2020 PLP (Trib (PTD)

MIAN ABDUL BASIT, JUDICIAL MEMBER.

These income tax appeals have been filed by the department against a consolidated order(s) passed in Appeals Nos.1046/2013/114, No.1048/2013/118, 1050/2013/116 and No.1051/2013/117 dated 26.08.2013 by CIR (Appeals-II), Islamabad. The department contested the appeals on following common ground: - That the learned CIR (A-II) has wrongly annulled the penalty order under section 182(1) of the Income Tax Ordinance, 2001 by misinterpreting the applicability of "explanation" added in 2011 to section 182(1) (Sr.No.1) wherein it was made clear that the expression "tax payable" means "tax chargeable" on the taxable income on the basis of assessment made or treated to have been made under section 120, 121, 122 or 122C. The "explanation" only made clear what was already stated in law and it has the effect since the very inception of section 182(1) (S.No.1) of Income Tax Ordinance, 2001 and the Commissioner (A-II) was not justified in unlawfully annulling the penalty order.

2. Briefly stated facts as per record are that respondent / taxpayer is a private limited company derives income from providing marketing and related services to its clients. As per appeal record the taxpayer/respondent filed its income tax returns for all the tax years under appeal i.e. 2008 to 2011 in the RTO, Islamabad. It transpires from record that Assessing Officer (ACIR) examined and opined that the company has failed to submit the returns of total / statement of final taxations for the tax years 2008 to 2011 on their due dates as the company filed its income tax returns as under:- Tax Years Return filing date Number of days late by 2008 24.01.2013 1484 2009 24.01.2013 1124 2010 26.01.2013 760 2011 30.01.2013 395 Accordingly the taxpayer/respondent was confronted through a show-cause notice under section 182 of the Income Tax Ordinance, 2001 (The Ordinance, 2001) for imposition of penalty for late filing of income tax returns. In response, respondent/taxpayer remained un-complied with. Hence, department has imposed penalties under section 182 for all the tax years as under: - Tax Years Penalty Imposed under section 182 2008 Rs.79,926/- 2009 Rs.706,617/- 2010 Rs.462,680/- 2011 Rs.147,039/- Being dissatisfied from the penalty order under section 182 passed by ACIR, the taxpayer/respondent went in appeal before the L/CIR (A-II), Islamabad who has annulled the penalty orders for all the relevant tax years as under: "It is very clear from the applicable provisions of law that till the induction of an explanation in section 182(1) the expressions "tax payable" and "tax chargeable" used to have quite different meanings. The Officer Inland Revenue has incorrectly attempted to apply this explanation retrospectively for the tax year 2008 which is against the spirit of law. Under the given circumstances, as there was no tax payable for the tax year 2008, the taxpayer is liable to pay only a minimum penalty of Rs.5000/- therefore, I have no hesitation to annul the order of the Officer Inland Revenue." The department being aggrieved with these impugned orders has preferred the present appeals before this forum on the common ground as reproduced supra.

3. L/DR present for appellant/department, while L/AR appeared on behest of respondent/taxpayer. The DR contended that the CIR (Appeals-II) Islamabad did not legally appreciate that the explanation subsequently added to an already existing provision / section deems to be the part of the said provision / section from the date of its very insertion in the statute. The DR, thus, adds that likewise the explanation added in section 182(1) in Sr.No.1 of the Ordinance, 2001 through Finance Act, 2011 is considered to be always the part of the said section and have retrospective effect and, therefore, the penalty Imposed by the assessing Officer was lawful and the order of the CIR (Appeals-II) Islamabad is good at law and exactly in accordance with the provision of entry No. 1 of the table of section 182(1) of the Ordinance, 2001. On the other hand the AR appearing on behalf of the respondent assessee / tax payer contended that any subsequent change in the statutory provision will not be given retrospective effect particularly when such change enhance the liability of a tax payer. The AR, therefore, fully support the order passed by the learned CIR (Appeals-II) Islamabad and prays for the dismissal of the appeals.

4. We have considered the arguments of rival parties and carefully gone through the statutory provision envisages in S. No. 1 of the table of section 182(1) of the Ordinance, 2001. In order to reach on just decision it is appropriate to have comparison of S. No. 1 of the table of Section 182 before and after the amendment made through Finance Act, 2013. The S. No.1 prior to 29-06-2013 when the amendment was made through the Finance Act, 2013 reads as follows;

182. Offences and penalties:- (1) Any person who commits any offence specified in column (2) of the Table below shall, in addition to and not in derogation of any punishment to which he may be liable under this Ordinance or any other law, be liable to the penalty mentioned against that offence in column (3) thereof:- TABLE S. No. Offences Penalties Section of the Ordinance to which offence has reference (1) (2) (3) (4)

1. Where any person fails to furnish a return of income or a statement as required under section 115 or wealth statement or wealth reconciliation statement or statement under section 165 within the due date Such person shall pay a penalty equal to 0.1% of the tax payable for each day of default subject to a minimum penalty of five thousand rupees and a maximum penalty of 25% of the tax payable in respect of that tax year 115, 116 and 165 The S. No. 1 of the table of section 182 of the Ordinance, 2001 after amendment made through the Finance Act, 2013 assented on 29th June 2013 reads as follows:- TABLE S. No. Offences Penalties Section of the Ordinance to which offence has reference (1) (2) (3) (4)

1. Where any person fails to furnish a return of income as required under section 114 within the due date. Such person shall pay a penalty equal to 0.1% of the tax payable in respect of that tax year for each day of default subject to a maximum penalty of 50% of the tax payable provided that if the penalty worked out as aforesaid is less than twenty thousand rupees or no tax is payable for that tax year such person shall pay a penalty of twenty thousand rupees; Explanation:- For the purposes of this entry, it is declared that the expression "tax payable" means tax chargeable on the taxable income on the basis of assessment made or treated to have been made under section 120, 121, 122 or 122C. 114 and 118 That the Explanation was inserted through Finance Act, 2011 to the S.No. 1 of Section 182 of the Ordinance, 2001 and from the perusal of the above provision of section 182 of the Ordinance, 2001, as it stood at the time of filing of return of total income for tax years 2008, 2009, 2010 and 2011 by the tax payer. It is observed that there was no explanation available in the statute at the time of filing of returns and the scope of said provision was expanded and enhanced vide Finance Act, 2011 by adding the explanation to the said section.

5. We are also of the considered opinion that if the notice under section 182 of the Ordinance, 2001 was issued prior to 6-2011 i.e. before the insertion of explanation to column 3 of the entry number 1 of the table of section 182 of the Ordinance, 2001, the penalty, in case of late filing of return of total income, would have been Rs.5000 only. The case in hand relates to the tax years 2008 to 2011 when no explanation was available in column 3 of the entry number 1 of section 182 of the Ordinance, 2001, therefore, only Rs.5000/- can be imposed as penalty in the light of expressed language of the provision of column 3 of the entry number 1 of section 182 of the Ordinance 2001.

6. Now adverting to the main argument of the appellant department that the explanation added to a provision will operate retrospectively, we observe that this argument / plea is not in consonance with the pronouncements of the honorable higher courts of the country. It has been held by the honorable courts that any change in the statute which enhance, expand or broadened the scope of the liability will not be given the retrospective application. The explanation added in the column 3 of the entry number 1 of section 182 of the Ordinance, 2001 changes the scope / meaning of "tax payable" and equates the same with the expression "tax chargeable" whereas the application and spirit of both the expressions are different. The tax payable is the tax which is required to be paid with the return of total income at the time of its submission and tax chargeable demonstrates the total tax required to paid on the total income for a particular tax year which includes the tax withheld by the withholding agents of the tax payer and admittedly the tax payable will never be more than the tax chargeable. It is, therefore, we conclude that the explanation added to column 3 of the entry number 1 of section 182 of the Ordinance, 2001 has enhanced the liability of a taxpayer and thus the same will be operative from the date of insertion of explanation but not prior to its promulgation in the statute book. An explanation in a statute ordinarily operates to clarify the law prospectively. However, retrospective liability is imposed when an explanation attributes a meaning to a substantive provision or expression whereby the burden, obligation or liability of a person is increased for a past period which is admittedly not the case with instant appeals. The August Supreme Court of Pakistan has held in case of Commissioner Inland Revenue, RTO, Rawalpindi v. Messrs Trillium Pakistan (Pvt.) Ltd., Rawalpindi and others reported as 2019 SCMR 1643 that the explanation increasing the liability of a tax payer will operate prospectively and not retrospectively. The law laid down by the August Supreme Court in the judgment supra squarely applicable in the instant matters.

7. We, therefore under the discussions and circumstances narrated hereinabove, are in full agreement with the findings rendered by the CIR (Appeals-II) Islamabad in the order under appeal and thus no interference is warranted. As a result the appeals of the department are hereby dismissed. SA/59/Tax (Trib) Appeals dismissed.