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Income-tax Reference No.7-A of 1978, decided on 7th July, 1986.
---S. 18-A (6) [as amended by Finance Act [L of 1973]--Provision of subsection (6) of S 18-A is not procedural law and is substantive law relating to in come-tax--Amending provision had been inserted in subsection (6) of S. 18-A to remedy a wrong that was being done to assessees and the amending provision would not affect any vested right or create any new obligation--Such amending provisions have to be given retrospective operation for extending benefit to the affected parties in pending cases to give effect to the intent of legislature- Cases which had finally been determined or had attained finality i.e. which were past and closed transactions, could not be re-opened under the amending legislation if there were no express words to that effect employed in the amending law--Amending law, therefore, would have retrospective operation to cover only pending cases.
Prior to its amendment by the Finance Act, 1973, subsection (6) of section 18-A, Income-tax Act, 1922, in case an assessee came within the mischief of this subsection, required such assessee to pay an additional amount, described as 'additional tax', at the rate of per cent per mensem upon the shortfalls for the period from the 1st of April of the year in which payment against the-tax was made, up to the date of regular assessment. If the regular assessment was delayed for any reason the assessee was adversely affected inasmuch as till such time the regular assessment, was made, the liability to pay additional tax at the rate of 2 per cent per mensem continued. A happy and remedial change was brought about by the amendment in this subsection by the Finance Act, 1973, which restricted the period to a maximum of 15 months for which the aforesaid additional tax at the rate of 2 per cent per mensem could be charged i.e. from the first date of April of the year in which the tax was paid up to 30th June of the next year following or up to the date of the regular assessment, whichever was earlier.
For assessment year 1973-74 and subsequent years obviously the additional tax at the rate of 2 per cent per mensem was limited to a maximum period of 15 months. The Controversy in the present case was that to relation to assessment year 1972-73 and earlier years where, the assessment had not been finalised inasmuch as either regular assessment had not been made, an appeal was pending or matter was still sub judice before the High Court in a reference under section 66 of the Income-tax Act, 1922.
In so far as those cases are concerned where no proceedings were pending and finality had attached to the assessment orders, prior to coming into force of the amendment in subsection (6) of section 18-A of the Income-tax Act, 1922, by the Finance Act, 1973, no benefit can be taken due to the amendment. It can be said for the reason that the amendment brought about by the Finance Act, 1973 does not expressly provide that the amendment affects the assessment proceedings, which had already attained finality. Any amendment in the existing law will not affect cases which have been finally determined or proceedings which have attained finality unless the amendment expressly provides for such effect.
In the present cases, the assessment proceedings against the assessees, had not attained finality amendment in subsection (6) of section 18-A had been made by the Finance Act, 1979, as in, all these cases either assessments had not been made by the Income Tax Officer or the matter was pending in appeal before the Tribunal.
Subsection (6) of section 18-A of the Income-tax Act,1922 provided that where payment had been made towards advance tax under subsection (2) or subsection (3) of section 18-A and the amount of advance tax so paid was less than 80 per cent of the tax determined on the basis of the assessment under section 23 an additional amount of tax at the rate of 2 per cent per mensem from the first date of April in the year in which the tax was paid upto the date of the regular assessment was payable by the assessee but after its amendment by Finance Act 1973 this period from first April of the year in which the tax was paid upto the date of the regular assessment was curtailed to a maximum of 15 months i.e. upto 30th of June of the year next following or up to the date of the regular assessment whichever was earlier. Although section 18-A (6) is not a part of section 3 or section 4 of the income-tax Act, 1922, which are the main charging sections, and section 18-A falls under chapter IV of the Income-tax Act, 1922 which chapter is titled Deductions and Assessment. The provision in subsection (6) of section 18-A nonetheless imposed a levy of 23 per cent per mensem upon the assessee whose case came within its mischief for the concerned period and therefore this provision cannot be described as a part of procedural law. It appears to be a part of substantive law relating to Income-tax The law of procedure may be defined as that branch of law which governs the process of litigation. The law providing for payment of additional tax at the rate of 2 per cent per mensem for the concerned period cannot be termed as law dealing with litigation or relating to actions. Subsection (6) of section 18-A cannot be described is procedural law. on the contrary it is a part of the substantive law relating to income-tax as codified then in the Income-tax Act 1922. AS subsection (6) of section 18-A of Income-tax Act, 1922 is not procedural law, the amendment made by Finance Act 1973 in subsection (6) can also not be treated or deemed to be procedural law.
Subsection (6) of section 18-A was obviously very harsh and also unreasonable and unjust in nature. On account of mere delay in the making of regular assessments by the Income-tax Officer the assesses would suffer and become liable for the payment of additional tax at the rate of 2 per cent per mensem for long period which periods did extend to several years as regular assessments where not made by the Income-tax Officers within reasonable periods. To lessen the rigour of this harsh, unreasonable and unjust provision and make the existing law just and reasonable, the aforesaid amendment in subsection (6) of section 18-A was brought about by Finance Act 1973 apparently to redress this grievance. The amendment curtailed the previous indefinite period during which additional tax at the rate of 2 per cent per mensem was charged to a maximum period of 15 months i.e. upto 30th June of the year following the year in which the tax was paid. By doing so the rigour and patent harshness of the previous law was to a very great extent lessned and even if the regular assessment was not made by the Income tax Officer for several years the amendment law brought abourt a very happy change and provided that the assessee would not suffer for which the assessee would be liable to pay additional tax 2 per cent per mensem was restricted to 15 months a reasonable period in the circumstances.
The general rule of construction of statutes is that the enactments are not to be given retrospective operation unless the statute expressly provides so or from the language employed it appears to be the necessary intendment of the legislature. As however remedial statutes are designed to redress an existing grievance and do public good and such statutes normally do no divisions destroy or affect any vested right these are liberally construed. An amending law which is purely remedial and curative, must be liberally construed in favour of the subject. If the rule of liberal construction is to be applied as it obviously should then any doubt should be resolved in favour of retrospective operation if such operation does not destroy or disturb vested rights, impair the obligations of contracts create new liabilities violate do process of law or contrivance some other provision of law and if such operation will carry out the intent of the Legislature as ascertained through the application of the principals of liberal construction.
As the amending provision in the present case had been inserted in subsection (6) of section 18-A to remedy a wrong that was being done to the assesses and the amending provision does not affect any vested right or create any new obligation, the amending provision is to be given retrospective operation for extending benefit to the affected parties in pending cases, to give effect to the intent of the Legislature. A wrong was being done to the assessee by providing for an indefinite period during which they were made liable for payment of additional tax at the rate of 2 per cent per mensem and this wrong was sought to be remedied by the remedial and curative amendment brought about by the Finance Act, 1973 If the intention of the Legislature had been that this remedy should be available only in respect of assessments for the year 1973-74 and subsequent years, the Legislature would have used appropriate words to express such intention. No such appropriate words are mentioned in the amending provision. There is no reason why the remedial provision of the amending law should not be applied to pending proceedings. In fact, this appears to be the intent of Legislature.
Although the amending provision being remedial in nature does not affect any vested right or create any new obligation and is, therefore, retrospective in operation which also seems to be the intent of the legislature, retrospective operation can only cover cases which were pending at the time the amending law was enacted i.e. cases which had not been finally determined or proceedings which had not attained finality. The retrospective effect of the amending law would, therefore, apply only to those cases where assessments had not been made by the Income-tax Officer or where an appeal was pending before the Tribunal or a reference was sub judice before the High Court, at the time the amending law was enacted. The cases which had finally been determined or had attained finality i.e. which were past and closed transactions, cannot be re-opened under the amending legislation as, there are no express words to that effect employed in the amending law.
When reference is made in any law, legal instrument, legal document, legal language or law book or dictionary, about vested right, the reference is to the vested right of a person natural or legal, and never to vested right of the State. Legal theories relating to vested rights never contemplate vested rights of State. By giving retrospective operation to the amending law vested right of the State will not be affected.
The amending law has retrospective operation to cover only pending cases and this appeals to be the intention of the legislature.
The Law and Practice of Income-tax by Kanga and Palkhiwala, 4th Edition, Volume, 1; Bindra's book on The Interpretation of Statutes and General Clauses Acts, 4th Edition; Govinddas v. I.T.O. 103 I.T.R. 123; State of Kerala v. Kartmtharuvi Tea Estate Ltd. (1963) 50 ITR 129; Manekal Vallabhdas Parik and Sons v. Commissioner of Income-Tax (1969) 72 ITR 637; Reliance Jute and Industries Ltd. v. C .I . T . (1979) 120 ITR 921. 021; B. B. & D . Manufacturing Company Private Ltd. v. E.S.I. Corporation A I R 1972 S C 1985; (1976) P T D (Trib) 21; Commissioner of Income-Tax v. Rippon Printing Press P L D 1973 Lah. 849; Whitney v. Commissioners of Inland Revenue (1926) AC 37; Chatturam v. Commissioner of Income Tax (1947) 15 ITR 302; Vidyapat Singhania v. Commissioner of Income Tax (1978) 38 Tax 95; Commissioner of Sales Tax v. Kruddsons Ltd P h D 1974 SC 180; Statutory Construction" by Carwford 1940 Edition; Adam Afzal v. Sher Afzal P L D 1969 S C 187; Muzaffar Ahmed v. Anwar Ali P L D 1965 Dacca 296; Maxwell on The Interpretation of Statutes 12th Edition; Black's Law Dictionary 5th Edition; 82 Corpus Juris Secundum para 388 at page 918; I . T.O. v . Vidayasagar (1970) 21 Tax, 110; Taimur Shah v. Commissioner of Income-Tax P I. D 1976 Kar. 1030; 1985 P T D 529; Muhammad Haroon v. The Crown (P L D 1951 F.C. 118) and The Eastman Photographic Materials Company Limited v. The Comptroller General of Patents, Designs & Trade Marks (1898) A.C. 571 discussed.
--- Amending law--Application and scope--Amending law when and how would be retrospective in operation--Principle stated.
Shaikh Haider, Waheed Farooq, K. Salahuddin, and Nasrullah Awan for the Petitioner.
J.H. Rehmatullah, Ali Athar, Iqbal Naim Pasha, Rehan Hasan Naqvi, Muhammad Nasim, Muhammad Zaki Ahmed for Respondent.
--This judgment will dispose of the following Income-tax References/Cases:-----
| No. of Case | Name of Assessee | Assessment Year | Date of Assessment |
| 1. ITR 7-A/.77 | Olympia Watch Company Limited | (1969-70 (1970-71 | 13-12-197. 30-6-1973 |
| 2.ITC 15/78 | Quaidabad Wollen Mills Limited | 1971-72 | 27-6-1974 |
| 3.ITC .5/78 | Quality Steel Works Limited | 1971-72 | 25-6-1974 |
| 4.ITC 17/78 | Karachi Can Company Limited | 1971-72 | 29-6-1974 |
| 5.TC -2.4/78 | Sanat-o-Hirfat Limited | 1970-71 | 14-6-1973 |
| 6.TC 25/78 | Sanat-o-Hirfat Limited | 1971-72 | 30-5-1974 |
| 7.TC 26-78 | Sanat-o-Hirfat Limited | 1972-73 | 7-4-1975 |
| 8.ITC 38/78 | Shah Nawaz Limited | 1971-72 | 16-6-1974 |
| 9.ITC 52/78 | Pakistan Lubricants Limited | 1972-73 | 19-3-1975 |
| 10. ITR 49/84 | Quaidabad Wollen Mills Limited | 1972-73 | 30-6-1975 |
| 11. ITR 49/84 | Naz Textile Mills Limited | 972-73 | 5-12-1974 |
| 12. ITR 94/84 | Jang Limited. | 1971-72 | 28-6-1974 |
| 13. ITR 96/84 | Jang Publication Limited | 1971-72 | --- |
| 14. ITR 145/84 | Valibahi Kamruddin (Sind) Limited. | (1971-72 to 1969-1979 | (28-4-69 (30-6-1970 (29-6-1971 (30-6-1972 (30-6-1973 (30-6-1973 |
In all these references/cases, the applicant is the Commissioner of Income-tax and the only question of law referred to the High Court for opinion in all these references/cases is as follows:- -
"Whether, on the facts and in the, circumstances of the case, the Appellate Tribunal was justified in directing that additional Tax under section 18-A(6) be charged for 15 months only holding that the amendment made by the Finance Act, 1973, in Section18-A(6) has retrospective effect
It may be observed here that in some of the cases under consideration, the question is worded differently but substance of the question is the same as reproduced above. We heard, at length the arguments of the M/s. Shaikh' Haider, Waheed Faruqi, K. Salahuddin and Nasrullah Awan, advocates, who appeared on behalf of the applicant in these references /cases, the Commissioner of Income-tax, and of M/s J.H. Rehmatullah, Ali Athar Iqbal Naim Pasha, Rehan Hasan Naqvi, Muhammad Naseem 'and Muhammad Zaki Ahmed, advocates; on behalf of the assessees/respondents.
2. Relevant provision of the how repealed Income-tax Act of 1922 is subsection -(6) of section 18-A; which provision, before its amendment by Finance Act, 50 of 19.73, read as follows:----
(6) Where in any year an assesses has paid tax under subsection (2) or subsection (3) on the basis of his own estimate and the tax so paid is less than eighty percent of the tax determined on the basis of the assessment under section 23, hereinafter called regular, assessment, and calculated in the manner laid down in subsection (1) so far as such tax relates to income to which the provisions of subsections (2), (2-A) and (2-B) of section 18 do not apply an additional amount of tax at the rate of two per cent per mensem from the first day of. April in the year in which the' tax was paid upto the date of the said regular assessment shall be payable by the assessee upon the amount by which: the tax so paid falls short of the said eighty per cent:
(a) Where tax is paid under section 22-A, or
(b) Where a provisional assessment under section, 23-B has been made but, regular assessment has not been made, the additional amount of tax shall be calculated .in accordance , with the foregoing, provision:
(i) up to the date on which tax under section 22-A or as provisionally: assessed was paid; and
(ii) thereafter such additional amount shall be calculated at the rate aforesaid on the amount by 'which the tax as so paid, in so far as it relates to income to which the provisions of subsections (2), (2-A), and (2-B) of section 18 do not apply, falls short of the said eighty per cent:
Provided further that, where as a result of an appeal under section 30 or of a revision under section 33-A or of a reference to the High Court under section 66, the amount on which additional tax was payable under this subsection has been reduced the additional tax shall be reduced accordingly and the excess additional tax paid, if any, shall be refunded together with the amount of income-tax that is refundable:
Provided further that, where a business, profession or vocation is newly set up and is assessable on the income, profits and gains of its first previous year in the year following that in which it is set up, the additional tax payable shall be computed from the first day of July of the said year."
The words "the date of the said regular assessment" appearing in subsection (6) of section 18-A of the Income-Tax Act, 1922 (underlined by us in the provision reproduced above), were substituted by section 2(7) (a) of the Finance Act 1973 by the following words: -
"Thirtieth day of June of the year next following or upto the date of, the said regular assessment, whichever is the earlier."
The aforesaid amendment made in subsection (6) of section 18-A of the Income-tax Act, 1922, by the Finance Act of 1973, therefore, changed the crucial provision to read as follows: -
"...an additional amount of tax at the rate of two per cent per mensem from the first day of April in the year in which the tax was paid up to thirtieth day of June of the year next following or upto the date of the said regular assessment, whichever is earlier, shall be payable by the assessee upon the amount by which the tax so paid falls short of the said eighty per cent."
Previously, therefore, additional amount at the rate of 2% per mensem upon the shortfall was payable for the period from the first day of April in year in which the tax was paid upto the date of the regular assessment by an assessee whose case came within the mischief of section 18-A (6) of the Income-Tax Act, 1922. The assessee would be fortunate if the regular assessment was made by the concerned Income-Tax Officer at an early date but the assessee would have suffered and liable to pay much more in case the regular assessment was delayed and was made say after 2 or 3 years.
The amendment brought about by the Finance Act of 1973, however, restricted the period to maximum of 15 months for which the aforesaid additional amount @ 2% per mensem was payable i.e. from the first day of April in the year in which the tax was paid upto 30th day of June of the next year following or, upto the date of the regular assessment whichever was earlier.
Assessment years involved in the cases under consideration are from 1964-65 to 1972-73. In all these matters, the Income-tax Tribunal held that the aforesaid amendment brought about by the Finance Act, 1973, in subsection (6) of section 18-A of the Income-tax Act, 1922, is retrospective and, therefore, additional tax could only be charged for a maximum period of 15 months. The view of the Income-Tax Tribunal is supported by the learned counsel for the respondents/ assessees, whereas learned advocates appearing on behalf of the Income-tax Department contended that the relief provided by the amendment in subsection (6) of section 18-A of the Income-tax Act, 1922 by the Finance Act, 1973 can be claimed by assessees in respect of financial year commencing from 1-7-1973 and thereafter and not for earlier assessment years.
3. Main arguments on behalf of the Income-Tax Department were advanced by Mr. Shaikh Haider Advocate. It was submitted by him that all subsections of section 18-A were procedural in nature except subsections (6) and (8) and that amended subsection (6) applies to assessment year 1973-74 and subsequent years and not earlier assessment years and, therefore, in none of the cases in question benefit of the amended subsection (6) could be extended to the assessees. Reference was made by learned counsel to the commentary on pages 526-528 of the "The Law and Practice of Income Tax" by Kanga and Palkhiwala, 4th Edition, Volume 1, about the purpose of inserting section 18-A, in 1944 in the Income-Tax Act, 1922. It was submitted by Mr. Shaikh Haider that the Income-tax Tribunal decided wrongly the point in issue and contended that:--
(a) the amendment made in subsection (6) of section 18-A by the Finance Act 1973 is not worded to act retrospectively;
(b) provisions of subsection (6) of section 18-A are substantive and not procedural in nature; and
(c) the law of the assessment year applies for assessment of the tax in respect of the income of the previous year.
It was further contended that the Legislature had used the words "additional tax" in subsection (6) and not "penalty" and this also indicated that provisions of subsection (6) were substantive in nature. Attention was drawn to section 2(14) of the Income Tax Act 1922 which defined "tax" to include additional tax.
On the question of retrospectivity, Mr. Shaikh Haider also referred to the Chapter titled "Retrospective Operation of Statutes" in Bindra's book on The Interpretation of Statutes and General Clauses Acts, 4th Edition. Learned counsel also cited the following decisions: -
(i) Govinddas v. ITO (1976) 103 ITR 123.
In this judgment the Indian Supreme Court observed as follows on the point of retrospectivity of statutes: -
"Now it is a well-settled rule of interpretation followed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure.
The general rule as stated by Halsbury in Volume 36 of the Laws of England (third edition) and reiterated in several decisions of this Court as well as English Courts is that "all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only."
(ii) State of Kerala v Kartmtharuvi Tea Estate Ltd. 1963) 50 ITR 129.
In this decision by the Kerala High Court, it was laid down that the law to be applied in income-tax matters is the law in force in the assessment year unless it is otherwise stated or implied and, consequently, where a law is passed after the expiry of the accounting period but during the assessment year, the law applicable to assessment of income earned during the accounting period is the law in force during the assessment year and not the law in force during the accounting period.
(iii) Manekal Vallabhdas Parik and Sons v. Commissioner of Income Tax (1969) 72 1 T R 637.
In this judgment Gujrat High Court observed that it was well settled that, though the subject of charge is the income of the previous years, the law to be applied is that in force in the assessment year unless otherwise stated or implied and any amendment which is in force at the beginning of the assessment year must govern the case, though the amendment is made after the income under assessment is earned.
(iv) Reliance Jute and Industries Ltd. v. C.I.T. (1979) 120 ITR 921. 021.
In this judgment it was observed by the Supreme Court of India that it is a cardinal principle of tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication.
(v) B.B. & D. Manufacturing Company Private Ltd. v. E.S.I. Corporation A I R 1972 S C 1985.
Commenting upon the difficulty in demarcating substantive law from procedural law, Supreme Court of India observed is this judgment as follows: -
"The topic of procedure has been the subject of academic debate and scrutiny as well as of judicial decisions over a long period but in spite of it, it has defined the formulation of a logical test or definition which enables us to determine and demarcate the bounds where procedural law ends and substantive law begins or in other words it hardly facilitates us in distinguishing in a given case whether the subject of controversy concerns procedural law or substantive law. The reason for this appears to be obvious, because substantive law deals with rights and is fundamental while procedure is concerned with legal process involving actions and remedies, which Salmond defines "as that branch of law which governs the process of litigation," or to put it in another way, substantive law is that which we enforce while procedure deals with rules by which we enforce it."
Mr. Shaikh Haider also pointed out that the first decision of the Income Tax Tribunal where the view was taken that the amendment is retrospective is reported in (1976) P T D (Trib) 21. In this decision, which was later on followed by the Tribunal in other cases, reliance inter alia had been placed by the Tribunal on the following reported decisions:---
(a) Commissioner of Income Tax . Rippon Printing Press P L D 1973 Lah. 849.
(b) Whitney v. Commissioners of Inland Revenue (1926) AC 37.
(c) Chatturam v. Commissioner of Income Tax (1947) 15 ITR 302.
It was argued by Mr. Shaikh Haider that the Tribunal in its first reported decision on the question wrongly placed reliance on the aforesaid three reported judgments. It was pointed out that in Rippon's case Lahore High Court was dealing with an amendment in section 26-A of the Income Tax Act 1922, which provision related to registration of partnerships and it was held there that the amendment in section 26-A was retrospective in application, being procedural, curative and remedial in nature. Then it was submitted by learned counsel that the other two cases i.e. Whitney's case and Chatturam's case, also had no bearing on the question of retrospectivity of the amendment in subsection (6) of section 18-A of the Income Tax Act 1922.
Other learned counsel appearing for the Income Tax Department made similar submissions and more or less adopted the arguments advanced by Mr. Shaikh Haider.
4. Mr. Muhammad Naseem, learned counsel for the respondent/ assessee in ITR 7-A/78, contended that sections 3 and 4 of the income Tax Act 1922 were the charging sections and section 18-A (6) was not the provision by which income-tax was levied or became payable. It was argued that the purpose of section 18-A was to force payment by the assessee towards income-tax and this provision did not impose any income-tax. According to learned counsel, section 18-A was the machinery section for carrying out the objects of the income-tax legislation and, therefore, it was procedural in nature and procedural legislation is always retrospective and applies to all pending proceedings also. It was submitted that the amendment in section 18-A (6) made by Finance Act 1973 was remedial and curative legislation and although in section 18-A the words "additional tax" have been employed, this additional amount payable by an assessee is in fact a penalty. Mr. Muhammad Naseem relied upon Rippon's case decided by the Lahore High Court and referred to earlier. Reliance was also placed by learned counsel on the following reported judgments: --
(i) Vidyapat Singhania v. Commissioner of Income Tax (1978) 38 Tax 95.
In this judgment by the Allahabad High Court, amount payable under sections 18-A(6) and 18-A(8) was taken to be penal interest.
(ii) Commissioner of Sales Tax v. Kruddsons Ltd. PLD 1974 SC 180.
In this judgment, our Supreme Court referred with approval the following passage at page 580 of the "Statutory Construction" by Crawford 1940 Edition: --
"While pending litigation may be exempted from the operation of curative statutes, in many instances it is not. But, in either case, however, a number of problems arise. Moreover, there is also considerable confusion in the decisions pertaining to their solutions. For instance, where pending litigation is not exempt, some Courts have held that the curative act will apply even after the case has been appealed, and others that it will not apply to any case wherein judgment has been rendered in the lower Court. Perhaps the best rule is that a final judgment cannot be affected. Or stated conversely, until the judgment is final, it is subject to the power of the legislature to enact curative legislation."
(iii) Adam Afzal v. Sher Afzal PLD 1969 SC 187.
In this case the Supreme Court of Pakistan referred to the general principles of interpretation of statutes dilating on the question of retrospective operations of statutes dealing with matters of procedure.
(iv) Muzaffar Ahmed v. Anwar Ali PLD 1965 Dacca 296.
In this case the erstwhile High Court of East Pakistan had observed that there is a distinction between the statutes, which effect a procedural change and those, which affect substantive rights. The distinction is very important, because a procedural change comes into effect as soon as the law has come into force even in respect of proceedings, which had been started prior to the date when the amendment came into effect. It was further observed by Chief Justice S.M. Morshed that canons of construction and rules of interpretation are directed to one and only one end, namely, towards finding out the intention of the legislature and when the language used by the legislature is clear, there is no reason for praying in aid any extraneous principle of interpretation or canons of construction.
Reference was also made by Mr. Muhammad Naseem to certain passages from Crawford on "Statutory Construction" 1940 Edition relating to remedial statutes (para.282), curative statutes para 283), and "Procedure and Remedies" (para. 285). Reliance was also placed on the commentary at page 222 of Maxwell on The Interpretation of Statutes 12th Edition on procedural statutes.
5. Mr. J.H. Rahimtoola appeared for the assessee/respondent in I.T.C. No. 16/78. He contended that the amendment made by Finance Act, 1973 only fixed a time limit and was, therefore, procedural in nature. It was argued that any law, which takes away or affects vested rights is retrospective. Reference was made to Maxwell on The Interpretation of Statutes 12th Edition at page 210. On the question of what is vested right, learned counsel referred to page 1402 of Black's Law Dictionary 5th Edition. Mr. Rahimtoola also referred to para 278 of Crawford on "Statutory Construction" 1940 Edition on vested rights and pointed out that nowhere in that paragraph there is any mention about vested right of the state and that reference is always made about vested right of persons, natural as well as legal.
6. Mr. Iqbal Naim Pasha appearing for the respondent/ assessee in I.T.C. No. 38/78 pointed out that section 18-A of the Income Tax Act, 1922 came under Chapter IV of that Act, which chapter has the heading "Deductions and Assessment", for the argument that section 18-A is a part of the remedial and procedural provisions of the Act. Distinction between charging and other sections of the Act was pointed out submitting that section 18-A was not one of the charging sections of the Income Tax Act, 1922. Reliance was placed on Rippon's case. Reference was also made to 82 Corpus Juris Secundum para 388 at page 918 on remedial statutes. It was submitted that the amendment was remedial. Reliance was also placed on the decision of the Supreme Court of India in the case of I.T.O. v. Vidayasagar (1970) 21 Tax 110. In India, 5th proviso incorporated in section 18-A(6) in 1953 and rule 48 authorize the Income-Tax Officer in exercise of his discretion to relieve against the rigour of the inflexible rule originally enacted in subsection (6). In Vidayasagar's case, it was held that the power given to the Income-Tax Office by the 5th proviso to reduce or waive the interest leviable under section 19A(6) of the Act may be exercised in all cases which were pending on the 1st April, 1952 before the Income-tax Officer or any superior authority having, under the Income-Tax Act, power to modify the assessment of income and it was further observed by the Supreme Court of India that the view that such power could not be exercised if the regular assessment by the Income-Tax Officer was completed before the 1st April, 1952, even though the final adjustment was made by an appellate authority after that date, was not correct.
7. Mr. Ali Athar, Advocate, appeared for the respondent /assessees in I.T.C. No. 15/78 and 17/78, and ITR No. 37/79, 49/84, 95/84, 96/84 and 145/84. It was pointed out by learned counsel that the liability to pay the "additional tax" under section 18-A(6) arises only on regular assessment being made. Reliance was placed on a Division Bench judgment of this Court in the case of Taimur Shah v. Commissioner of Income Tax PLD 1976 Kar. 1030 where applicability of section 45-A, inserted in the Income-Tax Act 1922 by Act XVI of 1963, was considered. It was held in this case that the additional tax which can be imposed under section 45-A is in the nature of a penalty for delayed payment of the tax due'. It was further observed as follows: --
"The provisions of the aforesaid (section 45-A) come into play only when an assessee fails to pay the tax due from him. It is, therefore, to be seen when a tax is due from a person leaving aside the deduction of tax at source under section 18 or the payment of advance tax under section 18-A neither of which provisions are applicable, in the instant case, tax is to be determined and assessed under the pry:-lesions of section 23 of the Act, mainly, on the basis of returns .of income to be made under section 22. On such assessment hog made, the tax becomes due and a notice of demand is to be issued under section 29 of the Act specifying the sum due and payable, amount specified in the notice of demand is 'required to be paid within the time specified in the notice as provided in section 45. An assessee thus would be deemed to have failed to pay the tax due from him if he fails to pay the tax by the date specified in the notice of demand issued under section 29. In the instant case, as already pointed out, the three notices of demand for the three charge years in question were all issued in September 1965 much after section 45-A had been added to the Income-Tax Act. As such the- assessee's failure to pay the tax due from him occurred after section 45-o-1 had become a part of the Income Tax Act. No question, therefore, of retrospective operation of section 45-A arises in. the instant case. If the intention of the legislature had been that the applications of this section should be restricted to the tax due for the charge years following insertion of the said section then this intention would have been made manifest by the use of appropriate words. There is, however, nothing in section 45-A which implies that its application is restricted to tax due for the year following the insertion of the said section."
Mr. Ali Athar also cited the case of
1985 PTD 529 in connection with retrospective operation of statutes.
8. Mr. Rehan Hasan Naqvi, learned counsel for the respondents/ assessees in ITC Nos. 24, 25 and 26/78 referred to the decision of the erstwhile Federal Court of Pakistan in the case of Muhammad Haroon v. The Crown PLD 1951 F.C. 118 where the observation of Earl Halsbury in his judgment in the case of The Eastman Photographic Materials Company Limited v. The Comptroller General of Patents, Designs and Trade Marks" (1898) A.C. 571 that in order to construe an amending statute it is not only legitimate but highly convenient to refer both to the former Act and the evils which it gave rise to and the latter Act which provided the remedy" was cited. According to learned counsel the amendment in question remedied the harshness of the previous provision and being remedial in nature applies to all pending proceedings or else would have stated otherwise. Reliance was also placed on the commentary in paragraphs 516 (pages 992-993) of Corpus Juris Secundum Volume 82 on remedial statutes.
9. Mr. Muhammad Zaki Ahmad, Advocate appeared for the respondent /assessee in ITC No. 52/78 in which case the assessment year involved is 1972-73. It was argued by learned counsel that section 18-A(6) procedural in nature and, therefore, its amendment has retrospective operation. It was then argued that the crucial amendment, even if its operation is only prospective, will apply to assessment year 1972-73 as the Finance Act 1973 came into effect on 29-6-1973. It was pointed out that preamble to the Finance Act, 1973 has two parts i.e. the Finance Act, 1973 was being enacted (i) to give effect to the financial proposals of the Federal Government for the year beginning on the first day of July 1973 and (ii) to amend certain laws and that sections 3 and 4 of the Finance Act, 1973 were restricted to assessment year 1973-74 but this is not so as regards section 2 which dealt with amendments to the Income-Tax Act, 1922. Reference was also made to section 5 of the General Clauses Act, 1897 about the coming into operation of statutes.
10. Mr. Shaikh Haider, learned counsel for the Income-tax Department, in reply, reiterated his earlier submissions and argued that the amending law was prospective and applied only to assessment years 1973-74 onwards.
11. As observed earlier, prior to its amendment by the Finance Act, 1973 subsection (6) of section 18-A, in case an assessee came within the mischief of this subsection, required such assessee to nay an additional amount, described as "additional tax", at the rate of 2 per cent per mensem upon the shortfalls for the period from the first of April of the year in which payment against the tax was made, upto the date of regular assessment. If the regular assessment was delayed for any reason, the assessee was adversely affected inasmuch as till such time the regular assessment, was made, the liability to pay additional tax at the rate of 2 per cent per mensem continued. A happy and remedial change was brought about by the amendment in this subsection by the Finance Act, 1973, which restricted the period to a maximum of 15 months for which the aforesaid additional tax at the rate of 2 per cent per mensem could be charged Le from the first date of April of the year in which the tax was paid upto 30th June of the next year following or upto the date of the regular assessment, whichever was earlier.
In so far as assessment years 1973-74 and later years are concerned, there is no dispute between the department and the respondents/ assessees. For assessment year 1973-74 and subsequent years obviously the additional tax at the rate of 2 per cent per mensem was limited to a maximum period of 15 months. The controversy is in relation to assessment year 1972-73 and earlier years where the assessment had not been finalized inasmuch as either regular assessment had not been made by the Income Tax Officer or in case such assessment had been made, an appeal was pending or matter was still sub judice before the High Court in reference under section 66 of the Income Tax Act, 1922.
12. At this stage, it may be observed that, in so far as those cases are concerned where no proceedings were pending and finality had attached to the assessment orders, prior to coming into force of the amendment in subsection (6) of section 18-A of the Income Tax Act, 1922 by the Finance Act, 1973, no benefit can be taken due to the amendment: We say so for the reason that the amendment thought about by the Finance Act, 1973, does not expressly provide that the amendment affects the assessment proceedings which had already attained finality. It is a well-settled principle of interpretation of statutes that any amendment in the existing law will not affect cases which have been finally determined or proceedings which have attained finality unless the amendment expressly provides for such effect. This point will be discussed in more detail in the later part of this judgment.
13. In all the cases under consideration, the assessment proceedings against the respondents had not attained finality when the amendment in subsection (6) of section 18-A had been made by the Finance Act, 1973, as in all these cases either assessments had not been made by the Income-Tax Officer or the matter was pending in appeal before the Tribunal. The Income Tax Appellate Tribunal has taken the view that the amendment made by the Finance Act, 1973 in subsection (6) of section 18-A has retrospective effect and as such additional tax under the said subsection could be charged for a maximum period of 15 months only. Most of the time during the arguments before us was consumed by the learned counsel from both sides on the question whether subsection (6) of section 18-A was substantive or procedural in nature. It had been argued by Mr. Shaikh Haider, learned counsel for the department, that the provision of subsection (6) related to imposition of an "additional tax" and in the definition of tax given in section 2(14) of, the Income-Tax Act, 1922, an "additional tax." is also a tax and as such subsection. (6) was substantive in nature and consequently retrospective effect could not be given to the amendment made in this subsection by the Finance Act, 1973. On the other hand, as has been observed, one of the main contentions on behalf of the learned counsel for the respondents was that the charging sections in the Income-Tax Act, 1922, were sections 3 and 4 and section 18-A was not a charging section but only provided a remedy for the department to recover tax in advance from the concerned assessees and that though the words "additional tax" had been employed in section 18-A, the nature of the additional tax was in essence a punishment for not depositing proper amount in advance and the additional tax was, therefore, a penalty. According to the learned counsel for the respondents/ assessees, therefore, section 18-A was procedural in nature and all procedural laws were given retrospective effect.
14. In many cases it may not be difficult to determine whether a particular statute or provision in a legal instrument is substantive or procedural in nature, but in other cases the line of demarcation between substantive law and procedural law may be difficult to draw. Reference has already been made to AIR 1972 SC 1935 cited by Mr. Shaikh Haider, where the Supreme Court of India had expressed the difficulty in the formulation of a logical test to enable the Courts to determine and demarcate the bounds where procedural laws and substantive laws begin. In the case of Nabi Ahmad v. Home Secretary, Government of West Pakistan PLD 1969 SC 599, our Supreme Court had also observed that it was not easy to draw the line between substantive and procedural laws but that the task is not impossible if the essential difference is kept in mind. Reference was made by the Supreme Court in that judgment to a passage in Salmond's Jurisprudence, 12th Edition page 128 which reads as follows:--
"The law of procedure may be defined as that branch of law which governs the process of litigation .all the residue is substantive law and relates, not to the process of litigation but to its purposes and subject matters."
Subsection (6) of section 18-A of the Income-Tax Act, 1922, provided that where payment had been made towards advance tax under subsection (2) or subsection (3) of section 18-A and the amount of advanced tax so paid was less than 80 per cent of the tax determined on the basis of the assessment under section 23,an additional amount of tax at the rate of 2 per cent per mensem from the first date of April in the year in which the tax was paid upto the date of the regular assessment was payable by the assess but, as observed earlier, after its amendment by Finance Act, 1973, this period from first April of the year in which the tax was paid upto the date of the regular assessment was curtailed to a maximum of 15 months i.e. upto 30th June of the year next following or upto the date of the regular assessment whichever was earlier Although section 18-A fails under Chapter IV of the Income-Tax Act, 1922, which chapter is titled Deductions and Assessment the provision in subsection (6) of section 18-A none the less imposed a levy of 2 per cent per mensem upon the assessee whose case came within its mischief for the concerned period and therefore, this provision cannot be described as a part of procedural law. It appears to be a part of substantive law relating to income-tax. As stated in Salmond s jurisprudence (cited in PLD 1969 SC 599), the law of procedure may be defined as that branch of law which governs the process of litigation. The law providing for payment of additional tax at the rate of 2 per cent per mensem for the concerned period cannot be termed as a law dealing with litigation or relating to actions. We are, therefore, of the view that subsection (6) of section 18-A cannot be described as procedural law. On the contrary, our view is that it is a part of the substantive law relating to income-tax as codified then in the Income-Tax Act, 1922.
As we have reached the conclusion that subsection (6) of section 18-A of Income-tax Act, 1922, is not procedural law, the amendment made by Finance Act, 1973 in subsection (6) can also not be treated or deemed to be procedural law. The arguments addressed on behalf of the learned counsel for the respondents assesses and the case-law cited by them on retrospective effect of procedural legislation is, therefore, of no avail to the respondents.
15. We may now consider the other main contention raised on behalf of the learned counsel for the respondents/assesses that amendment in section 18-A (6) made by finance Act, 1973 was obviously very harsh and also unreasonable and unjust in nature. On account of mere delay in the making of regular assessments by the Income-tax officers, the assesses would suffer and became liable for the payment of additional tax at the rate of 2 per cent per mensem for long periods which periods did extend to several years as regular assessments were not made by the Income-tax officers within reasonable periods. To lessen the rigour of this harsh, unreasonable and unjust provision and make the existing law just and reasonable, the aforesaid amendment in subsection (6) of section 18-A was brought about by Finance Act, 1973 apparently to redress this grievance. As observed earlier, the amendment curtailed the previous indefinite period during which additional tax at the rate of 2 per cent per mensem was charged to (6) maximum period of upto 15 months i.e. upto30th June of the year following the year in which the tax was paid. By doing so the rigour and patent harshness of the previous law was to (6) very great extent lessened and even if the regular assessment was not made by the Income Tax Officer for several years, the amendment law brought about (6) very happy change and provided that the assessee would not suffer and the maximum period for which the assessee would be liable to pay additional tax at 2 per cent per mensem was restricted to 15 months (6) reasonable period in the circumstances.
16. On the question of remedial statutes reference may be made to paragraph 388 (at pages 918 to 922) of Corpus Juris Secundum Volume, 82 which is reproduced here: --
A remedial statute is designed to correct an existing law redress an existing grievance, or introduce regulations conductive to the public good, and generally is to be liberally construed.
While remedial statutes are those which do not create, enlarge diminish or destroy vested rights, a remedial statute is designed to correct an existing law, redress an existing grievance, or introduce regulations conductive to the public good and a law in entitled to be considered remedial whether it remedies a defect of the common law or of a per-existing statute. Thus statutes enacted or the suppression of fraud, the correction of errors, the supplying or curing of defects, the protection of like and property the remedy of public evils the redress of existing grievances, introducing some new regulation or proceeding conductive to the public good, or the granting of remedies for the recovery or protection of rights, have been considered remedial statutes. However when a statute has been definitely classified as remedial, it does not necessarily follow that an arbitrary guide has been established by which all cases said to fall under the statute can be decided with mathematical certainty.
In construing remedial statutes, regard should be had to the former law, the defects of evils to be cured or abolished, or the mischief to be remedied, and the remedy provided, and they should be interpreted liberally to embrace all cases fairly within their scope, so as to accomplish the object of the legislature and to effectuate the purpose of the statute by suppressing the mischief and advancing the remedy, provided it can be done by reasonable construction in furtherance of the object.
Where necessary to effectuate the legislative intent, remedial statutes will be construed to include cases within the spirit of reason, also outside, the latter, of the statute and to exclude cases within the letter, but outs9ide the reason. However, as the general rules of construction are applicable to the construction of remedial statutes the duty liberally to construe such statutes is subordinate to the general principle that all statutes should be construed and applied in such a manner as to accomplish the legislative intent and stops for short of carrying the statutes to purposes and objects entirely beyond those mentioned therein. Likewise, the rule of liberal or beneficial construction should never be applied so as to extend the application of statutes to cases not within the contemplation of the legislature, as any attempt on the part of the Courts to do this would constitute judicial legislation .... ...... "
Reference also may be made to Crawford's Statutory Construction 1940 Edition, para 282 (pages 575-577) which is also reproduced here:--
.--Even remedial statutes may be subject to the principles heretofore discussed, opposing any construction which will give the enactment retrospective operation. Yet, since remedial statutes are usually looked upon with favour by the Courts, they should be liberally construed. But there appears to be considerable confusion in the with reference to giving remedial acts retrospective effect through construction. If the rule of liberal construction is to be applied, as it obviously should, then any doubt should be resolved in favour of retrospective operation, if such operation does not destroy or disturb vested rights, impair the obligations of contracts, create new liabilities, violate due process of law or contravene some other constitutional provision, and if such operation will carry out the intent of the Legislature is ascertained through the application of the principles of liberal construction. In other words, a statute relating to remedial law may properly, in several instances, be given retrospective operation.
17. The general rule of construction of statutes is that the enactments are not to be given retrospective operation unless the statute expressly provides so or from the language employed it appears to be the necessary intendment of the Legislature. As, however, remedial statutes -are designed to redress an existing grievance and do public good, and such statutes normally do not diminish, destroy or affect any vested right, these are liberally construed Lahore High Court had also taken the view in Rippon's case (1973) PLD 1973 Lah. 849 that an amending law which is purely remedial and curative, must be liberally construed in favour of the subject. We also subscribe to the same view. Then as stated in Crawford, if the rule of liberal construction is to be applied as it obviously should then any doubt should be resolved in favour of retrospective operation, if such operation does not destroy or disturb vested rights, impair the obligations of contracts, create new liabilities, violate due process of law or contravene some other provision of law and if such operation will carry out the intent of the Legislature as, ascertained through the application of the principles of liberal construction.
18. In our view, as the amending provision under consideration had been inserted in subsection (6) of section 18-A to remedy a wrong that was being done to the assessees, and the amending provision does not affect any vested right or create any new obligations, the amending provision is to be given retrospective operation for extending benefit to the affected parties in pending cases, to give effect to the intent of the Legislature. As observed earlier, a wrong was being done to the assessees by providing for an indefinite period during which they were made liable for payment of additional tax at the rate of 2 per cent per mensem and this wrong was sought to be remedied by the remedial and curative amendment brought about by the Finance Act, 1973. If the intention of the Legislature had been that this remedy should be available only in respect of assessments for the year 1973-74 and subsequent years, the Legislature would have used) appropriate words to express such intention. No such appropriate words are mentioned in the amending provision. There is no reason why the remedial provision of the amending law should not be applied to pending proceedings. In fact, this appears to be the intent of Legislature.
19. Although we are of the view that the amending provision being remedial in nature and not affecting any vested right or creating any new obligation and is, therefore, retrospective in operation, which also seems to be the intent of the Legislature, retrospective operation can only cover cases which were pending at the time the amending law was enacted i.e. cases which had not been finally determined or proceedings which had not attained finality. The retrospective effect of the amending law would, therefore, apply only to those cases where assessments had not been made by the Income Tax Officer or where an appeal was pending before the Tribunal or a reference was sub-judice before the High Court, at the time the amending law was enacted. The cases which had finally been determined or had attained finality i.e. which were past and closed transactions, cannot be re-opened under the amending legislation as there are no express words to that effect employed in the amending law.
20. We may refer here to -a submission made by Mr. Shaikh Haider about vested rights. His contention was that it was the vested right of the State to recover additional tax at 2 per cent per mensem and the amending law, if it were to be given retrospective effect, would adversely affect such vested right of the State. We may observe here that when reference is made in any law, legal instrument, legal document, legal language or law book or dictionary, about vested right, the reference is to the vested right of a person natural or legal, and never to vested right of the State. Legal theories relating to vested rights never contemplate vested rights of State. We are unable to accept the submission made by the learned counsel for the department that by giving retrospective operation to the amending law vested right of the State will be affected.
21. Another argument raised by Mr. Shaikh Haider was that the law of assessment year applies to assessment of the tax on the income of the previous year. It is not necessary to make any comment on this submission, as in our opinion, this contention is not relevant for answering the question referred to us. As observed earlier, the amending law has retrospective operation to cover only pending cases and this appears to be the intention of the legislature.
22. The question referred to us in all these Income Tax Cases and references is, therefore, answered in the affirmative.
M.B.A C-22/K Order accordingly.
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