Prescribed person

2012 PTD 1732 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 161, 205 & 153(7)(h)(i)Failure to pay tax collected or deductedPrescribed personStatus of taxpayerAnnual turnover of the taxpayer exceeded Rs.50(M)

Association of Persons having turnover of Fifty Million rupees or above in tax year 2007 and onward fell in the definition of "prescribed person"; and taxpayer being a withholding agent was obliged to deduct tax and deposit into government exchequer which it failed to do so

Default for non-deduction of tax having been established taxpayer was treated as "taxpayer in default" for non-deduction of tax; and tax was charged under Ss.161/205 of the Income Tax Ordinance, 2001

Taxpayer contended that order passed under Ss.161/205 of the Income Tax Ordinance, 2001 was illegal as the status of the taxpayer was that of individual and not of "Association of Persons" as return available on record was filed in the status of individual and 100% shares of capital investment was shown in the return; that status in the return for the next year was indicated due to compulsion of electronic filing owing to technical reason of delay caused by the PRAL authorities regarding change in constitution and particulars of status in spite of application for which taxpayer could not be blamed to that effect; that copies of returns filed manually were produced showing status of individual as an evidence; and that copies of returns were e-filed having status of individual, dissolution deed, affidavits as well as disassociating partner who was working separately, intimation to Commissioner Inland Revenue regarding cancellation of Association of Persons and National Tax Number

Revenue contended that status of taxpayer was of Association of Persons and taxpayer changed his stance before First Appellate Authority as well as before Appellate Tribunal; and if Association of Persons was dissolved then intimation under S.117 of the Income Tax Ordinance, 2001 was mandatory within fifteen days of its dissolution and taxpayer being an Association of Persons was a prescribed person who was required to deduct tax

Taxpayer further contended that Intimation regarding closure of business under S.117 of the Income Tax Ordinance, 2001 was not necessary because said section pertained to discontinuation of business where the taxpayer's business was never discontinued rather change took place in status of taxpayer so the provisions of S.117 of the Income Tax Ordinance, 2001 were not applicable that despite such facts, the intimation was duly sent to concerned authorities for cancellation of Association of Persons' National Tax Number; and that provisions of S.153(7)(h) of the Income Tax Ordinance, 2001 were not attracted because the status was an individual not Association of Persons whereas S.153(7)(i) was inserted through Finance Act, 2010 which was applicable to individual relevant for tax year 2011

Validity

Main dispute was the determination of status of taxpayer either of individual or Association of Persons

Documents produced showed that returns filed were of that of individual and not of an Association of Persons

National Tax Number on the return manually filed as well as e-filed was entirely different with that of the one shown in orders of First Appellate Authority and Inland Revenue Officer

Contentions raised by the taxpayer carried much weight to establish his status being of an "individual"

Lower authorities had not applied their judicious mind rather they proceeded to pass an ex parte order under Ss.161/205 of the Income Tax Ordinance, 2001 in arbitrary, whimsical, and technical manner and completely brushed aside the material/evidence provided by the taxpayer for determining the status

Taxpayer was declared as an individual who was not obliged to deduct tax under S.153(7)(h) or (i) of the Income Tax Ordinance, 2001

Order of First Appellate Authority was vacated and the order passed under Ss.161/205 of the Income Tax Ordinance, 2001 was annulled by the Appellate Tribunal.