2023 PLP 1046 (PTD)

This reference application under Section 133 of the Income Tax Ordinance, 2001 ("the Ordinance") is directed against order dated 31.03.2022 passed by the Appellate Tribunal Inland Revenue, Lahore Bench, Lahore ("the Tribunal"), wherein following question of law has been formulated, for our opinion: "Whether the impugned order of the learned ATIR is legally sustainable and justified interpretation and application of sections 161(1), 161(1B) and 161(2) read with sections 136 and 205 of the Income Tax Ordinance, 2001 in the present case whereas default in deduction of tax has been clearly established, no proof of payment of tax has been provided and mere filing of the tax returns by the recipient of the payments has been considered sufficient to establish that the tax that was to be deducted from the payment made to a person or collected form a person has meanwhile been paid by that person thereby absolving the withholding agent of its statutory liability?"

2. By way of factual background, it has been noted that respondent-taxpayer, which is an Association of Person derives its income from sale of medicines and pharmaceutical products and as a withholding agent was required to collect/deduct tax in accordance with the applicable provisions of the Ordinance and was obligated to e-file monthly and annual statements under Section 165 of the Ordinance. During the tax year, 2020 it was noted that payments were made to the various persons but no proof of tax deduction in terms of Section 153(1)(a) of the Ordinance was provided and taking cognizance of the default of withholding tax provisions, notice under Rule 44(4) of the Income Tax Rules, 2002 ("the Rules") was issued on 09.06.2021, which was not responded by the taxpayer and resultantly after issuing show cause notice under Section 161(1A) read with Section 205 of the Ordinance and affording multiple opportunities of hearing, Order-in-Original was passed and tax demand of Rs.4,518,845/- inclusive of default surcharge was created by the Assessing Officer, against which an appeal was preferred before the Commissioner Inland Revenue (Appeals) that was dismissed, however, the Tribunal has allowed the tax appeal of the respondent.

3. Learned counsel for the applicant submits that the Tribunal has arbitrarily allowed the appeal without appreciating that mere filing of a tax return by the taxpayer ipso facto does not satisfy the requirements of Section 161(1B) of the Ordinance, more so, when it could not be established that the said transactions had been declared by the recipient of the payments. Conversely, learned counsel for the respondent supported the impugned order by stating that the companies, who received the payments from the respondent did file their returns and the same could have been reconciled by the department at its own end.

4. Heard.

5. It has been noted that the respondent is a prescribed person, obligated to deduct tax while making payments against purchases in terms of section 153(1)(a) of the Ordinance. It has not been denied by learned counsel for the respondent that no such deduction was made by the respondent, for the reasons that the supplier companies had also filed their returns of the income tax year 2020. Perusal of the impugned order reveals that or the one hand the Tribunal held that default of tax deduction for the tax year concerned stood established and on the other hand it has been held that the recipients of the payments have filed their returns, therefore, the Assessing Officer was not justified to create the impugned tax demand that appears to be a self-contradictory finding. The Tribunal has also erred in allowing the appeal of the respondent by noting that Section 161 of the Ordinance is not in the nature of charging provision and making it as basis of upending the findings of the Commissioner Inland Revenue (Appeals) as the issue involved was not whether Section 161 is a charging provision but compliance of notice under Rule 44(4) of the Rules, which contemplates that a person required to furnish the statement under sub-rule (2) of Rule 44 shall, wherever required by the Commissioner, by furnishing a reconciliation of the amounts mentioned in the aforesaid biannual statement with the amounts mentioned in the return of income, statements, related annexes and other documents submitted from time to time that was not complied with while it is admitted position that the payments were made by the respondent to various companies

6. After hearing learned counsel for the parties and perusing the record, we are of the opinion that the Tribunal proceeded to pass the impugned order without appreciating the true legal import of Section 161 read with Sections 135 and 205 of the Ordinance as well as Rule 44(4) of the Rules. Moreover, the respondent has not brought on record any proof of payment of the amount due by the recipients of the payments from the respondent, before the forums below and, therefore, mere filing of the returns by the said recipients is not sufficient to establish that the tax due was actually paid and, hence, cannot absolve the respondent from its statutory obligation to collect and deposit the same as withholding agent.

7. In view of the above discussion, the question of law framed in this reference application is decided in favour of the applicant department and against the respondent. Reference application is allowed, accordingly.

8. Office shall send a copy of this order under seal of the Court to the Tribunal as per Section 133(5) of the Ordinance. SA/C-11/L Reference allowed.