2013 PLP (Trib (PTD)

MUHAMMAD NAWAZ BAJWAH (JUDICIAL MEMBER).

The titled appeal pertaining to assessment year 1993-1994 has been preferred at the instance of the department.

2. Brief facts giving rise to this appeal are that order under section 52/86 of the repealed Ordinance, was cancelled by this Tribunal by holding that limitation for rectification is applicable to the order of 52/86. The department filed reference application in the Hon'ble Lahore High Court wherein order of this Tribunal was confirmed. On further appeal before the Hon'ble Supreme Court the order was remanded by the Honourable Supreme Court with the following directions:

C.A. Nos. 1111 to 1127 and 1435 to 1488 of 2008 and 229 of 2011

14. The appeals preferred on behalf of Income Tax have been examined and the same are accepted and order impugned set aside for the reasons mentioned herein above and for following further reasoning:-- (1) With reference to each case, facts involving common questions have not been categorized with the result that the submissions made during the course of arguments on facts not dealt by the Income Tax Appellate Tribunal could not be appreciated on the basis of which the contentions have been raised before this Court. (2) It appears after hearing the learned counsel from both the sides that IT Appellate Tribunal in the judgment rendered by it discussed and dealt with the cases as "Regular Assessee in default, which are confined to some cases only out of the whole lot when IT Return were filed by the assessee. (3) The cases in which section 50 of the Income Tax Ordinance, 1979 for deduction of the advance Income Tax on source could be made applicable have not been specifically dealt with. (4) It has not been shown as to how and in what manner liability imposed by the Revenue was lawfully imposed and that if no limitation was provided on the subject; the Revenue whether in a reasonable time confronted the liability by issuance of notices/letters for the recoveries of demand so raised. (5) On assumption/presumptions, the conclusions appeared to have been drawn by the IT Tribunal for enforcement the liability by the Revenue. (6) The question of law involved in the cases arisen out of liability being enforced by the Revenue have not been attended to and dilated upon by the Appellate Tribunal.

15. These appeals are remanded to learned Income Tax Appellate Tribunal Islamabad to decide the same afresh after affording proper opportunity of hearing to all concerned and in th.41 e light of observations as made herein above". In the light of orders passed by the Honourable Supreme Court this appeal has been fixed for hearing. In the instant case, assessee has been treated as assessee in default on the allegation that deduction under section 50(4) was not made. For reference section 50(4) is reproduced below:-- 50(4) Notwithstanding anything contained in this Ordinance:-- (a) any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person [being resident] (hereinafter referred to respectively as "prayer" and "recipient") on account of the supply of goods or for service rendered to, or the execution of a contract with the Government, or a local authority, or [a company], [or a registered firm] or any foreign contractor or consultant or consortium shall, [ ] deduct advance tax, at the time of making such payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any financial year shall subject to the provisions of section 53, be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July, next following the said financial year, or in the case of an assessment year, if any, in, which the said date as referred to therein, falls, whichever is the later. As is clear from above, subsection (4) of section 50 is overriding provision. Subsection (4) mentioned three ingredients i.e.: (a) any person responsible for making payment (b) on account of supply of goods or the execution of contract etc. with the Government Local Authority or company (b) deduction of tax from recipient This means that contracting parties are two different persons among whom, contract has been executed and the person responsible for making payment is a third person who is making payment on behalf of the contracting party which may be Government, Local Authority or company. In the present case assessee in default has been treated the contracting party i.e. company, whereas person responsible for making payment has to deduct the tax and only he can be treated as assessee in default.

5. As per order under section 52/86 of Income Tax Ordinance, 1979, the assessing officer charged tax on account of non-deduction of tax on account of raw materials, chemicals, stores, packing material, motor vehicle. Various notices were issued and assessment was finalized under section 52/86.

6. In the light of above facts, it is submitted by the AR of the assessee that order under section 52/86 is not maintainable as the assessing officer has failed to declare the company as assessee in default as no notice to this effect was issued by the assessing officer. In this behalf, reliance is placed on the order of this Tribunal recorded in I.T.As. Nos. 740/LB of 2002 to 744/LB of 2002 dated 22-12-2011. Another submission is that according to section 50(4) credit of tax has to be given to the recipient and without specifying the names of the recipients credit to the recipients cannot be given hence order is liable to be cancelled. Relevant portion from 50(4) reads as under:-- 50(4) and credit for the tax so deducted in any financial year shall, subject to the provision of section 53 be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July next following the said financial year It is contended by the AR that compliance with above provision of law is not possible without specifying the names of recipients. Reliance is placed on2012 PTD 122.

7. It is further submitted by the AR that default has to be established by the assessing officer in clear terms which is missing in this case. The Assessing Officer cannot pass ex parte/best judgment assessment by alleging any default for not submitting the details of deduction of tax. The only provision which permits best judgment assessment is section 63 which reads as under: "Best Judgment assessment, - Where any person (a) Fails to furnish a return of total income required to be furnished by him under section 56, sub-section (3) of section 72 or sub-section (3) of section 81; or (b) Fails to comply with any of the terms of a notice issued under section 58 or

61. The Deputy Commissioner may, by an order in writing, assess the total income of the assessee to the best of his judgment and determined the amount of tax payable by him" It is asserted by the AR that from the perusal of above, it is evident that any alleged default on the part of assessee does not permit passing of order under section 52/86 of Income Tax Ordinance 1979. The assessing officer cannot hold any other person as assessee in default except principal officer. In the under noted case the department had treated Director Finance WAPDA as assessee in default. The Honourable Lahore High Court Lahore cancelled the order on the ground that Director Finance cannot be held as assessee in default because he was not principal officer vide case law reported as 2000 PTD 3396 (H.C. Lahore).

8. Next submission is that tax deducted under section 50(4) is to be treated as advance tax of recipient. Relevant portion of section 50(4) reads as under:-- Credit for the tax so deducted in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July, next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, if any, in which the "said date", as referred to therein, falls whichever is the later. It is asserted by the AR that the interpretation of the statute has to be harmonious and if the tax deducted is to be treated as advance tax then order after 30th June cannot be passed. In this behalf, reliance is placed on PLD 2008 SC 779 relevant portion at page 817.

9. On the contrary, the learned DR on behalf of the revenue controverted the above submissions and supported the order passed by the assessing officer.

10. We have heard the arguments put forth by the learned Representatives of both the sides and have carefully gone through the available record and after due consideration to the directions of the Honourable apex court of Pakistan, we find that arguments put forth by the learned AR carry substantial weight. Subsection (4) of section 50 has an overriding effect. Subsection (4) mentions three 3 parties i.e. (a) any person responsible for making payment (b) on account of supply of goods or the execution of contract etc. with the Government Local Authority or company (c) deduction of tax from recipient

11. This means that contracting parties are two different persons among whom contract has been executed and the person responsible for making payment is a third person who is making payment on behalf of the contracting party which may be a government, local authority or company. In the present case assessee in default has been treated the contracting party i.e. company whereas person responsible for making payment has to deduct the tax and only he can be treated as assessee in default which is missing in this case and other submission of the AR of the assessee is that as per section 50(4) credit of tax has to be given to the recipient which without specifying the names of the recipient credit of tax cannot be given. Reliance is placed on case-law reported as 2012 PTD (Trib.) 122 which is "on all fours" applicable.

12. The default has to be established by the Assessing Officer in clear terms which is missing in this case. The Assessing Officer has not confronted the assessee for any default after receiving the reply/information from the assessee which defect makes the order void. The assessing officer can only hold the Principal Officer or person responsible for making payment as assessee in default. Reliance is placed on case-law reported as 2000 PTD 3396 (H.C. Lahore) wherein Director "Finance (Wapda) was treated as assessee in default. The. Honorable Lahore High Court, Lahore, cancelled the order on the ground that Director Finance cannot be held as assessee in default because he is not principal officer. After due consideration and respectfully following the directions of the honourable apex court of Pakistan, we find that argument put forth by the learned AR carry substantial weight. Order under section 52/86 of Income Tax Ordinance, 1979, the repealed Ordinance, is not maintainable in the eyes of law which is hereby cancelled by upholding the order of first appellate authority not for the reasoning made by it but for the reasons stated supra. Appeal of the department for the year is rejected. HBT/68/Tax(Trib.) Appeal rejected.