THE HIGH COURT OF SINDH KARACHI
C.P. Nos. D-5025, 5126 to 5129, 5208 to 5212, 5218 & 5219,
5235, 5236, 5242, 5306, 5307, 5314, 5315, 5327, 5328,
5333, 5403, 5425, 5489, 5526, 5756, 5894, 5895,
5924 and 6216 of 2020
Mr. Justice Aqeel Ahmed Abbasi
Justice Mrs. Rashida Asad
1. For hearing of CMA No.21388 of 2020
2. For hearing of main case.
FOR THE PETITIONERS:
Mr. Anwar Kashif Mumtaz, advocate
Mr. Abid H. Shaban, advocate
Mr. Taimoor Ahmed Qureshi, advocate
Mr. Muhammad Aleem, advocate
Mr. Nida Zafar Khokhar, advocate
Mr. Ammar Athar Saeed, advocate
Mr. Ahmed Saeed Siddiqui, advocate
Mr. Iftikhar Ahmed Shamsi, advocate
Mr. Imtiaz Ali, advocate
Mr. Arshad Shahzad, advocate
Mr. Sahib Khan Kalhoro, advocate
Mr. Abdul Jabbar Malah, advocate
Mr. Muhammad Mustafa Hussain, advocate
Syed Wasi Haider Jaferi, advocate
Mr. Ajeet Kumar, advocate
FOR THE RESPONDENTS:
Mr. Ameer Bakhsh Metlo, advocate for the respondents
Mr. M. Ameenullah Siddiqui, Asstt. Attorney General, Pakistan
Dates of hearing : 15.12.2020, 16.12.2020 & 22.12.2020
Date of Order : 22.12.2020
J U D G M E N T
Rashida Asad J.- Through instant Constitutional Petitions, the petitioners have challenged the issuance of notice under Section 182(2) read with Section 116A of the Income Tax Ordinance, 2001, enforcing penalty for not submitting returns regarding Foreign Income and Assets Statement. We intend to dispose all the above petitions through this common order as the similar controversy is involved.
2. The relevant facts leading to the filing of the Constitutional petitions are that the petitioner(s) being individual exist on NTN record, deriving income from salary/ profit/ property on debt/ dividend/ capital gains etc. The petitioners, by availing e-filing facility via IRIS, filed their returns of total income for the Tax Year 2019 under Section 114 of the Income Tax Ordinance, 2001, within the prescribed time limit along with Wealth Statements, wherein the Petitioners have also declared the foreign income and assets from all the sources. The same was duly accepted and the Department did not raise any objection. It is stated that later on notices (on various dates) were issued under Section 182(2) read with Section 116A of the Income Tax Ordinance, 2001 with the intention to enforce penalty for not submitting the returns regarding foreign income and assets under Section 116A which could not be filed due to inadvertence. The Commissioner without issuing any notice under sub-section (2) of Section 116A of the Ordinance, directly issued notice under Section 182(2) of the Ordinance with intention to enforce penalty for not submitting the Returns regarding Foreign Income and Assets under Section 116A of the Ordinance and levied penalty of 2% on the value of foreign figures from the Income Tax Returns and Wealth Statement already filed by the petitioners in the year 2019, hence the petitioners have challenged the same through instant petitions.
3. Learned counsel for the applicant states that the impugned notice is based on misconception and without lawful authority as there is plethora of case-laws on the subject that the penalty imposing statute is quasi-criminal in nature and mens rea has to be proved before taking any penalty action; that no penalty under Serial No.1AAA of Section 182(1) of the Ordinance can be levied for non-filing of Foreign Income and Assets Statement, as the petitioners while filing their returns have already declared their foreign income and liabilities, which Returns were accepted and no objection was raised by the Department, therefore, no concealment has been made by them; that the required form did not open on the website hence, the same could not be filed; that F.B.R has not prescribed any independent format for foreign income and assets statement as required under section 116A of the Ordinance beside issuance of consolidated Wealth Statement declaring all assets/liabilities held inside and outside Pakistan; that no notice as prescribed under sub-section (2) of Section 116A of the Ordinance has been issued by the respondents to the petitioners to furnish Foreign income and Assets Statement; that no tax implication attracted for non-fling of Returns under Section 116A of the Ordinance; that section 116A does not mention specific date and time for compliance, hence no default occurs till issuance of notice by the Commissioner under Section 116A(2) of the Ordinance; that notice under section 182(2) does not mention the date of non-compliance; that foreign income and assets/ liabilities held by the petitioners outside Pakistan for the Tax Year 2019 have duly declared along with Wealth Reconciliation Statement, therefore, it is prayed that it may be declared that the penalty cannot be levied for non-filing of Foreign Income and Assets Statement when the same have duly been declared at the time of filing of the Income Tax Returns for the Tax Year 2019, resultantly, the impugned notice(s) may be declared to be illegal and without any legal consequence. In support of submissions, reliance has been placed upon the cases reported as D.G. Khan Cement Company Limited and others vs. Federation of Pakistan and others (2004 SCMR 456).
4. Learned counsel for the respondents has supported the Departmental action and emphasized that adequate remedy could have been provided and termed the filing of the instant petitions as premature; that section 118 of Income Tax Ordinance 2001 envisages that a person filing local assets must file details of foreign assets as required under Section 116A of the Ordinance; that as per provisions of Section 114(2)(f) added via Finance Act 2018, a return of income has to be accompanied with foreign income and assets statements as required under section 116A. As per SRO 880(1)/2018 dated 13th July 2018, Foreign Income and Assets Statement under section 116A(1) was part of Return; that for Tax Year 2019, SRO 979/2019 dated 02.09.2019 was prescribed which was not having this form and that was further amended vide SRO 1160(1)/2019 dated 27.09.2019, thus, the necessary computational attachment was not appearing in IRS pertaining to Section 116A of the Ordinance. Such diversification calls for separate consequential treatment. Learned counsel for the respondents pressed that the petitioners should have replied the show cause notice, however, he opined that declarants of assets statements do not cause any revenue loss. In support of his submissions, reliance has been placed upon the case reported as Commissioner Inland Revenue, Zone-III, Karachi vs. General Tyre and Rubber Co. of Pakistan Ltd. Karachi (2013 PTD 387).
5. We have heard learned counsel for the parties, perused the record and the relevant legal provisions with their assistance.
6. Before we may dilate upon the merits of instant petitions, relating to legality of Notices issued under Section 182 of the Income Tax Ordinance, 2001, to the petitioners to impose penalty for non-filing of Foreign Income and Assets Statement under Section 116A of the Income Tax Ordinance, 2001, along with Income Tax Return for the Tax Year 2019, we would deal with the preliminary objection raised by the learned counsel for the respondents as to maintainability of instant petition(s). The objection as to maintainability of instant petition(s) by the respondents is based on the ground that on mere issuance of Show Cause Notice, whereby, opportunity of being heard is provided to the petitioners, whereas, there is no adverse order passed against the petitioner(s), instead of submitting reply to such Show Cause or to avail the statutory remedy provided under the law in case of an adverse order if passed pursuant to such Show Cause, petitioners have invoked the constitutional jurisdiction under Article 199, which is not permissible in law. Such contention of the learned counsel for respondents has been controverted by the learned counsel for the petitioners, who have argued that since the very initiation of proceedings for imposition of penalty through impugned Notices under Section 182 of the Income Tax Ordinance, 2001, are patently illegal and without lawful authority, whereas, a substantial legal controversy can be resolved by this Court through interpretation of subject legal provisions of law, which would prevent the multiplicity of litigation between the taxpayers and the Tax Authorities in the shape of appeal(s) before the Appellate Forum(s) and references before this Court as provided under the Income Tax Ordinance, 2001. There is no cavil to the proposition that unless a Show Cause Notice issued by the Tax Authorities under the relevant law does not suffer from any jurisdictional defect or patent illegality, the normal course available to an aggrieved party is to submit response to such Show Cause Notice by raising all factual and legal objections as may be available, and in case of any adverse order, to avail the remedy as provided under the relevant Statute before the Appellate Forum(s) in accordance with law. However, exception can be drawn from above settled legal position in such cases where a Show Cause Notice may not suffer from some jurisdictional defect, however, would lead to some patently illegal order based upon misinterpretation of legal provisions, which may effect the large number of taxpayers and may lead to multiplicity of litigation between the taxpayers and the revenue authorities before Appellate Forum(s) provided under the relevant Statute as well as before this Court in the shape of References etc. In the above petitions while raising substantial legal grounds, the very initiation of proceedings for imposition of penalty under Section 182 of the Income Tax Ordinance, 2001, through impugned Notice(s) has been challenged, whereas, the matter pertains to pure interpretation of law as well as application of Section 116A and 182 of the Income Tax Ordinance, 2001, on the facts of instant petitions. Therefore, we are of the opinion that the impugned Notice(s) issued under Section 182 of the Income Tax Ordinance, 2001, to the petitioners in these cases may not suffer from any jurisdictional defect, however, the petitioners have made out a case to invoke the constitutional jurisdiction of this Court under Article 199 of the Constitution to examine the legality of the impugned Notices, while interpreting the legal provision as referred to hereinabove, to provide substantial justice to large number of petitioners, and also to prevent the abuse of process of law. Since, constitutional jurisdiction of this Court under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, has been invoked by the petitioners for resolution of purely legal dispute, therefore, we are inclined to exercise the discretion vested in this Court under Article 199 of the Constitution to issue declaration in respect of legal points agitated through instant petitions, to avoid multiplicity of unnecessary litigation between the taxpayers and the revenue authorities. Accordingly, the objection raised by the learned counsel for respondents as to maintainability of instant petition(s) having no force is hereby overruled.
7. We may now examine the legality of Notice issued to the petitioners under Section 182(2) for non-filing of Foreign Income and Assets Statement under Section 116A of the Income Tax Ordinance, 2001 alongwith return of income for tax year 2019 within due date. Provision of section 116A requires every resident taxpayer being an individual having foreign income of not less than ten thousand United States dollars or having foreign assets with a value of not less than one hundred thousand United States dollars shall furnish a statement, hereinafter referred to as the foreign income and assets statement, in the prescribed form and verified in the prescribed manner giving particulars of;-
(a) the person’s total foreign assets and liabilities as on the last day of the Tax Year;
(b) any foreign assets transferred by the person to any other person during the Tax Year and the consideration for the said transfer; and (c) complete particulars of foreign income, the expenditure derived during the Tax Year and the expenditure wholly and necessarily for the purposes of deriving the said income.“
Whereas, Section182 (2)1AAA introduced via Finance Act 2018, imposes penalty, where any person fails to furnish a foreign assets and income statement within the due date. In these petitions, show cause notices have issued for the alleged default of non-filing of foreign income and all assets/liabilities held outside Pakistan, which have already been declared by the petitioners in their Wealth Statements furnished alongwith income tax returns for the Tax Year 2019.
8. Admittedly, petitioners have filed their returns of income under Section 114 along with Wealth Statement under Section 116 of the Income Tax Ordinance, 2001, while declaring the foreign assets and income from all source for the Tax Year 2019, within the due date through IRIS portal, whereas, such returns have been taken to be duly accepted for being complete in all respect, as no notice has been issued to the petitioners in terms of Section 120(3) of the Income Tax Ordinance, 2001, requiring the petitioners to submit any short documents or requisite information relating to returns of income for the Tax Year 2019. In terms of Section 114(2) (e) & (f) of the Income Tax Ordinance, 2001, it has been provided that the return of income shall be accompanied with the Wealth Statement and Foreign Income & Assets Statement as required under Section 116 and 116A respectively, however, in case of default in filing of aforesaid statement, the concerned Commissioner has been authorized to issue notice in writing requiring any person to furnish such statement on the date specified in the notice. It is pertinent to note that for the furnished return under Section 114 of the Income Tax Ordinance, 2001, there is prescribed format as per Rule 34, whereas, for Wealth Statement under Section 116 there is also prescribed format as per Rule 36 of the Income Tax Rules, 2002. However, for Foreign Income & Assets Statement under Section 116A, there is still no prescribed format or Rule duly notified. Section 2(44) of Income Tax Ordinance 2001 explicitly states: “’prescribed’ means prescribed by rules made under this Ordinance”. However, in the instant matters no prescribed format u/s 116A of the Ordinance has been notified so far so as to bring petitioners within the ambit of ‘offence’ as envisaged under section 182(1) of the Income Tax Ordinance 2001.
9. It is settled positions that rules and regulations are framed for the enforcement of laws, however, in the absence of such Rules, the regulatory authorities would not be able to enforce the Laws. Absence of relevant rule and prescribed format under section 116A of the Income Tax Ordinance 2001 does not support the applicability of centuries old concept of ‘due process’, which is authenticated by the procedures by which laws are applied imperatively on visibly ‘evenhanded’ pattern. Jurisprudence always warrants codification of regulations so that parties are on notice regarding what is and is not lawful. While examined on the touchstone of above settled legal position, impugned Notices under Section 182(2) of the Income Tax Ordinance, 2001, have been issued without lawful authority to the petitioners by respondents, hence of no legal effect.
10. Without prejudice to hereinabove finding relating to consequence of non-filing of Foreign Income and assets Statement alongwith return under Section 116A of the Income Tax Ordinance, 2001, by the petitioners, we would now dilate upon another substantial issue relating to merits of imposition of penalty under Section 182(2) of the Income Tax Ordinance, 2001, in the facts and circumstances of these cases. Admittedly, in the case of petitioners, there is no effect either on the income of petitioners, their tax liability or any other financial implications for non-filing of Statement under Section 116A, nor it is a case of concealment of income or non-disclosure of foreign income and assets from all source by the petitioners. The cases of petitioners otherwise, do not attract any proceedings for making assessment or additional assessment in respect of any escaped income or concealed income, which may result in creating any additional tax liability upon the petitioners. If this would have been the case where petitioners would have not disclosed their foreign assets and income in the Wealth Statement filed under Section 116 along with returns of income for the Tax Year 2019, than the burden would have been upon the petitioners to explain the reason for such non-disclosure, and in case of any dis-satisfactory response by the petitioners, proceedings for imposition of penalty under Section 182 of the Income Tax Ordinance, 2001, could have been justified, however, subject to fulfillment of other legal requirements. Therefore, in the above circumstances of the case, mere non-filing of Statement under Section 116A, would not attract imposition of penalty under Section 182 of the Income Tax Ordinance, 2001 in an automatic manner, without establishing wilful default or mense rea on the part of the petitioners. It is settled legal position that unless there is clear intention of the legislature to impose additional liability or burden of tax in the shape of penalty or surcharge in case of any default or non-compliance of legal obligations, the imposition of such penalty should be subject to fulfillment of legal and procedural requirements, whereas, Tax Authorities have to establish willful default and/or mens rea on the part of taxpayer before invoking the penal provisions.
11. In the case of D.G. Khan Company Ltd. and others v. Federation of Pakistan and others (2004 SCMR 456), wherein, the Hon’ble Supreme Court has been pleased to hold as under:
“ Each and every case has to be decided on its own merits as to whether the evasion or payment of tax was wilful or mala fide, decision on which would depend upon the question of recovery of additional tax. In the facts and circumstances of this case, we find that non-payment of the sales tax within tax period was neither wilful or it could be construed to be mala fide evasion or payment of duty, therefore, the recovery of additional tax as penalty or otherwise was not justified in law.”
12. Similarly, in the case of Commissioner Inland Revenue, Zone-III, Karachi v. Messrs General Tyre and Rubber Co. of Pakistan Ltd., Karachi (2013 PTD 387), wherein, Divisional Bench of this Court while dealing with imposition of penalty under Section 182 of the Income Tax Ordinance, 2001, has been pleased to hold as under:-
“4. From perusal of hereinabove provisions, it appears that the penalty has been provided by the legislature in cases where any person who, without reasonable excuse, fails to furnish return of income or wealth statement for any Tax Year within the time allowed under the Ordinance, 2001, whereas the amount of penalty is required to be calculated on the basis of tax payable in respect of that Tax Year, whereas, there is no reference to chargeability of tax……………………………………………………...
6. In view of hereinabove facts and on examination of the legal provision as referred to hereinabove, it has come on record that since there was no tax payable along with return thus the provision of section 182 was not applicable to the facts of this case. While confronted with such factual and legal position, the learned counsel for the applicant has candidly conceded to the legal position as stated hereinabove.”
Further reliance can be made in the case of Commissioner Inland Revenue v. Messrs Adeel Brothers reported as 2017 PTD 1579.
13. In view of the foregoing discussions, we are of considered opinion that in the absence of prescribed format notified under Section 116A of the Income Tax Ordinance 2001, whereas, nothing has been concealed by petitioners, nor there is any consequence either on income or tax liability of petitioners for non-filing of Foreign Income & Assets Statement along with return of income for Tax Year 2019, the penal provisions of Section 182 of the Income Tax Ordinance, 2001, could not be invoked. Particularly, when respondents have failed to establish willful default or mens rea on the part of petitioners. We derive analogical guidance from ‘the Non delegation Doctrine’ which is well established in jurisprudence and is attracted in the instant circumstances. Issuance of notices under section 182(2) cannot be validated, therefore, impugned notices having no support of lawful authority are hereby declared as illegal, hence, of no legal consequence. For these reasons, the petitions were allowed vide short order announced on 22.12.2020.