2015 PLP (Trib (PTD)

JAVAID MASOOD TAHIR BHATTI, CHAIRMAN.

These five appeals, preferred by a public limited banking company, impugn the consolidated appellate order dated 31-1-2013 passed by the learned first appellate authority in respect of taxpayer's appeals earlier filed before him to challenge the tax liability adjudged, vide separate orders, under the provisions of section 161 read with section 205 of the Income Tax Ordinance, 2001 (hereinafter 'the Ordinance') for the tax years, 2003, 2004, 2005, 2006 and 2011. It is the sole grievance of the taxpayer /appellant that the learned first appellate authority erred in law and facts to remand the matter back to the taxation officer for adjudication afresh as in the facts and circumstances of the case, the orders issued by the taxation officer, adjudging liability under section 161 read with section 205 of the Income Tax Ordinance, 2001, were liable to be annulled. Facts in brief are that the learned taxation officer, vide separate notices dated 18-6-2012 required the appellant to submit necessary details/evidence to show compliance with its withholding obligations as set out in various withholding provisions contained in the Ordinance. Upon examination and perusal of the response submitted by the appellant, the orders under section 161 read with section 205 of the Ordinance were passed separately for all years on 28-6-2012. In the said orders, the appellant was held to be in default to the following extent:-- Description of payment/ heads Tax year 2003 Tax year 2004 Tax year 2005 Tax year 2006 Tax year 2001

Rupees In thousands)

Profit on debt 364,481

80.000 55.629 65.924 Communication charges 4,507

Rental of operating lease 1,307

Rent, Rates and Taxes

54,94

3,917 Other Charges

1753 0.262

3. The aforesaid orders/liabilities were assailed by the appellant before the first appellate authority who allowed partial relief to the appellant in a sense that orders under section 161 read with section 205 of the Ordinance were set aside and the matter was remanded back to the Taxation officer for adjudication afresh in the light of observations recorded in the impugned order. It is these findings of the first appellate authority that had compelled the appellant to pursue this matter in further appeal before us as, in the appellant's view the first appellate authority should have annulled the orders rather than remanding the matter to the taxation officer which, according to the appellant tantamount to granting an opportunity to the revenue to fill in the lacunas and deficiencies in the first round of proceedings.

4. Before us, the learned counsel for the appellant attacked the orders of the authorities below on following three bases:-- (i) In respect of proceedings for tax years, 2003, 2004, 2005 and 2006, the very initiation of proceedings under section 161 read with 205 of the Income Tax Ordinance, 2001 is hit by limitation as these proceedings were admittedly initiated beyond the time limitation enunciated in section 174(3) of the Ordinance regarding maintenance/preservation of books of accounts. In this regard, it has been contended that no matter the provisions of section 161 of the Ordinance do not specify any specific time limitation regarding conclusion of these proceedings, however, if the provisions of the statute are read as a whole, this time limitation clearly emerges from section 174(3), cited supra, as since the law does not expect a taxpayer to maintain books beyond a certain time limit how could the tax authorities have a mandate to initiate and conclude proceedings beyond such time limitation. In this regard, the appellant heavily relied upon recent decision of Sindh High Court in the case of Habib Bank Limited v. Federation of Pakistan now reported as 2013 PTD 1659; (ii) For all the years, the manner in which the proceedings have been completed in the case of the appellant, these lack lawful jurisdiction and authority, because the liability has been determined in an arbitrary manner without identification of the names and addresses of the parties or persons from whom and how much tax was to be deducted by the appellant. In this respect, it was submitted that unless it is established that (a) taxpayer is a withholding agent; (b) a particular transaction is liable to deduction/withholding; and (c) that a specified tax of a specific person was to be withheld, who could take credit of the tax recoverable under section 161, these proceedings could not be granted legal cover. In this regard, it was reiterated by the learned counsel that since in each year, the aforesaid mandatory requirements have been altogether ignored and brushed aside by the taxation officer, therefore, these proceedings were ab-initio legal and unlawful, hence the first appellate authority should have annulled the orders, rather than remanding the matter for adjudication afresh. In this regard, the learned counsel for the appellant relied upon (a) 2012 PTD (Trib.) 122; (b) 2014 PTD (Trib.) 1400; (c) 2014 PTD (Trib.) 1542; (d) 2015 PTD (Trib.) 654; and (iii) In the background that for tax years, 2003, 2004, 2005 and 2006, proceedings under section 177 of the Ordinance had already been completed by the appellant pursuant to which certain expenses were disallowed under section 21(c) on account of non compliance to withholding provisions, therefore, again adjudging liability on heads falling within the scope of 21(c) of the Ordinance was clearly arbitrary and unjustified. In this respect, it was submitted that when consequent to detailed audit proceedings certain expenses were disallowed by the revenue, it followed that compliance in respect of other heads was adequate on part of the appellant. Consequently, proceeding, with determination of default on the heads in respect of which the taxation officer had earlier determined adequate compliance, was an act glaringly unlawful, unjustified, arbitrary and leap in the dark particularly when the officer admittedly had failed to identify any single transaction with complete particulars. In this context, the learned counsel vociferously attacked the findings recorded in the impugned order wherein the first appellate authority after appreciating this arbitrariness, remanded the issue to the taxation officer to examine the matter, afresh with regard to heads falling outside the scope of 21(c) of the Ordinance. Elaborating the point, the learned counsel vehemently submitted that learned first appellate authority lost sight of the fact that there was no other head involved in the proceedings which remained outside the purview of 21(c) of the Ordinance. According to learned counsel in this background, the first appellate authority was simply required to vacate the orders, rather than passing a remand order.

5. The learned counsel for the revenue on the other hand supported the orders of the authorities below. The main stress of the learned counsel for revenue remained on the fact that since by virtue of remand directions, the appellant has already been allowed requisite relief, these appeals are liable to be rejected being devoid of merit. According to learned DR. it was only fair if the concerned taxation officer was allowed to satisfy himself again with regard to compliance level of the appellant to the relevant statutory provisions.

6. We have heard the rival arguments of both the learned counsel and have given earnest consideration to the averments. The material relied upon before us has also been taken into account, besides the available record has been perused carefully. We have also keenly read the orders and decisions relied upon before us during the proceedings. In the light of following elaborated, exhaustive, unequivocal and unambiguous excerpts from the order of the honourable Sindh High Court, it does not take long for us to conclude that proceedings for tax years, 2003, 2004, 2005 and 2006 are hit by limitation, as the onus which the honourable Court has held to be discharged by the Revenue to undertake proceedings beyond the time limitations specified in section 174(3) of the Ordinance, has not been discharged:-- " .

34. To this question, our answer would be in the affirmative. In our view, section 161, on its proper interpretation and application, entails that even though there is no period of limitation, a point in time must eventually be reached such that if action is to be taken thereafter, this must be properly justified by the Commissioner. In other words, beyond the stipulated point in time, the onus would lie on the Commissioner to show why action is being taken belatedly and if he fails to discharge this onus, then the proceedings would be liable to be set aside. It is important to keep in mind that there is no limitation involved here. The Commissioner is not barred from taking action under section 161 after the stipulated point in time. But he does then carry the onus of justifying the delay in taking action. There may be a superficial similarity between what we say here and a rule that states that action must be taken within a reasonable period, but this is not so. There is material difference. The rule of the reasonable period (as enunciated and applied, e.g., by the Dehli High Court in the cited decision or this Court in the cases of Said Ghani and Kamran Model Factory or endorsed in Agha's Supermarket) is in the end a rule of limitation. Action beyond the period is barred. What we enunciate here raises no such bar. In principle, action under section 161 could be taken even through years -- indeed decades -- may have passed. But, if it is taken beyond or after the stipulated point in time, then the initiation of the action must be properly justified, and the onus in this regard must be discharged by the Commissioner. Clearly, the further one moves in time from the stipulated point, the greater the onus on the Commissioner, and the heavier the burden that he would have to discharged in property justifying his delayed action.

35. In our view, the rule enunciated follows directly from the settled principles that govern the exercise of any discretion conferred by the statute. All discretion is structured, channelized and controlled. There is no such thing as unfettered discretion. Any and all statutory power must be exercised reasonably, fairly and justly. And here becomes relevant a distinction between section 52 of the 1979 Ordinance and section

161. Section 52 deemed a person who, inter alia, failed to deduct tax to be an assessee in default. Thus, under the 1979 Ordinance, this position arose by the operation of law itself No order or finding of any adjudicating authority was required. To the extent that an order was made under section 52, it was merely confirmatory in nature, simply affirming what had already come to pass by the operation of law. The position under the 2001 Ordinance, is different. Unless an order is made "to that effect" under section 161, the deduction authority is not in default. It is only when such an order is made that action can be taken. Once such an order is lawfully made, then the amount due becomes recoverable "as if it were" tax due under assessment order (see section 163). The words quoted are in the nature of a deeming provision. Thus, the 2001 Ordinance has, as it were, shifted the deeming from where it lay previously, i.e. from the deducting authority to the amount that ought to have been, but was not, deducted. The shift may appear slight, but it has certain important consequences for the issue at hand. If a person culpable by the operation of law itself, then he must face the consequences of his culpability, and this could be so without regard to any time limit, unless the law itself imposes such a limit. However, where a person becomes culpable only on the making of an order in exercise of a statutory power, then the exercise of that power is in law controlled and guided It cannot be regarded as open ended and untrammeled. In particular, it may well be subject to some time related limiting factor.

36. For the foregoing reasons, we are of the view that such a time related limiting factor does exist in relation to the exercise of powers under section 161, although it is not of course, a bar of limitation as such. This brings us to the next question: what is the point in time beyond which the Commissioner if he is to act at all, must justify the taking of action? Where does the dividing time line lie, beyond (but not before) which the Commissioner carries the onus that he must discharge? In our view, it is in answer to this question that section 174 become relevant If the commissioner takes action under section 161 for a failure to deduct tax, and the amount from which the deduction had to be made was relatable to the deducting authority's income (in the manner explained in para 29 above) then any such action taken beyond the period upto which the deducting authority had to maintain its books of account, etc. under section 174 would require proper justification. The onus would then be on the Commissioner to explain why action was being taken belatedly. If there is a proper justification, then the onus would stand discharged and the action would be sustainable in law (subject of course, to any other defenses available to the deducting authority), if however, there is no proper justification, then the onus would not be discharged and the action would be liable to be set aside. The reason why the time fixed for purpose of section 174 provides the necessary dividing time line is as canvassed by the learned counsel for the petitioners. Beyond that time, in law and for purposes of the 2001 Ordinance, the deducting authority/taxpayer would not be under any legal obligation to maintain the books of account etc. The opportunity of hearing envisaged by the section 161(1A), which is mandatory, may well become illusory. But by the reason of section 174, it is not for the deducting authority/taxpayer to show that this is so once the period stated in this section has elapsed. Rather, it would be for the Commissioner to justify his belated action. The onus would lie on him and not the other way around. It is pertinent to note that section 162 has no equivalent to subsection (IA) of section

161. This of course, does not mean that the primary taxpayer is not to be given an opportunity of hearing. However, the strong language employed in sub-section (IA) ("no recovery under subsection (1) shall be made ....") does suggest that what we have said herein above in relation to there being a time related limiting factor for action under section 161 may not be the case in relation to section

162. The latter section may apply without any time related limiting factor. This would of course be understandable; after all, the basic liability is that of the primary taxpayer. However, we leave this point open for further consideration in appropriate case.

37. In the present cases, the impugned actions taken against the petitioners have been taken well after the elapse of the periods) for which they had to maintain their books of account etc. Thus, the onus lies on the Commissioner to explain why such actions had been taken belatedly. In our view, no such explanation has been forthcoming nor can be given on the admitted factual position. It is clear that all the necessary information and record on the basis of which the impugned notices were issued were well within the knowledge and possession of the relevant authorities. The audited accounts, which form the basis of the entire exercise, were submitted by the petitioners along with their returns for the tax years in question many years prior to the notices. The statements of tax deducted were duly filed again many years before the action was begun. Thus, there is no doubt that if the department had been so mindful, it could have taken the impugned action much earlier and well before the period stipulated in section 174 had elapsed. It did not however, do so. No proper justification has been provided for the belated action. In our view, the onus that lies on the department has not been discharged. Thus, although it cannot of course be said that the impugned actions are barred by the limitation, the Department has nonetheless failed to cross the threshold of the time related limiting factor identified in the paras hereinabove. The actions are not sustainable and the exercise of the statutory power conferred by the section 161 is in the facts and the circumstances of the present cases, unlawful.

7. In the orders passed by the taxation officer on 28-6-2012, not a single word has been written to proceed with adjudication at a belated time and beyond the limitation specified in section 174(3) of the Ordinance. That being the case, we have no hesitation to conclude that for tax years, 2003, 2004, 2005 and 2006, the proceedings were time barred and hence ab-initio void and-illegal. The orders of the authorities below for these years are also not sustainable on another count. In this regard, we are fortified with the submissions of the learned counsel that in this case there was no valid and lawful reason for remand in the circumstances applicable in these years. That is so because firstly, remand in a casual manner has always been deprecated by superior judiciary on the grounds that this tantamount to provide tax authorities with an opportunity to fill in legal lacunas and deficiencies which is not lawful and thus should be avoided unless exceptional circumstances warrant a remand order. Secondly, and more importantly, in this case when admittedly there was no head picked up by the taxation officer that remained outside the purview of section 21(c) of the Ordinance regarding which default had already been identified in audit proceedings, then, once the first appellate authority conceded to this fact, there was no necessity to remand the matter. The only logical outcome after this admission was to vacate the orders. That being the case, we have no hesitation to conclude that directions of the first appellate authority to remand the matter were unlawful and therefore, we disapprove these.

8. In connection with the submissions of the learned counsel for the appellants vis-a-vis the manner in which the proceedings have been concluded by the taxation officer i.e., without identification of transactions and parties, no exception could be taken from the decisions relied upon by the learned counsel during the appeal proceedings. We are in full agreement with the ratio decidendi of these judgments that in the absence of this exercise, the proceedings concluded by the taxation officer would always lack substance and lawful mandate. On this point also, the appeals for all the years including those referred to in paragraph above are liable to be accepted:

9. The upshot of the above discussion is that not only the taxation officer transgressed the lawful mandate in concluding proceedings under section 161 of the Ordinance, but also the first appellate authority fell in grave error by remanding the matter for adjudication afresh. The orders of both the authorities below are thus vacated being unlawful and unjustified.

10. The subject appeals stand decided in the manner and to the extent discussed above. HBT/162/Tax(Trib.) Appeals allowed.