COMMISSIONER INLAND REVENUE, ZONE-V, CORPORATE REGIONAL TAX OFFICE, LAHORE vs POWER LINE CONSTRUCTION COMPANY

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COMMISSIONER INLAND REVENUE, ZONE-V, CORPORATE REGIONAL TAX OFFICE, LAHORE VS POWER LINE CONSTRUCTION COMPANY (PVT.) LTD., LAHORE. Ss. 4, 74, 120 & 122(2)---Dispute regarding applicability of the Income Tax Ordinance, 2001 to a given tax year---Whether the Ordinance, 2001 applies as it stood on 30 June (end of tax year) or on 1 July (beginning of next year)---Tax year being 2009 and notice under Section 122(9) issued in 2015 to amend a deemed assessment---Legality---Each tax year is a self-contained fiscal unit governed by the law as it stands in respect of that tax year alone---Principle enunciated---Ordinance, 2001 applied as it stood on the last day of the tax year. The department's notice was held to be time-barred. The facts of the case in brevity were that the case arose under the Income Tax Ordinance, 2001, concerning the limitation for amendment of assessment under Section 122(2) for the tax year 2009. The respondent company's deemed assessment order under Section 120 was sought to be amended by a notice issued on 18.06.2015. The taxpayer argued that the notice was time-barred based on the version of Section 122(2) applicable on 30 June 2009, which allowed amendment only within five years from issuance of the assessment order. The department contended that the substituted version introduced by the Finance Act, 2009, effective 1st July 2009, extended the limitation period and therefore governed the case. The High Court upheld the taxpayer's view, holding that the earlier provision applied. The pivotal issue requiring determination before the Supreme Court was as to how is the Income Tax Ordinance, 2001 to apply in relation to a given tax year; as it stood at the end of the said year (i.e. on June 30th) or as amended on July 1st by the Finance Act of that year, which is the beginning of the next financial year. Held: The genesis of the rule in relation to the charging section of the Income Tax Act, 1922 was that the statute applied not as it stood on the last day of the previous year but rather as on the first day of the year when the statute was brought into effect by the Finance Act in relation thereto, and that was inclusive of all amendments made to the Act up to and on the latter date. But any amendments made thereafter did not apply to the previous year in question. Or, put differently, the Income Tax Act, 1922 did not apply as it stood on March 31st or June 30th but rather as it stood on the succeeding April 1st or July 1st. For each tax year the 2001 Ordinance applied as it stood at the end of that year. Any other date, including in particular the first day next succeeding, was of no relevance for the simple reason that no such referent existed in the charging provision. The day next succeeding the last day of a tax year was simply the first day of the next tax year. It had no meaning or relevance for the tax year that just ended. Put differently, the end of the year which was to be brought to tax did not, as it did under the predecessor statutes, slide into a year that had also to be taken into account since the tax was to be charged with reference to the latter. Thus, each tax year was, in all aspects, in near complete accord and harmony with the fundamental principle of income tax law, i.e., that each such period is a self-contained unit. Since everything was self-contained in the tax year, which was its own referent for all purposes of the charge, it followed that the 2001 Ordinance applied to that tax year as it stood on the last day of such period, i.e., June 30th. However, this was in relation to the normal tax period, which was the situation in the present case in respect of the tax year 2009, whereas Section 74 also dealt with what was described therein as a special tax year. The same principles applied equally, mutatis mutandis, in relation to a special tax year. If the 2001 Ordinance was amended on or before its last day, that still would not have affected the financial or budgetary position of the Federal Government for the ensuing financial year. The reason was that the tax, though levied on and assessed for the just ended tax year, was nonetheless collected in the following financial year. Therefore, the expected revenue receipts on account of the tax would not be affected. The rates amended up to 30th June for the just ended tax year would both properly close that year and also result in receipts that would be collected in, and therefore for, the ensuing financial year. In the present case, the department took the position that the provision applied as it stood on the date of the notice by when it had of course been substituted to take the form. The High Court held that the change in law could not affect the vested right that had accrued to the taxpayer to have the provision applied as it stood on the last day of the tax year. Therefore, the notice was time-barred. On any view of the matter the department's stand was without merit. The present leave petition was converted into an appeal and the question posed was answered against the department. The appeal failed and the same was dismissed in the circumstances.

COMMISSIONER INLAND REVENUE, ZONE-V, CORPORATE REGIONAL TAX OFFICE, LAHORE vs POWER LINE CONSTRUCTION COMPANY (PVT — 2026 PTD 967 SUPREME-COURT

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