TAX treatment of the income of Workers' Profit Participation Fund-

Citation Name : 2019 PTD 2305 LAHORE-HIGH-COURT-LAHORE
Side Appellant : COMMISSIONER INCOME TAX
Side Opponent : RIAZ BOTTLERS (PVT.) LTD.
S. 25(c)---Companies Profits (Workers' Participation) Act (XII of 1968), Ss. 9 & 2---Investment of Workers' Profit Participation Fund---TAX treatment of the income of Workers' Profit Participation Fund---Amounts subsequently recovered in respect of deductions---Scope---Department assailed order of Appellate Tribunal and contended that it was justified to levy TAX on an amount utilized by TAX payer in respect of Workers' Profit Participation Fund made upto the year 1998-1999, which amount remained payable till 2001 under S. 25(c), Income TAX Ordinance, 1979---Contention of TAX payer was that deduction made on account of Workers' Profit Participation Fund did not fall within the ambit of S. 25(c) Income TAX Ordinance, 1979 because the companies were allowed to use the fund for its business but the income arising out of the same was declared to be exempt under the Companies Profits (Workers' Participation) Act, 1968---Validity---Section 2 of Companies Profits (Workers' Participation) Act, 1968 dealt with investment of funds whereas S. 9 explicitly provided an exemption of income of the fund including capital gain---TAX payer was granted an exemption by special LAW , therefore, the Appellate Tribunal had rightly observed that deduction made on account of Workers' Profit Participation Fund did not fall within the ambit of S. 25(c) of Income TAX Ordinance, 1979 and that the companies falling under the scheme of the Companies Profits (Workers' Participation) Act, 1968 were allowed to use the fund for their business operations, however, the companies were obliged to pay profit at the rate of 2.5 per cent above the Bank rate to compensate the use of the fund in the business operations---Reference application was dismissed.

Citation Name : 2019 PTD 2050 LAHORE-HIGH-COURT-LAHORE
Side Appellant : NISHAT HOTEL AND PROPERTIES LIMITED
Side Opponent : The PROVINCE OF PUNJAB
Ss. 2(j), 3(1), 5(4), 8, 36(a), 36(b) & 36(c) [as amended by the Punjab Revenue Authority (Amendment) Act (III of 2016) and Punjab Revenue Authority (Second Amendment) Act (XL of 2016)]---Punjab Sales TAX on Services Act (XLII of 2012), Preamble---Punjab Revenue Authority ('Revenue Authority')---Absence of notification under S.3(1) of the Punjab Revenue Authority Act, 2012 ('the Act') for establishment of the Revenue Authority---Omissions, discrepancies and defects in the Punjab Revenue Authority Act, 2012 highlighted in the case reported as Institute of Architects, Pakistan (Lahore Chapter) v. Province of Punjab and others (PLD 2016 Lahore 321)---Validation of such omissions, discrepancies and defects through the Punjab Revenue Authority (Amendment) Act, 2016 (III of 2016) ['First Amendment Act'] and Punjab Revenue Authority (Second Amendment) Act, 2016 (XL of 2016) ['Second Amendment Act']---Vires of---Both the 'First Amendment Act' and 'Second Amendment Act' were made effective from 1st July 2012, however, retroactivity of the Revenue Authority was reiterated in S.36(c) of the Act to establish it by command of LAW , without issuance of notification under S. 3(1)---All actions taken by Chairperson, during the interregnum period were deemed, by fiction of LAW , to have been taken by the Revenue Authority and the sales TAX and other amounts levied, charged, collected or realized were validated under the Act---Legislative competence to promulgate the impugned First and Second Amendment Acts was not in question---Since the Provincial Legislature was competent to enact the impugned First and Second Amendment Acts, therefore, S.36(c) of the Act had cured the lacuna of non-issuance of notification for establishment of the Revenue Authority---Absence of consequent amendment in S. 3(1) of the Act and other provisions, shall not affect the validation, which was to be treated as silenced or impliedly repealed---Protection in form of validity of proceedings under S. 8 of the Act was available for future, only in presence of a bona fide defect in constitution of the Revenue Authority or a vacancy---Such protection could not be allowed to be misused by the Executive by keeping the defect or not filling the vacancy without a justifiable excuse---After the judgment in Institute of Architects, Pakistan (Lahore Chapter) v. Province of Punjab and others (PLD 2016 Lahore 321), charging and collection of TAX levied under the Punjab Sales TAX on Services Act 2012, from 1st July, 2012 till the date of judgment was required to be validated for public welfare and in the interest of society---Since composition and establishment of the charging and collecting Revenue Authority was declared illegal, therefore, to achieve the purpose of validation, all actions, including framing of rules, defective appointments and constitution of Revenue Authority was required to be validated as well---Single handed performance of functions by Chairperson on behalf of the Revenue Authority were validated, by invoking doctrine of fiction, under S.36(b) of the Act---Purpose in favour of society existed and there was no prohibition under the Constitution, to pass a retrospective LAW to validate such actions and decisions, hence the provisions of Ss.36(a) & 36(b) of the Act were held to have been enacted competently---Constitutional petitions challenging the vires of the impugned First and Second Amendments Acts were dismissed accordingly.

Citation Name : 2019 PTD 1994 LAHORE-HIGH-COURT-LAHORE
Side Appellant : COMMISSIONER INLAND REVENUE
Side Opponent : EDUCATION EXCELLENCE LTD.
Ss. 133 & 113---Reference to High Court---Minimum TAX ---Adjustment of excess amount of TAX paid---Scope---TAX payer, while filing the return of income, had claimed adjustment of minimum TAX brought from TAX years 2011, 2012 and 2013---Additional Commissioner had observed that as the appellant had not paid any TAX under normal TAX regime, therefore, the credit under S. 113(2)(c), Income TAX Ordinance, 2001 was not available---Commissioner Inland Revenue (Appeals) had rejected the appeal of TAX payer---Appellate Tribunal accepted the appeal of TAX payer and held that S. 113(2)(c), Income TAX Ordinance, 2001 was applicable in loss cases or zero TAX payable cases---Validity---Findings of Appellate Tribunal were rooted in LAW ---Reference application was dismissed.

Citation Name : 2019 PTD 1922 LAHORE-HIGH-COURT-LAHORE
Side Appellant : HAPPY MANUFACTURING CO. (PVT.) LTD.
Side Opponent : FEDERAL BOARD OF REVENUE
S. 214-C---Income TAX Rules, 2002, R. 231-F---Right of Access to Information Act (XXXIV of 2017), S. 16(1)(d)(i)---Constitution of Pakistan, Art. 19-A---Selection of TAX payer for audit---Parameters for audit, non-disclosing of--- Right to information---Scope---Term 'matter of public importance'---Applicability---Petitioners were income TAX assessees who sought disclosure of parameters for audit by TAX authorities as same was matter of public importance---Plea raised by authorities was that parameters for audit could not be disclosed due to confidentiality envisaged by provisions of S. 214-C of Income TAX Ordinance, 2001---Validity---Term 'matter of public importance' was a matter which effected and had its repercussions on public at large---Risk parameters for audit of persons or classes of persons under S. 214-C of Income TAX Ordinance, 2001 by Federal Board of Revenue were applicable to TAX payers throughout the country---Such was a matter of public importance and provisions of Art. 19-A of the Constitution were attracted in circumstances---Once persons or classes of persons were selected for audit under S. 214-C of Income TAX Ordinance, 2001 they were to be informed about particular risk parameters applied to them for selection of audit if demanded by them for their information---High Court declared that orders for not disclosing specific parameter applied to petitioners for selection of their cases for audit under S. 214-C of Income TAX Ordinance, 2001 as illegal, without LAW ful authority and set aside the same and directed the Federal Board of Revenue to inform petitioners forthwith if requested by them, specific parameters on basis of which their cases were selected for audit under S. 214-C of Income TAX Ordinance, 2001---Constitutional petition was allowed accordingly.

Citation Name : 2019 PTD 1882 LAHORE-HIGH-COURT-LAHORE
Side Appellant : Rana FAHAD HUSSAIN
Side Opponent : The FEDERATION OF PAKISTAN
Ss. 5 & 8---Declaration of domestic assets in Pakistan---Payment of TAX ---Finality of proceedings---Scope---Petitioner had sought benefit under S. 5 of Voluntary Declaration of Domestic Assets Act, 2018 and had filed declaration accordingly---Deputy Commissioner Inland Revenue rejected the declaration so filed on the ground that the recovery notice had been issued against the petitioner after passing of assessment order on the basis of which the petitioner was liable to pay certain amount---Validity---Explanation included in S. 8 of Voluntary Declaration of Domestic Assets Act, 2018 clarified that declaration could even be made in respect of undisclosed income or assets which were pending proceedings under Income TAX Ordinance, 2001 until same had attained finality---Basic purpose of the explanation was to clarify that even where proceedings pending under Income TAX Ordinance, 2001 related to assessment or otherwise, the TAX payer could make a declaration of undisclosed income or assets uptil the point when those proceedings had attained finality---Proceedings under Income TAX Ordinance, 2001 attained finality when the TAX payer exhausted the right of appeal and order was passed thereon by the appellate forum---Order of assessment was not a final order for the reasons that it could be challenged in an appeal or revision as the case might be and it only became final when it went through all the forums and remedies available under the LAW ---TAX payer was entitled to pursue the remedy of appeal or second appeal as such remedies reopened the assessment, meaning that it was not final unless it crossed all forums under that LAW in which it could be challenged and the order of the last forum would be final---High Court held that petitioner was entitled to file a declaration under S. 5 of Voluntary Declaration of Domestic Assets Act, 2018---Constitutional petition was accepted.

Citation Name : 2019 PTD 1828 LAHORE-HIGH-COURT-LAHORE
Side Appellant : COMMISSIONER INLAND REVENUE, T.R.O., FAISALABAD
Side Opponent : FAQIR HUSSAIN
Ss. 111, 122 & 133---Amendment of assessment---Unexplained income or assets---Mandatory for Department to issue notice under S. 111 of the Income TAX Ordinance, 2001 before invoking its provisions---Interpretation of S. 111 of the Income TAX Ordinance, 2001---Scope---Question before the High Court was whether specific separate notice under S. 111(1) of the Income TAX Ordinance, 2001 was required when notice under S. 122 of the Income TAX Ordinance, 2001 had already been served upon the TAX payer, and unexplained income/assets in terms of S. 111 of the Income TAX Ordinance, 2001 had been added to income of the TAX payer---Held, that word "notice" was not specifically mentioned in S. 111 of the Income TAX Ordinance, 2001 but words used therein, that "the person offers no explanation" and "or the explanation offered by the person is not, in the Commissioner's opinion, satisfactory" clearly suggested that for an explanation to be offered by a TAX payer, he must have been issued a notice---After said notice and failure on the part of TAX payer to offer satisfactory explanation, such addition could be made in income of TAX payer and for an explanation to be offered by a registered person, he must have been issued notice without which no explanation could be offered, within the contemplation of S. 111 of the Income TAX Ordinance, 2001---Non-issuance of separate notice under S. 111 of the Income TAX Ordinance, 2001 caused prejudice to the TAX payer as substantial compliance of said provisions of LAW had not been made---High Court observed that non-issuance of proper notice in order to invoke provisions of S. 111 of the Income TAX Ordinance, 2001 could not be taken lightly and its non-compliance may render proceedings not in conformity with or according to the intent and purpose of LAW ---In the present case, neither notice under S. 111 of the Income TAX Ordinance, 2001 had been issued to TAX payer nor was TAX payer specifically confronted with such proposed addition so that the TAX payer could have advanced some explanation in this regard---LAW mandated the issuance of separate notice / explanation within the contemplation of S. 111, therefore, same could not be made redundant---Reference was answered, accordingly.

Citation Name : 2019 PTD 1780 LAHORE-HIGH-COURT-LAHORE
Side Appellant : FAISALABAD ELECTRIC SUPPLY COMPANY LTD. (FESCO)
Side Opponent : FEDERATION OF PAKISTAN through Secretary, Finance, Islamabad
S. 25 & proviso---Access to record, documents, etc.---Conduct of audit under S. 25 of the Sales TAX Act, 1990---Nature of proviso to S. 25 of the Sales TAX Act, 1990 whereby audit could only be conducted once in three years---Retrospective application of such proviso---Scope----Question before the High Court was whether proviso to S. 25 of the Sales TAX Act, 1990 which provided that audit under S. 25 of the Sales TAX Act, 1990, was to be conducted only once in three years, had retrospective application and whether it was available to a TAX payer already undergoing audit---Held, that proviso to S. 25 of the Sales TAX Act, 1990 was measure to curtail excessive exercise of power to conduct audit of a registered person and aimed at restraining repeated and protracted audit proceedings eroding Constitutional rights and safeguards available to TAX payers---Rationale behind such proviso was that a statutory power must be exercised justly and reasonably--- Where audit proceedings under S. 25 of the Act were pending at the time of insertion of proviso to S. 25 of the Sales TAX Act, 1990; benefits of rule of retrospective application was available to such a TAX payer--- Section 25 of Sales TAX Act, 1990 was neither a charging provision nor it created a liability and provided procedure for monitoring self-assessment procedure available to TAX payer---Said proviso functioned to exclude cases of excessive use of power while original design of LAW to conduct audit justly, fairly and reasonably was retained---High Court held that proviso added to S. 25(2) of the Sales TAX Act of 1990, being procedural, beneficial and curative in nature, would apply retrospectively---Constitutional petition was allowed, accordingly.

Citation Name : 2019 PTD 1674 LAHORE-HIGH-COURT-LAHORE
Side Appellant : TAYYAB PAPER MILLS
Side Opponent : FEDERATION OF PAKISTAN through Secretary Finance, Division, Islamabad
S. 57---Rectification of mistake----Order for rectification under S.57 of Sales TAX Act, 1990; nature of---Clerical and arithmetical errors---Exercise of powers under S.57 of the Sales TAX Act, 1990---Application for rectification under S.57 Sales TAX Act, 1990 could only be made after issuing notice to the concerned party---Clerical errors and arithmetical errors were essentially typing errors which were apparent from face of record and the same did not mean errors of findings on facts or on LAW ---Rectification application under S.57 of the Sales TAX Act, 1990 allowed a competent officer of the Department to correct a mistake which was apparent on face of the record but did not allow for re-assessment of a case or compilation of a different opinion from one that was taken earlier---Liability of an assessee could not be changed under S.57 of Sales TAX Act, 1990 and matters which were not part of the original adjudicatory process could not be introduced in the rectification process.

Citation Name : 2019 PTD 1628 LAHORE-HIGH-COURT-LAHORE
Side Appellant : QAISAR ABBAS
Side Opponent : The MEMBER (TAXES), BOARD OF REVENUE, PUNJAB, LAHORE
TAX ing statutes---Nature of statutory appeal provided for in a TAX ing statute---Scope---In any TAX ing scheme, right of appeal was provided under LAW to resolve disputes of liability to pay TAX and such right of appeal was a statutory right under a TAX ing statute, which meant that any recovery under such statute was subject to said right of appeal---Assessment order was necessary in a TAX ing statute in order to support demand raised and to ensure that TAX ing officer had TAX ed a person as per the confines of LAW ----Such assessment order ensured uniformity and equality in demand raised in absence of which doubt was raised and arbitrary exercise of jurisdiction was possible, as there existed no check on a TAX ing officer, and a citizen was substantially without protection from unequal and unjust demands.

Citation Name : 2019 PTD 1542 LAHORE-HIGH-COURT-LAHORE
Side Appellant : T.U. PLASTIC INDUSTRY CO. (PVT.) L TD.
Side Opponent : FEDERATION OF PAKISTAN
Ss. 3, 3(1A), 74A & 4(c) [as amended by Finance Act (XXVII of 2017)]---SRO No. 1125(I)/2011 dated 31-12-2011---SRO No.584(I)/ 2017 dated 01-07-2017---Validation of a LAW ---Sub-constitutional legislation---Scope---Dispute was with regards to including goods in list with approval of Federal Minister-in-Charge by notification in the Official Gazette---Validity---Section 74A, Sales TAX Act, 1990 could validate the acts of the Federal Government and not that of Federal Board of Revenue with the approval of the Federal Minister Incharge---Mere exercise of Constitutional jurisdiction did not mean that Legislature was divested of its powers to enact a validating LAW to stunt and nullify effect of judgment rendered by High Court---Attempt by Legislature to circumvent the constitutional mandate by enacting a sub-constitutional legislation could only be achieved by an amendment in the Constitution and not otherwise---If Constitution mandated that certain act had to be performed in a certain manner and construction of that mandate was made by Supreme Court then nothing short of Constitutional amendment would undo the effect of judgment of Supreme Court---High Court declared that amendment in S. 4(c) of Sales TAX Act, 1990 as enacted through Finance Act, 2017 was ultra vires the Constitution and of no legal effect---High Court further declared that notification issued in purported exercise of powers conferred by S. 4(c) of Sales TAX Act, 1990 was also ultra vires and of no legal effect and same was struck down---Constitutional petition was allowed in circumstances.