M/s. PRIME COMMERCIAL BANK and others vs ASSISTANT COMMISSIONER OF

This judgment shall dispose of Writ Petitions Nos. 6430/96, 6432/96, 6746/96, 6747/96 and 10963/96 in all of which the petitioners are Banking companies who are aggrieved by the notices issued by the respondents calling upon them to deduct withholding tax at the specified rate on the call deposits receipts issued by them.

2. By the Finance Act, 1994, section 50 of the Income Tax Ordinance, 1979 was amended and subsection (2-B) was added w.e.f. 1st July, 1994 which is in the following terms: "(2-B) Any person responsible for clearing an outstation cheque for an amount exceeding fifty thousand rupees or issuing a demand draft or pay order special deposit receipt or effecting a telegraphic or electronic transfer of funds shall collect tax from the drawer of such cheque, draft, pay order, receipt or, as the case may be, transfer of funds at the rates specified in the First Schedule; and the credit for the tax collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the person from whom tax has been collected, for the assessm ent year commencing on the first day of July next following the said financial year, and in the case of an assessee to whom section 72 or section 81 applies, the assessm ent year as reckoned in accordance with these provisions; Provided that, the provisions of this subsection shall not apply to the payments made by the Federal Government and Provincial Governments, statutory bodies, universities, approved charitable institutions, industrial undertakings and institutions exempt under the Second Schedule, listed public limited companies, foreign diplomats and foreign diplomatic missions in Pakistan and the intracompany financial transactions."

3. It is common ground that pursuant to the above the petitioners have been deducting withholding tax on various negotiable instruments and telegraphic/electronic transfers of money.

The dispute, however, is regarding the liability of the petitioners to deduct withholding tax on the call deposit receipts issued by the petitioners. According to the petitioner section 50(2-B) of the Income Tax Ordinance, 1979 applies only to those instruments by virtue of which the money is transferred from one person to another and not where there is no such -transfer. The respondents, however, are of the view that section 50(2-B) applies to special deposit receipts which include a call deposit receipt.

4. As is obvious from the above the controversy before this Court is limited to the question as to whether any withholding tax is to be deducted by the petitioners on the call deposit receipt issued by them at the behest of their customers. Having considered the arguments of the learned counsel for the parties the answer to this question has to be in the negative. On its plain reading, section 50(2-B) of the Income Tax Ordinance, 1979 applies to those instruments by virtue of which transfer of money takes place from one person to another and not to the transaction involving no such transfer. This interpretation is borne out not only from the language of the provision in question but also by circular issued by Central Board of Revenue on 24-7-1994, clarifying that it is only when transfer of money takes place under the special deposit receipts that withholding tax may be deducted by the Bank.

5. Learned counsel for the respondents has, however, submitted that a further clarification was issued by the Central Board of Revenue on 17-4-1995 according to which the Banks were liable to deduct withholding tax on special deposit receipts irrespective whether there was any transfer of money or not. The subsequent clarification is not only contradictory to the earlier press release but is not borne out by the language of the provision itself which if read as a whole leaves no room to hold that the words (special deposit receipt) must be interpreted ejusdem generis and must take colour from the preceding and subsequent words.

6. The above view is further fortified by the fact that subsequently by Finance Act, 1996, subsection (2-B) of section 50 of Income Tax Ordinance, 1979 was further amended by adding the words. "or cash deposit receipts or travellers cheque" therein. This clearly shows that the respondents themselves were aware that the earlier dispensation did cover the cash Deposit Receipt. It is a well-settled principle of interpretation that generally an amendment is made to bring out change in the state of law unless the amendment is classificatory or declaratory in nature. See K.G. Old Principal Christian Technical Training Centre Gujranwala v. Presiding Officer Punjab Labour Court, Nothern Zone and 6 others PLD 1976 Lahore 1097. There is nothing in the amending Act to lead to inference that the amendment was brought about to clarify the provision already existing and not to bring a change in it especially when the amendment had not been given any retrospective effect as is the case in a clarificatory or declaratory amendment. Another legal principle which stands attracted in the present case is that even if the two interpretations of a taxing provision are possible, the one favourable to the subject has to be accepted.

In view of the above, all these petitions are allowed and it is held that no deduction on account of withholding tax could be made in respect of call deposit receipts issued by the Bank prior to the amendment of section 50(2-B) of Income Tax Ordinance, 1979 by Finance Act, 1996.

No order as to costs. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.