The COMMISSIONER INLAND REVENUE, ZONE-I, GUJRANWALA vs GUJRANWALA ELECTRIC POWER COMPANY (GEPCO), GUJRANWALA S

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The COMMISSIONER INLAND REVENUE, ZONE-I, GUJRANWALA VS GUJRANWALA ELECTRIC POWER COMPANY (GEPCO), GUJRANWALA Ss. 53 & 113, Second. Sched., Pt-IV, Clause (11)(xvi) & Second Sched. Pt- III, Cl. (5) [as inserted through SRO No.171(I)/2008 dated 21.02.2008 ('SRO 171)]---Extending benefit and curing mischief of accumulated liabilities of Power Distribution Companies (DISCOs)---Retrospective effect---Scope---Department filed Reference as the Appellate Tribunal approved retrospective operation of Cl. (5) of Part-III of the Second Schedule of Income Tax Ordinance, 2001, ('Clause (5)') and extended its benefit for Tax Year 2007 to Taxpayer (DISCO)---Contention of the Applicant/Department was that “Clause (5)” came into effect on 21.02.2008 and was not applicable to Tax Year 2007 from 01.07.2006 to 30.06.2007 as the exemption allowed had to be construed strictly---Stance of the taxpayer (DISCO) was that sub-clause (xvi) of clause (11) of Part-IV of Second Schedule to the Ordinance, 2001, extended exemption to corporatized entities-including taxpayer - from the provision of minimum tax, relating to receipts of sales of electricity, from date of their creation to the date of completion of the process of corporatization, being the date of notification of tariff as the tariff was notified on 24.02.2007 while the SRO No.171(I)/2008 dated 21.02.2008 was introduced to alleviate hardships encountered by the corporatized entities, which had the effect to extend exemption till the year 2013---Validity ---Clause (11) (xvi) of Part-IV of the Second Schedule to the Ordinance, 2001, extended exemption to corporatized entities - including taxpayer - from the provisions of minimum tax, relating to receipts of sales of electricity, from date of their creation to the date of completion of the process of corporatization, which corporatization would be deemed completed till the tariff was notified---Clause (11) (xvi) was omitted through Finance Act, 2008---Clause (5) of Part-III of the Second Schedule to the Ordinance, 2001, was added through SRO No.171(I)/2008 dated 21.02.2008---Taxpayer e-filed return of income for Tax Year 2007 on 12.01.2008, wherein turnover was computed from 24.02.2007 - date of notification of tariff - to 30.06.2007 and purchase price / cost was excluded for the purposes of computing minimum tax, which became deemed assessment order---Later, notice was issued under S. 122 (5A) of the Ordinance, 2001 and in response thereto, taxpayer defended exclusion of the purchase price by pleading retrospective application of clause (5) - SRO No.171(1)/2008 dated 21.02.2008, which defence was rejected and assessment was amended---Amended assessment was upheld by the First Appellate Forum, before being annulled by the Appellate Tribunal---Clause (5) was added in Part-III of the Second Schedule - earlier clause (11) was part of Part-IV of the Second Schedule to the Ordinance, 2001---It is pertinent to mention that Clause (11A) was added to Part-IV of the Second Schedule through Finance Act 2009, wherein sub-clause (xv) was pari materia to sub-clause (xvi) of erstwhile Clause (11)---Section 53 of the Ordinance provides exemptions and tax concessions---Clause (c) of subsection (1) of S. 53 envisages reduction in the tax liability, subject to the conditions and extent thereof specified---Preamble of Part-III replicates spirit of clause (c) of subsection (1) of S. 53---Intention was to reduce the tax liability of corporatized entities, including the taxpayer---SRO No.171(I)/2008 dated 21.02.2008 was promulgated in exercise of powers under subsection (2) of S. 53 of the Ordinance 2001, which per se depicts the object / purpose of Clause (5)---Omission of Clause (11), along with sub-clause (xvi), of Part-IV of Second Schedule through Finance Act 2008 had to be reconciled with the concurrent omission of Section 113 of the Ordinance, also through the Finance Act, 2008---And re-enactment of Clause (11A) of Part-IV of Second Schedule coincided with the re-admission of S.113 of the Ordinance, 2001, both through Finance Act, 2009---Clause (11) of Part-IV of Second Schedule and Clause (5) of Part-III of Second Schedule intended to reduce the liability by excluding the component of purchase price of electricity from the turnover, liable to minimum tax---Clause (5) of Part-IV of Second Schedule assumed accumulation / build-up of liability with respect to corporatized entities, which upon notification of tariff were not entitled to claim exemption, for the purposes of turnover, subject to minimum tax---There is no rational justification to treat Clause (5) of Part-III of Second Schedule having prospective effect, when the intention was to reduce liability - accrued at the time of promulgation of SRO under reference---Reduction in the tax liability, as the object of Part-III suggests existence of liability, in the same manner as exemption inherently acknowledges chargeability and liability of tax---Retrospectivity of Clause (5) is inherently inbuilt, and any contrary construction would nullify the object / purposes thereof---In terms of Clause (5) exclusion of component of purchase price of electricity from the turnover, liable to minimum tax, was granted till the year 2013---High Court found no rational basis to exclude the period, for the purposes of exemption, from notification of the tariff till 21.02.2008---The exclusion was beneficial, intended to remedy the effect of inclusion of purchase price of electricity as component of turnover, liable to minimum tax---Significance of including Clause (5) to Part-III has its own significance, which cannot be ignored---High Court did not find any justification to construe Clause (5) in a manner that benefit thereof was denied to those corporatized entities, in respect whereof tariff was notified before 21.02.2008; such segregation amongst similar class of persons - corporatized entities - was another factor contributing to the retrospective operation of Clause (5)---Superior Court have upheld retrospective application / implementation of such legislative instrument, which exhibited curative and remedial character - intended to address the mischief of accrued liabilities, as in the present case---Appellate Tribunal had not committed any illegality, while passing the order under reference---Thus, proposed questions were answered in the affirmative i.e., against the Department---Reference Application, filed by the Department, was dismissed.

The COMMISSIONER INLAND REVENUE, ZONE-I, GUJRANWALA vs GUJRANWALA ELECTRIC POWER COMPANY (GEPCO), GUJRANWALA Ss — 2025 PTD 166 LAHORE-HIGH-COURT-LAHORE

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