APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,

ISLAMABAD

ITA No.1272/IB/2024
(Tax year, 2018)
******
Mr.Mohammad Saghir,
M/s Alsaleha Pharmacy, Shop
Applicant
No.03, Block No.26, Mir Plaza, Civic
Centre, Melody, Islamabad.
Vs
The Deputy Commissioner Inland
Respondent
Revenue, RTO, Islamabad.
Appellant By: Mr.Asif Fareed, ITP
Respondent BY: Ms.Sidra Shafique,DR

Date of Hearing: 10.09.2024

Date of Order: 10.09.2024

ORDER
M. M. AKRAM (Judicial Member): The titled appeal has been filed by the

appellant taxpayer as the first appeal under section 131 of the Income Tax

Ordinance, 2001 (“the Ordinance”) against the Impugned Order dated

30.06.2024 passed by the Officer of Inland Revenue, Unit-II, Zone North, Range-

I RTO, Islamabad for the tax year 2018 on the grounds as set forth in the memo

of appeal.

2. The key facts from the record reveal that the appellant taxpayer's income

tax affairs were selected for audit under Section 214C of the Ordinance by the

Federal Board of Revenue (FBR). An intimation regarding the selection, bearing

barcode No. 10000077934302, was issued through IRIS on 28.09.2020, with

compliance required by 13.10.2020. Subsequently, a notice dated 07.11.2023

was issued under Section 177(1) of the Ordinance, requesting records,

documents, and accounts, with a compliance deadline of 14.11.2023. The

taxpayer failed to comply by the due date. A reminder was sent on 25.01.2024,

giving the taxpayer until 31.01.2024 to submit the necessary documents.On

13.11.2023, the taxpayer requested an adjournment, which was granted, and a

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hearing was scheduled for 27.11.2023. However, the taxpayer remained non-

compliant, and no further request for adjournment was received. A show-cause

notice under Section 122(9) of the Ordinance was issued through IRIS (barcode

No. 100000188099519) on 19.02.2024, asking the taxpayer to explain

discrepancies found during a preliminary desk audit, with a compliance date of

05.03.2024. The taxpayer requested a 30-day extension on 05.03.2024, followed

by another extension request on 26.03.2024 for an additional 30 days. Both

requests were considered, and time was granted.On 01.05.2024, the taxpayer

submitted a response along with incomplete records and documentary evidence.

After detailed scrutiny of the incomplete submission, a best judgment

assessment order was issued on 30.06.2024 by the Officer of Inland

Revenue. Dissatisfied with this order, the appellant has now approached the

Tribunal, challenging the impugned order on several grounds.

3. This case came up for hearing on10.09.2024.At the outset, the appellant's

Authorized Representative (AR) argued that it is undisputed that the best

judgment assessment order under Section 121 of the Ordinance was passed by

the assessing officer through the impugned order dated 30.06.2024, after the

expiration of the statutory limitation period set out in Section 121(3) of the

Ordinance. He explained that the time limit for completing a best judgment

assessment was extended from five to six years through the Finance Act, 2022,

which applies to the tax year 2022 and onwards. However, since the tax year in

question is 2018, the five-year limitation period should be applicable in this case.

This legal argument was confronted to the Departmental Representative (DR),

who, in response, contended that the amendment related to the procedure, and

would thus have a retrospective effect on the case of the Appellant.

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4. We have heard the parties and perused the record.It is undisputed that

the best judgment order under Section 121 of the Ordinance was issued by the

assessing officer on 30.06.2024, pertaining to the tax year 2018. The key point

of contention between the parties is the applicability of the amendment made to

Section 121(3) of the Ordinance through the Finance Act, 2022, which extended

the time limitation from five to six years. The central issue is whether this

amendment applies to the appellant's case for the tax year 2018 or not.

5. It is a settled principle of statutory interpretation that the applicability of

enactment can best be adjudged from its expressed content and implied intent.

When the enactment itself provides for the same to have effect from a particular

point in time, the express command of the legislature is to be abided by,

interpreted, and applied accordingly. In the present case, the Finance Act, 2022

provides:

"1. Short title and commencement. ─ (1) This Act shall be

called the Finance Act, 2022.
(2) It shall, unless specified otherwise provided, come into
force on the first day of July, 2022.”

Sub-section (2) of section 1 of the Finance Act, 2022, highlighted above, clearly

and expressly provides for its provisions to take effect from 1st July 2022. This

being so, there can be no cavil to its applicability commencing from 1st July 2022

and not for any period prior thereto.

6. With regards to the contention of the learned DR that the amendment

related to the procedure, and would thus have a retrospective effect on the case

of the Appellant, we are afraid this line of argument, though attractive, is not

applicable to the facts of the present case. Like any other fiscal enactment, the

Act provides for three distinct types of provisions. The charging provisions, which

relate to the levy or charge of the tax, which usually state that tax is to be levied

and on what matters, or goods or income and in which manner and at what rate
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and matters relevant thereto. The assessment provisions, deal with the

assessment, calculation, or quantification of the tax for the purposes of

determining the amount of tax due and payable or which has escaped collection

or has been under-assessed or assessed at a lower rate or on which excessive

relief or refund has been allowed. The collection provisions relate to the mode

and manner of receipt or collection of the tax. The charging sections have to be

strictly construed and any benefit found therein has to be given to the taxpayer.

However, the assessment and collection provisions are merely the machinery

sections and they can be liberally construed. The aforesaid categorization of

provisions of fiscal statutes has been very aptly explained in detail by His

Lordship Mr. Justice. Rustam S. Sidhwa, in M/s Friends Sons and

Partnership Concern v. The Deputy Collector Central Excise and Sales

Tax, Lahore and others (PLD 1989 Lahore 337).

7. Now, to the crucial issue of the applicability of amendment introduced in

fiscal statutes. It was in 1905, when Lord Macnaghten, in The Colonial Sugar

Refining Company v. Irving (1905 AC 369) case, speaking for the Privy

Council, opined that:

"As regards the general principles applicable to the case there was
no controversy. On the one hand, it was not disputed that if the
matter in question is a matter of procedure only, the petition is well-
founded. On the other hand, if it be more than a matter of
procedure, if it touches a right in existence at the passing of the Act,
it was conceded that, in accordance with a long line of authorities
extending from the time of Lord Coke to the present day, the
appellants would be entitled to succeed. The Judiciary Act is not
retrospective by express enactment or by necessary intendment. And
therefore the only question is, was the appeal to His Majesty in
Council a right vested in the appellants at the date of the passing of
the Act, or was it a mere matter of procedure? It seems to their
Lordships that the question does not admit doubt. To deprive a
suitor in a pending action of an appeal to a superior tribunal which
belonged to him as of right is a very different thing from regulating
procedure. In principle, their Lordships see no difference between
abolishing an appeal altogether and transferring the appeal to a new
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tribunal. In either case, there is an interference with existing rights

contrary to the well-known general principle that statutes are not to
be held to act retrospectively unless a clear intention to that effect is
manifested."

The above principle of interpretation of statutes was followed and further

developed by the Hon’ble Supreme Court of Pakistan. Some of the leading cases

are Muhammad Ishaq v. State (PLD 1956 SC 256), Nagina Silk Mill,

Lyallpur v. Income Tax Officer, A-Ward, Lyallpur (PLD 1963 SC 322), The

State v. Muhammad Jamel (PLD 1965 SC 681) and Abdul Rehman v.

Settlement Commissioner (PLD 1966 SC 362). It was the case of Adnan

Afzal v. Capt. Sher Afzal (PLD 1969 SC 187) that the said principle was

articulated by the Hon’ble Supreme Court in terms that:

"Nevertheless, it must be pointed out that if in this case process any

existing rights are affected or the giving of retroactive operation
cause inconvenience or injustice, then the Courts will not even in the
case of a procedural statute, favour an interpretation giving
retrospective effect to the statute. On the other hand, if the new
procedural statute is of such a character that its retroactive
application will tend to promote justice without any consequential
embarrassment or detriment to any of the parties concerned, the
Courts would favourably incline towards giving effect to such
procedural statutes retroactively."

The opinion of the Apex Court, rendered in the above referred cases, has

remained un-wavered, as can clearly be seen from decisions that followed, in

particular Ch. Safdar Ali v. Malik Ikram Elahi and another (1969 SCMR

166), Muhammad Abdullah v. Imdad Ali (1972 SCMR 173), Bashir v. Wazir

Ali (1987 SCMR 978), Mst. Nighat Yasmin v. National Bank of Pakistan

(PLD 1988 SC 391), Yusuf Ali Khan v. Hong Kong and Shanghai Banking

Corporation, Karachi (1994 SCMR 1007), Malik Gul Hasan & Co. and 5

others v. Allied Bank of Pakistan (1996 SCMR 237) and Commissioner of

Income Tax, Peshawar v. Islamic Investment Bank Ltd. (2016 SCMR

816). In the more recent case of Additional Commissioner Inland Revenue,

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Audit Range, Zone-I v. Eden Builders Limited,(2018 SCMR 991), where the

question was whether or not the provisions of section 122(2) of the Income Tax

Ordinance, 2001, being procedural in nature, would have retrospective effect,

and whether pursuant to the amendment brought about in section 122(2) of the

Income Tax Ordinance, 2001 through Finance Act, 2009 consequential extension

in date of expiry of the limitation period would operate prospectively or

otherwise, the Hon’ble Supreme Court held that prospective applicability:

"……….. was not permissible as certain rights had already

come to vest in the respondents on the date on which they
had filed their tax returns under the original section…..."

The Hon’ble Supreme Court also went on to reiterate the view taken earlier in

the Nagina Silk Mill case (supra):

"The Courts must lean against giving a statute retrospective

operation on the presumption that the Legislature does not intend
what is unjust. It is chiefly where the enactment would prejudicially
affect vested rights, the legality of past transactions, or impair
existing contracts, that the rule in question prevails ... Even if two
interpretations are equally possible, the one that saves vested rights
would be adopted in the interest of justice, especially where we are
dealing with a taxing statute."

8. Thus, the judgments cited establish a consistent legal principle regarding

the retrospective application of statutory amendments, particularly in fiscal law.

These rulings underscore that an amendment is generally not applied

retroactively unless explicitly stated or necessarily implied. If a statute affects

only procedural aspects, it may apply retroactively. However, if it interferes with

existing substantive rights (e.g., a right to appeal), the courts typically avoid

retrospective application to protect vested rights, prevent injustice, and ensure

fairness.In Colonial Sugar Refining Co. v. Irving, the Privy Council set a key

precedent by holding that procedural changes cannot remove a party's right to

appeal in ongoing cases, as doing so would infringe upon an existing right.

Following this reasoning, the Supreme Court of Pakistan developed and applied
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this principle in numerous cases, including Adnan Afzal v. Capt. Sher Afzal,

where it stated that even procedural changes would not apply retroactively if

they disrupt existing rights or cause injustice. For instance, in Eden Builders

Limited, the Court ruled against the retroactive application of a procedural

amendment to tax law, which would have impacted the vested rights of

taxpayers who had already filed under the original terms.

In sum, these judgments articulate a strong presumption against

retroactive application, especially in fiscal law, unless retroactivity promotes

justice without adversely affecting the parties’ rights. This principle promotes

legal certainty and respects taxpayer rights, ensuring that statutory amendments

in tax law are applied prospectively unless a clear intention to the contrary is

evident.

9. In light of the above discussion and relevant judgments, the extension of

the limitation period from five to six years under Section 121(3) of the Ordinance

applies only from the tax year 2022 onward, as this amendment would have

affected the vested rights of taxpayers who had already filed under the previous

terms. Therefore, the best judgment assessment under Section 121 should have

been issued within five years following the end of the relevant tax or income

year, which expired on 30.06.2023. Consequently, the impugned order dated

30.06.2024 is declared void ab initio, illegal, and without jurisdiction, and is

hereby annulled.

Sd/-
(M. M. AKRAM)
JUDICIAL MEMBER
Sd/-
(IMRAN LATIF MINHAS)
ACCOUNTANT MEMBER