NISHAT CHUNIAN LTD. vs COMMISSIONER INLAND REVENUE, LTU, LAHORE Ss — 2025 PTD 1448 INLAND REVENUE APPELLATE TR

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NISHAT CHUNIAN LTD. VS COMMISSIONER INLAND REVENUE, LTU, LAHORE Ss. 20(1), 85 & 108 ---Income Tax Rules, 2002, R. 23---Income from business---Deductions, dis-allowance of---Transactions between associates---Arm's length---Scope---Inadmissible financial charges---Scope---Commissioner Inland Revenue (Appeals) upheld the impugned disallowance by observing that the taxpayer could not rebut the calculation/basis established by the officer and that the taxpayer had not given any calculation to establish that the interest offered for tax at Rs.28,905,058/- was not at arm's length transaction within terms of S. 108 of the Ordinance 2001---Summary of calculation of mark-up submitted by appellant / taxpayer indicates that loan to subsidiary company vary from date to date but assessment order depicts that the Assessing Officer misconceived the calculation of mark up of short term borrowing as per record submitted by the appellant / taxpayer---Appellate Tribunal Inland Revenue set-aside the impugned order and remanded the matter back to the Assessing Officer for reappraisal and decision while directing taxpayer /appellant to submit the complete summary of calculation of mark up to the Assessing Officer to reach out a just conclusion---Appeal, filed by Taxpayer, was disposed of accordingly. S. 154 & Second Schedule, Pt. IV, Cl. 41aa as inserted through Finance act, 2012---Exports---Tax, reduction of---Scope---Taxpayer reduced export tax by 50% of tax liability under S. 154 of the Income Tax Ordinance, 2001 ('the Ordinance 2001') within the terms of clause 41aa of Part IV of Second Schedule ('41aa') of the Ordinance 2001---Officer Inland Revenue (OIR) disallowed the claim reduction for the reason that clause 41aa being inserted through Finance act 2012 having prospective in nature was applicable from the tax year 2013---Taxpayer filed appeal as the Commissioner-appeals agreed with the findings of OIR---Validity---Law existing in a particular tax year or tax period is applicable for the purpose of determining tax liability---any change of tax whether lowering or enhancing is substantive in nature and cannot be given retrospective effect---Instant appeal pertains to 2012 whereas clause 41aa was inserted through Finance act, 2012 which was to be applicable from tax year 2013---No benefit can be given to the taxpayer of the said clause being not available in the statute at the relevant time---The order of the Commissioner-appeals does not suffer from any legal infirmity and the same is accordingly upheld. Taxpayer's appeal on this issue was rejected. S. 65B as inserted vide Finance Act, 2010 and subsequently amended through Finance Act, 2012---Tax credit for investment---Words "extension" and "expansion", addition of---Retrospective effect---Scope---Beneficial legislation---Scope---Plea of the taxpayer being that subsequent amendment in S. 65B of the Income Tax Ordinance, 2001 ('the Ordinance 2001') made through Finance Act 2012 whereby words "extension" and "expansion" were added and where tax credit was made allowable (against tax payable including on account of minimum tax and final taxes) carry retrospective effect as a beneficial legislation---Whether beneficial, remedial or curative legislation has a retrospective effect?---Validity---Retroactive legislation , as a general rule, is rightly looked upon with disfavor because of its tendency to be unjust and oppressive; consequently, in the absence of any indication in the statute that the legislature intended for it to operate retroactively, it must not be given retrospective effect---However, where an Act is procedural, declaratory or explanatory or where a statute is passed for the purpose of supplying an obvious omission in a former statute, it is to operate retrospectively, obviously because it does not affect vested rights---The legal position that emerges is that generally beneficial legislation is to be given liberal interpretation, however, for the said legislation to have a retrospective effect, the beneficial legislation must carry curative or remedial content---Therefore, such legislation must either clarify an ambiguity or an omission in the existing law and must, therefore, be explanatory or clarificatory in nature---While beneficial legislation is to be liberally interpreted, in order to advance the beneficent object of the statute, it in no manner means that "beneficial legislation" or "liberal interpretation" necessarily includes or interchangeably means retrospective application of the statute---Unless the legislation is remedial, curative, explanatory or clarificatory, it cannot be interpreted retrospectively merely on the ground that the legislation is generically beneficial in nature---An amendment becomes a part of the original statute and must be read together---While an amendment, being considered as the last expression of the will of the legislature, generally prevails, however, such effect is prospective and would not be given any retroactive construction, overriding effect on prior rights, unless the verbiage of the provision makes such construction necessary---In the present case, there was no ambiguity or anomaly existing in the law, as it stood prior to Finance Act, 2012---Section 65B of the Ordinance 2001 was/ is the section allowing tax credit subject to certain conditions---Amendment in the said S. (65B) vide Finance Act, 2012 simply introduced additions of words "extension" and "expansion" and allowed tax credit against Minimum Tax and payment of tax in Final Tax Regime in S. 65B and that by no means remedy or cure any ambiguity or omission in the law---There is nothing in the language of S. 65B (as amended by Finance Act 2012) to suggest that the amendment is retrospective---The amendment merely enlarges the scope of tax credit to be allowed in case of "extension" and "expansion" (in addition to balancing, modernization and replacement of plot and machinery already installed in an industrial undertaking)---Further, provision under S. 65B provides tax credit to be allowed for the first time on tax payable on account of minimum tax and final taxes payable under the law, which was not in existence in previous tax years; the same being in the nature of a substantive amendment would be prospective, in the absence of any indication to the contrary---Hence, plea of taxpayer to label the given amendments as remedial or curative legislation is misconceived---Thus, the benefit of amendments in S. 65B made through Finance Act, 2012 was not available to the taxpayer / appellant for tax made through Finance Act, 2012 having no retrospective application---Commissioner Inland Revenue (Appeals) rightly held the amendments in S. 65B through Finance Act, 2012 as of prospective having no retrospectivity---Appeal , filed by Taxpayer/ Company, was dismissed. Ss. 18, 21(n), 37 & First Sched., Pt. I, Division VII---Income from business---Deductions not allowed---Capital nature of expenses---"Expenses on sale of shares of subsidiary company"---Scope and effect---Officer Inland Revenue (OIR) made addition of the expenses on sale of shares of subsidiary company ('expenses-in-question') holding that the expenses claimed were not wholly and exclusively for business purpose---Department filed appeal as the Commissioner Inland Revenue (Appeals) ('the Commissioner-Appeals') deleted the disallowance holding that expenses incurred on the sale of shares had not been charged against business income---Validity---Taxpayer / Company claimed the expenses-in-question being cost of disposal of shares against the consideration received---Under the head capital gain, the taxpayer / company deducted the cost from the consideration to reach the value of capital gain---Since shares were held for more than one year, hence capital gain was exempt for tax year 2012 given the slab rates prevalent at that time as per Division VII of Part I of First Schedule of the Ordinance 2001---The Commissioner - Appeals rightly deleted the impugned addition under this head which does not warrant any external intervention---Appellate Tribunal Inland Revenue upheld the impugned order on issue-in-hand---Appeal, filed by the Department, was dismissed. S. 34(3)---accrual-basis accounting---Scope and effect---Officer Inland Revenue (OIR) disallowed provisional expense being inadmissible as provisions of other benefits and compensated absences and provident funds contributions has been claimed and was included in under the head of salaries---Department filed appeal as the Commissioner Inland Revenue (appeals) ('the Commissioner-appeals') deleted the impugned addition---Held, that the Commissioner-appeals rightly observed that in mercantile system of accounting expenses are to be allowed when it become payable and have been determined with reasonable accuracy---It is a general practice that liability regarding leave encashment, an unavailed leave is calculated at the end of the year and then paid in subsequent year---Record revealed that the addition was made by the OIR without bringing on record any material within terms of S. 34(3) of the Income Tax Ordinance, 2001 ('the Ordinance 2001')---Under provision of S. 34(3) of the Ordinance 2001, an amount shall be payable by a person when all the events that determine liability have occurred and the amount of liability can be determined with reasonable accuracy---Similarly, contribution to recognized provident fund is an admissible expense---Thus, impugned addition was rightly deleted---No case of interference by the Tribunal was made out---appeal filed by Department was dismissed. S. 129---apportionment of expenses, matter of---Remanding the matter---Scope---Taxpayer / Company filed appeal against the remanding order passed by the Commissioner Inland Revenue (appeals) ('the Commissioner-appeals---Validity---Record suggests that the apportionment of expenses ('issue-in-question') was duly confronted with details tabulated in the Show Cause Notice/Order-in-Original and in response the taxpayer filed reply which was examined---The Officer Inland revenue (OIR) denied to concede to the taxpayer's contentions and made apportionment of expenses between local sales and export sales---Taxpayer brought his grievance before the Commissioner-appeals who rather than deciding the appeal on merits casually remanded back the issue to the OIR---Tribunal annulled/set-side the impugned order being illegal and against the provisions of S. 129 of the Income Tax Ordinance, 2001 and by exercising power of remand available to the Tribunal remitted the matter back to the OIR for re-examination---appeal was disposed of accordingly. Ss. 129 & 133---First appellate Tax authority---Remand, powers of---Scope---appellate Tribunal Inland Revenue---Powers---It was more appropriate for the Commissioner Inland Revenue (appeals) ('the Commissioner - appeals') to conclude the issue-under-consideration there and then as provisions of S. 129 of the Income Tax Ordinance, 2001 ('the Ordinance 2001') does not allow him to pass remand order in respect of assessment orders but he deemed it justified to remit the matter back for verification---No reasoning can be gathered from impugned order which necessitated the Commissioner-appeals to remand back the issues as after only narrating the submissions of the taxpayer the Commissioner - appeals straight away made directions to the assessing officer---Secondly, the Commissioner - appeals does not hold power to remand back the matters pertaining to assessment orders under the provisions of S. 129 of the Ordinance 2001---Remand orders, besides being illegal and unlawful under S. 129 of the Ordinance 2001, in such casual fashion not only add misery to the taxpayer but also burdens the taxation officers of unnecessary litigation---Even otherwise, the Commissioner - appeals being the first appellate authority is obliged to decide the issues raised before him on merits---The Commissioner - appeals has escaped from his responsibility of deciding the appeal on merits through a speaking order---The Commissioner - appeals being the first appellate authority has all the powers to conduct detailed inquiry and investigation of the matter as first appeal is always a continuation of proceedings---Once it is established that remand order is illegal then despite having power to decide the case on merits the best course for appellate Tribunal Inland Revenue ('Tribunal') is toremit the matter back rather than deciding the same on merits to avail the benefits of views of the lower authorities---Tribunal annulled/set-side the impugned order being illegal and against the provisions of S. 129 of the Ordinance 2001 and by exercising power of remand available to the Tribunal remitted the matter back to the OIR for re-examination---appeal was disposed of accordingly. Preamble---Income Tax Ordinance (XLIX of 2001), S. 60A---Workers' Welfare Fund, contribution to---Scope and effect---Amendments made to the Workers Welfare Fund Ordinance, 1971 through Finance Act, 2006 and Finance Act, 2008---Department filed appeal as the Commissioner Inland Revenue ('the Commissioner-Appeals') directed that Workers' Welfare Fund (WWF) be charged on the income determined after appeal effect according to Workers Welfare Fund Ordinance, 1971) ('the WWF Ordinance') prior to amendments made through Finance Act, 2006 and 2008---Plea of the department being that the amendments in WWF Ordinance were not finally declared ultra vires and was still part of the statute---Validity---The contributions made to the WWF are not in the nature of tax; hence, the amendment made through Finance Act, 2006 and 2008 are unconstitutional---Since the amendments made in the WWF fund through Finance Act, 2006 and 2008 had been declared unconstitutional by the apex courts therefore the ground of the department does not hold water---The Commissioner-Appeals rightly directed to charge WWF as existed prior to amendments made through Finance Act, 2006 and 2008---No case of interference was made out by the Department---Appeal, filed by the Department, was dismissed.

NISHAT CHUNIAN LTD. vs COMMISSIONER INLAND REVENUE, LTU, LAHORE Ss — 2025 PTD 1448 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN

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