I.TAS. NOS. 6260 AND 6261/LB OF 1986-87, DECIDED ON 19TH SEPTEMBER, 1994. VS I.TAS. NOS. 6260 AND 6261/LB OF 1986-87, DECIDED ON 19TH SEPTEMBER, 1994.
1995 P T D (Trib.) 1228
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mushtaq, Accountant Member and Syed Mumtaz Alam Gilani, Judicial Member
I.TAs. Nos. 6260 and 6261/LB of 1986-87, decided on 19/09/1994.
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 91---Penalty---Non-paytnent of tax---Powers of Income Tax Officer to impose penalties---Conditions.
The power of the Income Tax Officer to impose penalties is subject to following two conditions:-
(i) That the penalty should be imposed with reference to original income- , tax demand which does not include additional tax under sections 86; 87, 88 and 89 and penalty under section 91.
(ii) That the collective amount of penalties should not exceed the original income-tax demand.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.91---Penalty---Non-payment of tax ---Assessee, a. persistent defaulter-- Imposition of penalty was justified.
(c) Income Tax Ordinance (XXXI of 1979)----
----S.91---Penalty---Non-payment of tax--Purpose of imposition of penalty being neither collection of revenue nor piling up of unpaid demand, penalty need not be excessive.
Dr. Ilyas War for Appellant.
Sabiha Mujahid, D.R. for Respondent.
Date of hearing: 14th September, 1994.
ORDER
MUHAMMAD MUSHTAQ, (ACCOUNTANT MEMBER): --These appeals have been filed on the instance of Syed Imtiaz Hussain Shah, Gujranwala (who briefly described as the assessee hereinafter) challenging the two orders of the learned AA.C., Gujranwala vide A.O. No. 748, dated 23-2-1987 and A.O. No.786, dated 28-2-1987.
2. The disputed issue in these two appeals being common, we propose to dispose of these two appeals by a combined order as under.
3. The only issue involved in these two appeals relates to penalties imposed by the I.T.O. under section 91 of the Income Tax Ordinance, 1979. The two' penalties imposed by the I.T.O. under section 91 of the Income Tax Ordinance, 1979 and reduced by the learned A.A.C. have been contested to be unjustified, illegal and excessive.
4. The assessee in this case is an individual who did not clear the income -tax demand created against him. The amount and original income-tax demand is neither indicated by the I.T.O. in his order, nor by the learned A.A.C. in his appeal order. However, the I.T.O. imposed penalties of Rs.17,524 and Rs.35,048 under section 91. The dates on which these penalties were imposed are not indicated in the penalty order. Neither these penalties orders do indicate the original income-tax demand created against. the assessee. However, these two penalty orders do indicate the tax demand outstanding against the appellant on the dates of imposition of penalties. The relevant part of these two penalty orders are reproduced as under:---
"The Notice of Demand for Rs.44,053 for the assessment year 1983-84 was served on you on 31-12-1986 and the demand was payable on or before .....
Whereas you have failed to pay the sum of Rs.35,049 on the due date 1, therefore, impose a token penalty of Rs.17,524 under section 91 o the Income Tax Ordinance, 1979."
The relevant part of second order reads as under:---
"The notice of demand for Rs.52,573 for the assessment year 1983-84 was served on you on 1-2-1987 and the demand was payable on of before .....
Whereas you have failed to pay the sum of Rs.52,573 on the due date, I, therefore, impose a token penalty of Rs.35,048 under section 91 of the Income Tax Ordinance, 1979:"
5. The learned AA.C. reduced the first penalty to Rs.10,551 and second penalty to 40% of the original income-tax demand. The assessee is not satisfied with the relief allowed by the learned AA.C. as above and as per grounds of appeal has contested these penalties to be illegal, unjustified and excessive.
6. Dr. Ilyas Zafar, Advocate, the learned counsel of the assessee, has contended that these penalties were imposed by the I.T.O. at a rate of 50% and 80% of the income-tax demand outstanding against the assessee which demand included penalties as well. According to the learned counsel of the assessee, penalties are imposed under section 91 at 2.5% or 5% of income-tax demand but these penalties are exceptional in sense that these penalties imposed are excessive and exhorbitant and amount of penalties exceeds the original income -tax demand. The learned D.R., on the other hand, contended that the appellant in this case was a habitual defaulter, hence, the I.T.O. was forced to impose penalties as above.
7. We have carefully considered the facts of the case and listened to the arguments from both the sides. We have also perused the record. It has already been pointed out that from the penalty orders neither the dates of imposition of penalties nor the original demand is indicated. However, from the appeal orders it is indicated that previously also penalties have been imposed in this case for non-payment of tax demand and that the two penalties as above are 5th and 6th penalties in series of penalties. It is also indicated from the appeal order that these penalties have been imposed not on the basis of original income-tax demand but on the basis of overall income-tax demand outstanding against the appellant which tax demand is composed of the original income-tax demand and Penalties under section 91 of income Tax Ordinance, 1979. Before we proceed further it will be relevant to reproduce subsections (1),(2) and (3) of section 91 of the Income Tax Ordinance, 1979 which are as under:---
Section 91(1): --Where any assessee is in default in making payment ix (other than the tax payable under section 53) the Income Tax Officer may impose on him a penalty not exceeding an amount equal to the said tax.
Section 91(2).---The Income Tax Officer may impose a penalty under subsection (1) by one order or, in the case of a continuing default, by several orders, so, however, that the total amount of penalty does not exceed the amount of such tax.
Section 91(3).---For the purpose of subsection (1), any penalty imposed under that subsection or any additional tax levied under section 86, 87, 88 or 89 shall be excluded from the amount of tax in respect of which the penalty is imposed."
8. From the above provisions of law it is evident that the power .of the income Tax Officer to impose penalties is subject to following two conditions.---
(i) That the penalty should be imposed with reference to original income tax demand which does not include additional tax under sections 86, 87, 88 and 89 and penalty under section 91.
(ii) That the collective amount of penalties, should not exceed the original income-tax demand.
From the penalty orders it is clear that while imposing penalties, above provisions of law have not been kept in view.
9. The second element in these appeals is whether these penalties were justified or not. This question need not detain us long. From the above facts available, it is quite evident that assessee was a persistent defaulter, hence, penalties were justified.
10. The third element is quantum of penalties and the rate at which penalties have been imposed. In this connection we have to observe that purpose of imposition of penalties is neither collection of revenue nor piling up of unpaid tax demand. Viewed from this angle the penalties imposed are excessive.
11. After considering above facts we order that penalty imposed by 1st order as above be reduced to 25% of the original income-tax demand and penalty imposed by second order as above be reduced to 30% of the original income-tax demand excluding any tax demand under sections 86, 87, 88, 89 and 91 of the Income Tax Ordinance, 1979. '
M.BA./104/TOrder accordingly.