FAZAL KHAN VS MUHAMMAD NAWAZ
1999 P T D 4028
[Lahore High Court]
Before Nasim Sikandar, J
KAWTHER GRAIN (PVT.) LTD.
Versus
DEPUTY COMMISSIONER OF INCOME-TAXI
WEALTH TAX, CIRCLE-1, COMPANIES ZONE, GUJRANWALA
Writ Petition No. 12041 of 1999, decided on 19/08/1999.
Income Tax Ordinance (XXXI of 1979)---
----Ss.52, 50(4) & 86---Central Board of Revenue, Circular No.12 of 1991, dated 30-6-1991---Constitution of Pakistan (1973), Art.199---Constitutional petition---Liability of persons failing to deduct or pay tax---Capital assets-- Sale of---Deduction of tax---Petitioner purchased land, building and machinery and did not deduct tax under S.50(4) of the Income Tax Ordinance, 1979 from payment made to the vendor---Assessing Officer treated petitioner as "assessee in default" for non-deduction of tax on the transaction and created demand alongwith additional tax ---Validity Provision of S.50(4) of the Income Tax Ordinance, 1979 was not attracted to the transaction evidencing the sale of land, building and the fixed plant ,and, machinery sold as part of factory---Neither a "supply" nor its subject in the transaction matter was "goods" ---Transaction was otherwise not liable to any incidence of income-tax under any heads given in S.15, Income Tax 'Ordinance, 1979---Order of Assessing Officer being beyond jurisdiction, Assessment order and additional tax imposed, was declared to be void ab initio by the High Court.
Messrs Hirjina & C (Pakistan) Ltd Karachi v. Commissioner of Sales Tax Central, Karachi 1971 SCMR 128; Muhammad Younus v. Central Board of Revenue, Government of Pakistan and others PLD 1964 SC 113; Nagina Silk Mill, Lyallpur v. Income-tax Officer PLD 1963 SC 322; Messrs Julian Hoshang Dinshaw Trust and others v. Income-tax Officer 1992 SCMR 250; Edulji Dinshaw Limited v. Income-tax Officer PLD 1990 SC 399; Collector of Costrels, Customs House, Lahore and 3 others v. Messrs S.M. Ahmad & Company (Pvt.) Ltd., Islamabad 1999 SCMR 138; Adamjee Insurance Company Ltd. v. Pakistan 1993 SCMR 1798; Chambers, Twentieth Century Dictionary, p.561; Concise Oxford Dictionary of Current English, p. 619; Government of Pakistan v. Hashwani Hotel PLD 1990 SC 68; Trust Ceramics Industry v. Deputy Collector, 'CE & LC. 1991 CLC 1923; Collector of Customs v. S.M. Ahmad & Go. 1999 SCMR 138; Star Vacuum Bottle Manufacturing Company v. Collector of Customs PLD 1972 Kar. 210; Muhammad Younis v. C.B.R. PLD 1964 SC 113; H.M. Abdullah v. Income-tax Officer 1993 SCMR 1195; Adamjee Insurance Company Ltd. v. Pakistan 1993 SCMR 1798; Nagina Dal Factory v. The Income-tax Officer 1968 SCMR 1035 and M/s. Steel Brother & Co. v. C.B.R. 1968 SCMR 374 ref.
Zahid Hamid for Petitioner.
Mian Subah Sadiq Kalason for Respondent.
Date of hearing: 18th August, 1999.
JUDGMENT
By way of this Constitutional petition the issuance of a notice by the Deputy Commissioner of Income-tax/Wealth. Tax Circle 01 Companies Zone, Gujranwala expressing his intention to treat the transaction of sale of land, building and machinery between the petitioner and M/s. Ehtisham Enterprises Ltd., LCCHS, Lahore Cantt., has been challenged.
2. For the petitioner, it is inter alia stated that through an agreement to sell dated 30-9-1998 subsequently modified by an agreement, dated 14-1-1999, the vendors M/s. Ehtisham Enterprises agreed to sell to the petitioner the factory land, building and machinery for a total consideration of Rs.39,470,374. The factory which was earlier set up in 1998 a Rice Processing Unit with the help of ADBP was declared a sick unit and therefore, major part of the consideration namely Rs.2,21,70,374 was agreed to be paid directly to ADBP, the Creditors of the previous owners. Remaining sum of Rs.1,73,000 was to be paid to the vendors or the financial institution nominated by them.
3. On 11-5-1999 the respondent. issued a notice under section 52 of the Income Tax Ordinance directing payment of a total sum of Rs.13,02,626 which according to the officer issuing notice had accrued on account of the aforesaid transaction and for the reason that application for exemption under section 50 (4) of the Ordinance by the assessee-Company namely M/s. Ehtisham Enterprises Ltd. had already been rejected by the Commissioner Wealth Tax; Gujranwala.
4. The present petitioner in reply to the notice, dated 11-5-1999 attempted to make out a case that only a sum of Rs.4.6 million was paid to M/s. Ehtisham Enterprises Ltd. as vendors against the sale of machinery. Further that sum of Rs.1,62,234 was deducted as withholding tax from the -payment made to them. According to the petitioner the transaction as regards sale of land, building, machinery already installed and fastened to earth did not attract the said provisions of section 50(4). The respondent/ Assessing Officer however on 26-5-1999 issued another notice to the present petitioner expressing his intention to hold them as "assessee in default" under section 52 of the Ordinance. The imposition of additional- tax under section 86 was also threatened unless an amount of Rs.13,81,463 as withholding tax under section 50(4) of the Ordinance was not deposited by 4-6-1999. The present petitioner, again made a representation to say that the provisions of section 50(4) were attracted only on supply of goods and to that extent they had already complied with law by remitting to exchequer a sum of Rs.1,62,234 deducted as withholding tax on account of payments made for purchase of machinery which was otherwise not a part of the existing factory. It appears that in spite of said representation made before the Assessing Officer he proceeded with framing an assessment on 30-6-1999 this petition came up for hearing and the respondent/Assessing Officer was directed not to effect the recovery against the petitioner. In the meanwhile on 9-6-1999 the respondent framed an assessment by resort to section 52 read with section 50(4) of the Ordinance creating the aforesaid demand alongwith additional tax of Rs.29,668. The petitioner claims that the assessment order so framed was served upon it only after the filing of this petition.
5. Parties have been heard.
6. The learned counsel for the petitioner by referring to the provisions as contained in section 50(4) of the Ordinance contends that these are not attracted in cases of sale of capital assets and that no liability ever accrued against the petitioner as for the sale of land, building and machinery which was a part of the factory premises could arise at all. Also submits that to the extent of its liability arising on account of the sale of machinery which was not otherwise a part of the factory and was not attached to earth the petitioner duly discharged its liability by remitting the aforesaid amount to national exchequer. In support of his submissions that letters of law in cases of fiscal statute must be construed strictly and that in such statutes nothing could be implied, he relies upon re: Messrs Hirjina & C. (Pakistan) Ltd., Karachi v. Commissioner of Sales Tax Central, Karachi (1971 SCMR 128) and re: Muhammad Younus v. Central Board of Revenue, Government of Pakistan and others (PLD 1964 SC 113). On maintainability of this Constitutional petition he submits that the alternate remedy by way of appeal would not be effective firstly for the reason that the order is totally void and against the expressed provisions of Income Tax Ordinance and secondly no Officer in the revenue hierarchy is likely to differ with the interpretation of provisions made by the Central Board of Revenue through C.B.R. Circular No. 12/1991 as referred to in the assessment order framed on 19-6-1999. According to the learned counsel where an Assessing Officer acts beyond jurisdiction the remedy by way of filing of Constitutional petition becomes available to a petitioner. Also states that it is a case of manifest excess of jurisdiction and the impugned assessment order suffers from an illegality apparent on its face. In such situation he claims the ratio settled in re: Nagina Silk Mill, Lyallpur v. Income Tax Officer (PLD 1963 SC 322) is squarely applicable. Further contends that this Court can exercise Constitutional audition in appropriate cases involving fiscal rights and on the allegation of misapplication of law or abuse of power as found by their Lordships of the Supreme Court in re: Messrs Julian Hoshang Dinshaw Trust and othersIncome tax Officer (1992 SCMR. 250). Reference in this regard is also made to re: Edu1ji Dinshaw Limited v. Income-tax Officer (PLD 1990 SC 399), re: Collector of Customs, Customs House Lahore and 3 others v. Messrs S.M. Ahmad & Company (Pvt.) Ltd., Islamabad (1999 SCMR 138) and re: ~1danljee Insurance Company Ltd. v. Pakistan (1993 SCMR 1798).
7. On facts it is stated that withholding tax is applicable only on supply of goods which in this case at best could only be the machinery which was not a part of - the factory and the extension of word supply to sale of immovable property was totally illegal. It is further stated that since the Income Tax Ordinance does not define the term "goods" as used in section 50 (4) -the Assessing Officer was bound to adopt its ordinary dictionary meanings. The meaning of the word 'goods' the learned counsel continues as given to Chambers' Twentieth Century Dictionary at page 561 clearly contemplate movable property, Chattels, merchandise, freight. Also refers to meaning of the word 'goods' as contained in the Concise Oxford Dictionary of Current English at page 619 which refers to movable property, merchandise, wares, to include various meanings of the word 'goods'. In support of his contentions that in absence of a definition contained in the statute the words are to be taken in their literal meaning and construed according to the plain dictionary meanings the learned counsel relies upon re: Government of Pakistan v. Hashwani Hotel (PLD 1990 SC 68). Also refers to Re: Trust Ceramics Industry v. Deputy Collector, CE & LC (1991 CLC 1923) to contend that the word "goods" having not been defined in the statue the ordinary dictionary meaning should have been taken into consideration. Lastly relies upon re: Collector of Customs v. S.M. Ahmad & Co. (1999 SCMR 138). re: Star Vacuum Bottle Manufacturing Company v. Collector of Customs (PLD 1972 Kar. 210), re: Muhammad Younis v. C.B.R. (PLD 1964 SC 113) to contend that in fiscal statutes the language of law should be construed strictly and in case of ambiguity it should be resolved in favour of the subject.
8. Learned counsel for the revenue however, stresses that the petition is not maintainable particularly after it had been brought on record that an assessment order had duly been framed. In support of his submissions reliance is placed upon re: H.M. Abdullah v. Income Tax Officer (1993 SCMR 1195), re: Adamjee Insurance Company Ltd. v. Pakistan (1993) SCMR 1798), re: Nagina Dal Factory v. The Income Tax Officer (1968 SCMR 1035) and re: M/s. Steel Brother & Co. v. C.B.R. (1968 SCMR 374). On merits he supports the interpretation placed upon the provisions of section 50(4) of the Ordinance by the Assessing Officer.
9. After considering the submissions from both the sides as far the maintainability is concerned I will agree that the assessment order in question on the face of it is a clear case of misapplication of law. Reliance of the learned counsel in this regard re: M/s. Julien Hoshang Dinshaw Trust (supra) is relevant and pertinent. I will also agree that the alternate remedy in the facts and circumstances of the case is only illusory in nature. In such situation the apex Court in re: Collector of Customs v, S.M. Ahmad & Company (supra) approved the exercise of Constitutional jurisdiction by this Court. Learned counsel is correct in pointing out that the Central Board of Revenue having adopted the stated interpretation of the provisions in question, no officer in the hierarchy in all probability would show indulgence for the petitioner. In the cases relied upon by the learned counsel for the respondents the bar on exercise of Constitutional jurisdiction was held attracted only where an effective adequate remedy was available to the petitioner. The alternate remedy as rightly been pointed out by the learned counsel in this case was illusory inasmuch as the guideline provided by the Central Board of Revenue by way of the said circular was not likely to be transgressed by any departmental authority. Therefore, the objection against the maintainability of the petition is refused.
10. The submissions made at the Bar on facts also bear weight. A plain reading of the provisions as contained in section 50 (4) of the Ordinance makes it absolutely clear that a payer is required to deduct advance tax at the time of making payment on account of supply of goods or for services rendered or execution of a contract with various categories of persons mentioned in the clause.. The Assessing Officer in this case invoked the provisions on account of his view that the transaction in question pertained to supply of goods. Nothing could be more fallacious. It was simply a sale of factory land, building and machinery installed therein. The C.B.R. Circular No. 12/91 which was relied upon by the assessing officer only stated that the phrase "supply" included sale of goods through contract or otherwise or in cash or on credit basis. A reference to this circular was totally impertinent and irrelevant. The Assessing Officer was equally wrong in applying the analogy of the term "turnover" as used in explanation to section 80-D(2) of the Ordinance to the facts in hand. He forgot the basic fact that the transaction as regards sale of movable property itself was not liable to any tax even under the head capital gains. Therefore, the question of deduction of advance tax did trot arise at all. The transaction in question as far building and fixed machinery was concerned, could be brought to tax only under section 23 read with clause (7) of the Third Schedule to the Ordinance to retrieve depreciation allowance. However that too was not possible in this case because admittedly the project never went off nor any income from business was ever assessed in the hands of the previous owners. The transaction in question was also not liable to incident of taxation even under the head capital gains as found by the apex Court in Re: M/s. Julien Hoshang Dinshaw Trust v. I.T.O. (supra). In that case it was inter alia held that imposition of tax on the capital gains arising from the transfer of immovable property was beyond the taxation power of the Federation.
11. As already observed the interpretation of word 'goods' as adopted by the Assessing Officer does not find support either from the Income Tax Ordinance or for that matter from any other law. The consistent view of the superior Courts in Pakistan that in cases of fiscal statutes only the letter of law should be seen has sufficiently been highlighted in re: Collector of Customs v. S.M. Ahmad & Company (supra) and re: Muhammad Younis v. C.B.R. (supra). It is also an accepted proposition that the words used in a statute if not defined therein should be assigned their ordinary dictionary meaning. Reference to the aforesaid two dictionaries supports the contention of the learned counsel. The sale of immovable property including land and building alongwith machinery installed therein could by no imagination treated as supply of goods or services rendered. It will again be noted that the. Assessing Officer in this case confined himself to the definition of the word "goods" and by referring to the provisions of presumptive tax regime proceeded to bring home that transaction before him amounted to supply of goods and therefore the provisions of deduction at source or advanced tax were applicable. The agreement evidencing transaction was accepted without any objection. In the agreement except for some machinery which was not a part of the factory nothing indicated either "supply" of any kind for the alleged supply comprised of any "goods". It was pure and simple transfer of capital assets including the immovable property. There was no continuity present or proposed in the whole transaction which could be said to attract the phrase "supply" as used in the said provision. In fact I have my reservations respecting the alleged admitted liability as made by the petitioners before the Assessing Officer. However, since that part of the issue is not before me I will refrain from making any observations.
12. For what has been stated above, it is concluded that the provisions of section 50(4) of the Ordinance were not attracted to the transaction evidencing the sale of land, building and the fixed plant and machinery sold as part of the factory. There was neither a "supply" nor, its subject-matter was "goods". The transaction of sale otherwise being not liable to any incidence of income-tax under any of the heads given in section 15 of the Ordinance the question of deduction of advance tax did not arise at all. Accordingly the order of the Assessing Officer dated 19-6-1999 holding the petitioner as an assessee in default under section 52 was totally beyond jurisdiction. The creation of demand under section 86 was also illegal. The assessment order so framed and the additional tax imposed for the aforesaid reason is declared to be void ab initio and ineffective against the rights of the petitioner.
13. Petition accepted.
C.M.A./M.A.K./K-103/L Petition accepted