1988 PLP (Trib (PTD)

This is a departmental appeal against the imposition of penalty of Rs.30.000 on the assessee under section 108 of the I.-T.O. Ordinance for default of submitting the statement as required by Section 143 of the Income-tax Ordinance, 1979 (hereinafter referred to as the Ordinance). It may be noted that in the grounds of appeal the department has wrongly contested the deletion of penalty under section 111 of the Ordinance as the penalty, which had been imposed and deleted by the learned A.A.C. was under section 108 of the Ordinance.

2. Brief facts of the case are that the assessee runs a shop at Brandreth Road, Lahore and deals in purchase and sale of various types of pipes. The assessing officer discovered that the assessee was engaged in supply business and made sales of more than Rs.1,00,

000. Therefore, he was required to file statement under section 143 of the Ordinance but he failed to do so. Consequently the I.-T.O. imposed a penalty of Rs.30,000 after giving a notice under section 116 of the Ordinance to the assessee. The assessee's plea before the I.T.O. was that he was a shopkeeper and was not a supplier and therefore, section 143 of the Ordinance had no application on the assessee. When appeal was filed before the learned A.A.C. it was alternatively pleaded that section 143 was applicable only on contractors for construction of building and not on the suppliers of goods simpliciter. The learned A.A.C. accepted this argument and held that section 143 was applicable only on contractors of construction of building and supply of goods or services rendered in connection therewith. Consequently he deleted the penalty.

3. The learned D. R. vehemently contended, firstly that section 143 is not only applicable to the construction of building contractors alone but also applies on suppliers of goods the value of which was not less than Rs.1,00,

000. It was submitted, that the assessee was a supplier of goods and, therefore, section 143 was applicable on him and since he failed to make a declaration in regard to the goods which was supplied and the value of which were more than Rs.1,00,

000. He is defaulter under section 143 of the Ordinance and therefore penalty was imposable under section 108 of the Ordinance.

4. The learned counsel for the assessee on' the other hand supported the view of the learned A. A. C. and contended that section 143 was applicable only to those contractors who were engaged in construction of building and also to those building contractors who also supplied goods or rendered services connected with the construction of buildings. He also argued that in any case even if section 143 was applicable to suppliers of goods, even then the assessee was not hit by that section because he was not a supplier of goods but was a simple dealer in pipes. Mere fact that certain sales were of the value of more than Rs.1,00,000 would not attract section 143, these sales being casual or incidental to the business of the assessee. It was further contended by the learned counsel that the assessee is not registered as a contractor in any Government or Private Organisation nor any security had been deposited by him in any institution which is evident from the balance sheet and that no tender was given by him which is a pre-requisite for getting a contract of supplies. ' 5 Before dealing with this legal question it would be convenient to reproduce section 143 of the Ordinance which reads as under:-- "Statement regarding certain contracts.--Where any person (hereinafter referred to as the contractor) enters into a contract for the construction of a building for, or the supply of goods or services in connection therewith to, any other person, the value of which is not less than (one hundred thousand) rupees, he shall, within one month of making of contract, furnish to the Income-tax Officer having jurisdiction to assess the contractor or any other officer authorised in this behalf by the Central Board of Revenue, a statement showing such particulars relating to the contract and in such form and verified in such manner, as may be prescribed."

6. It may be noted that this is a new provision incorporated in the Income-tax Ordinance which was part of the Statute book earlier. On bare perusal of the above section it would be clear that this provision is applicable only on contractors as is evident from the starting words of the section. It may further be noted that if we strictly interpret the word 'contract' it would include every type of contract. Any purchase and sale of goods would involve a contract within the meaning of Contract Act. Thus, if we strictly apply this principle in interpreting section 143 then transaction of more than Rs.1,00,000 made by every wholeseller would attract this section. If this section is so interpreted it would certainly lead to absurdity because the intention of the legislature does not seem to apply this section on ordinary wholesalers or on retailers. For instance if a jeweller makes sale of jewellery of the value of more than Rs.1,00,000 it would be a contract between the purchaser and the jeweller. If the interpretation as placed by the learned D.R. is accepted, then this section would be applicable to all such jewellers who make transactions of more than Rs.1,00,

000. Obviously this could never be the intention of the legislature. If this section is analysed we find that this section is applicable to contractors:-- (1) Who are professional contractors and not to the contractors in the ordinary sense of the term under the Contract Act; (2) Who enter into a contract for construction of building; (3) Who contract for construction of building as well as for supply of goods for the execution of building contracts. (4) Who contract for construction of building and also render services in connection with the construction of building. In all the above cases the contract should be of the value of more than Rs.1,00,000.

7. As stated above, if any other interpretation is made then it would lead to absurdity. It is pertinent to note that the C.B.R. has also accepted this interpretation in its Letter C.No. IT-JI-(40)/84, dated 19-2-1986. This letter was issued in reply to a letter by an Income-tax Practitioner of Lahore and is reported in 53 Taxation page 32 Statute. The I.-T.P. sought a clarification in regard to the interpretation of section 143 and referred the following questions to the C.B.R. "(i) It relates only to contractors engaged in the construction of building, supply of goods and services connected with the building construction; ' (ii) It relates only to the contractors entering into contracts with private parties and local bodies etc., but not in respect of the contracts with Government Departments, as person defined under subsection (32) of section 2 of Income-tax Ordinance, 1979, does not include the Government Department. It relates to the person who is not an existing assessee." In the aforesaid letter of the C.B.R. the questions were answered as under. "I am directed to say that the Board agrees with the views stated in para 2(1) of your letter under reference but not with those at para. 2(ii) & (iii)."

8. It is, therefore, obvious that the C.B.R. has also interpreted section 143 in the way I have interpreted. For the foregoing reasons I hold that section 143 is only applicable to those contractors who enter into a contract for the construction of building or supply of is goods or services rendered in connection therewith namely in connection with the construction of building and is not applicable on supplier of goods alone.

9. It is also pertinent to note that the assessee cannot be held to be contractor for supply of goods within the meaning of section

143. As stated above the assessee's business is only in regard to the purchase and sale of pipes and for that object he runs a shop and the assessee's sales are both of wholesale as well as on retail basis. It was also pointed out by the learned A.R. that out of the total sales of about Rs.1,00,000 the assessee's cash sales are stated to be at Rs.35,72.767 and credit sales are only Rs.26,17,412 and even out of the credit sales there were only two sales transactions which are of more than Rs.1,00,

000. In these circumstances it can safely be assumed and can be held that the assessee is only a retailer and a wholesaler and the two sales made for more than Rs.1,00,000 are only casual sales which do not render the assessee as a supplier of goods. Thus, even if section 143 was applicable to a supplier of goods even then the assessee cannot be termed as a contractor for supply of goods. Two conditions have to be fulfilled before that section can be attracted. Firstly he should be a contractor and secondly he should be a supplier of goods. Therefore, even if the second condition is considered to be applicable on the assessee and the sales on credit could be termed as supply of goods, even then section 143 would not be applicable on the assessee who is not a contractor by profession.

10. For the foregoing reasons, I see no reason to interfere in the order of the learned A. A. C. The departmental appeal being without any merit is dismissed. M.B.A./430-T Appeal dismissed.