2004 PLP 921 (PTD)

(iii) Normally, the explanation does not enlarge or limit the provision already enacted. (iv) Sometimes, the legislature steps in to convey its real, intention if not fully conveyed by the earlier enactment or there has been a misconception about the scope of a provision. (v) Sometimes definition or a deeming clause is inserted by an explanation. (vi) Sometimes on account of ineptness or lack of dexterity on the part of draftsman, substantive provisions are also enacted with the heading explanation. (vii) If an explanation is merely declaratory or clarificatory in nature or is meant to fill in certain obvious gaps or to convey the real intention of the legislature by explaining the meaning and intendment of the Act or by clarifying an obscurity or vagueness in the main enactment it is always retrospective in effect and is operative since the very inception of the enactment and shall be held to be existing all along. (viii) However, if a substantive/a new enactment has been made or clew definition is added or a deeming provision is inserted or the scope of a provision particularly a substantive/charging provision is enlarged or extended it shall not have the retrospective effect until and unless specifically specified so by the Legislature. Keeping the above principles in view pertaining to the scope of explanation and prospective or retrospective application thereof, we will examine the explanation added to section 50(4) of the Income Tax Ordinance, 1979, which is the subject‑matter under consideration. In order to demonstrate that the Legislature has resorted to substantive enactment and the enactments which are not strictly mere explanatory, declaratory or clarificatory in nature but having the effect of enlarging and extending the substantive provisions creating new liabilities and enacting definitive and deeming 'provisions in the Income Tax Ordinance, 1979, itself, we will examine various explanations contained in the Ordinance. However, wherever Legislature has intended to, give retrospective effect to any explanation it has specifically specified so, we are resorting to this exercise for the reason that it is an established principle of interpretation of statutes to infer the real intent and purpose of a provision by examining the entire statute and comparing the various provisions contained therein. A perusal of the Ordinance shows that an explanation was added to subsection (3) of section 19 of the Ordinance 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." The above explanation is in the nature of substantive legislation and it was added by Finance Act, 1996, specifically stating that it shall be deemed always to have been so added. Although this explanation was added to nullify the effect of a judgment given by the Income Tax Appellate Tribunal and thus, it could be argued that the Legislature stepped in to correct the judicial error and convey the real intent of sub section (3) of section 19 but the Legislature realized that the provisions contained in the explanation was not within the normal scope of explanation and had enlarging effect therefore, the explanation was added with specific statement that it shall be deemed always to have been so added. There is another explanation in section 12, subsection (4) and subsection (5) which read as follows:‑‑ "Explanation.‑‑‑For the purposes of this subsection and subsection (4) of section 31, `royalty' means consideration (including any lump‑sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head `Capital gains) for‑ (i) the transfer of all or any rights (including the granting of a licence) in support of a patent, invention, model, design, secret process or formula, or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret process or formula, or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret process or formula, or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (v) the transfer of all or any rights (including the granting of licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting but not including consideration for the sale, distribution or exhibition of cinematograph films; or (vi) the rendering of any services in connection with the activities referred to in clauses (i) to (v)." "Explanation:‑‑For the purposes of this subsection clause (b) of section 24, subsection (2) of section 30, subsection (3A) of section 50 and section 80AA, "fees for technical services" means any consideration (including any lump‑sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of the services of technical or other personnel) but does not include consideration for any construction, assembly or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salary'." A perusal of the above Explanations shows that they contain definitions. There is an explanation to section 22 as under:‑‑ Explanation.‑‑‑where speculative transactions carried on by an assessee are of such a nature as to constitute a business; the business (hereinafter referred to as speculation business') shall be deemed to be distinct and separate from any other business carried on by the assessee." The plain language of the above explanation shows that it is a deeming provision. An explanation was added to section 23(1) (viidd) as follows:‑‑ Explanation.‑‑‑for the purpose of this section the expression `Originator', `Special Purpose vehicle' and `Securitization' shall have the same meaning as are respectively assigned to them in the Assets Backed Securitization Rules, 1999." The above explanation also contains a mere definition. There is explanation to subsection (1) of section 23 in the following terms:‑‑ "Explanation.

(a) the expression `any expenditure', as used in clauses (xii), (xiii) and (xiv), includes expenditure in the nature of capital expenditure; and (b) the expression pad as used in this section and sections 18.24 and 31, means actually paid or incurred according to the method of accounting upon the basis of which the income is computed. " The above explanation also contains the definition and these explanations are since very inception of the Ordinance. Likewise, there is a explanation to section 24(e) of the Ordinance, in the following terms:‑‑ "Explanation.‑‑As used in this clause, `head office expenditure', means executive and general administration expenditure incurred by the assessee outside Pakistan for the purposes of the business or profession, including expenditure incurred in respect of‑‑‑ (a) any rent, local rates and taxes (excluding any foreign tax corresponding to any tax leviable under this Ordinance), current repairs or insurance against risks of damage or destruction of any premises outside Pakistan used for the purposes of the business or profession; (b) any salary paid to an employee employed by the head office outside Pakistan for the purposes of the business or profession; (c) any travelling by such employee for the purposes of business or profession; and (d) such other matters connected with executive and general administration as may be prescribed; (f) any allowance in respect of expenditure on entertainment in excess of such limits and in contravention of such conditions as may be prescribed: (ff) any payments, made on or after the first day of July, 1998, on account of expenditure under a single account head which, in aggregate, exceed fifty thousand rupees made otherwise than through a crossed bank cheque or by a crossed bank draft except transactions not exceeding five hundred rupees or payments on account of postage or utility‑bills." (fff) Notwithstanding anything contained in clause (ff), any payment made on or after the first day of July, 1998, on account of salary if‑‑ (i) it exceeds five thousand rupees, through a crossed cheque or transfer to the employee's bank account or (ii) it does not exceed five thousand rupees, made through a bearer cheque. (g) any sum paid to any provident fund,, superannuation fund or gratuity fund, not being a. recognised provident fund, an approved superannuation fund or an approved gratuity fund; (h) any sum paid to any provident fund or other fund established for the benefit of employees of the assessee, unless the assessee has made effective arrangements to secure that tax shall be deducted at source from any payments made from the fund which are chargeable to tax under the head `Salary; (i) any expenditure incurred by an assessee on the provision of perquisites, allowances or other benefits to any employee, in excess of fifty per cent of his salary excluding perquisites, allowances or other benefits." "Explanation.‑as used in this clause‑‑‑ (i) "Salary" means remuneration or compensation for services rendered paid, or to be paid' at regular intervals, and includes dearness or cost of living allowance and bonus or commission payable to an employee in accordance with the terms of his employment as remuneration or compensation for services but does not include the employer's contribution to all recognized provident fund or an approved superannuation or gratuity fund or any other sum which does not enter into the computation for pensionary or retirement benefits: (ii) "perquisite", `employee', and `employer' have the same meaning as in subsection (2) of section 16 and (iii) `benefits' does not .include employer's contribution to a recognised fund or an approved superannuation or gratuity fund; or (j) any expenditure incurred on account of payment of a fine or penalty for the violation of any law or rule or regulation for the time being in force." All the above explanations contained definitions and explanations in clauses (ff) and (fff) are specifically prospective in effect. There is an explanation to section 36 also as under:‑‑ Explanation.‑The expression `speculation business', as used in this section and section 22, means business in which a contract for the purchase and sale of any commodity (including stocks and shares) is periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity or scripts, but does not include business in which (a) a contract in respect of raw materials or merchandise is entered into by a person in the course of his manufacturing of mercantile ‑business to guard against loss through future price fluctuations for the purpose of fulfilling his other contracts for the actual delivery of the goods to be manufactured or the merchandise to be sold by him: (b) a contract in respect of stocks arid shares is entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; and (c) a contract is entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member. The above explanation also contains definition. Likewise there is explanation to section 41 as under:‑‑ Explanation.‑‑‑as used in this clause, and subsection (2) of section 43, `Pakistani industrial public company' means a public company within the meaning of clauses (a) and (b) of sub paragraph (2) of paragraph b of Part IV of the First Schedule which is formed for the purpose of or is actually engaged in the carrying on of an industrial undertaking set up in Pakistan on or after the fourteenth day of August, 1947, provided such undertaking (i) is owned by such company and (ii) fulfills the conditions specified in clauses (a), (d) (e) of subsection (2) of section 48; and includes any public company engaged in, or formed for the purpose of carrying on insurance or transport business or the business of building residential houses for sale in Pakistan or any business in the case of Government sponsored finance corporation approved by the Central, Board of Revenue or the Controller of Capital Issues for the purposes of this section. (g) Modaraba Certificates (other than Certificates acquired by purchase or otherwise from a previous holder thereof) of a modaraba of specific value issued by a modaraba company; (h) Modaraba certificates of a modaraba of non‑specific value issued by a modaraba company; and (i) Participation Term Certificate (other than certificates acquired by purchase or otherwise from a previous holder thereof) issued by a company. As above explanation also contains definition. Then comes the explanation under consideration which reads as follows:‑‑ Explanation.‑‑‑For the purposes of clause (a) the expression `supply of goods' includes both cash and credit purchases of goods by the payer, whether under a contact or not, on credit or in cash. The nature of this explanation shall be considered presently. There is an explanation to subsection (5) of section 50 also as follows:‑‑ Explanation.‑‑‑As used in this subsection,‑‑ (i) `value', in relation to any goods, means the value, as determined under section 25 of the Customs Act, 1969 (IV of 1969), as if the goods were subject to ad valorem duty; and (ii) `Collector of. Customs' means a person appointed as Collector of Customs under section 3 of the Customs Act, 1969 (IV of 1969) and includes a Deputy Collector of Customs, an Assistant Collector of Customs or an officer of Customs appointed as such under the aforesaid section. The above explanation is also definitive in nature, and is substantive enactment. An explanation was added to section 54 for removal of doubt as under:‑‑ Explanation.‑‑‑For the removal of any doubt, it is declared that the expression `tax payable' as used in this section includes the tax under section 80D. Although the above explanation clearly states that it was inserted for removal of any doubt but still the Legislature deemed it fit to state that the explanation was always be deemed added. Thus, the explanation squarely falling within the scope of the expression was inserted specifically with the retrospective effect. An explanation was added to section 55 of the Ordinance in the following terms: Explanation.‑Non‑furnishing of wealth return alongwith the return of total income, certificate or statement of income shall render such return, certificate or statement as invalid. This explanation is not by way of removal of any doubt and is a substantive enactment in its nature. It was enacted with prospective effect. An explanation was inserted to section 59(1) as follows:‑‑ Explanation.‑‑‑For the removal of doubt it is hereby declared that a return of total income furnished under section 55 does not include a return of total income furnished under section

57. It was for the removal of doubt and was inserted with specific statement that it shall be deemed always to have been so added. An explanation was added to section 65(2) as follows:‑‑ "Explanation.‑‑‑As used in this subsection `definite information' includes information in respect of sales and purchases, made by the assessee, or any goods, and any information regarding acquisition, possession or transfer, by the assessee, of any money, asset or valuable article, or any investment made or expenditure incurred by him. The above explanation is clearly clarificatory in nature. An explanation was inserted to section 80‑D of the Ordinance as under:‑‑ Explanation.‑‑‑For the removal of doubt, it is declared that the expression where no tax is payable or paid' and `or the tax payable or paid' apply to all cases where tax is not payable or paid for any reasons whatsoever including any loss of income, profits or gains or set off of loss of earlier years, exemption from tax, credits or rebates in tax, and allowances and deduc tions (including depreciation) admissible under any provision of this Ordinance or any other law for the time being in force. Although it was for the removal of doubt and declaratory in nature but it was inserted with specific statement that it shall be deemed always to have been so inserted. An explanation was added to clause (c) of Part‑II of the First Schedule to the Ordinance, which reads as under:‑ Explanation.‑‑‑For the removal of doubt, it is hereby declared that the term `total income' referred to in this paragraph does not include income to which section 80C or section 80CC applies. A plain language of the explanation shows that it is declaratory and clarificatory in nature.. A similar explanation was added to Para‑A Part‑IV of the First Schedule as follows:‑‑ Explanation.‑‑‑For the removal of doubt, it is hereby declared that the term total income referred to in this sub‑paragraph does not include income to which sections 80B, 80C and 80CC apply:‑‑ The above explanation is also declaratory and clarification in nature. From the perusal of various explanations either enacted at the time of promulgation of the Ordinance itself, or inserted subsequently, it is‑obvious, that all the explanations are not necessarily declaratory and clarificatory or for removal of doubt. Some explanations are definitive in nature, some of them have enacted the deeming provisions, some explanations are on the face of them declaratory, clarificatory and for the removal of doubt. Some of the explanations have been specifically inserted with retrospective effect and the others have no such statement, some of the explanations have enlarged and extended the scope of already enacted provisions and through some explanations substantive legislation has been resorted to. The result is that no hard and fast rule can be made applicable to all the explanation inserted by subsequent legislation. The explanations squarely falling within the normal purpose and scope of explanations, to wit, being declaratory, clarificatory, meant for removal of doubt, removing of obscurity or an ambiguity or filing in any obvious gap or correcting any pronouncement by the Court taking as judicial error by the Legislature, shall have the retrospective effect. However, the explanation whereby substantive legislation has been made or deeming provisions have been enacted or substantive provisions of law have been enlarged or extended creating new liabilities they shall not have retrospective effect. Now coming to the explanation under consideration, we find that under the original enactment any person responsible for making any payment in full or in part to any person on account of supply of goods was required to deduct the advance tax at the time of making payment at the rate specified in the First Schedule, However, by inserting explanation through Finance Act, 1998, it was provided that the expression supply .of goods include both cash and credit purchase of goods, by the buyer whether on a contract or not or credit or in cash. With the insertion of this explanation the distinction between supply and sale was removed. The Trite Law of Taxation is that the words used in the tax laws until and unless defined in the statute shall be taken in the same sense and meaning as is understood in the common parlance by the business community. There can be no doubt that the supply of goods and sale are not one and, the same in nature. Although every supply is a sale but every sale is not supply. These concepts are so clear, that they do not require any elaboration. With the insertion of explanation under consideration the sale was also held to be supply of goods and thus, it is a 'substantive piece, of legislation whereby a sale, by a fiction of law has been deemed to be supply of goods. It is also pertinent to note that it has enlarged and extended the scope of section 50(4) of the Ordinance anti because of the provisions contained in section 80‑C of the Ordinance, has the effect of enhancing the liability whereby the tax deducted under section 50(4) is to be held as full and final discharge of liability and the tax so deducted shall not be allowed adjustment as originally envisaged in subsection (4) of section 50, whereby the credit of tax so deducted in any financial year was subject to the provisions of section 53, because of non‑obstante clause contained in section 80‑C, thus, looking to the effect of the explanation it cannot be held that it is merely declaratory or clarificatory in nature or has been inserted for the purpose of removal of doubt. There is yet another principle that no absurdity or unreasonableness is to be attributed to the Legislature. Now if the provisions contained in the explanation under consideration are held, to be retroactive in application, it will create illogical and unreasonable consequences as the payer shall be held to be a defaulter under section 52 of the Ordinance, for not deducting the advance tax on sales treating the same as supply of goods and shall further be liable to the charge of additional tax for failure to deduct the advance tax under section 86 of the Ordinance for failure to deduct the advance tax, as was done in the case under consideration. The case, under consideration pertains to assessment year 1995‑96, meaning thereby the period ending 31st June, 1995. The explanation has been inserted by Finance Act, 1998 and if the operation of the explanation is held to be retroactive a person would be held to be defaulter for not making compliance with law which was to be enacted after three years of the transaction taking place during the period relevant to the assessment year 1995‑

96. It is inconceivable that a person can be saddled with responsibility/liability for non compliance of law which is to be enacted somewhere in future. Because of the totally changed facts and circumstances, emanating from the introduction of presumptive tax regime the ratio of the judgment in the case of Dream Land Cinema v. Commissioner of Income Tax, 1977‑35 Tax 179 (Lah.) is not attracted. For the foregoing reasons, it is held that the learned Tribunal was fully justified to hold that the explanation added to section 50(4) of the Ordinance, by Finance Act, 1998, cannot be applied retrospectively. After hearing learned counsel for the appellant, the appeal was dismissed in limine by a short order on 30‑10‑2003. These are the detailed reasons in support thereof. S.A.K./C‑89/K Appeal dismissed.