Retrospective application of income tax law questioned

A legal question has been raised whether an amendment is needed in the Income Tax Ordinance 2001 through Finance Bill (2011-2012) to ensure applicability of the section 122 (C) to have provisional assessments of undocumented wealthy persons retrospectively.
Sources told Business Recorder here on Thursday that the issue was highlighted in the last meeting of the Directorate General, Directorate of Intelligence and Investigation, Inland Revenue which was arranged on Wednesday to review progress on the documentation of the economy. During the meeting, field formations brought to the notice of the FBR that Commissioners Appeals have cancelled few past provisional assessments framed by tax officials under section 122(c) of the Ordinance 2001.
The field formations have now referred the matter to the Board for guidance and further necessary action. The FBR has decided to refer the matter to the Member Legal to obtain his opinion on the applicability of the section 122 (c) retrospectively or prospectively. If there is legal requirement, the FBR has the option to introduce a provision in the Income Tax Ordinance 2001 through the Finance Bill (2011-2012) ensuring applicability of section 122 (c) retrospectively. This would only be done if cleared by the FBR Member Legal, sources said.
During the said meeting, the FBR directed the field formations to focus on latest cases of Tax Year 2010 and make provisional assessment pertaining to Tax Year 2010. Secondly, the FBR has left only 2 months period for showing visible progress in the exercise of documentation.
Therefore, the officials of the Broadening of Tax Base (BTB) Units should avoid raising demand of past years of newly registered persons and try to restrict themselves to Tax Year 2010. There is a strong possibility that the concerned person to be brought into the tax net might not be in a financial position to pay huge amount against tax demands raised for past years.
In current business circumstances, people may not be able to pay all amount against the income tax demand made through assessment procedure. Thus, the field formations can temporarily restrict themselves to the Tax Year 2010 for utilisation of latest data for making provisional assessments against the taxpayers. Even the effective utilisation of data of Tax Year 2010 would be instrumental in registration of large number of undocumented persons.
It has been also highlighted that people might not have the capacity to pay the amount of demands raised for the past tax years and they may try to challenge the provisional assessments at the level of the judicial fora. Keeping in view practical difficulties of the people, raising huge demands for old years would not serve the purpose, sources said.
During the meeting of broadening the tax-base, sources said, FBR also advised the field formations to avoid controversial cases against the newly registered taxpayers. Instead of making controversial cases against the new taxpayers, the valuable data relating to the Tax Year 2010 should be utilised in an effective manner.
When contacted, a tax expert was of the view that the provisional assessments made under section 122 (c) was not appealable. No appeal could be made against the provisional assessments made under the said provision of the Income Tax Ordinance 2001. The order issued under section 122 (c) was treated as final assessment order. The provisional assessment order would automatically not be applicable in the case taxpayer filed his income tax return, wealth statement and wealth reconciliation statement responding to the provisional assessment notice under section 122C of the Ordinance 2001.
Experts added that the section 122 (c) does not talks about prospectively or respectively. There is no specific concept of retrospective in section 122 (c) and the provision is open for all the past tax years provided limitation is there. However, tax department cannot call for tax record beyond the period of prescribed limitation ie 5 years.
Another legal expert argued that there were two kinds of income tax laws including substantive law and procedural law. The substantive law is applicable prospectively like application of new tax rates. The procedural law for the completion of assessment orders has nothing to do with the prospective or retrospective. The procedural amendments like completion of assessment are automatically applicable retrospectively. There is a possibility that any of the Commissioner Appeals might have said that the past years assessments like Tax Year 2008 are appealable as the Finance Amendment Ordinance 2009 has introduced the provision of the section 122 (c) of the Income Tax Ordinance 2001. It might be interpreted by the Commissioner Appeal that section 122 (c) may not be applicable for past tax years, he added.