I.TA. NOS.1384/LB TO 1386/LB OF 1983-84, DECIDED ON 29TH MAY, 1989.V VS I.TA. NOS.1384/LB TO 1386/LB OF 1983-84, DECIDED ON 29TH MAY, 1989.
1991 P T D (Trib.) 313
[Income-tax Appellate Tribunal Pakistan]
Before Qadeer Ahmed Siddiqui, Judicial Member and A.A. Zuberi, Accountant Member
I.TA. Nos.1384/LB to 1386/LB of 1983-84, decided on 29/05/1989.
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 53---Income-tax Act (XI of 1922), S.18-A---Salary income---Payment of advance tax---Scheme of both the enactments shows that to minimise the chances of loss of revenue the law has a built-in machinery to collect tax on accrual of income---Types of cases included in the said Scheme were broadly of two types and were generally those where income could be computed at the time of accrual---Failure to comply with statutory provisions attracts some kind of penalty on the person making disbursement and on the assessee himself ---Assessee could be burdened with the additional tax only if he had failed to pay the advance tax which he was required by law to pay under S.18-A of the Act or S.53 of the Ordinance and in order to determine this aspect it was essential first of all to see whether the income of the assessee pertained to head "salary" or fell under head "income from business or profession"
The scheme of both Income Tax Act, 1922 and income Tax Ordinance, 1979 shows that to minimise chances of loss of revenue, the law has a built-in machinery to collect tax on accrual of income. The cases included in the scheme, broadly of two types, are generally those where income can be computed at the time of accrual.
The first category:
relates to persons responsible for making payment of income. They have been burdened with the responsibility to deduct tax at source and to deposit the same in Government Treasury within a stipulated time. The recipient of the income, though he gets only the net amount (after deduction of tax at source), is liable to tax on the gross amount and the quantum deducted at source is adjusted against his final tax liability.
The second category:
is commonly known as advance payment of tax or pay-as-you earn (=PAYEE). Here the tax-payer himself is required to pay tax in a particular income year (preceding the assessment year) on the basis of his estimated income.
Failure to comply with these statutory provisions attracts some kind of penalty in the first situation mentioned; above, on the person making disbursement and in the second on the assessee himself. In the present case, therefore, the assessee could be burdened with the additional tax only if he had failed to pay the advance tax which he was required by law to pay under section 18-A of the repealed Act or section 53 of the Ordinance. In order to determine this aspect it was essential (first of all) to see whether the income which was in dispute, pertained to the head "salary" or fell under "income from business or profession".
(b) Income Tax Ordinance (XXXI of 1979)---
----S.16---Salary---Fundamental requirements to treat a receipt as "salary"---Fees and commission---When taxable, as salary---For a receipt to fall under the head "salary" it was necessary that the amount flowed from the employer alone.
"Fees and Commissions" are taxable as "salary" in spite of the fact that these are paid in addition to or in lieu of salary. However, for an amount to be treated as salary, the fundamental requirement is the existence of relationship (between the payee and the payer) of an employee versus employer, or that of a master and servant. If such a relationship does not exist, the payment cannot be termed as salary. It also is to be remembered that the payment received by an individual from a person other than his employer cannot be termed as "salary" and consequently such payment is not chargeable to tax under the head "salary". For instance it is well recognized, commission received by a Director from a company is "salary" if the Director is an employee of the company. If, however, the Director is not employee of the company, commission cannot be termed as salary and the correct head to charge it to tax is "income from business or profession" or "income from other sources". Similarly, the emoluments received by a college teacher from his college is salary irrespective of the fact whether it is received for academic work or for non-academic work (viz. Wardenship allowance, etc). When, however, the same lecturer is paid for setting question paper by a University, the receipt is not salary (as it is not received from the employers) and is taxable under the head "income from other sources". What clearly emerges is that for a receipt to fall under the head "salary" it is necessary that the amount flows from the employer alone.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss. 16, 50(1), 52, 86 & 87---"Salary"---Payment of advance tax ---Liability-- Assessee a doctor admittedly was an employee of the-Provincial Government who received "share of hospital fee" from his employer, ratio of share having been decided by the employer as a general policy---Payment received by the assessee from his employer, held, fell under the head "salary" on which tax at source was to be deducted by the employer in adherence to the provisions of the Ordinance-- Default of employer in not effecting a deduction could not be an excuse to penalise the employee---Failure by employer (payer) to deduct the tax would result his being treated as an "assessee in default" in addition to levy of additional tax on him and employee (assessee), therefore, could not be burdened with penalty in the form of additional tax.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss. 55, 16 &: 59-A---Return of income---Income from salary---Assessee, a doctor, employed in a Government hospital himself declared the receipts of "share of hospital fee" in the return of income against column for "income from business or profession" and, not against the column for "salary"---Effect---Held irrespective of the declaration (or claim) of an assessee, the responsibility of the Assessing Officer remained to mete out a treatment in accordance with law whether it be to the advantage (or disadvantage) of the Revenue.
(1974) 94 ITR 26 and (.1978) 114 ITR 415 ref.
Naseem Zafar, I.T.P. for Appellant.
Aftab Iqbal Lone, D.R. for Despondent.
Date of hearing: 12th April, 1989.
ORDER
A.A. ZUBERI (ACCOUNTANT MEMBER).---These three appeals have been filed by an individual, who is a Surgeon. The appeals relate to assessment years 1977-78, 1978-79 and 1979-80 and assail consolidated order dated 12-10-1983 passed by the learned C.I.T. (Appeals), Zone-2, Lahore.
The discussion with the two Representatives and the scrutiny of record brought out that the Appellant had income from salary. In addition, being Superintendent/Surgeon at Lady Willington Hospital, he received `share of hospital fee for surgery, etc. performed by him at the same hospital, besides interest income and also income from private practice' in the subsequent years income was shown from a private hospital also which he visited for purposes of private practice. There is no quarrel as respects the determination of income under various heads in the three years under consideration. The issue for adjudication before us is that the assessing officer grouped the "share of hospital fee" received from a Government Hospital (known as Lady Willington Hospital) where he was posted, at Rs.151,933 in 1977-78, at Rs.141,002 in 1978-79 and at Rs.150,194 in 1979-80; with professional income under section 10 of the repealed Act (in the first two years) and in section 22 of the Ordinance (in the last); with the result that for default of advance payment of section 18(A) of the repealed Act under section 53 of the Ordinance, penal interest was charged at Rs.8,499, Rs.5,729 and Rs.19,669. The learned Counsel contended that as per provisions of section 7 of the repealed Income Tax Act and section 16 of the Income Tax Ordinance, tax is payable under the head `salary' in respect of "any salary or wages, any annuity, any pension or gratuity and any fees, commissions, perquisites or profits in lieu of, or in addition to salary or wages". Therefore, the "fees" received as share from the Hospital, fell under the head `salary' rather than income from profession as was treated by the two officers below. It was pleaded that the provisions of section 18(A) of the repealed Act or section 53 of the Ordinance, the default for which was taken the cognisance of, were not applicable in case of `salary' out of which deductions were to be made at sources by the employer (hospital authorities in the Appellant's case) who made the payments. The D.R. on his turn drew our attention to the returns filed by the Appellant in all of which `fees' were shown as `income from business or profession" and not from "salary". Therefore, according to the D.R., the provisions for payment of advance tax applicable and the default Viable as was rightly taken note of by the assessing officer and confirmed by the learned Commissioner.
3. We have our earnest; consideration to the rival arguments of the two sides and also examined the relevant provisions of the Income Tax Act, 1922 (hereinafter called the `repealed Act') and of the Income Tax Ordinance, 1979 (hereinafter referred to as `the Ordinance'). The scheme of both these enactments shows that to minimise chances of loss of revenue, the law has a built-in machinery to collect tax on accrual of income. The cases included in the scheme, broadly of two types, are generally those where income can be computed at the time of accrual.
The first category:
relates to persons responsible for making payment of income. They have been burdened with the responsibility to deduct tax at source and to deposit the same in Government Treasury within a stipulated time. Therecipient of the income, though he gets only the net amount (after deduction of tax at source), is liable to tax on the gross amount and the quantum deducted at source is adjusted against his final tax liability.
The second category:
is commonly known as advance payment of tax or pay as you earn (=PAYEE). Here the tax-payer himself is required to pay tax in a particular income year (preceding the assessment year) on the basis of his estimated income.
Failure to comply with these statutory provisions attracts some kind of penalty in the rust situation mentioned, above, on the person making disbursement and in the second on the assessee himself. In the present case, therefore, the Appellant could be burdened with the additional tax only if he had failed to pay the advance tax which he was required by law to pay under section 18(A) of the repealed Act or section 53 of the Ordinance. In order to determine this aspect it is essential (first of all) to see whether the income which is in dispute, pertain to the head "salary" or fall under "income from business or profession". This we shall presently attempt.
4. "Fees and Commissions" are taxable as "salary" in spite of the fact that these are paid in addition to or in lieu of salary. However, for an amount to be treated as salary, the fundamental requirement is the existence of relationship (between the payee and the payer) of an employee vs. employer, or that of a master and servant. If such a relationship does not exist, the payment cannot be termed as Salary. It also is to be remembered that the payment received by an individual from a person other than his employer cannot be termed as "salary" and consequently such payment is not chargeable to tax under the head "salary". For instance, it is well recognized, commission received by a Director from a E company is "salary" if the Director is an employee of the company. If, however, the Director is not employee of the company, commission cannot be termed as salary and the correct head to charge it to tax is "income from business or profession" or "income from other sources". Similarly, the emoluments received by a college teacher from his college is salary irrespective of the fact whether it is received for academic work or for non-academic work (viz Wardenship allowance, etc). When, however, the same lecturer is paid for setting question paper by a University, the receipt is not salary (as it is not received from the employers) and is taxable under the head "income from other sources". What clearly emerges is that for a receipt to fall under the head "salary" it is necessary that the amount flows from the employer alone. Judging on the above criterion we find the Appellant is admittedly an employee of the Government of the Punjab and received "share of hospital fee" from his employer. It also is pertinent that the fee-sharing ratio also is decided by the Government acting through the Hospital authorities or the Health Department, as a general policy uniformally applicable to all (Doctors/Professors of notified categories). Therefore, we see no difficulty to hold that the payment received by the Appellant from his employer fell under the head "salary" which, as per definition in subsection (2) of Section 16 of the Ordinance, comprises of "any salary ...and any fee..." due or received from the employer.
5. In the case in hand it is admitted by both sides that the "share of hospital fee" was paid to the Appellant-employee by his employer i.e., the Government of the Punjab (through Lady Willington Hospital). Therefore, what the Appellant received is to be treated as "salary" on which tax at source was to be deducted by the employer in adherence to the provisions of section 18(2) of the repealed Act and 50(1) of the Ordinance. The default of the employer in not effecting a deduction cannot be an excuse to penalise the employee more so when the law has specifically provided under section 18(7) of the repealed Act and section 52 (read with section 86) of the Ordinance that failure by the payer to deduct the tax would result his being treated as an "assessee in default" in addition to levy of additional tax on him. Therefore, the present Appellant could not be burdened with penalty in the form of additional tax as was charged by the assessing officer and confirmed by the learned Commissioner. It is true that the recipient's responsibility to deposit tax did arise when he filed the return in which `share from hospital fee' was included in the total income. At this point of time, it was the responsibility of the Appellant to make payment to the extent of the admitted liability under section 22-A of the repealed Act which is equivalent to section 54 of the Ordinance. The failure to pay this admitted amount of tax attracted the provisions of section 45-A (b) of the repealed Act or section 88 of the Ordinance, but no such charge seems to have been inflicted or contemplated. Therefore, we are of the view that the assessing officer clearly fell in error in invoking the provisions of section 18-A of the repealed Act and section 87 of the Ordinance for charging additional tax and not pressing into service the provisions relating to default of non-payment (or short payment) of tax with the return. We consequently UNDO the treatment by the two officers below.
6. As respects the arguments by the learned D.R. that the appellant himself declared the receipts of "share of hospital fee" in the return of income against column for "income from business or profession" and, not against the column for "salary" we may simply reiterate that irrespective of the declaration (or claim) of an assessee, the responsibility of the assessing officer remains to mete out a treatment in accordance with law whether it .be to the advantage (or disadvantage) of Revenue. If any authority is needed one may refer to (1974) 94 1 T R 26 and (1978) 114 1 T R 415.
7. As a result of the foregoing discussion all the three appeals SUCCEED.
M.BA./956/TAppeals allowed.