2010 PLP (Trib (PTD)

MUNSIF KHAN MINHAS (JUDICIAL MEMBER).

These three appeals have been filed by the Department against consolidated order 28-3-2010 passed by CIR(Appeals) on the following grounds:-- (1) That the learned CIR(A) was not justified in directing that the tax deducted on other income to be adjusted and the remaining amount be refunded when the taxpayer was obliged to fallow the conditions laid down in agreement executed with the CNG associations and the assessment was amended under section 122(3) in pursuance of the said agreement on agreed basis. (2) That the directions of the learned CIR(A) are not justified as the assessment order finalized under section 122(3) contained adjustment of credit of tax deducted which was in violation of the agreement made between the department and C.N.G. owners Associations and under section 122(5A) was rightly taken.

2. Brief facts of the case are that the taxpayer is an AOP deriving income from running a C.N.G. station. Assessment stood completed under section 120 for the years under appeal at net income of Rs.10,65,857, Rs.10,91,262 and Rs.12,15,751 respectively. The Taxpayer declared other business revenue at Rs.1,25,673, Rs.2,89,997 and Rs.4,27,

861. The taxpayer has also filed statement of final taxation for the years, 2005 and 2006 declaring brokerage and commission at Rs.10,63,880 and Rs.11,09,851 respectively. Subsequently, the case was selected for audit by Commissioner (Audit) RTO, Rawalpindi for the tax years under review. The taxpayer adjusted the tax withheld in different heads against the property income and claimed refund of Rs.39,510, Rs.46,735 and Rs.24,942 for the years in question. The treatment given through revision of returns under the agreement and consequential assessment under section 122(3) were considered to be erroneous and prejudicial to the interest of revenue. Notice under section 122(9) was issued and confronted to the Taxpayer. Assessments under section 122(3) were further amended under section 122(5A) of the Income Tax Ordinance, 2001. Being dissatisfied with the treatment meted out by the Taxation Officer, the taxpayer preferred' an appeal before the learned First Appellate Authority who accepted the appeal of the assessee by holding that the tax deducted on other income must be adjusted and the remaining amount be refunded and directed the Taxation Officer that refund so due must be issued.

3. Learned D.R. has supported the order of the Taxation Officer and stated that the learned CIR(A) was not justified in directing that the tax deducted on other income be adjusted and the remaining amount be refunded when the taxpayer was obliged to follow the conditions laid down in agreement executed with the C.N.G.' associations and the assessment was amended under section 122(3) in pursuance of the said agreement on agreed basis. The DR has further contended that the directions of the learned CIR(A) are not justified as the assessment order finalized under section 122(3) contained adjustment of credit of tax deducted which is in violation of the agreement made between the department and C.N.G. owners Associations and action under section 122(5A) has rightly taken.

4. The AR of the assessee contends that the Taxation Officer/ Additional Commissioner (Audit) is not justified to disallow the adjustment of tax deducted under sections 235 and 236 on CNG/Petrol filling station against property income of AOP. The AR has submitted that the Taxation Officer/Additional Commissioner (Audit) is not justified to overlook the fact that the Clause (6) of the agreement clearly states that the terms of this agreement shall be applicable to the sale of CNG kits, tuck shop, service shop, etc. Income from such sources shall be separately declared by the taxpayer in accordance with the provisions of law. The AR argues that the Assessing Officer is not justified to ignore the fact that all the provisions of the agreement and section 234A (inserted by Finance Act 2007) of the Income Tax Ordinance, 2001 are pertaining to adjustment of tax deducted at source against income of CNG station arising from sale/consumption of gas only. The AR has contended that nowhere in law or any clause of agreement debars taxpayer in claiming tax deducted against other sources of income. The AR has argued that the Assessing Officer is not justified to overlook the fact that it is contrary to the natural law of justice. Taxpayer has deducted tax amount and he could not adjust it against its other income than C.N.G. sale. There appears no reason that if an AOP/taxpayer has another income then why not it can claim this withholding tax against that income. The departmental action of restricting taxpayer from taking rightful benefit of its paid tax is unlawful, unjustified and against natural law of justice. The learned AR of the assessee has contended that the Taxation Officer RTO, Rawalpindi while finalizing the assessment in individual cases at his own has placed a separate amended agreement on record by adding or changing the conditions of original agreement which was circulated by the F.B.R. The learned AR argues that other RTOs of Pakistan finalized the audit cases of C.N.G. stations as per conditions of the agreement circulated by the F.B.R. by applying tak @ 4% of the value of gas purchased and also by giving due credit of tax already collected or deducted. Copies of following orders are enclosed: (a) RTO Sialkot Messrs Sultan CNG Station NTNo. 0408546 Tax year 2007 Messrs Ch CNG Filling Station NTNo.2208509-2 Tax Year, 2007 (b) RTO Rawalpindi Messrs Gas Track NTNo.0043350 Tax Year, 2006 Tax Year 2007 Messrs Gas International NTNo. 2465602 Tax Year, 2006 The learned AR has contended that foregoing above contentions the agreement executed between All Pakistan C.N.G. Associations and RTO, Rawalpindi, which was circulated by the F.B.R. to all other RTOs of Pakistan vide Circular No.7(5)S.Asstt/2008 dated 16-8-2008 bears no such conditions that:- (a) The appellant is not entitled to claim any adjustment of withholding tax collected or deducted under any other head during the tax year. (b) That cases where the refund of tax deducted under section 148 has already been refunded; prior to the selection of case for audit, should have been paid back. (c) That there is no separate condition in the agreement as well as any further instructions given by the F.B.R. to all the RTOs that the Taxation Officers before finalizing the audit proceedings in the each case should execute new agreement with the taxpayer. The learned AR has contended that since the agreement placed on record is invalid and bogus therefore, the subsequent assessment made is null and void. The learned AR has contended that without foregoing above contentions, section 234A was inserted by Finance Act, 2007 which is applicable for the tax year, 2008 onward, therefore, the appellant is entitled to claim the adjustment of all the withholding tax collected or deducted under various heads during the tax year.

5. I have heard the arguments and perused the record. At the very outset, the learned DR has referred the clause (8) of the agreement but the learned AR states that there is no clause (8) in the agreement between All Pakistan C.N.G, Association and F.B.R. This controversy is crystallized that there are two agreements one between All Pakistan C.N.G. Association and F.B.R. and the other agreement; between the Assessing Officer and Taxpayer. In the said agreement clause (8) has been mentioned while in first agreement clause (8) is found missing and only clause (6) has been embodied. I have noted that although this agreement was not executed in one sitting between All Pakistan C.N.G. Association and the Income Tax Authorities, it cannot be presumed that it is not a valid agreement. The Taxation Officer forced the taxpayer to sign another agreement in which following clause (8) of the 2nd agreement has been inserted which is against the norms of justice. "The taxpayer shall not be entitled to claim any adjustment of withholding tax collected or deducted under any other head, during the tax year." The first agreement is in the field and was finally consented by both the parties which has been rotated throughout Pakistan and assessments are being made in accordance with the first agreement in various regions of Pakistan, therefore, the second agreement made by the Taxation Officer cannot be considered with free consent of the taxpayer in presence of the first agreement which has not been rescinded by both of the parties till now. First agreement/contract is in the field. Entire contract must be performed. Federal Board of Revenue, a party to a contract is entitled to have is performed in its entirety. F.B.R. cannot allow his subordinate officer to commit a breach of a part of the contract. Departmental Officer if desired to enter into a new contract; first agreement between F.B.R. and C.N.G. Association was to be rescinded then a new agreement with C.N.G. owners or Association could be executed keeping in confidence to F.B.R. Authorities. Here officer, at his own level tried to tie the hand of the taxpayer by shaping 2nd agreement, perhaps he was not understanding the fact that right of rescission arises only when other party fails to perform the contract in its entirety. Assessment in the light of first agreement suited the taxpayer there was no question of his failure to comply with that contract. So, whatever has been done by Assessing Officer, it is just his smart move but without any legal foundation. According to section 10 of the Contract Act, only those agreements have binding force which are made by free consent of the parties. Under section 14 of the Contract Act the consent can only be said to be free if it is not caused by coercion and undue influence. In this case both these factors are available, therefore, the agreement so made with the Assessing Officer is a voidable contract as has been envisaged in section 19 of the Contract Act. Thus in the given circumstances 2nd agreement lack legal sanctity. It appears that departmental officers while executing first agreement were not grasping its impacts fully and subsequently assessing officer tried to fill the lacuna in first agreement. The State is not supposed to cheat its citizens. Whatever, the contents of first agreement finalized stood binding qua both of the parties. Taxpayer, an individual, is also member of Pakistan C.N.G. Association. Even otherwise it does not appeal to logic that he will bind himself against his interest. He was not fully apprised of the legal aspect. The section 234-A was inserted by Finance Act, 2007 to deduct tax at source which is applicable for the tax year, 2008 and onward, therefore, the taxpayer is entitled to claim the adjustment of all the withholding tax collected or deducted under various heads during the year under appeal. As per original return taxpayer has claimed the other business revenue on account of running of service station, alignment centre and workshop at Maani C.N.G. Station Adyala Road Rawalpindi whereas per revised return taxpayer has claimed that all three business/premises are rented out. By doing so it has not only reduced the income declared but also reduced the tax liability. It is pertinent to mention here that the taxpayer has claimed tax withheld on account of bill for electricity consumed by its tenants and tax deduction thereupon cannot be claimed by taxpayer and if it has been depositing on telephone and electricity bills relating to C.N.G. business then again it can be adjusted against any income. So the guiding principle is that if workshop, alignment centre, service station, tyre shop are the rent business then the tax deduction on electricity and telephone bills will be claimed by the tenant while filing their return if due under the law. The owner of the Maani C.N.G. can claim the tax deduction in the above said branches if he declares them his own business and the people working there are claimed to be his employees. This fact is to be thrashed keeping in view the ground realities and revised return filed by the taxpayer. Case is remanded to Taxation Officer/Additional Commissioner (Audit) to recalculate tax liability in the light of above observation and analysing the ground realities after providing an opportunity of being heard to the taxpayer.

6. These appeals stand disposed of in the manner and to the extent indicated above. C.M.A./117/Tax(Trib.) Order accordingly.