Commissioner Inland Revenue, Zone-VII, Regional Tax Office-II, Lahore v. Messrs Techlogix Pakistan (Pvt.) Ltd.
Lahore High Court
Before: Shahid Jamil Khan and Asim Hafeez, JJ.
Commissioner Inland Revenue, Zone-VII, Regional Tax Office-II, Lahore — Applicant
Versus
Messrs Techlogix Pakistan (Pvt.) Ltd. — Respondent
P.T.R. No. 200 of 2013 Heard on: 9th November, 2021
Income Tax Ordinance, 2001 — Sections 113(3)(b), 133(1) and 153(6)
Payments for Goods and Services — Minimum Tax — Scope
The dispute concerned the applicability and effect of the proviso added to section 153(6) of the Income Tax Ordinance, 2001.
The Appellate Tribunal Inland Revenue had allowed the taxpayer’s appeal and set aside the concurrent orders of the authorities below.
The High Court examined the relationship between the first proviso to section 153(6), which dealt exclusively with companies, and the later proviso added through the Finance Act, 2009, concerning payments for services.
The Court held that turnover, as defined in the re-enacted section 113(3)(b) of the Income Tax Ordinance, 2001, meant gross fees for rendering services other than those covered by final discharge of tax liability for which tax was separately paid or payable.
The insertion of the later proviso, in the context of the re-enacted section 113, was considered unnecessary for companies because the exclusion of income from the Final Tax Regime (FTR) already brought such income within the Normal Tax Regime (NTR), where it could become liable to minimum tax if the conditions of section 113 were satisfied.
The Court held that there was no express or implied repeal of the first proviso to section 153(6). The first proviso continued to deal exclusively with companies, whereas the later proviso applied to persons other than companies.
Both provisos were mutually exclusive and could operate harmoniously without rendering either provision redundant.
The Reference Applications were disposed of accordingly.
Interpretation of Statutes
Harmonious and Conjoint Reading
The Court emphasized that where two statutory provisions appear to overlap, they should be read harmoniously and conjointly.
Such an interpretation is necessary to avoid redundancy, superfluousness or rendering any provision ineffective where both provisions can reasonably coexist.
Circulars and Instructions
The Court also held that circulars or instructions issued by the Federal Board of Revenue (FBR) cannot be given a status superior to the text of the law.
Administrative circulars may explain the department’s understanding, but they cannot override or alter the plain meaning of statutory provisions.
Representation
Imran Rasool appeared for the Applicant.
For the connected reference applications, Sarfaraz Ahmad Cheema, Liaquat Ali Chaudhry, M. Shahid Usman, M. Naeem Munawar, Raja Sikandar Khan, Saba Saeed and Salman Zaheer Khan appeared for the department.
Momin Sultan, Assistant Attorney-General, also appeared.
For the taxpayer, Shahbaz Butt, Khurram Shahbaz Butt, Muhammad Ahsan, M. Usman Zia and Asad Abbas Raza appeared.
For taxpayers in the connected applications, Zohaib Ali Sindhu, Javed Akhtar, Asad Hussain, Azeem Ullah Virk, Ch. Qamar Zaman, Zahid Atiq, Malik Nadir Ali Sherazi, Muhammad Nouman Shams Qazi and Ch. Zeshan Afzaal Hashmi appeared.
Date of Hearing: 9th November, 2021.
Judgment
ASIM HAFEEZ, J.
Background
The Reference Application challenged the order dated 06.03.2013 passed by the Appellate Tribunal Inland Revenue, Lahore.
The Tribunal had allowed the taxpayer’s appeal and annulled the concurrent orders passed by the authorities below.
A number of connected Reference Applications and Constitutional Petitions involving identical legal issues were heard together.
Core Controversy
The principal controversy concerned the scope and effect of the proviso inserted along with sub-clause (iii) to the second proviso of section 153(6) of the Income Tax Ordinance, 2001, through the Finance Act, 2009.
The department contended that the later proviso, often referred to during the hearing as the “third proviso,” had substituted or repealed the first proviso to section 153(6).
The taxpayers argued that the later proviso had an independent existence and did not affect the scope or applicability of the first proviso.
Third Proviso
The later proviso declared that tax deducted under section 153(1)(b), relating to the rendering or provision of services, would constitute minimum tax.
Questions of Law
The Court reformulated the legal issues into the following questions:
- Whether the later proviso inserted through the Finance Act, 2009, limited or excluded the effect of the first proviso to section 153(6).
- Whether the first and later provisos were mutually exclusive or inconsistent to the extent of repugnancy and, if so, whether the later provision prevailed by implied repeal.
- Whether conflicting FBR circulars and instructions influenced the textual interpretation of the provisos.
Department’s Arguments
The department argued that the later proviso had removed the distinction between the corporate and non-corporate sectors for transactions covered by section 153(1)(b).
It was submitted that tax deducted on payments for services should form part of turnover for determining minimum tax for both companies and non-companies.
The department further argued that the class of taxpayers created by the first proviso, namely companies, had effectively been repealed by implication.
Reliance was also placed upon subsequent FBR instructions which withdrew an earlier circular.
Taxpayers’ Arguments
The taxpayers maintained that the first proviso continued to operate independently despite the insertion of the later proviso.
They argued that the exclusion of companies under the first proviso remained valid and that there was no legislative intention to repeal it.
According to the taxpayers, the two provisos dealt with different classes of taxpayers and should therefore be interpreted harmoniously.
Relevant Legislative Framework
The Court reproduced the relevant provisions of section 153.
Under section 153(6), tax deducted on transactions referred to in section 153(1) or (1A) was generally treated as final tax.
The first proviso, inserted through the Finance Act, 2006, excluded companies from the operation of section 153(6) in respect of payments for services under section 153(1)(b).
The second proviso, added through the Finance Act, 2007, excluded certain other transactions from the Final Tax Regime.
The Finance Act, 2009 subsequently inserted sub-clause (iii) to the second proviso and the later proviso declaring that tax deducted under section 153(1)(b) would be minimum tax.
Legislative Intent
The Court held that the legislative intent was clear.
Before the Finance Act, 2009, tax deducted from persons other than companies on payments for services was treated as final tax.
The purpose of inserting sub-clause (iii) was to remove such income from the Final Tax Regime and classify it under the Normal Tax Regime.
This change affected non-corporate taxpayers who were previously covered by the Final Tax Regime.
Re-enacted Section 113
The Court considered the re-enactment of section 113 through the Finance Act, 2009.
Section 113 provided the mechanism for determining minimum tax based upon turnover.
Under section 113(3)(b), turnover included gross fees for rendering services, except services covered by final discharge of tax liability for which tax had separately been paid or was payable.
Accordingly, once income was excluded from the Final Tax Regime, it automatically entered the Normal Tax Regime and could become liable to minimum tax if the conditions of section 113 were fulfilled.
No Implied Repeal
The Court rejected the department’s contention that the later proviso repealed the first proviso.
The Court observed that such an interpretation overlooked the effect of the re-enacted section 113.
The first proviso continued to deal exclusively with companies.
The later proviso addressed persons other than companies by removing their service income from the Final Tax Regime.
Accordingly, there was no express or implied repeal.
The two provisos were mutually exclusive and could coexist harmoniously.
Harmonious Interpretation
The Court emphasized that both provisos should be read conjointly.
Such a reading avoided redundancy and ensured that each provision retained independent meaning and effect.
The first proviso governed companies, whereas the later proviso governed persons other than companies.
FBR Circulars and Instructions
The department relied upon later FBR instructions which had superseded Circular No. 6 of 2009.
The Court held that this argument had no bearing upon the interpretation of the statute.
Administrative circulars and instructions cannot be elevated above the text of the law and cannot alter statutory rights or obligations.
Answers to the Questions
The Court answered the reformulated questions as follows:
- First Question: Answered in the negative. The later proviso did not limit or repeal the first proviso.
- Second Question: Answered in the affirmative to the extent that the first and later provisos were mutually exclusive and coexisted harmoniously, catering to separate classes of taxpayers, with no repugnancy between them.
- Third Question: Answered in the negative. FBR circulars and instructions did not control the interpretation of the statutory provisions.
Final Order
The Reference Applications were disposed of in accordance with the answers given to the reformulated questions.
The Office was directed to send a copy of the order under the seal of the Court to the learned Appellate Tribunal in terms of section 133(5) of the Income Tax Ordinance, 2001.
Result
Reference Applications disposed of accordingly.