2002 PLP 1599 (PTD)

C.B.R. is not a party to the transaction between the complainant and DP (Army). The contents of C.B.R.'s letter, dated 16‑4‑2001 are based upon provisions of the section 50(4) of the Ordinance, which stipulates that WHT on supply of goods is deductible on payments made for such supplies and there is no provision for exclusion of Sales Tax which forms a part of payment. The provisions of a contract cannot override specific provisions of the Ordinance. WHT is deductible on the amount of payments for supplies and no part of payment can be excluded for this purpose. It is prayed that complainant's request may not be acceded to. Thus the complaint relates to charge of Income‑tax under section 5001) of Income Tax Ordinance, 1979 by the CMA (DP) (The Accounts Officer for Directorate of Procurement Army) upon the amount of Sales Tax reimbursed to complainant.

5. During the course of hearing Mr. Khurshid A. Sheikh, on behalf of the complainant submitted, that, Sales Tax deposited by the contractor is an adjustable security payment made on behalf of the purchaser to the C.M.A. as basically the purchaser is responsible for the payment of sales tax. This argument is not valid in the light of section 3(3)(a) of the Sales Tax Act, 1990, wherein liability to pay the tax shall be of the‑person snaking the supply and the new subsection (3A) inserted vide Finance Act, 1998 is also inapplicable because no notification in the official Gazette whereby liability of person receiving the supply is established has been submitted by the complainant thus this plea is rejected. It was further contended that "Goods are defined in Sales Tax Act, 1951 as all kinds of movable property other than Actionable claims (money, stocks, shares, and securities) (section 2(6) ibid), and thus reimbursement of sales tax does not constitute payment for "Goods" for the purpose of sales tax or Income‑tax. This plea of the complainant is irrelevant, because it is receiving payment from C.M.A. on supply of taxable goods "shaft assembly etc? and is not supplying the latter with any actionable claims.

6. Mr. Pervaiz Akhtar, Secretary ‑(WHT) C.B.R., representing the respondent, submitted that the contents of C.B.R.'s Letter C. No.l(74)WHT/2000, dated 16‑4‑2001, are based upon provisions of subsection (4) of section 50 of the Income Tax Ordinance, 1979, which stipulates that withholding tax on supply of goods is deductible on payments made for such supplies. There is thus no provision for exclusion of Sales Tax, which forms a part of payment. It was contended that Excise Duty was a component affecting total payment and as Excise Duty has been replaced with Sales Tax, Sales Tax is also a part of payment, subject to Withholding tax.

7. In order to clarify the issue a reference to section 50(4) of the Income Tax Ordinance, 1979 is necessary which is as follows: "(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 `payer' 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, ...... (Explanation.‑‑‑For the purpose of clause (a) the expression `supply of goods' includes both cash and credit purchases of goods by the payer, whether under a contract or not, on credit or in cash.)"

8. The issue raised in the instant case is whether WHT is leviable on `payment of goods only', or "on the payment of goods + sales tax". The point which needs to be noted is that the expression used in 50(4), is "making any payment in full or in part", the term payment does not exclude any component thereof, thus exclusion of sales tax is not indicated. In order to remove the ambiguity, the point which needs to be understood is that supplier is receiving payment from the purchaser on sale of goods and tax is made on such payment as is evident from Para. 'E' of part 1 of the First Schedule of the Income Tax Ordinance, 1979, which says that Tax deducted has to be percentage of payment and there is no provision for excluding any component thereof.

9. The clarification offered in C.B.R.'s letter dated 16‑4‑2001 is as follows: "that withholding tax is attracted on account of gross payments inclusive of Sales Tax, Customs Duty or Central Excise Duty."

10. This stand taken by the C.B.R. has been examined and nothing patently wrong has been found in it. Withholding tax is an advance collection of Income‑tax charged on payment made by recipient of supplies. In the present case the payment includes, Sales Tax as well. The complainant is relying on the arrangement with CMA(DP) but it is a well‑settled principle of law that no one can contract out of a statute. Such contract or arrangement in violation of law is void and not enforceable. The complainant has not been able to produce any notification as provided by section 3‑A of the Sales Tax Act.

11. The complaint has no merit and no mal-administration on the part of the Revenue Division has been established. The complaint is rejected in the light of above. C.M.A./M.A.K./260/FTO Complaint rejected.