The COMMISSIONER INLAND REVENUE vs MEKOTEX (PVT — 2024 PLD 1168 SUPREME-COURT

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The COMMISSIONER INLAND REVENUE VS MEKOTEX (PVT.) LIMITED S. 65B (as amended by the Finance Act, 2019)---Constitution of Pakistan, Art. 25---Amendments made to Section 65B of the Income Tax Ordinance, 2001 by the Finance Act, 2019 ("2019 amendments"), vires of---Tax credit---Purchase of plant and machinery for an industrial undertaking set up in Pakistan---Competency of legislature to modify or withdraw the benefit of tax credit through retrospective amendments---Past and closed transaction---Vested right---Scope---For purposes of present case there were two categories of taxpayer companies; the "first category" consisted of those companies who had both purchased and installed the plant and machinery by 30 June 2019, while the "second category" included those who had purchased the plant and machinery by 30 June 2019 but installed it after that date but before 30 June 2021---Provisions of subsection (1) of Section 65B of the Income Tax Ordinance, 2001 are to be read in conjunction with subsection (2)---When so read together, it becomes clear that to avail the benefit of the tax credit under Section 65B, taxpayer companies must fulfill two conditions: first, they have to purchase the plant and machinery; and second, they have to install the purchased plant and machinery in an industrial undertaking set up in Pakistan---Only when both of these conditions are fulfilled does a taxpayer company acquire a vested right to avail the benefit of the tax credit conferred by Section 65B---In the present case the second category of taxpayer companies had purchased the plant and machinery before 1 July 2019, when the 2019 amendments came into force, but had not yet installed it---Therefore, they had fulfilled only one of the two required conditions---As a result, they had not yet acquired any vested right to avail the benefit of the tax credit conferred by Section 65B, thus no question arose as to them being affected by the 2019 amendments---As for the first category of taxpayer companies, they had undoubtedly acquired a vested right to avail the benefit of the tax credit conferred by Section 65B---This was because they had fulfilled both of the required conditions by 1 July 2019, when the 2019 amendments came into force; they had both purchased and installed the plant and machinery by that date---Vested right of a taxpayer company to avail the benefit of the tax credit conferred by Section 65B matured into a past and closed transaction upon the filing of the claim by the taxpayer company, either separately as per the instructions of the Federal Board of Revenue (FBR), if such or similar instructions existed, or along with the income tax returns, as the case may be---In the present case, the second category of taxpayer companies had neither filed the claim separately, as per the FBR instructions, nor filed their income tax returns along with the claim by 1 July 2019, when the 2019 amendments came into force---Therefore, their vested right did not "crystallize" into a past and closed transaction---By way of the 2019 amendments the proviso added to subsection (1) of Section 65B of the Income Tax Ordinance, 2001, was in violation of the prohibition against discrimination and the guarantee of equal treatment provided by the fundamental right enshrined in Article 25 of the Constitution---This proviso reduced the rate of the tax credit for the tax year 2019 from 10% to 5% of the amount invested, whereas for all other tax years from 2010 to 2018, taxpayer companies were granted a tax credit at the rate of 10% of the amount invested---As a result, the first category of taxpayer companies had been discriminated against and had not been afforded the equal treatment that was given to other taxpayer companies for the tax years 2010 to 2018---As for the second category of taxpayer companies, their case was distinguishable from the first category, therefore, the amendment made to subsection (2) of Section 65B, which reversed the expiry date of availing the benefit of the tax credit from 30 June 2021 to 30 June 2019, did not fall within the scope of the constitutional prohibition contained in Article 8 read with Article 25 of the Constitution---Supreme Court declared that the proviso added to subsection (1) of Section 65B through the 2019 amendments infringed the fundamental right of the first category of taxpayer companies to protection against discrimination and the guarantee of equal treatment under Article 25 of the Constitution, and was therefore liable to be struck down; that the change made to subsection (2) of Section 65B through the 2019 amendments did not infringe any of the fundamental rights of the second category of taxpayer companies guaranteed by Articles 18, 23, 24 and 25 of the Constitution---Petitions were converted into appeals, which were partly allowed.

The COMMISSIONER INLAND REVENUE vs MEKOTEX (PVT — 2024 PLD 1168 SUPREME-COURT

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