PLJ 2010 Tax Cases (Lah.) 39
Present: Syed Mansoor Ali Shah, J.
M/s. RIAZ BOTTLERS (PVT.) LTD. through Tax
Manager--Petitioner
versus
LAHORE ELECTRIC SUPPLY COMPANY (LESCO)
through its
Chief Executive--Respondents
Chief Executive--Respondents
W.P. No. 38 of 2010, heard on 4.2.2010.
Income Tax Ordinance, 2001 (XLIX of
2001)--
----S. 235--Constitution of Pakistan,
1973, Art. 199--Constitutional petition--Advance tax--Electricity
consumption--Scope of--Payment of advance tax was restrained due to Court
order--Question of--Whether after the payment of income tax for the tax year
ending 30th June taxpayer can be subjected to pay advance tax for the same
year--Whether the advance tax can be charged for the next two quarters of Sep.
and Dec.--Challenge the vires of S. 235 of Income Tax Ordinance, 2001--Concept
of advance tax and mechanism of its payment need to be understood before the
issue in hand can be adjudicated--Advance tax as a concept had been explained
in Kanga Palkhivala and Vyas's--When advance tax u/S. 235 of Ordinance, could
not be collected due to a restraining order of the Court and finally before the
vacation of restraining order the tax due for the tax year was paid, the
concept of advance tax and the provisions of transitional advance tax i.e. S.
235 cannot be pressed against the petitioner--Held: Payment of advance tax
which the petitioner did not pay due to grant of interim relief in their favour
through electricity bills u/S. 235, for the tax year ending 30th June was
unconstitutional, unlawful besides being an exercise in futility which cannot
be permitted--Further held: Demand of advance tax on the electricity bills u/S.
235 of Ordinance, 2001 during the tax year ending on 30th June was set aside as
being unconstitutional unlawful and without lawful authority, while to extent
of advance tax charged in electricity bills for the next two
quarters--Petitions were partially allowed. [Pp.
47, 50 & 53] A, J, O & Q
Income Tax Ordinance, 2001 (XLIX of
2001)--
----Ss. 4, 147, 168, 170 & 231-A to
236--Advance tax--Question of--Utility of entire exercise of paying advance
tax--Once the tax had already been paid by tax payer--Validity--S. 4 is imposes
income tax, for each tax year on every person who had a taxable income for the
year--Under S. 147 the amount of advance tax to be paid in four quarters an
estimated amount determined by tax payer himself for tax year--Income Tax
Ordinance, provides intra alia, for collection or deduction of advance tax in
electric bills--If the advance tax was not collected on electric bills for any
reason and finally the tax due was paid, the chargeability of tax under
provision of S. 235 loses its mischief--If the petitioner can conveniently take
credit of the amount charged as advance tax in electricity bills for the
quarters u/Ss. 147 & 168 of Ordinance--Flexibility was available to the
petitioners and it will not be a case where the petitioner will be asked to pay
advance tax for six quarters instead of four, which appears to be apprehension
of the petitioners. [Pp. 48, 50 &
53] B, I & P
Income Tax Ordinance, 2001 (XLIX of
2001)--
----S. 147--Advance tax--Procedure of
collection of tax--Under Section 147 the amount of advance tax to be paid in
four quarters is an estimated amount determined by tax payer himself for the
tax year.
[P.
48] C
2005 PTD 833 ref.
Income Tax Ordinance, 2001 (XLIX of
2001)--
----S. 147(4)--Advance tax due was to be
computed by a tax payer--Formula--Question--Whether estimated amount of tax
payable by tax payer was more or less than advance tax collected--Validity--Tax
payer is to move the commissioner with estimated amount of tax payable and pay
such amount after making adjustment for the amount of already paid u/S.
147(4)--Payment of advance tax is split into four quarters and deposited by tax
payer--Under Section 147(8) tax payer paying advance tax during the year was
allowed tax credit in computing the tax due--Held: Advance tax is a computed
amount which is paid through running installments in current tax year and
before its last installment is due the tax payer has facility to adjust it
against the estimated amount of tax due and pay the balance amount--Advance tax
is a supplementary collection system, which is finally adjusted in the tax
payable by the tax payer. [Pp. 48
& 49] D & E
Income Tax Ordinance, 2001 (XLIX of
2001)--
----Ss. 168 & 235--Telephone
users--Collection of tax--Under Section 168 an amount of advance tax paid under
the provisions including S. 235 is allowed tax credit in computing the tax due
by tax payer on the taxable income for the tax year in which tax was collected
for deducted. [P. 49] F
Income Tax Ordinance, 2001 (XLIX of
2001)--
----S. 147(4) & Chapt. XII--Scope
of--Computed amount of advance tax--Payment of advance tax--Intention of the
legislature is to ensure that a computed amount of advance tax is collected the
tax payer during the subsistence of tax year--Payment of advance tax under the
Ordinance, 2001 is so scheduled that the last installment is to be paid on 15th
June of tax year which precedes the filing of tax return for the tax
year--Advance tax, therefore, has a specific stage and timing in the tax year
and is no more than quarterly contribution towards the final payment of tax
due/payable by tax payer. [P. 49] G
Advance Tax--
----Scope of--Loses purpose and legal
force--Liability of advance tax--Held: Advance tax has to be paid
contemporaneously with running tax year and cannot be demanded if tax due or
tax payable for the tax year has been duly paid--Liability of advance tax,
therefore, ceases once the tax due has been paid. [P. 49] H
Interpretation of Law--
----Advance tax--Scope--Provisions of
advance tax have to be equitably interpreted in view the purpose and mandate of
law. [Pp. 50 & 51] K
Administration of Justice--
----A fiscal statute should be construed
strictly does not rule out the application of a reasonable construction so as
to give effect to intention of legislature. [P.
51] L
Income Tax Ordinance, 2001 (XLIX of
2001)--
----Preamble--Intention of the Ordinance,
2001 and scheme of advance tax does not require that petitioners to repay
advance tax after they had paid tax due and any interpretation to effect will
result in injustice and double taxation which is not the intention of the law.
[P.
52] M
Constitution of Pakistan, 1973--
----Arts. 23 & 24--Fundamental
rights--Economic justice--Demand of advance tax--Petitioners had a right to
hold their property and cannot be deprived of their property except in
accordance with law--If a tax due has been paid there is no constitutional or
lawful justification to demand tax under garb of advance tax. [P. 52] N
Ch. Anwar-ul-Haq, Advocate, Mian Ashiq
Hussain, Mr. Shahbaz Butt, Advocate, Mr. Siraj-ud-Din Khalid, Advocate Rana
Muhammad Afzal, Advocate, Mian Mahmood Rasheed, Advocate, Saud Nasrullah
Cheema, Advocate, Muhammad Hussain Chotia, Advocate, Mian Tabassum Bashir,
Advocate, Ch. Mumtaz-ul-Hassan, Advocate, Javaid Iqbal Qazi, Advocate, Mr. M.M.
Akram, Advocate, Mr. Faiz Ahmad Khan Baloch, Advocate, Mr. Umar Alvi, Advocate,
Mr. Muhammad Waseem Chaudhry, Advocate, Mr. M.H. Majid Siddiqui, Advocate, Mr.
Shahzad Ahmad Durrani, Advocate and Mr. Fakhar-uz-Zaman Akhtar Tarar, Advocate
for Petitioner (in all connected petition mentioned in Schedule-B).
Mr. Aamar Rehman, Deputy Attorney General
for Pakistan, Mr. Muhammad Ilyas Khan, Mr. Muhammad Asif Hashmi and Mr. Umar
Sharif, Advocates & Mr. Asim Zulfiqar Ali, Chartered Accountants/Amicus
Curiae for Respondents.
Dates of hearing: 1.2.2010, 3.2.2010 and
4.2.2010.
Judgment
This consolidated judgment shall also
decide writ petitions mentioned in Schedule B to this judgment, as all of them
involve same question of law and facts.
2.
Brief facts are that the Petitioners (tax payers) challenged the vires
of Section 235 of the Income Tax Ordinance, 2001 ("Ordinance") in the
earlier round of litigation. The said petitions were dismissed on 15.05.2009
vide reported judgment titled "Indus Jute Mills Ltd. V. Federation of
Pakistan etc. "(2009 PTD 1473). In the said judgment Section 235 was held
to be intra vires the Constitution. Intra Court Appeals (ICA No. 462/09 etc)
filed against the said decision were also dismissed vide order dated
24.12.2009.
3.
During the pendency of the above litigation the petitioners enjoyed
interim relief whereby respondent LESCO was restrained from collecting the
advance tax under Section 235 charged in the electricity bills of the
petitioners. After the dismissal of the writ petition and the ICAs respondent
LESCO served the petitioners with an electric bill carrying a consolidated
amount of advance tax for the period in question i.e., from October, 2008 till
December, 2009. This period falls within the tax year ending 30th June, 2009
and also spreads into the next two quarters (September and December) of the Tax
Year ending 30th June, 2010.
4.
The case set up by the petitioners is that while one source of payment
of advance tax i.e., under Section 235 of the Ordinance was restrained due to
Court orders, the tax payers regularly deposited their computed advance tax
through other sources and finally paid their `tax due' and also submitted their
tax returns for the Tax Year ending 30th of June, 2009. Once the tax for the
tax year stood paid, the demand of advance tax for the same Tax Year, after the
dismissal of the earlier round of litigation, is unconstitutional unlawful,
confiscatory, harsh and amounts to double taxation. It is admitted position
that all the petitioners have filed their tax returns on or before 25-1-2010.
5.
The question that requires adjudication is whether after the payment of
income tax for the tax year ending 30th June, 2009 the taxpayer can be
subjected to pay advance tax (under Section 235) for the same year all over
again? And whether the said advance tax can be charged for the next two
quarters of September and December 2009 when the petitioners have already paid
the advance tax for the said quarters?
6.
Mr. Asim Zulfiqar, Chartered Accountant, AF.Ferguson & Co. and
adjunct faculty in Tax Law at the School
of Law and Policy, Lahore
University of Management Sciences (LUMS) was appointed as amicus curiae to assist
the Court. The learned amicus submitted that the last date for filing tax
returns for the tax year ending 30th of June, 2009 is 25-1-2010 and therefore,
all the petitioners before this Court have filed their electronic returns
online. He submitted that if there is any concealment or discrepancy in the
said tax returns, the respondent Revenue has ample remedies under the law to
proceed against the taxpayer and referred to Sections 122, 170, 177, 184 and
221 of the Ordinance.
7.
He contended that the acknowledgment slip of the tax return issued by
the Income Tax Department clearly shows net tax refundable and in almost all
the cases pending before this Court refund is payable to the petitioners. Even
if there is no refund, the tax has been duly paid by the petitioners. Referring
to Section 120 of the Ordinance, the learned amicus submitted that the said tax
return is deemed to be an assessment order. Therefore, tax (inclusive of the
advance tax) has been paid by the petitioners for the tax year ending 30th
June, 2009. In order to further re-emphasis, he submitted that the electronic
return can only be filed if the income tax is paid on the income declared.
8.
Explaining the concept of advance tax the learned amicus elucidated that
the amount of advance tax is an amount which is estimated by the taxpayer and
paid over the year in four quarters. It is only after the tax return has been
filed that the scrutiny and remedial provisions under the Ordinance get
operational. As far as the two quarters after the close of the Tax Year are
concerned they are still continuing and payment of advance tax for the period
needs verification which cannot be embarked upon in this constitutional
jurisdiction. He further submitted that the taxpayer under Section 147(6) of the
Ordinance can furnish fresh estimate of advance tax before the last
installments is due and seek adjustment of advance tax paid. In case Advance
Tax is not fully paid as indicated by the taxpayer, the respondent department
can take penal action under Section 205 of the Ordinance.
9.
Addressing the question regarding the utility of the entire exercise of
paying advance tax at this stage, once the tax has already been paid by the
taxpayer, he submitted that it is an exercise in futility. He tried to show by drawing
a parallel that if the tax is paid by the tax payer on his own, the collection
agent is not declared to be an assessee in default, he relied upon CIT vs
Marghalla Textile Mills [(2009) 99 Tax 48] wherein it was held:
An assessee/payer cannot be held as an
assessee in default, for non-deduction from a taxpayer, before whom an
exemption certificate is produced or an order of an authority in hierarchy of
Income Tax Department is produced. So far the case of recipient who has not
produced the certificate, his payment shall be amenable to deduction of advance
tax. The recipient, who has himself paid the taxes, the withholding agent
cannot be held as defaulter to the extent of non-deduction. However, it is
subject to penalty under Section 86 of the late Income Tax Ordinance, 1979.
(emphasis supplied)
10.
He referred to Section 161(1B) of the Ordinance to show that the tax
that is to be collected by a collection agent, as in the present case, can be
independently paid by the taxpayer and in case it is so paid the collection
agent is not liable. The amieus drew a parallel and submitted that the same
concept can be used to address the present controversy inasmuch as that once
the tax is paid the taxpayer should be absolved to pay the advance tax all over
again for the same tax year. He further placed reliance on Prosperity Weaving
Mills Ltd vs. Federation of Pakistan
(2006) 93 Tax 394 and referred to the following part of the judgment:
The respondents, National Savings
Organization as well the Revenue have not been able to bring home that the
petitioners are not entitled to exemption from levy of income tax or that they
are required to produce any exemption certificate. It is also not disputed that
all of them have made investments in the various schemes on or before 30th
June, 2001. Also in the same way since the petitioner in Constitutional
Petition No. 5511 of 2004 enjoys exemption from levy of income tax, no
withholding tax from the profits distributed to him can legally be made by the
Organization. (emphasis supplied)
11.
Mr. Shahbaz Butt, Advocate appeared on behalf of the petitioners and
supported the arguments of the learned amieus curiae and additionally submitted
that the department has a remedy against the taxpayer under Section 192 of the
Income Tax Ordinance, 2001 in case the tax is not paid by them.
12.
Mian Ashiq Hussain, Advocate submitted as follows:--
(i) The
advance tax recoverable under Section 235 of the Income tax Ordinance, 2001,
(the Ordinance), is adjustable as component part of advance tax under Section
147 of the Ordinance read with Section 168 of the Ordinance (as no minimum tax
liability is involved in both the cases). In the stream of taxable events, the
entire advance Income tax payments are adjustable against the total charge of tax
under Section 4 of the Ordinance. On the satisfaction of the charge of tax
under the Ordinance i.e. at the culmination of assessment proceedings, the
charge is extinguished and no liability whatsoever survives. The liability to
pay tax arises by charging section alone and relied on Noon Sugar Mills Ltd.
vs. Commissioner of Income Tax, Rawalpindi (1990) 62 Tax 74 and CIT vs Kannan
Devon Hill Produce Co. Ltd. (1986) 161 ITR 477. Thus on filing the return of
income which is deemed to be assessment order in terms of Section 120 of the
Ordinance, resulting in the claims of the refund, no liability to pay any tax
including advance tax survived.
(ii) The
operation of Section 235 is not static but subject to dynamic operation of law
under the specific provisions which envisage subsequent taxable events
superseding earlier provisional taxable events--
(a) collection
of tax under Section 235 (except minimum tax cases) is adjustable in terms of
Section 235(4) -- thus it is a provisional collection.
(b) The
said provisional collection is component part of advance tax under Section 147
read with Section 168(2) as it is evident from the formulas given in Section
147(4) & (4B) which lay down that the tax adjustable under Section 168
(including the advance tax under Section 235) is to be deducted from the
installment of advance tax due under Section 147.
(c) As
in the cases of the petitioners, sizeable amounts of refunds are due as a
result of the assessment order under Section 120 for the tax year 2009 and the
amounts adjustable under Section 168 from the tax payable for the two quarters
of tax year 2010 are greater than the amounts of installments due for both the
quarters under Section 147, no advance tax payment including its component part
under Section 235, is due against the petitioner to justify any further advance
tax. The tax recoverable under Section 235 is a component part of advance tax
adjustment under Section 147, it cannot exceed the total amount of advance tax
due under Section 147 as a part can never be greater than the whole. Thus, if
the whole tax has already been paid, no further payment of advance tax is
required and that, too, through most coercive measure of disconnecting
electricity connection. It amounts to economic oppression which is antithesis
to economic justice ordained under Article 2A of the Constitution. Besides, the
taxpayers are being asked to part with their property without there being any
existing charge and with huge amounts already refundable to them by the
Department. It is also a violation of Article 25 of the Constitution.
(d) If
a person is not required to pay certain kinds of tax, he cannot be asked to pay
the advance tax Union Bank Ltd. Vs. Federation of Pakistan (1998 PTD 2116).
13.
Mr. Muhammad Ilyas Khan, Advocate appearing on behalf of the Revenue
submitted that stay was granted in the earlier round of litigation, which
continued till 24.12.2009 (covered by Writ Petition No. 8872/2009 and ICA No.
462/2009, etc). However, as the writ petition, as well as, ICA were dismissed,
it is settled position that the original position is restored and in the
present case the respondent department is entitled to recover advance lax under
Section 235 of the Ordinance. Counsel further submitted that the matter has
been decided by this Court wherein vires of Section 235 of the Income Tax
Ordinance were challenged. The judgment of the Hon'ble Single Bench is reported
as Indus Jute Mills Ltd. v. Federation of Pakistan through Secretary Finance,
Islamabad and 3 others, (2009 PTD 1473) which was upheld in ICA 462/2009 vide
order dated 24.12.2009. Counsel submitted that as the matter stands settled,
fresh petition on the same subject could not be filed. Present petition is,
therefore, hit by res judicata and void by law.
14.
The counsel for the Revenue vehemently stressed on the "impact and
affect" of the earlier round of litigation and relied upon Muhammad Saleem
Ullah and others vs. Additional District Judge, Gujranwala and others (PLD 2005
S.C. 511), Pir Bakhsh vs. The Chairman. Allotment Committee and others (PLD
1987 S.C. 145) and Abdul Majid and others vs. Abdul Ghafoor Khan and others
(PLD 1982 S.C. 146). He further submitted that the petitioners could have
claimed this relief in the earlier round of litigation and is, therefore, hit
by Order II, Rule 2 CPC. It was contended by the counsel that the present
petitions involved questions of fact i.e., verification of the amount deposited
as advance tax which is an exercise that cannot be undertaken in the present
proceedings under Article 199 of the Constitution and, therefore, it is
appropriate that the law takes its own course and the petitioners apply for
refund if any under the relevant provisions of the Ordinance.
15.
He divided the period involved into two parts. He submitted that first
period extends to the tax year ending by 30th June, 2009 wherein under the law
the returns have been filed by 25-1-2010, while the second period pertains to
the two quarters from July till December, 2009 (of the next Tax Year). He
underlined that verification of payment of advance tax regarding these two
quarters cannot be done in these proceedings besides the next tax year will
come to a close in June, 2010 and it is then that the payment of advance tax
can be assessed and the petitioners cannot be granted relief midstream on the
payment of two quarterly installments of advance tax which still requires
verification.
16.
Raja Sikandar, Advocate appearing on behalf of Federal Board of Revenue
in W.P. 82/2010 submitted that the case also involved the question of minimum
tax under Section 235(4) which cannot be treated as advance tax but failed to
refer to a case in the present petitions, which involved non-payment of minimum
tax.
17.
Mr. Muhammad Asif Hashmi, Advocate also appearing for the Revenue
submitted that no one can be prejudiced by the "Act of the Court".
The amount of advance tax for the period in question was not paid due to the
interim relief granted by the Court and once the writ petitions were dismissed
and the order of interim relief vacated the petitioners are entitled to the
payment of advance tax under the law and cannot be prejudiced due to the
"Act of the Court". Counsel referred to the Handbook of Legal Terms
and Phrases by M. Ilyas Khan to highlight the meaning "Act of Court".
He further submitted that the petitioner can also be liable for other taxes
under Section 170(3) of the Ordinance and, therefore, to say that the tax for
the year has been paid is not sufficient. He further relied on order dated
19.01.2010 passed in Writ Petition No. 513/2010 which pertains to the final
discharge of sales tax on CNG Stations which was dismissed by this Court. He
submitted that the reasoning of the said order is applicable to the instant
case and, therefore, this case also merits dismissal.
18.
Arguments heard. The concept of "advance tax" and the
mechanism of its payment need to be understood before the issue in hand can be
adjudicated. Advance tax as a concept has been explained in Kanga, Palkhivala
and Vyas's, The Law and Practice of Income Tax, (Ninth Edition Volume-II page
2135) in the following manner:--
"Under the basic scheme of this Act,
the subject of charge is the income of the previous year and not the income of
the assessment year; in other words, the tax is assessed and paid in the next
succeeding year upon the results of the year before. These sections mark a
departure from that basic scheme. They rest on the principle of `pay as you
earn', i.e. paying tax by installments in respect of the income of the very
year in which the tax is paid." (Reliance Purshottamdas v. CIT 48 ITR (SC)
206, 211). (emphasis supplied)
19.
Provisions dealing with advance tax under the Ordinance are Sections 4,
147, 168, 170, and 231A to 236 (relevant provisions are reproduced in Schedule
A to this judgment for ready reference). Section 4 is the charging section
which imposes income tax, for each tax year, on every person who has a taxable
income for the year. Section 4(6) provides that where by virtue of any
provision of the Ordinance income tax has to be paid in advance, it shall as
the case may be paid accordingly.
20.
Advance Tax is primarily a procedure of collection of tax. Under Section
147 the amount of advance tax to be paid in four quarters is an estimated
amount determined by the tax payer himself for the tax year. As held in Call
Tell and another vs. Federation of Pakistan and others (2005 PTD 833) "the
collection of advance tax does not amount to levy of tax. Advance tax is
payment made merely on account to be adjusted against the charge of income tax
as finally ascertained. It is not a tax but merely a provisional payment on an
amount towards tax due. The said amount does not become the property of the
Central Government but remains vested in the assessee." While hearing the
appeal in the same case the august Supreme Court of Pakistan held that:
"Advance tax collected from buyers shall be merely credited with the
Government which can be utilized and adjusted to the extent found necessary
towards the ultimate liability of income tax due, after it has been determined
and excess amount, if any, is to be refunded to the purchasers of the pre-paid
telephone cards." Call, Tell (Pvt) Limited vs. Federation of Pakistan (2004
PTD 3032).
21.
Advance tax due is to be computed by a tax payer according to the
formula provided in Section 147(4) of the Ordinance. Thereafter the tax payer
is to estimate the tax payable for the relevant tax year at any time before the
last installment of advance tax is due. After determining whether the estimated
amount of tax payable by the tax payer is more or less than the advance tax
collected, the tax payer is to move the Commissioner concerned with the
estimated amount of the tax payable and pay such amount after making adjustment
for the amount (if any) already paid under Section 147(4). The payment of
advance tax is split into four, quarters and deposited by the tax payer
accordingly as mentioned in Section 147(5).
Under Section 147(8)
tax payer paying advance tax during the year is allowed
tax credit in computing the tax due. Under Section 147 (10) in case advance tax
is not able to be credited the tax payer is entitled to refund in accordance
with Section 170. This shows that advance tax is a computed amount, which is
paid through running installments in the current tax year and before its last
installment is due the tax payer has the facility to adjust it against the
estimated amount of tax due and pay the balance amount. Advance tax, therefore,
is a supplementary collection system, which is finally adjusted in the tax
payable by the taxpayer.
22.
Advance tax is also collected through Chapter XII of the Ordinance which
provides for Transitional Advance Tax, wherein advance tax is collected on the
basis of the cash withdrawal from a bank (Section 231-A), purchase of motor
cars and jeeps (231-B), brokerage and commission (Section 233), collection of
tax by a stock exchange registered in Pakistan (Section 233-A), tax on motor
vehicles (Section 234), CNG Stations (Section 234-A), Electricity consumption
(Section 235) and Telephone users (Section 235). Under Section 168 an amount of
advance tax paid under the above provisions including Section 235 is allowed
tax credit in computing the tax due by the taxpayer on the taxable income for
the tax year in which the tax was collected or deducted.
23.
The scheme of advance tax under sections 147 and under Chapter XII of
the Ordinance clearly shows that the intention of the legislature is to ensure
that a computed amount of advance tax [as per formula given in Section 147(4)]
is collected from the tax payer during the subsistence of tax year. Payment of
advance tax under the Ordinance is so scheduled that the last installment is to
be paid on 15th June of the Tax Year which precedes the filing of the tax
return for the same tax year. Advance Tax, therefore, has a specific stage and
timing in the tax year and is no more than a quarterly contribution towards the
final payment of tax due/payable by the tax payer. For the sake of argument, if
for some reason the advance tax is not paid and the tax due/payable is duly
paid by the tax payer at the end of the Tax Year, the tax payer and the
collection agent may be penalized for the act of not paying or collecting the
tax but are not bound under the law to pay advance tax for the tax year that
has come to a close (reference Sections 161(1B) and 205 of the Ordinance).
Obligation to pay advance tax, therefore, can survive only till the payment of
the tax due for the tax year and not beyond. After the tax due has been paid,
the provision of advance tax loses its purpose and legal force. In fact,
advance tax has to be paid contemporaneously with the running tax year and
cannot be demanded if tax due or tax payable for the tax year has been duly
paid. The liability of advance tax,
therefore, ceases once
the tax due
has been paid. An irresistible conclusion is that if no tax is payable
for the tax year it is but obvious that no advance tax for the that tax year is
payable. It might be handy to refer to Union Bank Ltd. vs. Federation of
Pakistan (1998 PTD 2116) wherein it was held: "if a person is not liable
to pay a certain kind of tax he cannot be assessed to pay that tax in
advance." In Elahi Cotton Mills vs. Federation of Pakistan (PLD 1997 SC
582) it is held that: "where there is exemption from the payment of tax it
would equally apply to advance tax."
24.
Other than the estimated amount of advance tax under Section 147, the
Ordinance provides, inter alia, for collection or deduction of advance tax in
the electric bills. The purpose remains the same i.e., collection of tax in
advance during the year. Even in these cases, if the said advance tax is not
collected on the electric bills for any reason and finally the tax due is paid,
the chargeability of tax under the said provision (Section 235) loses its mischief.
25.
In the present circumstances the petitioners have filed the tax returns
for the tax year ending June, 2009 while the interim relief suspending the
payment of advance tax on electricity bills remained in force. Admittedly the
said tax returns have been filed online electronically which (it is an admitted
position) are only entertained or accepted if the income tax is paid on the
income declared besides acknowledgement receipts issued by the respondent
department show that there is refund outstanding in favour of majority of the
petitioners.
26.
If the petitioners were to pay advance tax for the Tax Year ending 30th
June, 2009, when the tax due for the year has already been paid, it would
amount to double taxation which is not provided for by the Ordinance under
Section 235 of the Ordinance and cannot be permitted. "The rule of
avoidance of double taxation is merely a rule of construction; therefore, it
ceases to have application when the legislature expressly enacts a law, which
results in double taxation of the same income. The law so made cannot be held
to be invalid merely on the ground that it results in double taxation. In the
absence of a clear provisions stipulating double or multiple levies, the Courts
would lean in favour of avoiding double taxation (Introduction to
Interpretation of Statutes by Dr. Avtar Singh, reprint edition 2007 page 236,
relying upon Municipal Council, Kota vs Delhi Cloth & General Mills Co.
Ltd. (AIR 2001 SC 1060).
27.
In the present set of circumstances when advance tax under Section 235
of the Ordinance could not be collected due to a restraining order of the Court
and finally before the vacation of the restraining order the tax due for the
tax year was paid, the concept of advance tax and the provisions of transitional
advance tax (i.e, Section 235) cannot be pressed against the
petitioners. The provisions
of advance tax
have to be equitably interpreted in this particular
case keeping in view the purpose and mandate of the law. "Though equity
and taxation are often strangers, attempts should be made that these do not
remain always so and if construction results in equity rather than in
injustice, then such construction should be preferred to the literal
construction. The Courts should whenever possible, unless prevented by the
express language of any section or compelling circumstances of any particular
case, make a benevolent and justice oriented interference and facts must be
viewed in the social milieu of a country. Too hyper-technical and legalistic
approach should be avoided in looking at a provision which must be equitably
interpreted and justly administered. In the scheme of administration of
justice, the law like any other laws will have to be interpreted reasonably and
whenever possible in consonance with equity and justice. The principle that a
fiscal statute should be construed strictly does not rule out the application
of a reasonable construction so as to give effect to the intention of the
Legislature. (Taxmann's Interpretation of Taxing Statues page 406 placing
reliance on CIT v. J.H.Gotla [1985] 156 ITR 323 (SC), Saroj Aggarwal v. CIT
[1985] 156 ITR 497 (SC), (Late) Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162
ITR 888 (SC), CIT v. S.Teja Singh [1959] 35 ITR 408 (SC) and Nowroji Jehansir Gamadia
v. Dy Collector (AIR 1986 Bom 373).
28.
Lord Denning, in his book, The Discipline of Law, made a seminal
observation on `ironing out the creases' by quoting a passage from Seaford
Court Estates Ltd v. Ashar ([1949] 2 All ER 155);
"Whenever a statute comes up for
consideration it must be remembered that it is not within human powers to
foresee the manifold sets of facts which may arise, and even if it were, it is
not possible to provide for them in terms free from ambiguity. The English
language is not an instrument of mathematical precision. Our literature would
be much the poorer if it were. This is where the draftsman of Acts of
parliament have often been unfairly criticized. A judge, believing himself to
be fettered by the supposed rule that he must look to the language and nothing
else, laments that the draftsman have not provided for this or that, or have
been guilty of some or other ambiguity. It would certainly save the judges
trouble if Acts of Parliament were drafted with divine prescience and perfect
clarity. In the absence of it, when a defect appears a judge cannot simply fold
his hands and blame the draftsman. He must set to work on the constructive task
of finding the intention of Parliament, and he must do this not only from the
language of the statute, but also from consideration of the social conditions
which gave rise to it and of the mischief which it was passed to remedy, and
then he must supplement the written words so as to give "force and life;
to the intention of the legislature...A judge should ask himself the question:
If the makers of the Act had themselves come across this ruck in the texture of
it, how would they have straightened it out? He must then do as they would have
done. A judge must not alter the material of which it is woven, but he can and
should iron out the creases." (emphasis supplied)
29.
In the present case, the intention of the Ordinance and the scheme of
advance tax does not require that the petitioners to repay advance tax after
they have paid the tax due and any interpretation to this effect will result in
injustice and double taxation which is not the intention of the law.
30.
On a constitutional plane, demand of tax, which is no more payable by
the petitioner as it already stands paid defeats "economic justice."
Under the preamble to the Constitution and the Objectives Resolution it is
provided that: "Wherein shall be guaranteed fundamental rights, including
equality of status, of opportunity and before law, social, economic and
political justice ...." Economic Justice echoes in the fundamental rights
guaranteed under the Constitution, especially Articles 23 and 24 of the
Constitution. Petitioners have a right to hold their property and cannot be
deprived of their property except in accordance with law. If a tax due has been
paid there is no constitutional or lawful justification to demand tax under the
garb of advance tax. The impugned demand of advance tax under Section 235 of
the tax year ending June, 2009, in the peculiar circumstances of this case, offends
the fundamental rights of the petitioner and is, therefore, void and without
any lawful authority.
31.
The arguments of the Revenue that the "Act of the Court"
cannot prejudice any one has no application to the present case as the Revenue
has not suffered any loss, tax returns have been filed, tax duly paid, and
refund in favour of the petitioners is outstanding. It was also argued that
under Section 170 the refund is to be adjusted against other taxes and
therefore the instant advance tax be charged as arrears has no force. Section
170 (3) envisages a situation where if the commissioner is satisfied that tax
is overpaid, he shall apply the excess in reduction of any other taxes. This
provides for a situation where the tax is overpaid by a tax-payer and does not
authorize the revenue to charge advance tax as arrears after the close of the
tax year so that the tax is in excess to be adjusted against other taxes.
32.
The objection that the case is hit by res judicata and Order II, Rule 2
of the CPC has no force. The issue decided in the earlier litigation pertained
to the vires of Section 235 of the Ordinance while in this case, the vires is
not in question but the effect of interim orders enjoyed by the petitioners in
the earlier round of litigation, which is a subsequent event, and fresh cause
of action.
33.
I hold that given the unique circumstances of the case, the payment of
advance tax (which the petitioners did not pay due to grant of interim relief
in their favour in the earlier round of litigation) through electricity bills
under Section 235 for the tax year ending 30th June, 2009 is unconstitutional,
unlawful besides being an exercise in futility, which cannot be permitted and
is, therefore, set aside.
34.
Now coming to the payment of advance tax for the two quarters for the
period for July till December, 2009. The complexion of the case changes because
the tax year in this case is still running and will end on 30th June, 2010.
According to the petitioners advance tax for these two quarters has been paid
through other sources during the currency of the interim relief granted in the
earlier round of litigation. If that be the case, the petitioners can
conveniently take credit of the amount charged as advance tax in the
electricity bills for the said quarters under sections 147 and 168 of the
Ordinance. The said flexibility is available to the petitioners under the
Ordinance and it will not be a case where the petitioner will be asked to pay
advance tax for six quarters instead of four, which appears to be the
apprehension of the petitioners.
35.
I, therefore, find that the petitioners are not aggrieved as far as the
payment of advance tax for the two quarters (i.e., September and December,
2009) is concerned. To this extent the claim of the petitioners is dismissed.
The advance tax on the electricity bills for July, 2009 till December, 2009 is
payable by the petitioners. However, respondent department will ensure that if
the petitioners approach for the department for adjustment/tax credit the same
will be expeditiously decided in accordance with law.
36.
In this view of the matter, the petitions are partially allowed. The
demand of advance tax on the electricity bills under Section 235 of the
Ordinance during the Tax Year ending on 30th June, 2009 is set aside as being
unconstitutional, unlawful and without lawful authority, while to the extent of
advance tax charged in the electricity bills for the next two quarters i.e.,
September and December, 2009 (for the Tax Year ending 30th June, 2010), the case
of the petitioners is dismissed.
37.
The valuable assistance rendered by the amicus curiae Mr. Asim Zulfiqar,
Chartered Accountant, is acknowledged.
38.
Disposed of accordingly.
SCHEDULE-A
"147. Advance tax paid by the
taxpayer. (1) Subject to sub-section (2), every taxpayer [whose income was
charged to tax for the latest tax year under this Ordinance or latest
assessment year under the repealed Ordinance] other than--
(a) income
chargeable to tax under the head "Capital Gains";
(b) income
chargeable to tax under Sections 5, 6 and 7;
[(ba) income chargeable to tax under
Section 15;]
(c) income
subject to deduction of tax at source under Section 149; or
[(ca) income
chargeable to tax under Section 233 and clauses (a) and (b) of sub-section (1)
of Section 233-A;]
(d) income
from which tax has been collected under Division II or deducted under Division
III and for which no tax credit is allowed as a result of sub-section (3) of
Section 168,
shall be liable to pay advance tax for the
year in accordance with this section."
"168. Credit for tax collected or
deducted. (1) For the purposes of this Ordinance--
(a) the
amount of any tax deducted from a payment under Division III of this Part [or
Chapter XII] shall be treated as income derived by the person to whom the
payment was made; and
(b) the
amount of any tax collected under Division II of this Part [or Chapter XII] or
deducted under Division III of this Part [or Chapter XII] shall be treated as
tax paid by the person from whom the tax was collected or deducted.
(2) Subject to sub-sections (3) and (4),
where an amount of tax has been collected from a person under Division II of
this Part [or Chapter XII] or deducted from a payment made to a person under
Division III of this Part [or Chapter XII], the person shall be allowed a tax
credit for that tax in computing the tax due by the person on the taxable
income of the person for the tax year in which the tax was collected or
deducted.
(3) No tax credit shall be allowed for any
tax collected or deducted that is a final tax under sub-section (7) of Section
148, [clauses (a), (b) and (d) of sub-section (1) of Section 151, sub-Section
(1B) of Section 152,] [sub-section (6)] of Section 153, sub-section (4) of
Section 154, [Section 155] sub-section (3) of Section 156, [sub-section (2) of
Section 156A, Section 233, clauses (a) and (b) of sub-section (1) of Section
233A] or [sub-section (5) of Section 234 [or Section 234A].]
(4) A tax credit allowed under this
section shall be applied in accordance with sub-section (3) of Section 4.
(5) A tax credit or part of a tax credit
allowed under this section for a tax year that is not able to be credited under
sub-section (3) of Section 4 for the year shall be refunded to the taxpayer in
accordance with Section 170."
"235. Electricity consumption. (1)
There shall be collected advance tax at the rates specified in Part-IV of the
First Schedule on the amount of electricity bill of a commercial or industrial
consumer.
(2) The person preparing electricity
consumption bill shall charge advance tax under sub-section (1) in the manner
electricity consumption charges are charged.
(3) Advance tax under this section shall
not be collected from a person who produces a certificate from the Commissioner
that his income during tax year is exempt from tax.
(4) The tax collected under this section
[upto bill amount of twenty thousand rupees per month] shall be minimum tax on
the income of a person (other than a company). There shall be no refund of the
tax collected under this section, unless the tax so collected is in excess of
the amount for which the taxpayer is chargeable under this Ordinance in the
case of a company.]"
SCHEDULE-B
Writ Petitions No.68, 72, 73, 81, 82, 83,
84, 105, 137, 170, 191, 217, 218, 220, 230, 259, 260, 261, 262, 263, 264, 265,
270, 275, 276, 277, 278, 280, 331, 344, 376, 380, 381, 384, 385, 514, 515, 520,
521, 522, 523, 546, 547, 558, 563, 577, 620, 621, 649, 650, 653, 654, 656, 657,
663, 664, 665, 666, 667, 668, 669, 703, 704, 705, 706, 707, 708, 709, 710, 717,
719, 721, 752, 753, 754, 755, 756, 757, 776, 779, 780, 781, 785, 786, 787, 788,
789, 791, 796, 797, 813, 814, 815, 816, 838, 869, 870, 873, 874, 875, 876, 880,
882, 893, 943, 944, 945, 946, 947, 954, 955, 968, 973, 974, 975, 1009, 1010,
1011, 1012, 1037, 1043, 1095, 1096, 1098, 1105, 1143, 1216, 1217, 1221, 1222,
1245, 1297, 1312, 1352, 1410, 1417, 1483, 1700, 1701, 1702, 1703, 1704, 1705,
1706, 1707, 1708, 1709, 1710 and 1862 of 2010.]
(R.A.) Petition
partially allowed.
----------------------
