The Supreme Court has held that Punjab tax authority could recover all due amounts from the owners of agriculture land within a period of two years from the time when the total agricultural income was first assessable, ie, the assessment years of 2012 and 2013. A three-judge bench, headed by former Chief Justice Mian Saqib Nisar, on 8th January after hearing the arguments of all the parties had reserved the verdict, which was released on Saturday.
The verdict authored by ex-CJP Mian Saqib Nisar said where an assessee has not filed his income tax return or has done so without disclosing his agricultural income, the tax authorities are obliged to levy, assess and collect agricultural income tax in terms of the provisions of the Punjab Agricultural Income Tax Act, 1997 (Act) and Punjab Agricultural Income Rules, 2001 (Rules).
The Punjab tax authority (petitioner) had issued recovery notices to the owners of agricultural land (respondents) for recovery of agricultural income tax for the assessment years 2012, 2013 and 2014 under the Act.
The respondents challenged the recovery notices by filing constitution petitions before the Lahore High Court, which were allowed. The Punjab Revenue Department then approached the Supreme Court against the LHC judgements.
The court noted that particularly tax statutes operate prospectively and not retrospectively unless clearly indicated by the legislature. Retrospectivity can only be attributed to a statute where it is made explicit or can be inferred by necessary implication; it cannot be presumed.
The court observed that Section 3B inserted in the Act through the Punjab Finance Act, 2013 by way of amendment in Punjab Agricultural Income Tax Act, 1997 was to apply prospectively. It said that Section 4(4) of the Act read with Rule 14(3) of the Rules, albeit couched in negative terms, clearly allows for the recovery of agricultural income tax for the two years (i.e. 2012 and 2013) prior to the assessment year in which the total agricultural income was first assessable, ie, the assessment year beginning on 01.07.2014.
It was further the case of the respondents that there is a mandatory process under the Act to levy, assess and collect agricultural income tax for a given assessment year which has not been so done by the petitioner, rather the latter has simply issued recovery notices demanding the recovery of agricultural income tax which it is not allowed to do under the law.
The court said that the precise wording of Sections 3 and 3B of the Act are important and need to be considered. The Section 3 provides that there shall be levied, assessed and collected each year a tax in respect of agricultural income of a tax year of an owner at the rate specified in the First Schedule.
However, according to Section 3B, notwithstanding the provisions of Section 3 of the Act, where any person has declared agricultural income for any assessment year in the return filed under the Income Tax Ordinance, 2001 (the Ordinance) he shall pay tax on such income at the rate specified in the Second Schedule.
The court said where the assessee has himself filed his income tax return in which he has declared his agricultural income, by virtue of Section 3B of the Act, the tax department is not required to levy and assess agricultural income tax and can recover the same by issuing recovery notices directly. "Therefore, we find that the argument of the learned counsel for the respondents that failure to pass an assessment order has deprived the respondents of the right to challenge such order under Section 7 of the Act is unfounded."
The application of Section 3B of the Act is based upon the agricultural income as declared by the assessee himself in his income tax return under the Ordinance.
The judgement observed that Section 3(1) of the Act which provides that subject to the other provisions of the Act, there shall be levied, assessed and collected each year a tax in respect of agricultural income of a tax year of an owner. Furthermore, according to Section 4(1) of the Act, agricultural income shall be assessed and collected by the Collector in such manner as may be prescribed. "Prescribed" has been defined in Section 2(g) of the Act to mean "prescribed by rules" and Section 11 of the Act states that "the government may frame rules to carry out the purposes of this Act."
Pursuant to such power, the Rules were framed. Rule 14(1) whereof provides a certain procedure for the recovery of agricultural income tax under the Act. Therefore in the situation where an assessee has not filed his income tax return or has done so without disclosing his agricultural income, then the tax authorities are obliged to levy, assess and collect agricultural income tax (in spite of the presence of Section 3B of the Act) in terms of the provisions of the Act and the Rules.