturbed. The same principle has been followed by the Honourable Karachi High Court in the following manner:-- 2005 PTD 259 (Kar. H.C) "By now it is a settled principle of the interpretation statutes that in the absence of express words used by the legislature, the retrospectivity to any law is not to be given so as to reopen the past and closed transactions and deprive any person of any accrued vested right in pursuance of such past and closed transactions."

9. Likewise, while resolving the issue regarding retrospective effect of the limitation extended after promulgation of new Income Tax Ordinance, 2001, it was held as under:-- 2008 PTD )(Trib.) 1146 "Subsequent enlarged limitation by the new Ordinance cannot be applied in cases of those pending assessment which are to be governed by the repealed Ordinance and the section 156 of the repealed Ordinance, 1979 provides limitation of four years which was expired before passing of this impugned order. This contention of the department that limitation was already extended by way of new legislation does not carry weight because for the assessment year 1998-99 provision of old laws are applicable and limitation enlarged in the new Income Tax Ordinance, 2001 is not to apply."

10. From the plain reading of the above mentioned extracts of the reported judgments, an inference can easily be drawn that law applicable on the first day of assessment will apply and not the one coming into being by the subsequent legislation. In the case in hand, at the time of filing of income tax return, the taxpayer had acquired the vested right of five years time limitation for amending the assessment by resorting to provisions of section 122(5A) of the Ordinance, which cannot be snatched by subsequent legislation wherein extended time limitation for amendment has been provided as retrospective operation of law would only apply if vested rights were not disturbed. In view of the foregoing discussion, we are of the considered opinion that since, at the time of filing of income tax return on 30-12-2004, which was taken to be an assessment order in terms of section 120(1) of the Ordinance, the limitation for amending such assessment order was provided by the legislature as five years, therefore, amended assessment order under section 122(5A) of the Ordinance recorded on 31-12-2009 is absolutely time barred being passed after the time limitation of five years, which in the instant case expired on 29-12-2009. Therefore, we are left with no other option except to vacate the orders passed by both authorities below by way of acceptance of appeal preferred by the taxpayer. We order accordingly.

11. Since, appeal preferred by the taxpayer has been accepted on legal plane, therefore, the departmental appeal also stands dismissed. HBT/60/Tax(Trib.) Order accordingly.