2009 PTD 16 (PLP)

ZIA-UD-DIN KHATTAK, J.

A common question of law being involved, this Tax Reference along with Tax Reference Nos.62 and 63 of 2007 titled `Commissioner of Income Tax (Legal) Regional Tax Officer Peshawar v. Messrs Frontier Sugar Mills and Distillery Limited, Takht Bhai Mardan is disposed of per this single judgment.

2. Briefly, facts of the case are that Messrs Frontier Sugar Mills and Distillery Limited Takht Bhai Mardan (hereinafter called as the respondent-assessee) is a public limited company and derives income from manufacture and sale of sugar. During the years 1999-2000, 2000-2001 and 2001-2002, turn over tax @ 0.5% under section 80-D of the Income Tax Ordinance, 1979 (hereinafter referred to as the `repealed Ordinance') was charged from them and the original assessments for the said 'period were finalized under section 62 of the repealed Ordinance vide orders, dated 17-2-2001, 26-3-2001 and 11-2-2002 respectively. Subsequently, the Additional Commissioner (Audit) Companies Zone, Peshawar found the assessment orders erroneous and prejudicial to interest of Revenue inasmuch as the Assessing Officer had charged turn over tax @ 0.5% on the declared interest income instead of normal rate of 33%. Consequently, a show-cause notice was issued under section 122(5A) of the Income Tax Ordinance, 2001 (hereinafter referred to as the `Ordinance') and served on the assessee. In response, the respondent-assessee submitted a written reply and explained that the provision of, section 122(5A) of the Ordinance as a new law could not be applied to assessments of any period prior to the date of its coming into force i.e. 1-7-2003. The reply of the respondent-assessee was considered but found unsatisfactory and the Additional Commissioner (Audit), Peshawar vide order, dated 2-2-2006 amended/revised the assessment under section 122(5A) of the Ordinance and charged tax @ 33%.

3. Against this order, the respondent-assessee filed three appeals before the Commissioner Income Tax (Appeals), Peshawar who after hearing the parties vide order, dated 15-3-2006 annulled the revised. assessments with the observation that the amendment of assessments made under section 122 (5A) of the Ordinance was not sustainable inasmuch as subsection (5A) inserted by Finance Act, 2003 commencing from 1-7-2003 was relevant to tax year, 2003, whereas original assessments in this case were finalized under section 62 of the repealed Ordinance much before the promulgation of the Ordinance.

4. Feeling aggrieved, the department filed three appeals before the learned Income Tax Appellate Tribunal, Peshawar, which confirmed decision of the Commissioner Income Tax (Appeals) and vide consolidated order, dated 28-4-2007 dismissed the departmental appeals.

5. Dissatisfied with the said order, the department has filed this Reference under section 133 of the Ordinance and formulated the following question of law:-- "Whether on the facts and circumstances of the case, the learned ITAT was justified in holding that section 122(5A) of the Income Tax Ordinance, 2001 brought into statute through Finance Act, 2003 is not applicable to the assessments completed before the promulgation of the Income Tax Ordinance, 2001 whereas subsection (1) of section 122 also extends the applicability of section 122 to the assessments completed under the provisions of the Income Tax Ordinance, 1979."

6. Mr. Rehmanullah, Advocate, learned counsel appearing for the department supported the order, dated 2-2-2006 passed by the Additional Commissioner (Audit), Peshawar and submitted that subsection (5A) of section 122 of the Ordinance was inserted with effect from 1-7-2003 but it was retrospective in application. He argued that even before the said insertion in the law, subsection (1) of section 122 was comprehensive enough to empower the Commissioner to amend any assessment made under the repealed Ordinance.

7. Conversely, Mr. Mahmood Mirza, Advocate, representing the respondent-assessee contended that the assessment order framed under the repealed Ordinance could not be amended or modified under subsection (1) of section 122 of the Ordinance. He argued that sub-section (5A) of section 122 was inserted with effect from 1-7-2003, no retrospective effect was given to the newly-inserted subsection and consequently it shall not be applicable to assessments finalized before 1-7-2003 and, therefore, the Commissioner of Income Tax (Appeals) Peshawar rightly annulled the revised assessments made against the respondent assessee. He relied on two judgments of the Lahore and Sindh High Courts reported as 2005 PTD 1621 and 2005 PTD 1316.

8. We have carefully considered the contention of the learned counsel for the parties and the relevant provision of law.

9. The contention of the petitioner-Department that even before the insertion of subsection (5A), the law in term of subsection (1) of section 122 of the Ordinance was comprehensive enough to empower the Commissioner to amend any of the already finalized assessment does not appear correct. In order to appreciate the contention of the petitioner-department in its proper perspective, the provision of section 122 of the Ordinance relevant to this case are reproduced below:-- "Subsection (1).

Subject to this section, the Commissioner may amend an assessment order treated as issued under section 120 or issued under section 121, or issued under section 121, or issued under section 59, 59A, 62, 63 or 65 of the repealed Ordinance, by making such alterations or additions as the Commissioner considers necessary:-- "Subsection (2).

An assessment order shall only be amended under subsection (1) within five years after the Commissioner has issued or is treated as having issued the assessment order on the taxpayer". "Subsection (5A).

Subject to subsection (9), the Commissioner may amend, or further amend an assessment order, if he considers that the assessment order is erroneous insofar it is prejudicial to the interest of Revenue". "Subsection (9).

No assessment shall be amended, or further amended, under this section unless the taxpayer has been provided with an opportunity of being heard".

10. A comparison of subsection (1) and subsection (5A) of the Ordinance shows a difference. Subsection (1) starts from the phrase `subject to, this section' which means that the powers to be exercised shall be subject to other provisions of section 122 of the Ordinance, whereas subsection (5A) starts with the phrase `subject to subsection (9)' and the subsequent language gives discretion to the Commissioner to amend or further amend an assessment order, he considers an erroneous affecting the interest of Revenue. Besides this, the powers to be exercised under subsection (1) are restricted. The first hurdle in invoking jurisdiction under subsection (1) lies in subsection (2). It says that the assessment order shall only be amended within five years after the Commissioner has issued or is treated as having issued the order. Subsection (2) (as it appears) restricts the possibility of amendment to the order of the Commissioner only. Moreover, the Commissioner can only amend the orders of the `Taxpayer' which under section 2 (66) means any person who derives an income chargeable to tax under the Ordinance. An assessment completed under the repealed Ordinance is with regard to an `assessee' and not `taxpayer'. The Assessing Authority therein was Deputy Commissioner Income Tax and not the Commissioner. The subsequent insertion in terms of addition of the words `or issued under sections 59, 59A, 62, 63 and 65 of the repealed Ordinance have also not improved the language in favour of the Revenue. In such circumstances, the obvious conclusion, therefore, is that the assessment order framed by the Deputy Commissioner Income Tax under the repealed Ordinance cannot be amended or modified under subsection (1) of section 122 of the Ordinance.

11. Now we come to the actual issue regarding applicability of sub-section (5A) to the assessment made under the repealed Ordinance. As a general rule, every statute is deemed to be prospective unless by express provision it is given retrospective effect. Section 122 (5A) added, by the Finance Act, 2003 with effect from 1-7-2003 has not specifically been made retrospective. As held above, the amendment through which in section 122 (1) the words `or issued under sections 59, 59A, 62, 63 or 65 of the repealed Ordinance' were added does not help the revenue department. A similar question came up for consideration of the Lahore and Sindh High Courts in cases 2005 PTD 1621 and 2005 PTD 1316; wherein it has been held that subsection (5A) of section 122 of the Ordinance inserted with effect from 1-7-2003 is not applicable to the assessments finalized before 1-7-2003 because subsection (5A) has no retrospective effect and, therefore the assessments finalized before 1-7-2003, cannot be re-opend/revised/amended in exercise of jurisdiction under section 122(5A) of the Ordinance.

12. We are inclined to adhere to this exposition of- the law and hold that the learned Income Tax Appellate Tribunal, Peshawar was justified in holding that section 122(5A) of the Income Tax Ordinance, 2001 brought into statute through Finance Act, 2003 was not applicable to the assessment completed before the promulgation of the Income Tax Ordinance, 2001. Reference answered accordingly. M.B.A./193/P Order Accordingly.