2002 PLP 173 (PTD)

By consent the documents produced alongwith the plaint, counter-affidavit and rejoinder were exhibited and so also a few documents viz., copy of order, dated 10-2-1999 passed in Suit No. 1102 of 1998 and Letters of Demand, dated 3-5-1999, 20-5-1999, and 25-5-1999 issued by the Assistant Commissioner of Income Tax upon K. M. C. On the above facts and circumstances, Dr. Farogh Naseem, learned counsel for the plaintiffs, has submitted that section 50(7A) is an exception to section 50(4A) of the Income Tax Ordinance which provides that any person making any payment to any other person which is covered by section 50 has to deduct advance income-tax from such payment and deposit the same in the Treasury. However, under section 50(7A) a person who sells Government property viz. K.M.C. is to collect advance income-tax on such sale and pay it into the Treasury. Consequently, in the opinion of the learned counsel, the obligation to pay such advance income-tax is upon K.M.C. who is to collect the same from the plaintiff on the basis of the sale price of such property, which is provided in para. 11 of the First Schedule to the Income Tax Ordinance i.e., at the rate of 5%, of such sale price. Learned counsel emphasized that the term "5 % of the sale price" does not mean in addition to the sale price. As per learned counsel, if K.M.C. would collect 5% over the above the sale price this would become indirect tax which cannot be permitted since income-tax is only a direct tax and the conclusion is inescapable that the sale price (contract price) includes the 5 % of advance tax. Consequently, learned counsel has submitted that as clause 4 of the Agreement between the parties obliges the plaintiff to pay advance income-tax over and above the value of the contract price, this cannot be sustained in terms of section 23 of the Contract Act which provides that every agreement of which the object or consideration is unlawful is void some of which such agreements have been described in the said section as one which is forbidden by law or is of such nature that if permitted, it would defeat the provisions of any law. In support of this proposition learned counsel has cited the following cases: E.A. Evans. v. Muhammad Ashraf PLD 1964 SC 536, Abdul Rahim and 2 others v. Messrs United Bank Ltd. of Pakistan PLD 1997 Karachi 62, M.K.M. Muthiah Chettiar v. Commissioner of Income-tax, Madras (1959) 35 ITR 339 and Commissioner of Income-tax, Meerut v. Hari Raj Swarup &. Sons (1982) 138 ITR

462. The second leg of Dr. Farogh Naseem's argument is that in the connected Suit No. 1102 of 1998, this Court had passed an order on 1-10-1998 whereby the plaintiff had deposited its entire octroi collection with the Nazir of this Court for the months of November and December, 1998 as well as January and February, 1999: Consequently, in any event no further advance tax is payable for these months as otherwise it would be against the plaintiff's fundamental rights. Explaining this line of argument learned counsel submits that it would be unfair and immoral to demand advance tax when the entire earnings of the plaintiffs for the months abovementioned have been deposited with the Nazir of this Court and which have been subsequently released to the K.M.C. Learned counsel says that where no income is being generated by the plaintiff it cannot be taxed in any event. For this proposition reliance is placed upon Government of Pakistan v. Muhammad Ashraf (PLD 1993 SC 176) and Messrs Ellahi Cotton Mills v. Federation of Pakistan PLD 1997 SC

582. Regarding the issue of estoppel raised try K.M.C. viz. that since previously the plaintiff has been depositing advance income-tax separately with the Revenue Department, it is now estopped from disputing such payment. Learned counsel submits that there can be no estoppel against the law for which proposition, he has relied upon Ch. Rehmat Ali v. Custodian, Evacuee Property, Lahore PLD 1966 Karachi 31 and The Committee of Receivers of Assets of Mr. Abdul Wahab Galadari v. Abdul Wahab Ebrahim Galadari (1991 CLC 694). Finally, as regards the bar of jurisdiction contained in the income Tax Ordinance as well as the Sindh Local Bodies Ordinance, 19.79 learned counsel submits that as the demand of income-tax is not within the four corners of the statute such bar would not apply to the facts of the present case. Reliance has been placed on: Abbasia Cooperative Bank v. Hakeem Hafiz Muhammad Ghaus PLD 1997 SC 3, Utility Stores Corporation of Pakistan Ltd. v. Punjab Labour Appellate Tribunal PLD 1987 SC 447, Messrs Tri-Star Industries (Pvt.) Ltd. v. The Commissioner of Income Tax Companies, Companies-I, Karachi (1998 PTD 3923), Abbas Shroff v. Miss Farzana (1998 PTD 2884), Asia Petroleum Ltd. v. Federation of Pakistan through Secretary Finance (1999 PTD 1313). On the other hand, Mr. Sirajul Haq, learned counsel for the defendant No. 4 viz. K.M.C. has argued firstly that the entire bargain between the parties was found on the clear understanding that the advance payment of the income-tax is a separate obligation of the plaintiff well apart from the contractual value and would have to be paid alongwith monthly instalments of the said contractual value: In this regard, he has referred to the notice put up by the plaintiff on its Notice Board on 13-6-1999 inviting tenders for K.M.C.'s octroi `collection which was thereafter published in the official Gazette. Similarly, Condition No. 38 of the terms and conditions regulating such tender also provides for advance tax which has been reflected in no uncertain terms in clause 4 as well as clause 7 (33) of the agreement under consideration whereby it has been clearly stipulated that the advance income-tax has to be paid alongwith monthly instalments of the contractual value. According to the learned counsel, therefore, the parties once having clearly understood and undertaken that advance income-tax would be payable by the plaintiff over and above the monthly instalments it should be bound to such bargain which should not be disturbed on a faulty or hyper technical interpretation of the law. On the legal plane learned counsel submits that section 80C(1) of the Income Tax Ordinance has introduced a presumptive regime of Income-tax whereby any amounts received thereunder or arise or are deemed to accrue or arise to any person being a resident, shall be deemed to be income of the said person and tax thereon shall be charged on the rates as specified in the First Schedule Section 80C(3) further provides that allowance or deduction against the income as determined under section 80C(1) or any refund of tax deducted or collected under section 50 shall not be allowed and accordingly section 80C(4) provides that where the assessee has no income other than the income referred to in subsection (1) in respect of which tax has been deducted or collected under section 50, this shall be deemed to be the final discharge of his tax .liability under the Ordinance and he shall not be required to file the return of total income under section

55. Thus according to the learned counsel section 80C(2)(a)(iii) is squarely applicable to the plaintiff's case as it provides that the amount on which the plaintiff would be taxable is the amount on which tax is deductible under section 50(7A) of the Ordinance. Hence, in learned counsel's opinion section 50(7A) of the Ordinance read with section 80C(2)(a)(iii) makes it clear that it is the plaintiff's obligation to pay advance income-tax on the contractual value of the right to collect octroi duty on K.M.C's. Octroi Posts at the Karachi International Airport more so since section 50(7A) provides for advance tax on sale price which could then never be inclusive of such price. Consequently, there is no violation of the law which would entitle this Court to assume jurisdiction in the matter so far as the payment of advance income-tax is concerned by K.M.C. or the plaintiff. In support of his contention learned counsel has cited Messrs Elahi Cotton Mills v. Federation of Pakistan (supra) wherein the Hon'ble Supreme Court has upheld the provisions of sections 80-C and 80-D of the Ordinance declaring that the same are not expropriatory in nature but a lawful exercise in legislation which in some cases are-beneficial to this assessee 'as the same avoid the filing of income-tax returns and subsequent assessment etc. Secondly learned counsel has contended that clause (88) of the Second Schedule to the Income Tax Ordinance exempts K.M.C. from all charge of income-tax by virtue of section 14 thereof and hence it would be contradictory to hold that K.M.C. was obligated towards the payments of tax since it would not be in accordance with the law. Consequently, learned counsel has contended that as there is no element of mala fides, or lack of jurisdiction or coram non judice and also as no case has been made out for the violation of section 50 (7A) of the Ordinance the suit would be barred under section 162 of the Ordinance as well as under section 117 of the Sindh Local Government Ordinance, 1979. Both Mr.. Nasrullah Awan and Mr. Yaseen Kiyani have adopted the arguments of Mr. Sirajul Haq Memon. In rebuttal Dr. Farogh Naseem learned counsel for the plaintiff has submitted that nothing turns on clause 7(33) of the agreement between the parties viz., the plaintiffs and the K.M.C. as the words used are the same as in clause

4. Similarly, according to the learned counsel the terms and conditions upon which the auction of the octroi posts was to be held as well as the auction notice and the policy issued by the Government of Sindh Local Government Department are also not germane to the issues in the present suit. As per learned counsel it is an admitted position that the plaintiff in terms of all these documents bad to pay advance income-tax. However, the issue is whether in terms of section 50(7A) this obligation was enforceable at law since such advance income-tax in terms of said section was to be paid by K.M.C. As regards the application of section 80-C of the Income Tax Ordinance learned counsel submits that the word used in the relevant portion thereof viz. 80-C(2) (iii) is "deductible" and not "collectable", and therefore, it does not apply in the present case, since it is clear from the wording of said subsection that the tax to be paid by an assessee thereunder is on the amount deductible as advance tax under such octroi contract. Whereas in section 50(7A) said advance tax is to be collected by K.M.C. Conversely learned counsel has argued that where the above said subsection is applied to the plaintiff's case then it furthers the argument that K.M.C. would have to pay advance tax on whatever they have collected from the plaintiff viz. the contractual amount. Further, learned counsel submits that in any even as this Court has in the connected Suit No. 1102 of 1998 ordered that all the plaintiffs receipts for December, 1998 and January, February, 1999 should be deposited with the Nazir, therefore, there should be no question of any advance tax for these three months. Learned counsel is of the opinion that the Elahi Cotton Mill's case does not go so far as to hold that even when there are no receipts tax is payable. I have heard all the learned counsel and my conclusions are as follows:

As the answer to Issue No. 1 viz. the maintainability of the suit is dependent upon Issues. Nos. 2 and 3, I shall accordingly take up the latter issues first. In this connection it would be seen that the entire controversy between the parties revolves round the interpretation of section 50(7A) and section 80(C) of the Income Tax Ordinance. Section 50(7A) provides, inter alia, that any person making a sale by public auction of any property belonging to the Government or Local Authority shall collect the advance tax computed on the basis of the sale price of such property and at the rate specified in the First Schedule from any person to whom such property is sold and credit for the tax so collected in any financial year shall, subject to the provision of section 53 be given in computing the tax payable by the purchaser. From a plain reading it would be seen that this is a charging section as far as the plaintiff is concerned and further enjoins the seller of the property viz. the Government/Local Authority to collect advance tax computed on the basis of the sale price of such property and at the rate specified in the First Schedule, from the person to whom such property is sold. Consequently, it is quite clear that in the present case K.M.C., who has auctioned the octroi posts to the plaintiff, is to collect advance tax from the latter on the sale price of such property at the specified rate viz. K.M.C. is merely a collection agency, concurrently, the obligation to pay the advance tax, in my view, would be upon the plaintiff. It would also be seen that the rate of advance tax is to be computed on the basis of the sale price of the Government property in accordance with the rates specified in the First Schedule which does not mean, in my view, that the advance income-tax is to tie necessarily included in the sale price. What section 50(7A) prescribes is in principle that advance tax has to be paid by the buyer of Government property which is to be calculated on the basis of such sale price as per the specified rate and is to be collected by the seller of such property and finally deposited in the Government Treasury: Nowhere in section 50(7A) is it stated either in explicit or implicit terms that the advance tax payable thereunder must form a part of the sale price. Secondly, it would also be seen that section 50(7B) further provides that the advance tax so collected in accordance with the section 7A is to form part of the income-tax paid on behalf of the purchaser which further supports the conclusion that such advance tax is to be paid by the purchaser. It would also be seen that as per section 80C(2)(a)(iii), the amount on which tax is deductible under section 50(7A), is deemed to be the income of the plaintiff and consequently under subsection (3) of section 80C it cannot claim any refund so collected or deducted under section

50. Finally under subsection (4) of section 80C the tax so collected is a final discharge by the tax payer's (plaintiff's) liability, where there is no other source of income. The abovementioned provisions would, therefore, further fortify the interpretation of section 50(7A) of the Ordinance that the only charge made by the latter section is upon the person who purchases public property. As to learned counsel's argument that the word used in the said section is "deductible" and not "collectable", it is instructive to note that the Legislature has used these two words interchangeably to convey the same meaning as evident from section 80C(4). This further strengthens the conclusion that section 50(7A) qua the seller of Government property merely nominates such seller as a collecting agency for the advance tax payable by the purchaser who remains obligated to pay the same. Consequently, in my opinion, there would be no bar upon the parties to enter into an agreement as they have done whereby the plaintiff is obligated to pay advance income-tax over and above the contractual value. For all the foregoing reasons, I am unable to agree with the proposition formulated by the learned counsel for the plaintiff to the effect that the advance tax a contemplated under section 50(7A) of the Ordinance is to be paid by the plaintiff in the circumstances of the case. Mr. Farogh Nasim's other submission is that since per para. 11 of the First Schedule to the Income Tax Ordinance the rate prescribed with regard to advance income-tax on the sale price is 5% of the same, therefore; this does not mean in addition to the sale price but means a part of the sale price. I am afraid, this argument is again without any merit as it merely prescribes the rate on tax and does not lay down whether it should be in addition to or in derogation of the sale price. As to learned counsel's argument that in any event no advance income-tax is payable by the plaintiff for the months of November and December, 1998 as well as January and February, 1999 since the plaintiff's entire octroi collections have been deposited with the Nazir of this Court, vide order passed in Suit No. 1102 of 1998, suffice it to say that the quantum of such tax would be adjudicated when the said suit is decided and consequently at the present time it would not be obligated to pay any advance income-tax. For the foregoing reasons Issue No. 3 is answered in the affirmative. As regards Issue No. 2 viz. whether the defendant No.1, who is the Assistant Commissioner of Income-tax, is entitled to demand the impugned taxes from the plaintiff. I have already held that the plaintiff is in the circumstances of the case obligated to pay advance income-tax over and above the contractual value. I have not been able to come `' across any provision of law, which prohibits the Income Tax Authorities from demanding tax which is payable as a matter of law and neither have the learned counsel been able to suggest anything to the contrary. Consequently, Issue No. 2 is also answered in the affirmative. As regards Issue No.1, the maintainability of the suit itself, it is settled law that where the impugned order is either coram non judice, without jurisdiction, mala fide or unlawful then in these circumstances D and eventualities non obstante clauses, which are frequently found in various enactments barring the jurisdiction of the Civil Courts cannot operate so as to non-suit tae plaintiff. In the present case I have already held that the obligation to pay and demand advance income-tax by/from the plaintiff does not violate any provision of law. Consequently, I would answer Issue No. 1 in the negative. For all the foregoing reasons this suit is dismissed with costs, however, as observed earlier, the quantum of advance income-tax payable by the plaintiff would be adjudicated in Suit No. 1102. of 1998. H.B.T./A-241/K Suit dismissed/Order accordingly.