Restoring the Appellate Chain: Implications of Section 126A’s Omission on Pending and Future Tax Appeals

Muhammad Saqib Raza

Before the insertion of Section 126A, the appellate framework under the Income Tax Ordinance, 2001[the Ordinance] followed a well-established three-tier hierarchy. A taxpayer aggrieved by an order passed by the Officer Inland Revenue (OIR) would first file an appeal before the Commissioner Inland Revenue (Appeals)—[CIR(A)] — under Section 127. The decision of the CIR (A) could then be assailed before the Appellate Tribunal Inland Revenue (ATIR) under Section 131, and subsequently, on questions of law, a reference could be made to the High Court under Section 133. This structure embodied the fundamental principles of access to justice, procedural fairness, and gradual judicial scrutiny, ensuring that every appellant had the benefit of a full hearing before multiple forums.

However, this arrangement was disrupted by the insertion of Section 126A through the Finance Supplementary Act, 2024, promulgated on 3rd May 2024. The newly inserted provision introduced a pecuniary threshold-based jurisdiction, empowering the CIR(A) to transfer appeals involving tax demands crossing the threshold directly to the ATIR, thereby bypassing the CIR(A) altogether. Although portrayed as a measure to expedite the disposal of high-value appeals and reduce workload, the provision introduced considerable ambiguity.

Section 126A raised multiple procedural and constitutional concerns. It offered no express criteria or right of hearing for the taxpayer before the transfer of appeal. Nor did it provide a clear procedural code to govern such transfers—whether through formal intimation, re-filing of grounds, or supplementation of documents. More fundamentally, it disrupted the sequential appellate structure by allowing the ATIR to assume the role of the first appellate forum in substantial matters—despite being primarily a final fact-finding tribunal under the scheme of the Ordinance.

Recognizing the anomalies, procedural vacuum, and jurisdictional confusion caused by Section 126A, the legislature acted swiftly. Through the Finance Act, 2025, the entire provision was omitted, restoring the traditional appellate structure, albeit with some new flexibilities. In particular, Section 127 was amended. enabling the taxpayer with a choice: either to file an appeal before the CIR(A) or to directly invoke the jurisdiction of the ATIR, thereby waiving the right of first appeal.

In parallel, Section 131(1) was also substituted to align with this revised structure. The amendment now permits an appeal to the ATIR against an order passed either by the CIR(A) or, where the taxpayer has opted to bypass the CIR(A), directly against the order of the Officer Inland Revenue or the Commissioner, as the case may be.

These legislative amendments through the Finance Act, 2025 have far-reaching implications for pending cases, jurisdictional challenges, and procedural rights. In particular, they raise critical questions regarding the fate of appeals earlier transferred to ATIR under the now-omitted Section 126A, the validity of such transfers, and whether the amendments are procedural and therefore retrospective in nature. This article aims to examine these legal and practical consequences in light of constitutional principles, statutory interpretation doctrines, and relevant case law.

Jurisdictional Consequences of the Omission of Section 126A

The omission of Section 126A through the Finance Act, 2025 has created a transitional scenario with significant jurisdictional consequences, particularly for appeals that were transferred to the Appellate Tribunal Inland Revenue (ATIR) under the erstwhile provision. The key question arising is: What is the legal status of such transferred appeals? Are they deemed validly filed before the Tribunal and maintainable there, or do they lapse and require re-filing before the CIR(A) under Section 127?

To resolve these issues, one must first appreciate that Section 126A was not a substantive conferral of appellate rights, but a procedural mechanism for re-routing certain appeals from CIR(A) to the ATIR based on a pecuniary threshold. It did not, in itself, create any new right of appeal. Rather, it merely altered the forum before which an existing right of appeal under Section 127 could be exercised. Therefore, the omission of this procedural section through a subsequent Finance Act is governed by settled jurisprudence relating to procedural amendments and remedial legislative changes.

According to a consistent line of authority—including landmark decisions such as 1993 SCMR 73, 66 TAX 125 (SC), and 2006 PTCL 480—it is now well-established that amendments of procedural or curative nature are deemed to be retrospective in their application, unless there is an express legislative bar to such interpretation. The Supreme Court has held that remedial amendments introduced to rectify institutional defects or procedural injustice are to be interpreted liberally and retrospectively, particularly when they do not take away any vested right but merely regulate the manner in which existing rights are to be exercised.

Applying this principle to the present scenario, it follows that:

1. The omission of Section 126A applies to all pending appeals, whether transferred to the ATIR under that section by CIR (A) or filed originally before the ATIR.
2. The jurisdiction of ATIR in such transferred appeals is extinguished, unless the taxpayer independently opts to invoke the new route of direct appeal to the ATIR under amended Section 127.
3. Transferred appeals pending before the Tribunal must now be returned to the appellant for re-presentation either before the CIR(A) or the ATIR, depending on the choice exercised under the revised Section 127.
4. No limitation bar will apply to the re-filing of such appeals before the CIR(A), as the time spent before the Tribunal in good faith would be condonable under relevant law read with principles of actus curiae neminem gravabit and bonafide pursuit of remedy before incompetent forum.

This view finds support from a number of precedents where similar omissions or curative amendments were held to be applicable to pending proceedings, such as:

• 66 TAX 125 (SC) — where a beneficial amendment restricting additional tax liability to 15 months was applied to all pending cases.
• 2006 PTCL 480 and 1997 PTD 1555 — holding that machinery provisions and curative insertions operate retrospectively unless they impair vested rights.

Therefore, the jurisdiction of the Tribunal in such matters must be deemed to have ceased as of 1st July 2025, the date on which the omission took effect. The Tribunal, in such cases, is expected to pass summary orders, returning the appeals to the appellant to be re-filed in accordance with the new appellate framework.

Right of Option under Revised Section 127 and its Exercise

Following the omission of Section 126A through the Finance Act, 2025, the Legislature simultaneously amended Section 127 to restore and restructure the appellate hierarchy. The key innovation brought about by the amended Section 127 is the restoration of the two-tier appellate system, with a qualified option to file appeal either before the Commissioner (Appeals) \[CIR(A)] or directly before the Appellate Tribunal Inland Revenue (ATIR), based on the taxpayer’s preference and subject to certain conditions.

Restored Appellate Structure (Post-Omission of Section 126A):

1. Primary Appellate Forum: CIR(A), as per original scheme of Section 127.
2. Optional Direct Appeal to Tribunal: A taxpayer may now directly approach the ATIR, bypassing CIR(A), provided the taxpayer so elects in writing at the time of filing the appeal.

This optional framework ensures flexibility, while also preserving the taxpayer’s right to two rounds of fact-based adjudication if they choose to go through CIR(A) first. However, it also creates a strategic crossroad: once the option is exercised to go directly to the ATIR, the right to approach CIR(A) for that particular order is extinguished.

Impact on Previously Transferred Appeals (Under Section 126A)

Where appeals were earlier transferred to the ATIR by the Commissioner (Appeals) under now-omitted Section 126A, several legal and procedural implications arise:

1. Right of Option Was Not Exercised: Appeals transferred under Section 126A were not based on any voluntary election by the taxpayer. Hence, they cannot be deemed to have exercised the option under the amended Section 127. Such appeals must be treated as if they were originally intended for CIR(A).
2. Tribunal Cannot Assume Jurisdiction Without Election: Since the revised Section 127 predicates the jurisdiction of the Tribunal on express election by the appellant, any appeal transferred to the Tribunal without such written exercise of option does not confer jurisdiction upon the Tribunal to proceed further.
3. Appellant’s Right to Re-File Must Be Preserved: In such cases, the Tribunal must allow the appellant to withdraw or return the appeal, so that it may be filed before the CIR(A) within a reasonable time, preferably with limitation condonation under relevant law or general principles of procedural fairness.
4. Tribunal’s Summary Role Post-Omission: The Tribunal’s role in such transferred cases is now administrative or transitional — to decline jurisdiction and direct the appellant appropriately.

This understanding upholds not only the text of the law but also the spirit of legislative intent, which was to simplify, restore and rationalize the appellate structure without prejudicing taxpayer rights. The restructured scheme is also in line with jurisprudence that emphasizes that procedural innovations must not override or infringe substantive rights, especially when the taxpayer is not at fault.

In conclusion, the revised Section 127 must be interpreted liberally and purposefully, ensuring that taxpayers are given full opportunity to choose their appellate forum afresh and that no appeal fails solely due to procedural ambiguities caused by the transition from Section 126A to the new framework.

Judicial Precedents on Procedural and Remedial Amendments: Retrospective Operation and Protection of Vested Rights

The debate on whether a statutory amendment—especially one affecting appellate jurisdiction—can apply retrospectively hinges upon the nature of the amendment, i.e., whether it is procedural, substantive, or remedial/curative. In the context of Section 126A’s omission and the consequent reversion to the two-tier appellate structure, a number of judicial pronouncements are highly relevant and serve to clarify the underlying legal principles.

1. Supreme Court: 66 Tax 125 – CIT v. Shahnawaz Ltd. (1992): In this landmark case, the Honourable Supreme Court of Pakistan held that remedial and curative legislation may be applied retrospectively, especially if it was enacted to correct an inequitable or unjust procedural situation. The Court cited with approval that such remedial provisions should be liberally construed to “suppress the mischief and advance the remedy,” particularly where no vested rights or final adjudications are disturbed.

This directly applies to the omission of Section 126A, which was designed to address the practical difficulty and perceived injustice of bypassing one appellate forum due to pecuniary thresholds, without any election or consent of the taxpayer.

2. ATIR: 2006 PTCL 480 / 2006 PTD 2849 / 93 TAX 366 / ITAs 2823 & 3700/LB of 2004: This Tribunal judgment held that amendments which are procedural or machinery in nature operate retrospectively. The insertion of a time-bar provision was treated as procedural because it governed the mode and timing of filing, not the right to appeal itself. It was held that the procedural amendment, being curative and regulating conduct of assessment or appeal, must apply to pending proceedings, even if initiated under an earlier law.

This supports the view that the omission of Section 126A, being procedural and jurisdictional, affects pending appeals and thus validates redirection of transferred appeals back to CIR(A) unless the taxpayer elects otherwise.

3. 1993 SCMR 73 – Pakistan v. Ghulam Mustafa Jatoi: The Supreme Court reaffirmed that procedural amendments apply retrospectively, unless they expressly disturb vested or substantive rights. This principle reinforces the conclusion that the removal of Section 126A—a jurisdictional procedural provision—does not impair substantive rights and must therefore be applied to pending appellate cases.
4. 1997 PTD 1555: This Lahore High Court judgment laid down that statutory jurisdictional bars or conferment of jurisdiction are procedural, and unless expressly excluded, such provisions extend to matters in limbo, i.e., where appeal proceedings are initiated but not concluded. The omission of Section 126A is no different, and therefore, the Tribunal is divested of jurisdiction where no valid election under amended Section 127 was made.
5. 2008 PTD 1 – Ellcot Spinning Mills v. CIT: Although primarily dealing with the retrospective effect of exemption-related amendments, the Lahore High Court stressed that where the legislative change is beneficial, curative, and does not create new liabilities, retrospective application is presumed unless expressly excluded. The removal of the restriction imposed by Section 126A falls squarely in this category. These precedents collectively build a strong legal foundation for the proposition that:

• The omission of Section 126A is procedural and curative;
• Its effects extend to pending appellate proceedings, including those involuntarily transferred to ATIR;
• The restored appeal mechanism under amended Section 127 must be read liberally to protect the right to a fair hearing and choice of forum.

Final Reflection: Statutory Reversal, Jurisdictional Clarity, and Legal Finality

The swift omission of Section 126A almost within a year of its insertion is not merely a legislative adjustment but a clear indicator of its flawed policy design and procedural unworkability. In the absence of any saving clause, the settled principles of statutory interpretation dictate that the omitted provision is to be treated as if it never existed—particularly when it did not create or extinguish any vested right but merely altered the forum of appeal.

As consistently affirmed by superior courts—including PLD 2016 SC 961 & 2016 SCMR 646, —procedural provisions apply retrospectively unless expressly preserved, and remedial omissions serve to restore earlier safeguards. Therefore, the omission of Section 126A must be construed as curative and retroactively applicable to all pending matters, thereby reinstating the original appellate pathway through the Commissioner (Appeals) unless the taxpayer now voluntarily opts otherwise under amended Section 127. This interpretive approach not only aligns with the constitutional right to fair adjudication and appellate review but also ensures that procedural innovations do not compromise access to justice.

The principle of audi alteram partem, when read in conjunction with the doctrine that “procedure is the handmaid of justice,” mandates that such legislative reversals be given effect in a manner that vindicates taxpayer rights and sustains the integrity of the appellate process under the Income Tax Ordinance, 2001.

_________________________________________________

The writer, Advocate High Court, is tax & corporate consultant.