SABRE TRAVEL NETWORK PAKISTAN (PVT.) LTD. Versus PAKISTAN

1. MUHAMMAD SHAFI SIDDIQUI, CJ.--- In this bunch of petitions common questions of law are involved such as:

(i) whether the impugned notices are without jurisdiction, ultra vires and barred by time under the scheme offered by the Income Tax Ordinance, 2001 (the Ordinance) and

(ii) what is the effect of special tax year vis- -vis financial year of which the approval was accorded under section 74(5) of the Ordinance to all the petitioners.

2. We have heard learned counsel for the petitioners as well as the respondents and perused material available on record.

3. "Tax years" are envisaged under Part-II, Section 74 of the Ordinance, 2001. It caters for a normal tax year comprising of 12 consecutive months ending 30th June hence starting point is ascertainable along with Special Tax Year which is also computation of 12 consecutive months to applicant's choice, which shall be denoted by a calendar year in which the said date falls.

4. All the petitioners were accorded the subject approval of "special tax year" under section 74(5) of the Ordinance on their respective applications under section 74(3). Such taxpayers, in pursuance thereof, have utilized 12 months period other than a normal tax year as a special tax year.

5. Tax year for the petitioners runs from 1st January to 31st December. So for the tax year 2010 the income period is counted from 01.01.2009 to 31.12.2009 when read in conjunction with section 74(1) of the Ordinance. Subsection (2) of section 74 is also significant in the sense that it provides a clarity:

2. "(2) Where a person's income year, under the repealed Ordinance, is different from the normal tax year, or where a person is allowed, by an order under subsection (3), to use a twelve months' period different from normal tax year, such income year or such period shall be that person's tax year (hereinafter referred to as 'special tax year') and shall, subject to subsection (3), be denoted by the calendar year relevant to normal tax year in which the closing date of the special tax year falls."

6. To us the closing date of the Special Tax Year is important, which has implication but required reading with Section 74(10) of the Ordinance.

7. Mr. Ameer Bakhsh Metlo and Mr. Shahid Ali Qureshi, learned counsel appearing for the respondents, however did not agree with such understanding of "financial year", as attempted by petitioners, and computation for the purpose of Section 122(2) of the Ordinance as attempted by Mr. Hyder Ali Khan. The understanding of Mr. Metlo and Mr. Qureshi is that if a special tax year is accorded and the petitioner is required to file its return on or before 31st December following year, per Section 120(1)(b) such returns will be deemed to be an assessment order issued by the Commissioner on the day return was furnished and consequently the financial year. Per Mr. Metlo and Mr. Qureshi in terms of Section 122(5) such deemed assessment order cannot be amended after expiry of five years from the end of "financial year" in which commissioner has issued or treated to issued assessment order to the tax payer.

8. Mr. Metlo has drawn attention of this Court to Article 260 of the Constitution of Islamic Republic of Pakistan, 1973 which provides a definition of financial year which means year commencing on the first day of July and per General Clauses Act, 1897 financial year means (a) as respects the period before first day of April 1959, the year commencing on the 1st day of April and ending on 31st day of March; (b) as respects the period from the 1st day of April, 1959, to the 31st day of June, 1959, both days inclusive, that period ; and (c) thereafter, the year commencing on the 1st day of July and ending on the 30th day of June. On the basis of the aforesaid calculation it is claimed that notices were not time barred as six months additional period by default and deemed assessment falling on a financial year by above definition of financial year.

9. We need not to explain the special tax year for every petitioners, as identified in the impugned notices, as we are only obliged to decide as to what is the effect of seeking an approval of the special tax year and its consequences as far as the impugned notices, which are claimed to be barred by time, are concerned. As demonstrated by petitioners and not opposed, all the petitioners were accorded approval to the use of special tax year under section 74(5) of the Ordinance and for the purposes of clarity a tax year for the petitioner runs from 1st January to 31st December. A brief history of tax year, deemed assessment, limitation and notice date would give us a bird eye view to understand the questions involved, however the only debate in the following chart is of date of deemed assessment and limitation run, from column 7 and 8 which affects column 10 however one must not lose sight of

3. Section 74(10) of the Ordinance:

4. 1

5. 2

6. 3

7. 4

8. 5

9. Sr. No.

10. C.P. No.D-

11. Title

12. Tax Year

13. Period under said Tax Year

14. 1.

15. 3752 of 2016

16. DHA Global Forwarding Pakistan v. Pakistan and others

17. 2010

18. 1-1-2010 to 31-12-2009

19. 2.

20. 3780 of 2017

21. Alpha Insurance Company Ltd. v. Pakistan and others

22. 2011

23. 1-1-2010 to 31-12-2010

24. 3.

25. 4293 of 2017

26. International Air Transport Association v. Pakistan and others

27. 2011

28. 1-1-2010 to 31-12-2010

29. 4.

30. 4340 of 2019

31. Sabre Travel Network Pakistan v. Pakistan and others

32. 2013

33. 1-1-2012 to 31-12-2012

34. 5.

35. 3036 of 2020

36. Eni Pakistan Limited v. Pakistan

37. 2014

38. 1-1-2013 to 31-12-2013

39. 6.

40. 860 of 2021

41. J & P Coats Pakistan (Pvt.) Ltd. v. Federation of Pakistan and others

42. 2015

43. 1-1-2014 to 31-12-2014

44. 6(sic)

45. 3062 of 2020

46. Sabre Travel Network Pakistan v. Pakistan and others

47. 2014

48. 1-1-2013 to 31-12-2013

49. 7.

50. 3235 of 2021

51. JS Global Capital Limited v. Pakistan and others

52. 2015

53. 1-1-2014 to 31-12-2014

54. 8.

55. 3760 of 2021

56. Hapag Llyod Pakistan v. Pakistan and others

57. 2015

58. 1-1-2014 to 31-12-2014

59. 9.

60. 3761 of 2021

61. Sabre Travel Network Pakistan v. Pakistan and others

62. 2015

63. 1-1-2014 to 31-12-2014

64. 10.

65. 3846 of 2021

66. International Air Transport Association v. Pakistan and others

67. 2015

68. 1-1-2014 to 31-12-2014

69. 11.

70. 3125 of 2022

71. Sanofi-Aventis Pakistan Limited v. Pakistan and others

72. 2016

73. 1-1-2015 to 31-12-2015

74. 12.

75. 3523 of 2022

76. Dubai Islamic Bank Pakistan Limited v. Pakistan and others

77. 2016

78. 1-1-2015 to 31-12-2015

79. 6

80. 7

81. 8

82. 9

83. 10

84. Correspond-ing Normal Tax Year

85. Date of ITR / Deemed Assessment Order

86. Limitation Runs From

87. Relevant Limitation Section

88. Notices became time barred on and Date of notice

89. 1-7-2009 to 30-6-2010

90. 3-10-2010

91. 1-1-2011

92. Sec:122(5B) r/w 122(2)

93. 31-12-2015 30-06-2016

94. 1-7-2010 to 30-6-2011

95. 16-11-2011

96. 1-1-2012

97. Sec:122(5B) r/w 122(4)

98. 31-12-2016 16-05-2017

99. 1-7-2010 to 30-6-2011

100. 1-11-2011

101. 1-1-2012

102. Sec:122(5B) r/w 122(2)

103. 31-12-2016 08-06-2017

104. 1-7-2012 to 30-6-2013

105. 16-12-2013

106. 1-1-2014

107. Section 122(2)

108. 31-12-2018 18-06-2019

109. 1-7-2013 to 30-6-2014

110. 5-12-2014

111. 1-1-2015

112. Section 122(2)

113. 31-12-2019 18-06-2020

114. 1-7-2014 to 30-6-2015

115. 31-12-2014

116. 1-1-2015

117. Section 122(2)

118. 31-12-2015 31-12-2020

119. 1-7-2013 to 30-6-2014

120. 23-12-2014

121. 1-1-2015

122. Section 122(2)

123. 31-12-2019 23-6-2020

124. 1-7-2014 to 30-6-2015

125. 30-11-2015

126. 1-1-2016

127. Sec:122(5B) r/w 122(2)

128. 31-12-2020 13-4-2021

129. 1-7-2014 to 30-6-2015

130. 1-10-2015

131. 1-1-2016

132. Section 122(2)

133. 31-12-2020 5-6-2021

134. 1-7-2014 to 30-6-2015

135. 30-11-2015

136. 1-1-2016

137. Section 122(2)

138. 31-12-2020 02-04-2021

139. 1-7-2014 to 30-6-2015

140. 26-12-2015

141. 1-1-2016

142. Section 122(2)

143. 31-12-2021 08-06-2021

144. 1-7-2015 to 30-6-2015

145. 15-12-2016

146. 1-1-2017

147. Section 122(2)

148. 31-12-2021 06-06-2022

149. 1-7-2015 to 30-6-2016

150. 16-12-2016

151. 1-1-2017

152. Section 122(2)

153. 31-12-2021 24-5-2022

10. Under the scheme of the Ordinance a return filed in accordance with Section 114 of the Ordinance is treated as assessment order under section 120 1 . Under section 122 of the Ordinance the Commissioner may issue notice to amend an assessment order in only specified circumstances (a) such action may have been taken under section 122(5) if the Commission "on the basis of definite information acquired from audit or otherwise find it necessary to do so"; (b) the commissioner may under section 122(5A) amend the assessment order if he considers that such order is "erroneous insofar as it is prejudicial to the interest of revenue". In both the cases however the assessment order cannot be amended after the period of limitation mentioned in Section 122(2) of the Ordinance.

11. For the purposes of understanding we may consider the law prior to the passing of Finance Act, 2009. Section 122(2) of the Ordinance prior to the Finance Act 2009 is as follows:

154. "An assessment order shall only be amended under subsection (1) within five years after the commissioner has issued or is treated as having issued the assessment order on the taxpayer."

12. It could be seen that the earlier Section 112(2) provides period of limitation to amend an assessment order, when read in conjunction with section 120(1)(b) of the Ordinance, was five years from the date of filing of return. Since Finance Act 2009, Section 122(2) of the Ordinance was amended which reads as under:-

155. "No order under subsection (1) shall be amended by the Commissioner after the expiry of five years from the end of the financial year in which the Commissioner has issued or treated to have issued the assessment order to the taxpayer."

13. Thus, the purpose, prima facie, is to retune the period of limitation "of five years" from the date of filing of the return to the date of "end of the financial year" in which such return was filed and commissioner has issued or treated to have issued the assessment order to the taxpayer. No order could be passed even if the show-cause notice is issued on the last day when limitation ends, as essentially the "order" could not be passed after expiry of five years. Normally December is not the end of financial year, end of financial year is 30th June, which was not altered under Section 74(5) of the Ordinance and one may be carried away by presuming that the financial year is one where deemed assessment has fallen, however Section 74 subsection (10) has treated financial year to have included Special Tax Year, unless the context otherwise requires.

14. The entire explanation of financial year of deemed assessment, as argued by Mr. Metlo and Mr. Qureshi has fallen apart when read with Section 74(10) of the Ordinance. For the sake of convenience Section 74(10) of the Ordinance is reproduced as under:-

74. Tax year.- (1) .

156. .

(10) In this Ordinance, a reference to a particular financial year shall, unless the context otherwise requires, include a special tax year or a transitional tax year commencing during the financial year.

15. In the absence of above explanation the arguments of M/s Metlo and Qureshi sounds logical as then Section 122(2) of the Ordinance would have a normal application. It would have counted from end of financial year in which commissioner has issued or treated to have issued the assessment order to the taxpayer, however, section 74(10) disturbed the logics as argued by respondents. Subsection (10) of Section 74 says that Special Tax Year is inclusive of the financial year, unless the context otherwise requires. So Special Tax Year ends on 31st December of any year is named "financial year" by Section 74(10) of the Ordinance. The limitation would then be counted from 1st. January of following year. The above chart explains the position clearly and correctly.

16. Sections 122(2) and 74(10) of the Ordinance must sink(sic) to each other with clarity and above is the only way of reading both together and saving them without any offending tentacles.

17. In view of above, the petitions are allowed and the impugned show-cause notices are held to be without jurisdiction and are barred by time and no subject therein could be carried lawfully. C.Ps. Nos.D-3524 and 3543 of 2022 however appears to be on different facts and/or law and is de-tagged to be fixed by the office as per roster for further proceedings after notices to all concerned parties.

157. MQ/S-48/Sindh Order accordingly.