ISLAMABAD: The Supreme Court set aside the orders of the Peshawar High Court (PHC) regarding exemption from the payment of minimum tax charged under section 80D of the repealed Income Tax Ordinance, 1979 by virtue of section 6 of the Protection of Economic Reform Act, 1992.

A three-judge bench, headed by Chief Justice Umar Ata Bandial, decided on the appeal of Commissioner Income Tax against the PHC’s orders.

The respondent taxpayers, various industries, were assessed for a minimum tax on income under section 80D of the Ordinance by the tax officer. The said assessment order was approved by the CIT (Appeals).

However, upon appeal, the Tribunal set aside the said assessment and deleted the amount of minimum tax on income on the ground that the respondents enjoyed exemption from tax under section 6 of the Act read with clause 122C, Part-I of the Second Schedule to the Ordinance.

The department agitated the matter before the High Court, which on different dates passed separate orders against the department.

The Commissioner of Income Tax then approached the Supreme Court. The judgment authored by Justice Mansoor Ali Shah noted that the Second Schedule to the Ordinance deals with “Exemptions from Total Income” under section 14(1) of the Ordinance. One such exemption was introduced under Clause 122C of the Second Schedule on 22.01.1987.

The court observed that Section 80D was introduced through Finance Ordinance in 1991, much after the insertion of Clause 122C, is a non-obstante provision and therefore overrides the other provisions of the Ordinance including any tax exemption granted under the Ordinance prior to the introduction of section 80D.

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Now let us see if the promulgation of the Protection of Economic Reforms Act, 1992 on 28.07.1992 provides any additional protection to clause 122C by diluting the effect of section 80D of the Ordinance.

The purpose of the preamble of the Protection of Economic Reforms Act, 1992, promulgated on 28-07-92 is to provide legal protection to economic reforms that have already been introduced and are in the process of being introduced in order to create confidence in the establishment and continuity of the liberal economic environment created by these economic reforms.

The judgment said that the collective reading of the provisions shows that “economic reforms” which are protected under the Act are the ones that were announced, promulgated, or implemented by the government on or after the 7th of November 1990. “Economic reforms” also include “fiscal incentives for industrialisation”.

It further said that Section 6 simply protects the “economic reforms” already introduced for a specified term and mandates that they shall not be altered to the disadvantage of the taxpayer.

The fiscal incentives (part of the “economic reforms”) that are protected under section 6 are the fiscal incentives that were announced, promulgated and implemented by the government on or after 07.11.1990. Therefore, the two notifications mentioned in the Schedule to the Act are tax incentives announced in December 1990.

The Section 6 also protects other fiscal incentives notified under the statutes mentioned in section 3 of the Act but the condition precedent for the “economic reforms” (including the fiscal incentives) to enjoy the protection of the Act is that they must have been announced, promulgated or implemented by the government on or before 07.11.1990.

However, in this case the fiscal incentive under clause 122C of Part-I of the Second Schedule was promulgated in 1987. The argument of the counsel for the taxpayer that the industrial undertaking set up by the respondents was after 07.11.1990 is immaterial.

It is the promulgation of the fiscal incentive by the government that has to be on or before 07.11.1990 and not the actual setting up of the industrial undertaking.

Even otherwise, if the industrial undertaking was setup after 07.11.1990 then clause 122C does not apply as it only applied to industrial undertaking setup between January 1987 and June 1988.

Copyright Business Recorder, 2022