M/s Sher Ahmad, Proprietor of M/s General Tyre Merchant, Tous Banda Vs Commissioner of Inland Revenue, Regional Tax Office, Mardan Zone.

JUDGMENT SHEET

PESHAWAR HIGH COURT, PESHAWAR

JUDICIAL DEPARTMENT

Tax Reference No. 93-P/2024

M/s Sher Ahmad vs. Commissioner of Inland Revenue, Regional Tax Office, Mardan Zone and another.

Date of hearing: 09.04.2026 Mr. Ishtiaq Ahmad (Senior), Advocate, for the petitioner.

Mr. Abbas Bakhtiar, Advocate for the respondents along with Ashraf Khan DC-IR.

JUDGMENT

SYED ARSHAD ALI, J- This Tax Reference under section 133 of the Income Tax Ordinance, 2001 (“the Ordinance”) has been filed by M/s Sher Ahmad, Proprietor of M/s General Tyre Merchant, Mardan, against the order dated 25.07.2024 passed by the Appellate Tribunal Inland Revenue, Peshawar Bench (“the Tribunal”), whereby the petitioner’s appeal was dismissed.

2.The seminal question raised in this Tax Reference for adjudication by this Court is the effect of the amendment to section 113 of the Ordinance, whereby the threshold of turnover was enhanced from Rs. 10 million to Rs. 100 million for attracting minimum tax under the said provision.

3.The background of the case is that the petitioner is an individual engaged in the business of distribution and sale of tyres. He filed his tax return for the tax year 2020, wherein he declared a total turnover of Rs. 36,604,963/-, while the normal taxable income as per the return was Rs.

712,668/-, attracting total tax of Rs. 21,267/-. However, under section 113 of the Ordinance, his tax liability on the declared turnover came to Rs. 549,074/-. A notice under section 122(9) of the Ordinance was issued to the petitioner on 01.11.2021, and the assessment order was framed on 16.12.2021, declaring his tax liability on the basis of turnover by amending his assessment. At the time of filing the return, the petitioner was indeed liable to pay turnover tax, which he failed to pay, thereby necessitating initiation of proceedings against him. However, by the time the assessment order was framed on 16.12.2021, the threshold for attracting minimum tax had been enhanced, and the petitioner’s case admittedly did not fall within the enhanced threshold.

4.In order to appreciate the respective contentions of the parties, let us reproduce section 113 before the Finance Act 2021 and subsequent thereto.

“113. Minimum tax on the income of certain persons.- (1) This section shall apply to a resident company, permanent establishment of a non- resident company, an individual (having turnover of hundred million rupees or above in the ta year 2017 or in any subsequent tax year) and an association of persons (having turnover of hundred million rupees or above in the tax year 2017 or in any subsequent tax year) where, for any reason whatsoever allowed under this Ordinance, including any other law or for the time being in force-

(a)loss for the year;

(b)the setting off of a loss of an earlier year;

(c)exemption from tax;

(d)the application of credits or rebates; or (e) the claiming of allowances or deductions (including depreciation and amortization deductions) no tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a tax year is less than the percentage as specified in column (3) of the Table in Division IX of Part-I of the First Schedule of the amount representing the person’s turnover from all sources for that year:

Explanation.- For the purpose of this sub- section, the expression “tax payable or paid” does not include—

(a)tax already paid or payable in respect of deemed income which is assessed as final discharge of the tax liability under section 169 or under any other provision of this Ordinance; and

(b)tax payable or paid under section 4B or 4C (2) Where this section applies:

(a)the aggregate of the person’s turnover as defined in sub-section (3) for the tax year shall be treated as the income of the person for the year chargeable to tax.

Explanation.- For the removal of doubt, it is clarified that the definition of turnover covers receipts from all business activities in line with expression “turnover from all sources” used in sub- section (1) including but not limited to receipts from sale of immoveable property where such receipt is taxable under the head Income from Business;

(b)the person shall pay as income tax for the tax year (instead of the actual tax payable under this Ordinance), minimum tax computed on the basis of rates as specified in Division IX of Part I of First Schedule;

(c)where tax paid under sub-section (1) exceeds the actual tax payable under Part I clause (1) of Division I, or Division II of the First Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under the aforesaid Part of the subsequent tax year:

Provided that if tax is paid under sub-section (1) due to the fact that no tax is payable or paid for the year, the entire amount of tax paid under sub- section (1) shall be carried forward for adjustment in the manner stated aforesaid:

Provided that further that the amount under this clause shall be carried forward and adjusted against tax liability for three tax Years immediately succeeding the tax year for which the amount was paid.

Explanation.- For the removal of doubt it is clarified that the aforesaid Part referred to in this clause means clause (1) of Division I or Division II of Part I of the First Schedule.......”

5.It is important to note that the tax year 2017 was inserted into section 113 through the Finance Act, 2021. The scope of section 113 is not disputed between the parties, which, inter alia, envisages that if a resident company, a permanent establishment of a non-resident

company, or an individual had a turnover of ten million rupees (prior to the Finance Act, 2021), such person was liable to pay minimum tax at the rate specified in column III of the table in Division IX of Part I of the First Schedule, if the normal tax was less than the turnover tax. Undoubtedly, the liability to pay minimum tax was attracted only when the turnover was ten million rupees or above. At the time of filing the return, the petitioner’s turnover exceeded Rs. 36 million; therefore, he was liable to pay turnover tax, as his normal tax was less than the turnover tax. However, through the Finance Act, 2021, the threshold of ten million rupees was enhanced to hundred million rupees. The language of subsection (1) of section 113 clearly envisages that turnover tax would only be payable when the turnover for tax year 2017 is one hundred million rupees or more.

6.It is the contention of the Revenue that this provision takes effect from 1st July 2021, as the Finance Act, 2021 has no retrospective application. Conversely, the learned counsel for the petitioner contends that, since tax year 2017 is crucial for determining the applicability of the turnover tax, the amendment has a retrospective effect. While interpreting a taxing statute, the principle of interpretation is well-settled. There is no room for intendment, nor is there any equity in taxation. There is no presumption as to tax; nothing can be read in or implied, and only the language used may be fairly considered1. Similarly, fiscal statutes are to be interpreted literally, and equity or presumption is alien thereto. If a provision of a taxing statute admits of two reasonable interpretations, the Commissioner Inland Revenue Zone-IV, Large Taxpayer Unit, Karachi vs. Messrs Al-Abid Silk Mills Ltd., A-39, Manghopir Road, Site, Karachi (2023

SCMR 1797).

one favorable to the taxpayer must be adopted. Any ambiguity must be resolved in favor of the taxpayer2.

7.At the time of issuing the notice under section 122(9) of the Ordinance, the Finance Act, 2021 was already in force, which enhanced the threshold from ten million rupees to hundred million rupees for attracting the chargeability of minimum tax with effect from tax year 2017. A plain reading of section 113 of the Ordinance clearly envisages that the minimum tax applicable to a company having a particular turnover is to be applied from tax year 2017 onward. Therefore, the threshold enhanced through the Finance Act, 2021 would obviously be effective from 2017, as it cannot be presumed that the legislature was oblivious to the reference to tax year 2017. If the legislature had intended not to provide retrospective effect to this beneficial legislation, it could have amended the provision by substituting the reference to tax year 2017 with tax year 2021. It is a settled principle of law that the legislature, being competent to enact laws on a particular subject, also possesses the power to legislate retrospectively, and by legislative fiat, may even take away vested rights or affect past and closed transactions.3 8. However, the Revenue apprehends that if this interpretation is accepted, then in many cases where tax was paid prior to the Finance Act, 2021, taxpayers would seek refunds. These apprehensions do not appear legally sound, because the jurisprudence developed in our jurisdiction clearly postulates that retrospective legislation lies within the prerogative of the legislature, but its reach Messrs Telenor Pakistan (Pvt) Ltd vs. Federation of Pakistan through Ministry of Finance and 4 others (2022 PTD 1097) The Commissioner Inland Revenue and others vs. Mekotex (Pvt) Limited and others (PLD 2024 Supreme Court 1168)

does not ordinarily extend to past and closed transactions. Rights and liabilities that have already crystallized under the law as it stood at the relevant time remain immune from subsequent alteration, unless the legislature, in clear and express terms, provides otherwise. This principle, deeply rooted in the rules of statutory interpretation, preserves the certainty of legal and financial arrangements and safeguards vested rights from being unsettled by retroactive measures. Therefore, if prior to the Finance Act, 2021, any taxpayer had paid minimum tax or an assessment order had been framed against such taxpayer, the amendment would not apply to such past and closed transactions, which had already crystallized.

9.In this view of the matter, this Tax Reference is answered in the affirmative, and the impugned orders dated 16.12.2021, 15.05.2023 and 25.07.2024 passed by the lower fora are set aside. A copy of this judgment be sent to the worthy Tribunal in terms of section 133 (8) of the Ordinance.

JUD G E

JUDGE

Date of hearing & announcement of judgment............ .09.04.2026

Date of preparation and signing of judgment............. 14.04.2026

Nawab Shah CS (DB) Justice Syed Arshad Ali & Justice Ms. Farah Jamshed