I.T.AS. NOS. 393/IB TO 396/IB OF 1994-95, DECIDED ON 27TH APRIL, 1995. VS I.T.AS. NOS. 393/IB TO 396/IB OF 1994-95, DECIDED ON 27TH APRIL, 1995.
1996 P T D (Trib.) 323
[Income-tax Appellate Tribunal Pakistan]
Before Ch. Irshad Ahmad, Judicial Member and Junejo M. Iqbal, Accountant
Member
I.T.As. Nos. 393/IB to 396/IB of 1994-95, decided on 27/04/1995.
(a) Income. Tax Ordinance (XXXI of 1979)---
----S. 92---Interpretation and scope of S. 92, Income Tax Ordinance, 1979.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 92(2)--Recovery---Liability of a person who had been required by the I.T.O. under S.92, Income Tax Ordinance, 1979 to pay any sum was only vicarious and any person who makes the payment is deemed to have paid such sum on behalf of, and under the authority of, the assessee.
(c) Income tax---
----Penalty---If the assessment order is modified, any consequential penalty levied due to the non-compliance of any direction in the original assessment order is extinguished and is required to be cancelled---If the original order ceases to exist as a necessary corollary thereof all proceedings taken in pursuance of the original order would be washed away and obliterated.
Commissioner of Income Tax v. Begum Mumtaz Jamal PLD 1976 Lah. 761 ref.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.92---Recovery---If the original assessment order on the basis of which demand was raised against the assessee is modified, set aside or annulled the liability of any person who has been required by the I.T.O. to pay any money to him on behalf of the assessee under S.92, Income Tax Ordinance, 1979 also washes away.
Commissioner of Income Tax v. Begum Mumtaz Jamal PLD 1976 Lah 761 applied.
Nasir Hussain, D.R. for Appellant.
Sh. Jalaluddin, FCA for Respondent.
Date of hearing: 23rd April, 1995.
ORDER
CH. IRSHAD AHMAD (JUDICIAL MEMBER).--A sum of Rs.299,296 was payable by M/s Ghulam Hussain & Co. Contractors, Gullen Khel, District Mianwali (the contractors) as arrears of income tax.
Subsection (1) of section 92 of the Income Tax Ordinance, 1979 so far as material, provides that for the purpose of recovering any tax payable by an assessee the I.T.O. may by a notice in writing, require-any person from whom any money is due or may become due to the assessee or holds or controls the receipt or disposal or may subsequently hold or subsequently hold or control the receipt or disposal of any money belonging to the assessee on account of the assessee or on account of the assessee to pay to the I.T.O. the sums specified in the notice on or before such date as may be specified in the notice. Subsection (2) of section 92 ibid provides that any person who has paid any sum in compliance with a notice under subsection (1) shall be deemed to have paid such sum under the authority of the assessee and the receipt of the I.T.O. shall constitute a good and sufficient discharge of the liability of such person to the assessee to the extent of the sum referred to in such receipt. Subsection (2-A) of section 92 ibid provides that any person on whom a notice under subsection (1) fails to pay the amount specified in the said notice such person shall be treated as an assessee in default and the amount specified in the said notice shall be recoverable from him by the Tax Recovery Officer or the Collector in accordance with the provisions of sections 93 and 94 of the Ordinance.
The I.T.O. who had made assessment on the contractors learning that some money was due from M/s. Pak China Fertilizer Limited, Haripur (the Company) to the contractors, through a notice under subsection (1) of section 93 ibid addressed to Mr. A.A. Siddiqui, General Manager (Finance) of the company required him to pay to him (I.T.O.) the sum of Rs.299,296. The company informed the ITO that only a sum of Rs.40,309 and not the sum of Rs.299,296 as specified in the notice was due from the company to the contractors. The I.T.O. by his letter, dated 13-3-1986 informed the company that "his notice under section 92 of the Ordinance for Rs.299,296 may be read as for Rs.40,309 and across cheque amounting to Rs.40,309 should be sent to him (I.T.O.) by return of post". It appears that the company sent a cheque for Rs.21,550 to the ITO and informed him that the remaining part of the amount due to the contractors will be paid after the expiry of the security period because the said sum was being held by the company as security deposit. It appears that after the company had informed the I.T.O. that only a sum of Rs.40,309 was due from it to the contractors further sums become due from the company to the contractors and in fact, from 18-3-1986 to 5-6-1986 the company paid a total sum of Rs.522,379 to the contractors. The I.T.O. took the view that the company had failed to pay the amount of Rs.299,296 specified in the notice. Accordingly, the I.T.O. treated the, company under subsection (2-A) of section 92 of the Ordinance as an assessee in default and raising a demand of Rs.277,746 which was the difference of original demand of Rs.299,296 and the payment received at Rs.21,550, required Mr. A.A. Siddiqui to pay the demand under penalty of prosecution. Later a question was raised whether the above amount was payable by Mr. Siddiqui in his personal account or was payable by the company. It appears that the I.T.O. realised that since the sum due to the contractors was from the company and not from Mr. A.A. Siddiqui personally, therefore, the liability to pay the tax under section 92 of the Ordinance was of the company and not of Mr. Siddiqui. Accordingly, the I.T.O. exercising his powers under section 156 of the Ordinance modified his earlier order by substituting the name of the company as assessee in default for Mr. A.A. Siddiqui.
On appeal by the company, the Appeal Commissioner by his order, dated 2-7=1988 cancelled the assessment made by the I:T.O. against the company. The reasons for the cancellation given by the Appeal Commissioner are: firstly, that the I.T.O., Mianwali could not proceed against Mr. Siddiqui who was not being assessed in the jurisdiction of I.T.O. Mianwali, and secondly, that since the tax payable by the contractors has been deleted on account of the fact that the assessment order on the basis of which -the assessment was ' raised against the assessee has been set aside, nothing remained payable by the company which was liable to pay the said amount only vicariously.
The I.T.O has objected to the order of the Appeal Commissioner on the ground that he was not justified to cancel the assessment made against the company.
We have heard Mr. Nasir Hussain, D.R. for the I.T.O. and Sh. Jalaluddin, FCA for the company.
It is an admitted position that the assessment order on the basis of which demand of tax was raised against the contractors has been set aside by the Appeal Commissioner. It appears to be an accepted position that the liability of a person who has been required by the I.T.O under section 92 of the Ordinance to pay any sum is only vicarious and. any person who makes the payment as aforesaid is deemed to have paid such sum on behalf-of, and under the authority of the assessee. In this context reference to subsection (2) of section 92 of the Ordinance is pertinent. It is an established principle that if the assessment order is modified, any consequential penalty levied due to the non-compliance of any direction in the assessment order extinguishes end is required to be cancelled. In this context a reference may be made to the decision of the Lahore High Court in case Commissioner of Income tax v. Begum Mumtaz Jamal, reported in PLD 1976 Lah. 761. The Court has held that it is well-recognised general principle of law that if the original order ceases to exist as a necessary corollary thereof all proceedings taken in pursuance of the original order would be washed away and obliterated. In our view the principle expounded to Begum Mumtaz Jamal's case must also extend to the order treating the person from whom any money is due to the assessee and who fails to pay the amount specified in the notice served on him under subsection (1) of section 92 of the Ordinance -as an assessee in default. Thus in our view if the original assessment order on the basis of which demand was raised against the assessee is modified, set aside or annulled the liability of any person who has been required by the I.T.O. to pay any money to him on behalf of the assessee under section 92 of the Ordinance also washes away. In view of what has been stated above it will be appropriate if the Appeal Commissioner's order is maintained for the above reasons that without going into the controversy whether on the facts and in the circumstances of the case the I.T.O. had rightly raised the demand of Rs.277,746 against the company or not, because the-assessment order on the basis of which the demand of tax was raised against the contractors has been set aside their liability to pay the tax has, for the time being, come to an end, and consequently the liability of the company which was only vicariously liable to pay the tax from the sum due from it to the contractors came to an end. Under these circumstances we are not satisfied that there are sufficient grounds to interfere with the Appeal Commissioner's order. The I.T.O.'s appeals are rejected. This order will not, however, debar the assessing officer through a fresh notice under section 92 of the Ordinance to require the company to pay him from any sum due from it to the contractors, if any, that becomes payable from the contractors as a consequence of fresh assessment order, and to hold the company as an assessee in default if the company fails to make the compliance of the fresh notice.
M.B.A./ 157/Trib.
??????????? Order accordingly.