2005 PLP 1040 (PTD)

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.

Through this Income Tax Reference, the Income Tax Appellate Tribunal Karachi, has referred the following question of law for our opinion:-- Whether the learned Income Tax Appellate Tribunal was justified to hold that the relief under section 19(3) is also available to a person when he was in occupation of the house property for his residence not in his capacity as its owner but as sub-lessee of the Lessee employer of the said property? The facts as stated by the Tribunal giving rise to the above question are that the respondent is an employee of the National Bank of Pakistan, who after obtaining loan from the bank constructed a house and thereafter gave it on rent to the bank and started living in it as an employee of the aforesaid bank. The respondent claimed exemption from payment of tax on an amount of Rs.12,559 which he received from the bank as house rent. The Assessing Officer, however taxed the amount as income from house property and added the same to the total income. The Tribunal however, deleted the addition by placing reliance on its decision reported as 1989 PTD

917. Heard Mr. Jawaid Farooqui, learned counsel for the applicant and Mr. Iqbal Salman Pasha, learned counsel for the respondent. Mr. Jawaid Farooqui, has submitted that during the pendency of this reference an amendment has been inserted whereby an explanation has been added to section 19 of the Income Tax Ordinance, 1979, which reads as follows:-- Explanation. For the purpose of this section, any property, the owner of which is in receipt of any rent, whether in cash or otherwise, whether from employer or otherwise, shall not be taken to be in the occupation of such owner for the purpose of his own residence. Mr. Farooqui, has further submitted that the above explanation has been added with retrospective effect by Finance Act, 1996. He has therefore, submitted that in view of the above explanation inserted with retrospective effect the impugned finding of the Tribunal has become unsustainable in law. He has therefore, submitted that the question referred may be answered in negative. On the other hand, Mr. Iqbal Salman Pasha, learned counsel for the respondent has submitted that the explanation added to section 19 of the Income Tax Ordinance, 1979 by Finance Act, 1996 is not retrospective in effect and therefore, the finding of the Tribunal is still sustainable in law. In support of his contention he has placed reliance on a Division Bench judgment of Peshawar High Court in the case of Muhammad Hanif v. Government of Pakistan, 2001 PTD

795. In the above judgment it has been observed that the explanation is very clear and does not speak about its applicability with retrospective effect. It is further observed that in the said explanation no such words have been used so as to make the provisions effective retrospectively. A perusal of the above judgment further shows that the counsel appearing for the Government of Pakistan conceded to the effect that the explanation was not retrospective in effect and would be applicable from the day of its promulgation. On the basis of concession made by the counsel for the Government of Pakistan, the Hon ble Judges of the Lahore High Court, held that the explanation was prospective in effect. With all due deference to the Hon ble Judges of the Peshawar High Court, it is observed that the cited judgment is the result of lack of assistance. In the Finance Act, 1996, it is specifically stated that the explanation, shall be deemed always to have been so added . The result is that the cited judgment of Peshawar High Court is per incuriam. The correct law was not brought to the notice of Hon ble Judge of the Peshawar High Court. The concession made by the Advocate for the Government of Pakistan, was the result of ignorance and consequently, the cited judgment being per incuriam is not to be followed. On account of insertion of explanation to section 19 of the Income Tax Ordinance, 1979, with retrospective effect, it is held that the impugned finding of the Tribunal has become unsustainable in law. The question referred to us is therefore, answered in negative. A copy of this judgment be sent to the Registrar ITAT, with the direction that the Tribunal shall pass orders conformably to the opinion in this judgment. M.B.A./C-24/K Order accordingly.