Advance Tax

Issuance of notices under Ss. 137 and 138 of Income Tax Ordinance, 2001 are also required as taxpayer may have filed an estimate for purposes of S. 147(6) of Income Tax Ordinance, 2001 which may then have been rejected by tax department in exercise of authority under second proviso of S. 147(6) of Income Tax Ordinance, 2001 or proviso to S. 147(6B) of Income Tax Ordinance, 2001 as applicable, in which case due date for payment of advance tax would have already passed

Tax department initially invites taxpayer to discharge liability to pay advance tax on a voluntary basis under S. 137 of Income Tax Ordinance, 2001 failing which it may notify the taxpayer of its intention to use its coercive powers under S. 138 of Income Tax Ordinance, 2001 to recover advance tax

This is the scheme for collection and recovery of advance tax, which has been incorporated by virtue of S. 147(7) of Income Tax Ordinance, 2001

Any recovery affected without issuing such notices would be in breach of requirements of S. 147(7) of Income Tax Ordinance, 2001 read with Ss. 137 and 138 of Income Tax Ordinance, 2001 and fall foul of taxpayer's right to due process guaranteed by Art. 10A of the Constitution and would be illegal.

No notice under S. 137 of Income Tax Ordinance, 2001 was issued after annulment of reassessment order and notice under S. 138(1) of Income Tax Ordinance, 2001 was also issued on 18-11-2022 after annulment of reassessment order

Tax department coercively affected recovery of advance tax computed on the basis of an annulled reassessment order on 28-11-2022

Such action was taken by tax department in full view of the fact that reassessment order stood annulled

Recovery of advance tax liability computed on basis of annulled reassessment order was colorable exercise of authority that suffered from illegality

High Court declared such recovery notices illegal along with recovery coercively recovered from the petitioner / taxpayer

High Court directed Commissioner Income Tax to process application for refund claimed by petitioner / taxpayer within a period of sixty days and while making such order would also consider if any additional payment for delayed refund was due to the petitioner in terms of S. 171 of Income Tax Ordinance, 2001

Constitutional petition was allowed, in circumstances.

Advance tax is income tax and is liable to be paid as and when it becomes due in terms of Ss. 147(5), (5A) and (5B) of Income Tax Ordinance, 2001

In order to effect recovery of such tax liability, tax department is at liberty to employ, in terms of S. 147(7) of Income Tax Ordinance, 2001 the collection and recovery provisions of Income Tax Ordinance, 2001

In an event that a taxpayer does not file estimate under S. 147(6) of Income Tax Ordinance, 2001 and also does not discharge its advance tax liability as computed in accordance with S. 147(4) or (4B) of Income Tax Ordinance, 2001 as applicable or taxpayer files an estimate which is rejected and such order is not stayed and the taxpayer does not comply with such order, tax department can then exercise authority under S. 147(7) of Income Tax Ordinance, 2001 to undertake collection under S. 137 of Income Tax Ordinance, 2001 and if such liability is not voluntarily discharged by tax payer, seek recovery under Ss. 138 and 140 of Income Tax Ordinance, 2001.

Advance tax is an impost in view of S. 4(6) read together with S. 147 of Income Tax Ordinance, 2001, and squarely falls within the definition of tax under S. 2(63) of Income Tax Ordinance, 2001

Tax authorities are empowered under S. 147(7) of Income Tax Ordinance, 2001 to use collection machinery for purposes of collecting advance tax computed as payable in accordance with Ss. 147(4) and (4B) of Income Tax Ordinance, 2001 subject to filing of any estimate by taxpayer under proviso to S. 147(6) of Income Tax Ordinance, 2001

This reflects that payment of advance tax is not optional but is a liability to be discharged by taxpayer unless the taxpayer falls within the carve-outs provided under Ss. 147(1) and (2) of Income Tax Ordinance, 2001

Merely because liability accrues without assessment of income tax does not make payment of advance tax optional or excludes advance tax from the definition of tax for purposes of S. 2(63) of Income Tax Ordinance, 2001

Fact that loability in relation to advance tax accrues and becomes payable without assessment is then catered for in S. 147(8), (9) and (10) of Income Tax Ordinance, 2001

Advance tax paid in each quarter is treated as a tax credit that is set off against total income tax liability for the tax year as determined once an assessment has taken place after the expiry of tax year and total tax liability for such tax period crystallizes

Advance tax is only a provisional payment to the extent that tax liability of taxpayer for relevant tax year remains to be assessed and the sum paid in the form of advance tax remains adjustable in terms of tax liability as assessed.

Provisions of S.162(2) of the Income Tax Ordinance, 2001 regarding imposition and recovery of default surcharge etc. are only attracted where failure to deduct tax is established under S.161.

Purpose of advance tax is collection of tax in advance and its adjustment at later stage but not charging or levy of tax

For collection of advance tax, certain persons are obliged, by the Statute, to collect and deposit the same in treasury

Person obliged, under the Statute, to withhold or deduct tax of another person is in fact an agent of the State

If he fails to comply with the statutory obligation, such tax can be recovered from him.

Subsection 161(1B) of the Income Tax Ordinance, 2001 casts an obligation upon the Commissioner or Taxation Officer to satisfy itself that the tax due of the person, from whose payment advance tax was to be deducted or collected, has been paid

Rationale in subsection (1B) is very simple that a tax liable to be adjusted against tax due, cannot be recovered when the tax due is already paid

Recovery of any amount, thereafter, not adjustable against tax due for the relevant period, shall have to be refunded and the whole exercise for recovery would be futile, as tax collected would not become part of National Exchequer rather would burden it with an expense which could have been expended for recovery of tax due

Pursuit of creating such demands by tax administrators, to meet budgetary targets, not only wastes resource and revenue but burdens the judicial hierarchy up to the level of the Supreme Court

Tax authorities cannot launch expeditious probes, and shift the burden under S.161, from the very inception, wholly and solely on the taxpayer by the expedient of simply identifying one or more payments, or a class or category of payments.

Practice of calling reconciliation, in absence of any statement, is against the spirit of R.44 of the Income Tax Rules, 2002

Rule 44 envisages, unequivocally, that reconciliation has to be of the biannual or annual statements with other material and declaration submitted in or with the return

If there is no statement filed by the taxpayer, no occasion of reconciliation arises

It is duty of the Commissioner, as tax administrator to ensure that biannual or annual statements are filed within the time stipulated by the Statute

Commissioner is equipped with power of imposing penalty, if statutory obligation is not fulfilled by any taxpayer

In the present case had Commissioner fulfilled the duty of ensuring compliance for filing statements, at the earliest, the occasion of issuing notice under S.161 of the Income Tax Ordinance, 2001 for tax years in question, would never have arisen as the amount, to be collected or deducted would have been deposited in Exchequer much earlier

Reference was disposed of.

Question before High Court was "whether an order made under S.147 of Income Tax Ordinance, 2001 regarding a taxpayers liability to pay advance tax, and computation thereof; was appealable under S.127 of Income Tax Ordinance, 2001"

Held, words "or an order having the effect of enhancing the assessment or reducing a refund or otherwise increasing the liability of the person" used in S.127 of Income Tax Ordinance, 2001 was meaningful and could not be ignored

Order made under S.147 of Income Tax Ordinance, 2001 wherein deductibility of certain amounts was rejected and / or which enhanced/increased advance tax payments, was appealable under S.127 Income Tax Ordinance, 2001.

Departmental powers for computation and assessment of "advance tax" liability of taxpayer under S.147 of Income Tax Ordinance, 2001

Interpretation and application of S.147 of Income Tax Ordinance, 2001

Construction of expression "assessment order" in context of S.147 of Income Tax Ordinance, 2001

Scope

Expression "assessment order" used in S.147(7) of Income Tax Ordinance, 2001 had to be construed and interpreted exclusively in context of said section

Any contrary construction of said section or establishing any purported proximity with nature of "assessment order" as envisaged under S.120 of Income Tax Ordinance, 2001 would render provisions of S.147 as redundant, and ineffective, which was unwarranted in absence of any incidence of Legislative incompetence or purported violation of any Fundamental Right

Scheme of collection of advance tax payable, timing of its collection and provisioning of mechanism for effecting recovery thereof, could not be catalogued with realm of chargeability or levy, which distinction was crucial and needed to be acknowledged for survival and harmonious applicability of said S.147

Purpose and object of S.147 of Income Tax Ordinance, 2001 to allow collection of advance tax and effect recovery thereof could be enforced without offending mechanism of levy or chargeability of tax and changing provisional character of advance tax, made recoverable accordingly.

Question before High Court was whether Department had jurisdiction to reject estimate of advance tax furnished by taxpayer under S.147 of Income Tax Ordinance, 2001 by application of provisos to S.147(6) of Income Tax Ordinance, 2001

Held, that officer of Department could in terms of mandate of provisos to S.147(6) of Income Tax Ordinance, 2001 proceed to review documentary evidence furnished by taxpayer as to taxpayer's liability to pay advance tax and upon being unsatisfied, reject such estimate

Provisos to S.147(6) regulated and controlled procedure provided under said section, and same had to be given full effect as redundancy or surplusage could not be attributed to said provisos

Liability to pay advance tax had to be computed in accordance with S.147(4) of Income Tax Ordinance, 2001, for each quarter of respective tax year, which quarterly computed liability for a tax-year would conjointly constitute an obligation to pay advance tax for such tax-year in terms of S.147(1) of the Ordinance

No escape or avoidance from computation formula prescribed under of S. 147(4) of Income Tax Ordinance, 2001 therefore could be made

Payable advance tax would be treated as tax due under an assessment order and was recoverable under S.137 of Income Tax Ordinance, 2001

Nothing existed in S.147 of Income Tax Ordinance, 2001 which would indicate that same allowed for deferring recovery of due advance tax till final determination of tax liability for a tax year and any such construction of said section threatened the existence of a "deeming provision of law"

Constitutional petition was dismissed, in circumstances.

Nature and concept examined.

Assessee paid advance tax in instalments but defaulted in payment of instalments in time, therefore, authorities imposed additional tax on assessee

Validity

Provision of S. 86 of Income Tax Ordinance, 1979, was simply a charging section providing without giving any procedure for determining facts through an order

Such findings were supported by provisions of S. 129 of Income Tax Ordinance, 1979, whereunder appeals were filed before Commissioner (Appeals)

No appeal was provided against order under S. 87 of Income Tax Ordinance, 1979, as the same was not mentioned in S. 129 of Income Tax Ordinance, 1979, which had specified sections under which order passed could be assailed and it carried a mechanism for passing order under it

No order could have been passed under S. 86 of Income Tax Ordinance, 1979, independently

Income Tax Appellate Tribunal rightly treated the same to have been passed under S. 156 of Income Tax Ordinance, 1979, by implication

If the order under S. 87 of Income Tax Ordinance, 1979, was held nullity in the eye of law, the same would also be an order sustainable in the eye of law

Appeal was decided accordingly.

Concept and meaning.

Sui Northern Gas Pipeline Limited ("SNGPL") was served with show-cause notice under S.161(1A) of the Income Tax Ordinance, 2001 for non-deduction of tax from the payments made to certain companies from which it purchased gas

SNGPL was held to be personally liable to pay the said tax under S. 161 of the Income Tax Ordinance, 2001

Contention on behalf of SNGPL was that lapse on the part of SNGPL to deduct tax under S. 152(2A) of the Ordinance was inconsequential as the tax had already been duly paid by the companies in the form of Advance Tax for the quarter; that the companies had neither availed any tax credit nor had adjusted or deducted any amount from the quarterly payment of advance tax, hence the amount of tax in question was the tax paid in terms of S. 161(1B) of the Ordinance and the deductible amount of tax could not be recovered from SNGPL or the companies; that SNGPL could best be penalized only with a default surcharge under S. 161(1B) of the Income Tax Ordinance, 2001 but could not be held liable to pay the deductible amount of tax under S. 152(2A) of the said Ordinance

Validity

Question for determination was whether advance tax paid for a quarter by the companies passed for payment of tax in terms of S. 161(1B) Income Tax Ordinance, 2001, especially when the companies had not availed any tax credit in the said quarter

Amount of advance tax paid by the companies in a quarter, for all practical purposes, attained the status of final amount of tax due in that quarter as it was a definite amount calculable on the basis of a statutory formula

Once the companies had paid advance tax for the quarter and categorically stated that no tax credit had been availed for the deduction of tax at source, it would be assumed that the amount of tax to be deducted by SNGPL had been duly paid and would qualify to be the payment paid in the meanwhile under S. 161(1B) of the Income Tax Ordinance, 2001

Once the payment (of advance tax) had been made by the companies, the amount of tax that SNGPL failed to deduct could not be recovered from SNGPL, except the imposition of default surcharge penalizing the failure to deduct

Recovering deductible tax from SNGPL after the companies had paid the advance tax for that quarter, would tarnish the veracity and sanctity of the concept of advance tax and more importantly the foundational theme of self-assessment on which the Income Tax Ordinance, 2001, rested

Impugned notice for recovery from SNGPL promoted unjust enrichment and offended the constitutional principle of economic justice

SNGPL was only liable for default surcharge (under S. 161(1B) of the Income Tax Ordinance, 2001) but not for the amount of tax as the advance tax had been paid by the companies

High Court set aside the show-cause notice and subsequent Assessment Order as being unconstitutional and without lawful authority

Constitutional petition was allowed accordingly.

Provision of S.235(3) of Income Tax Ordinance, 2001 provides that advance tax shall not be collected if the taxpayer produces a certificate from the Commissioner that his income is exempt from tax

Such certificate is issued under S.159(1) of the Ordinance if the taxpayer enjoys exemption from tax under the Ordinance.

Computation formula and payment criteria of such tax stated.

Complainant filed nil income return and claimed refund on the plea of exemption under Article 247 of the Constitution of Pakistan

Assessing Officer accepted the return of the complainant and assessed him to tax under section 80 C treating the tax deducted under section 50(5) as the final discharge of liability and no refund was created

Validity

Complainant was carrying on business in the Tribal Area where repealed Income Tax Ordinance 1979, and Income Tax Ordinance 2001 had not been made applicable

Assessing Officer had no jurisdiction to issue notice or frame assessment

Claim was verified

Department had no option but to refund the tax deducted or received in advance

Tax Ombudsman ordered the refund of the amount already verified to be paid to the complainant.

Income-tax-Advance tax-Interest on deficiency-Demand by officer-No payment by assessee as refund was due-Interest charged on balance due after adjustment of refund-Whether justified-"No payment of tax has been made"-Whether includes partial non-payment- Whether separate order levying interest necessary-Indian Income-tax Act, 1922, S. I8-A(6), (8).

Advance tax-Liability to pay under old Act-Repeal of old Act-Penalty levied under new Act-Validity Penalty proceedings, whether pare of assessment proceedings-Income-tax (Removal of Difficulties) Order No. 2 of 1963-Whether valid or in excess of powers or discriminatory-Indian Income-tax Act, 1922, 5. 18-A(3)-Income-tax Act, 1961, Ss. 212(3), 273(b), 297(2), & 298-General Clauses Act, 1897, S. 6(c), (e).

Instalments-Whether four instalments mandatory-Whether notice should be issued before June 15-Whether opportunity to pay in four instalments should be given-PenaltyIncome-tax Act, 1922, Ss. 18-A(1), (2), (9)(a) & 28.

Whether should be included Failure to include 'dividend-Tax paid in advance falling short of eighty percent. of tax assessed-Interest whether chargeable -"Deduction of Income-tax at the time of payment"-" Income to which the provisions of S. 18 do not apply"-Meanings of Indian Income-tax Act, 1922, Ss. 16(2), 18(5), 18-A (1), (2), (6) & 49-B-[Commissioner of Income-tax v. Purshottamdas Thakurdas (1960) 38 I T R 462 reversed.]

Assessment without adding such interest-Rectification adding interest-No notice to assessee-Order of rectification whether valid-Writ of certiorari whether will issue-Discretion to reduce or waive interest-Income-tax Act, 1922, Ss. 18-A(6), (8), 35(1), proviso-Income-tax Rules, 1922, r. 48.

Interest whether leviable-Extent of shortfall-Income-tax Act, 1922, S. 18-A (3), (6), (8), (9).

Advance Tax Advance tax-Penalty-Estimate of advance tax submitted by assessee-Estimate falling short of regular assessment-Inability to justify estimate-Penalty whether can be imposed

Indian Income tax Act, 1922, Ss. 18-A(2) and (9) & 28(1) (c).