2025 PLP 1670 (PTD)

JAWAD HASSAN, J.

Through this single order, I intend to decide this writ Petition as well as connected Writ Petition i.e. W.P. No.1910 of 2024, as the same question of law and facts is involved in both these cases.

2. Through these writ Petitions under Article 199 of the Constitution of the Islamic Republic of Pakistan, 1973 (the "Constitution"), the Petitioners have challenged the amendment brought in the Income Tax Ordinance, 2001 (the "Ordinance") through the Tax Laws (Amendment) Act, 2024 (the "Act"), wherein certain modifications have been made to the appellate procedure provided under the Ordinance.

3. It was noted on 03.09.2024 that the Ordinance prescribes the procedure of pecuniary jurisdiction in Appeals; firstly, before the Commissioner (Appeals), then before the Appellate Tribunal and thereafter a remedy can be availed before this Court in terms of Section 133 of the Ordinance by filing a Tax Reference. However, through the impugned amendment one forum of appeal has been taken away.

4. It is astonishing that the Respondent No.2/Ministry of Law and Justice in its reply mentioned that "over the years, and for various reasons, including arbitrary constitution of benches, inadequate number of benches, delay in fixation of cases and dispose of appeals, a substantial amount of revenue, to the tune of Rs.2 trillion, is held up in litigation before the ATIR. The object of reducing the number of appeals is to simplify and expedite the appeal process, reducing administrative burdens and it will also lead to significant cost saving. The impugned provisions have been inserted with aim to discourage unnecessary or frivolous appeal, which will help streamline the process and reduce burden."

5. It is pertinent to mention here that in the cases of Chenab Flour and General Mills and others v. Federation of Pakistan through Secretary Revenue Division and others (PLD 2021 Lahore 343) and Ramzan Sugar Mills Limited v. Federal Board of Revenue and others (2021 PTD 1321) this Court has already declared the Federal Board of Revenue (the "FBR") as a Regulatory Body to deal with all the tax related affairs by holding that "the FBR is Regulator of all fiscal laws in the country and being a Regulator, it vests with the main goal of tax collection in the country". But now the impugned amendment has placed an extraordinary burden upon this Court, as currently, there is only one Division Bench for Tax References at Bahawalpur, one at Multan, two at Rawalpindi, and three at the Principal Seat. This Court has repeatedly emphasized that most of the orders passed by the Commissioners (Appeals) are often sketchy, lacking reasoning and suffer from serious deficiencies, which ultimately result in litigation before this Court. A significant number of cases are filed before this Court by the FBR primarily on the grounds of: (i) lack of reference to the relevant provisions of law, (ii) absence of a proper hearing, (iii) issuance of orders in a slipshod manner, and (iv) failure to apply judicious mind. Due to these deficiencies, this Court is frequently compelled to remand the cases back to the Commissioners (Appeals) for fresh adjudication in accordance with the law. This situation is consuming the valuable time of this Court, leading to an increase in the backlog of Tax References, thereby adversely affecting the hearing and disposal of other cases. Moreover, it is pertinent to highlight that FBR faces no financial barrier in filing Tax References, as it is exempt from paying court fees, whereas an ordinary litigant is required to pay Rs.50,000 per reference as fee. This results into a clear discrimination against the citizens of Pakistan, depriving them of equal access to justice, which will infringe the fundamental rights of public guaranteed under Articles 4, 10-A and 37(d) of the Constitution.

6. It is also important to mention here that in the judgment reported as Shaheen Merchant v. Federation of Pakistan/National Tariff Commission and others (2021 PTD 2126) this Court has discussed in detail the role of an Appellate Tribunal established under a specific law and/or an adjudicating forum created with the mandate to decide the appeal/matter within a specific timeframe. In the said case, this Court has also elaborated the scope of Article 37(d) of the Constitution, which states in equivocal terms that it is the utmost duty of the State to ensure inexpensive and expeditious justice while the impugned amendment of taking away jurisdiction of one appellate forum hits the mandate of this Article.

7. The foregoing circumstances unequivocally demonstrate that the amendment in question is clogging the arteries of judicial system, obstructing the dispensation of justice and causing undue delays in other cases. Therefore, this Court intends to decide this case like the judgment reported "Strategic Plans Division and another v. Punjab Revenue Authority and others" (PLD 2024 Lahore 545).

8. Today, Dr. Ishtiaq Ahmad Khan, Director General Law FBR, appeared and submitted that the main reason for which the amendment was made, is the delay in deciding the pending cases of billions/trillions of rupees in the ATIR and the FBR could not recover the tax from the taxpayers. He however submitted that they are also reviewing the impugned amendment with certain proposals regarding distribution of cases on the basis of pecuniary jurisdiction.

9. The issue relates to the overburdening of the cases before the Division Benches of this Court especially the Rawalpindi Bench. It is noted that pursuant to the impugned amendment almost 289 Tax References were instituted and most of which have been decided. The Division Bench of this Court has decided 367 (255 Income Tax References and 112 Sales Tax References) instituted from 01.06.2024 to 31.03.2025. However, in order to resolve the issue, this Court suggest certain proposals/recommendations to be considered in the next Budget to make further amendment/modification in the amendment in Tax Reforms 2025. The same are as follows: I. STRENGTHENING THE ADCR UNDER SECTION 134A OF THE ORDINANCE

10. This Court has already elaborated the concept of mediation through department in the judgment PLD 2024 Lahore 545 (mentioned above). Mediation and ADR, when effectively structured and timely invoked, can play a significant role in reducing the burden on appellate forums, ensuring expeditious resolution of tax disputes and preserving the taxpayer's confidence in the system.

11. It is pertinent to mention here that the Superior Courts of Pakistan have already reckoned the scope, necessity, benefits, and wide spread prospective impacts of the mediation as well as have contributed way ahead in promotion. In this case to strengthen the mediation process through Department has already been provided under Section 134A of the Ordinance. For ready reference Section 134A is reproduced as under: 134A. Alternative Dispute Resolution. - 1 [(1) Notwithstanding any other provision of this Ordinance, or the rules made thereunder, an aggrieved person in connection with any dispute pertaining to - (a) the liability of tax of fifty million rupees or above against the aggrieved person or admissibility of refund, as the case may be; (b) the extent of waiver of default surcharge and penalty; or (c) any other specific relief required to resolve the dispute, may apply, except where criminal proceedings have been initiated, to the Board for the appointment of a committee for the resolution of any hardship or dispute mentioned in detail in the application: Provided that where the aggrieved person is a state-owned enterprise (SOE), the limit of tax liability of fifty million rupees or above mentioned in clause (a) of subsection (1) shall not apply and it shall be mandatory for such aggrieved SOE to apply to the Board for the appointment of a committee for the resolution of any dispute under this section: Provided further that no suit, prosecution, or other legal proceedings shall lie against the SOE or the committee in relation to the dispute resolved under this section. In view of the current litigation backlog and the significant financial implications involved, it is recommended that the ADRC under Section 134A of the Ordinance be made more robust, autonomous and efficient by incorporating time-bound dispute resolution, enforcement mechanisms and the appointment of independent experts as mediators/arbitrators with relevant tax expertise. II. SETTING PECUNIARY JURISDICTION OF THE TAX REFERENCE.

12. The present pecuniary limits set for filing Tax References under the Ordinance are disproportionately low compared to other civil jurisdictions such as Banking Courts or Commercial Tribunals. The same has also been observed and acted upon by the Hon'ble Sindh High Court, which enhanced pecuniary thresholds to ease the burden on the higher judiciary. Therefore, it is proposed that the legislature should revisit the monetary thresholds for tax appeals and references, particularly under Section 133 of the Ordinance, so that only cases involving substantial legal questions or high financial stakes reach this Court. Such a measure would allow the Appellate Tribunal to be more effective final fact-finding forum and reduce avoidable litigation before constitutional courts. III. LIMITING FINAL JURISDICTION OF THE TRIBUNAL

13. In view of the amendment which eliminated one appellate tier (i.e., ATIR), it is essential that either a reasonable appellate structure be reinstated or alternatively, the Appellate Tribunal Inland Revenue (ATIR) be declared as the final forum for factual adjudication in cases involving routine or minor legal points. The present influx of Tax References to this Court based on trivial or repetitive issues not only undermines judicial efficiency but also delays the resolution of more pressing legal controversies. IV. CAPACITY BUILDING OF MEMBERS OF ATIR AND JUDGMENT WRITING SKILLS TRAINING.

14. Section 130 of the Ordinance provide the establishment of Appellate Tribunal and appointment of its Members including Chairman. For ready reference Section 130 ibid is reproduced as under:

130. Appellate Tribunal.- (1) There shall be established an Appellate Tribunal Inland Revenue hereinafter called as the Appellate Tribunal to exercise jurisdiction, conferred on it under this Ordinance: Provided that the existing members including Chairman of the Appellate Tribunal shall continue to hold office, on the same terms and conditions as applicable to them prior to the commencement of the Tax Laws (Amendment) Act, 2024 (of 2024), till the completion of their term of office unless resigned or removed earlier on the grounds provided in the proviso to subsection (5). (2) The Appellate Tribunal shall consist of members who shall be appointed by the Federal Government in such numbers, in accordance with such procedure and on such terms and conditions as the Federal Government may prescribe by rules, which shall be made and take effect notwithstanding anything contained in section 237 of this Ordinance or the Federal Public Service Commission Ordinance, 1977 (XLV of 1977) or any other law or rules, for the time being in force. (3) A person shall be eligible to be appointed as a member of the Appellate Tribunal, if he - (a) is an advocate of a High Court for not less than fifteen years and possesses such other qualifications as may be prescribed by rules under this section; (b) has for a period of not less than ten years practiced professionally as a chartered accountant within the meaning of the Chartered Accountants' Ordinance, 1961 (X of 1961); (c) has for a period of not less than ten years practiced professionally as a cost and management accountant within the meaning of the Cost and Management Accountants Act, 1966 (XIV of 1966); (d) is an officer of the Inland Revenue in BS-21 or above; or (e) is an officer of the Inland Revenue in BS-20, having served in such grade for three years or more. (4) The Federal Government shall appoint any member possessing qualifications provided in clauses (a), (13) and (c) of subsection (3) as Chairman of the Appellate Tribunal. The Chairman shall hold office for a period of three years provided that the Federal Government may reappoint the Chairman for such further term or terms as it may deem appropriate. (5) The members including the Chairman shall cease to hold office on attaining the age of sixty-two years provided that the members falling under clauses (c) and (d) of sub-section (3) shall cease to hold office on attaining the age of superannuation, under the law regulating their service: Provided that a member including the Chairman may resign or may be removed by the Federal Government, on the recommendation of performance review committee, to be constituted by the rules made under subsection (2), at any time before the expiry of his term or attaining the age of superannuation, as the case may be, on grounds, inter alia, of inefficiency or misconduct, as prescribed by the rules made under subsection (2). (6) The procedure of the Appellate Tribunal Inland Revenue including constitution of benches, case management system, distribution of cases and other matters ancillary or incidental thereto shall be regulated by the rules made under subsection (2). This Court in the judgment reported as this Court cited in "Muhammad Umais v. Rawalpindi Cantonment Board and others" (PLD 2022 Lahore 148), at paragraph No.12, Page 159, has held that before deciding a question of law, it has to formulate constitutional moot points if writ is admitted for regular hearing. Relevant part of the same is reproduced hereunder: "

12. After framing of issues on constitutional moot points, this Court has narrowed down the law points and determined the fundamental rights of the Petitioner but while rendering judgment, the constitutional petition filed under Article 199 of the Constitution, if the writ petition is admitted for regular hearing, and after perusing the record from the report and parawise comments, the Court has to render a decision strictly as per Articles 199 and 201 of the Constitution. The decision or order could be a judgment or an order passed on the constitutional petition filed under Article 199 of the Constitution but those decisions are made under the established law of precedent under Article 201 of the Constitution, to have a binding effect and its principles have to be followed later. Article 201 of the Constitution states that a decision of High Court if (i) it decides a question of law or is (ii) based upon or (iii) enunciates a principle of law be binding on subordinate Courts. In this case, writ petition was filed on 21.04.2021 and after hearing the parties on 28.04.2021, the Court while admitting the writ petition directed the parties to file written statement. Thereafter, written statement was filed by the Respondents and perused by this Court, hence, before proceedings further, the Court framed moot points in order to render a judgment under Article 201 of the Constitution. It is a settled norm that the decision on a question of law can only be made if question of law is framed and highlighted from the pleadings. In this case the Court on 02.06.2021 framed the constitutional moot points, mentioned above, in order to render a judgment, while keeping in mind the principles of law already established by the Superior Court, relied by both the counsel for the parties, then passed its decision on it to be called a decision or a judgment. Accordingly, the judgment then passed will consists of ratio decidendi, facts, arguments of the parties, moot points involved, and stare decisis and obiter dicta. The Constitution clearly empowers the Courts in Pakistan to render on these parameters regarding the question of law or based on question enunciated a principle of law. As every judgment of the Supreme Court is binding on all Courts under Article 189 of the Constitution, the same words are used in Article 201 of the Constitution but subject to Article 189 to follow its principle for consistency". Section 130 governs the composition and appointment of members of the ATIR. Although it sets minimum qualifications, practical shortcomings in adjudication continue to surface. This Court has consistently observed in various cases that the orders passed by Commissioners (Appeals) and even some members of the ATIR suffer from: inadequate reasoning; failure to cite or interpret relevant legal provisions; non-compliance of Sections 127 to 129 of the Ordinance; absence of a judicious application of mind; and procedural violations of Article 10-A of the Constitution. Therefore, it is recommended that the Government, in consultation with the FBR and judicial academies, initiate mandatory judicial training for Commissioners (Appeals) and ATIR Members on: Legal writing and reasoning; Adjudicatory standards and practices; Recent jurisprudence on taxation and constitutional compliance; Ensuring adherence to fair trial principles. Such training programs should be continuous and designed to elevate the quality of adjudication at lower forums to reduce the need for frequent remand orders by the High Court. It is also suggested that appointments to ATIR be scrutinized through independent panels to ensure competence, impartiality and transparency. V. ENSURING ACCESS TO JUSTICE AND EQUITY BETWEEN TAXPAYERS AND THE FBR

15. The current scheme under the Ordinance exempts the FBR from paying court fees while an ordinary taxpayer is required to pay Rs.50,000/- per reference. This creates an unequal playing field between the regulator and the regulated. Moreover, it disproportionately discourages small and medium enterprises from pursuing their legitimate grievances in Court. It is therefore proposed that the legislature consider either: reducing or waiving the prescribed court fee for taxpayers falling under a certain income or turnover threshold; or imposing nominal court fees on FBR to ensure parity and discourage frivolous litigation initiated by the revenue authority.

16. Dr. Ishtiaq Ahmad Khan, Director General Law, FBR, present in the Court, submitted that impugned amendment is under review and these judicial observations will be placed before the appropriate forums for consideration and incorporation in the upcoming tax reforms.

17. In light of the above proposals, these writ petitions stand disposed of. However, this order shall serve as a guiding reference under Articles 199 and 201 of the Constitution. It is expected that the concerned Ministries, including the Ministry of Law and Justice and the Federal Board of Revenue, will meaningfully consider these suggestions while framing legislative or administrative policy in upcoming amendments to the Ordinance. MQ/M-89/L Order accordingly.