Income Tax Ordinance (XXXI of 1979)---

----Ss. 156, 65, 62, 86, 88, 80C, 143-B, 50(4), 52 & 52A---Rectification of mistake---Additional assessment---Deduction of tax at source---Failure of-- Liability of persons failing to deduct or pay tax---Recovery from the person 'from whom tax was not deducted or collected ---Assessee, a contractor filer: statement under S.143-B of the Income Tax Ordinance 1979 wherein are amount of Rs.23.00.000 received on account of construction work was declared to the statement ---Assessing Officer reopened the assessment un& S.65 of the Income Tax Ordinance, 1979 and created a demand and charge.: additional tax under S.88 of the Income Tax Ordinance, 1979 on the ground that the provisions of the Income Tax Ordinance, 1979, with reference to proviso to S.50(4) of the Income Tax Ordinance, 1979, were applicable where tax had not been deducted or collected under S. 50(4) of the Income Tax Ordinance, 1979 and found that provisions of S.65 were also applicable ---Assessee assailed the jurisdiction of Assessing Officer in respect of reopening of assessment under S.65 of the Income Tax Ordinance, 1979 pertaining to the income covered under presumptive tax regime---First Appellate Authority and Appellate Tribunal repelled the objection of the assessee---Validity---Held, there was a mechanism contained in the scheme of presumptive tax regime and if any deemed income under ,presumptive tax regime escaped deduction of tax, the revenue could be retrieved by recourse to the provisions contained in Ss.52 & 86 of the Income Tax Ordinance, 1979 and now by recourse to the provisions contained in S.52A inserted by Finance Act,. 1999 which was retrospective in effect being procedural in nature---Section 65 caters the requirements of normal tax regime where total income was assessed/determined after filing of returns while under the presumptive tax regime neither return of Income vas required to be filed nor any total income was assessed/determined---Non-compliance of requirement of law pertaining to presumptive tax regime shall not have the effect of taking the case to the normal tax regime---Once it was found that any transaction was covered under the presumptive tax regime then all subsequent actions were to be taken pertaining to the presumptive tax regime and no provisions relating to the normal tax regime shall be attracted until and unless provided for to be otherwise in the Income Tax Ordinance, 1979-- Section 52 of the Income Tax Ordinance, 1979 provides that where any person fails to deduct or collect or having deducted or collected, failed to pay the tax, he shall be deemed to be an assessee in default in respect of such tax and all the provisions relating to recovery of tax from the assessee shall be applicable---Section 52A specifically provided that if tax had not been deducted or collected all the provisions of Income Tax Ordinance, 1979 relating to recover; of tax shall play.. Finding of Appellate Tribunal to the effect that if the tax was not deducted or collected in respect of a deemed income under S.80C of the Income Tax Ordinance, 1979, Assessing Officer could resort to the provisions contained in S.65 of the Income Tax Ordinance, 1979 was mistake of law apparent on record were recalled and it was held that the alleged receipts in the hands of the assessee were admittedly covered under the presumptive tax regime, therefore, the Assessing officer had no jurisdiction to reopen the assessment under S.65 of the Income Tax Ordinance, 1979 and call upon the assesses to file return of income in clear contravention and violation of the provisions contained in S.80-C of the Income Tax Ordinance, 1979---Assessing Officer had no jurisdiction to issue notice under S.65 of the Income Tax Ordinance, 1979 which was illegal and of no legal effect---Entire proceedings in pursuance of notice under S.65 were without jurisdiction, illegal and void---Application under S.156 of the Income Tax Ordinance, 1979 for rectification of mistake and appeal were allowed in circumstances.

1997 PTD (Trib.) 1143; 1998 PTD 121; I.T.A. No.473/KB of 1999-2000 I. T. A. No.1416/1417/KB of 1999-2000 and Messrs Elahi Cotton Mills Limited's case PLD 1997 SC 582 ref.

Bashir Ahmed for Applicant.

Abdul Wadood, D. R. for Respondent.

Date of hearing: 7th March, 2000.

ORDER

MUHAMMAD MUJIBULLAH SIDDIQUI (CHAIRMAN). By above application, the applicant seeks rectification in order dated 23-10-1999 in I.T.A. NO.201(IB) of 1999-2000 (Assessment Year 1997-98) and subsequent order dated 27-12-1999 in M.A. (R) No.50(IB) of 1999-2000.

2. This Full Bench has been constituted on the request of the learned counsel for the applicant/assessee to consider if the order sought to be rectified and recalled are at variance with the earlier orders of the Tribunal and the mistake of law apparent on record has taken place, whereby the relevant provisions of law have been wrongly applied and the earlier decisions of the Tribunal as well as the authoritative pronouncement of the Honourable Supreme Court of Pakistan have been ignored.

3. Heard Mr. Bashir Ahmed, Advocate for the applicant/assessee and Mr. Abdul Wadood, learned representative for the, Department.

4. Briefly stated the relevant facts are that the applicant/assessee is a contractor and the contract receipts are covered under the presumptive tax regime, under section-80C of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance). The assessee filed statement under section 143-B declaring receipts at Rs.1,19,71,425. The tax was deducted on these receipts at Rs.5,98,571. Later on, information was received from Regional Commissioner of Income-tax, Northern Region, Islamabad that the assessee received an amount of Rs.23,00,000 on account of construction of Mother and Children Centre, PIMS which was not declared in the statement under section 143-B. On receiving this information, the Assessing Officer issued notice under section 65 of the Ordinance. The assessee furnished explanation which was not accepted. The Assessing Officer held with reference to the proviso to subsection.(4) of section 80C that all the provisions of Ordinance are applicable where tax has not been deducted or collected under sub section (4) of section 50 and further held that the provisions of section 65 are also applicable. He, therefore, reopened the assessment under section 65 and ultimately created a demand of income-tax at Rs.1,15,000 and charged additional tax under section 88 at Rs.55,200. .Thus total demand of Rs.1,70,200 was created.

5. The assessee preferred first appeal assailing reopening of assessment and the assessment order under section 65/62. The learned CIT(A), Islamabad did not accept the objection and held that the provisions contained in section 65 are attracted to the facts of the case. The appeal was dismissed accordingly.

6. The assessee preferred second appeal before this Tribunal assailing the jurisdiction of Assessing Officer in respect of reopening of assessment under section 65 pertaining to the income covered under the presumptive tax regime. The learned Division Bench of this Tribunal repelled the objection vide order dated 23-10-1999 (which is sought to be rectified and recalled) and observed that the receipts of Rs.23,00,000 were not subjected to deduction of tax and, therefore, posed a question as to how the Assessing Officer would proceed to tax these escaped receipts and under what provision of Ordinance, and thereafter held as under:--

"The answer is simple. It is a case of escapement of income chargeable to tax and the case is reopened under the provision of section 65 of the Ordinance. We are of the view that the treatment given by the two Officers below is in accordance with law and the findings call for no interference on our side. "

7. It would be pertinent to refer that objection was raised to the charging of additional tax under section 88 also and it was held by the learned Division Bench that the assessee was not required to file return under subsection (4) of section 80C and therefore, there was no default under section 54 of the Ordinance and as such the charging of additional tax under section 88 was illegal. The findings whereby additional tax was charged under section 88 were vacated.

8. On receiving the above order, rectification application was submitted on behalf of the applicant/assessee contending that the findings to the effect that if any deemed income under presumptive tax regime escapes the deduction of tax, the-provisions contained in section 65 for reopening of assessment shall be attracted is a mistake apparent on record. The application was rejected and it was held that by virtue of provisions contained in section 65(1)(c), the deemed assessment under subsection (7) pf section 80C can be reopened.

9. The second rectification application has been submitted for rectification of the findings contained in the order dated 27-12-1999 to the effect that the deemed order of assessment under subsection (7) of section 80C can be reopened under section 65 in pursuance of provisions contained in subsection (1)(c) of section 65 of the Ordinance.

10. Mr. Bashir Ahmed, Advocate for the applicant/assessee has submitted that the mistake of law is apparent in the first as well as second order sought, to be rectified. He has further submitted that point in issue already stands decided in various judgments by the- Tribunal and after the authoritative pronouncement of the Honorable Supreme Court of Pakistan, no scope is left for the findings sought to be rectified. The learned counsel for the .applicant/assessee has referred to the judgment of this Tribunal reported as 1997 PTD (Trib.) 1143 in which the issue has been considered in detail and depth. The relevant findings are reproduced below:---

"We would further like to observe that in respect of income referred to in subsection (1) of section 80C an assessee is not required to file any return of total income under section 55 and, therefore, no notice can be issued to an assessee for furnishing return of total income under section 56 and likewise no notice can be issued under section 65 for the simple reason that in the case of reopening of assessment under section 65 the requirements of notice under section 56 become applicable and the assessment is completed under section 62 which cannot be done in respect of an income referred to in subsection (1) of section 80C. The reason for our holding so is that in the case of import of commercial goods there is no question of any concealment as the Collector of Customs is required to collect advance tax computed on the basis or value of such goods as increased by the customs duty and sales tax if any, levied thereon at the rate specified in the First Schedule. Likewise, in. the case of payment in full or in part including a payment by way of advance to any person resident on account of supply of goods or the execution of a contract with the Government or a local authority or a company or a registered firm or any foreign contractor or consultant or consortium where the total value in any financial year of goods supplied or contracts executed exceeds fifty thousand rupees, the payer is bound to take advance tax at the time of making such payments at the rate specified in the First Schedule and as such there is no question of any concealment. No allowance -or deductions are to be allowed and likewise no refund of tax or set off of any loss is to be made and as such in respect of an income referred to in subsection (1) of section 80C no occasion would arise to invoke the provisions contained in section 65, and thus, normal provisions of assessment contained in the Ordinance shall not be attracted. The question may arise as to how the revenue is protected if the correct amount required to be deducted or collected has not been deducted or collected. The answer is contained in section 52 of the Income Tax Ordinance, 1979 which reads as follows:---

'52. Liability of persons failing to deduct or pay tax ---Where any person fails to deduct or collect or having deducted or collected, as the case may be, fails to pay the tax as required by, or under, sectiorL50, he shall, without prejudice to any other liability which he may incur under this Ordinance, be deemed to be an assessee in default in respect of such tax.'

46. A perusal of above section shows that in the case of any default by any person saddled with the responsibility of deducting or collecting the tax he shall be deemed to be an assessee in default in respect of such tax in addition to any other liability he may incur under this Ordinance: Thus, the Legislature has taken care of, and there is no possibility of loss of revenue in the case of default on .the part of any person responsible for deducting or collecting the tax under section 50(4) and section 50(5) which is relevant for the purpose of income referred to in subsection (1) of section 80C. Thus, if on perusal of statement under section 143-B an Assessing Officer finds that any default has taken place he can have recourse to the provisions contained in section 52 instead of embarking on calling upon an assessee to file a return of total income under section 56 or 65 or to venture in entering into exercise of making regular assessment under section 62 which is absolutely prohibited under section 80C. "

He has further placed reliance on the judgment of this Tribunal reported as 1998 PTD 121 in which following findings have been given:--

"5. The above proviso clearly contained that the persons covered under section 80C are not required to file return of total income and the firms, association of persons and body of individuals are not required to file even the return of wealth. A perusal of sections 59, 59A, 59B, 60, 62 and' 63 shows that the Assessing Officer is required to assess the total . income of an assessee. On the other hand, under section 80C a concept of deemed income has been introduced and the tax on the deemed income is to be charged at the rate specified in First Schedule. In entire section 80C the expression 'total income' has not been used anywhere on the other hand, it is specifically provided under subsection (4) of section 80C that, 'where the assessee has no income other than income referred to in subsection (1) in respect of which tax has been deducted or collected. The tax deducted or collected under section 50 shall be deemed to be the final discharge of his tax liability under this Ordinance and he shall not be required to file the return of total income under section 55." Thus, the presumptive tax regime under section 80C is at complete variance with the scheme of income-tax under the normal law envisaged under the Income Tax Ordinance, 1979. The departure is so complete that the income-tax under section 80C is to be levied on the income of a person on the rates specified in the First Schedule which are different from the rates of income-tax to be levied on the total income and it has been further clarified that no return of total income under section 55 is required to be filed. Even subsection (7) of section 80C where an assessment order is deemed under section 59-A it is not provided that it shall be an assessment order in respect of total income but it is provided that in a case to which subsection (4) applies an order under section 59A shall be deemed to have been made in respect of income referred to in subsection (1) (emphasis provided by us).

6. A resume of the above provisions show that in respect of income covered under section SOC neither there is any concept of total income nor is assessable under the Ordinance. Under section 80C of the Income Tax Ordinance, 1979 there is a concept of deemed income which has been subjected to tax without going through the process of assessment by any Assessing Officer and without determining the total income. Thus, the very first condition envisaged in subsection (1) of section 4 of the said Ordinance is not available in case of presumptive tax regime. "

11. The issue has been considered recently at Karachi and in the judgment dated 1-3-2000 in I.T.A. No.473/KB of 1999-2000, it has been held as follows:---

"2. Heard M/s. Rehan Hassan Naqvi and Lubna Pervaiz, Advocates for the appellant and Mr. Zaki Ahmad, learned representative for the department. Mr. Rehan Hassan Naqvi has stated at the very outset that the appellant imported Palm Oil but did not pay custom duty and income-tax thereon with the connivance of custom officials. Subsequently, the Directors of appellant company fled out of country and afterwards held negotiation with the then competent authorities in the Ehtesab Bureau. He has further stated that an agreement was arrived at between the Directors of appellant company and the Ehtesab Bureau. The sole objection raised on behalf of Mr. Rehan Hassan Naqvi is that the tax liability pertains to imports and, therefore, is covered under presumptive tax regime to which section 80C is applicable. Mr. Rehan Hassan Naqvi has submitted that the transaction is covered under the presumptive tax regime, therefore, the question of filing of any return under section 55 or proceedings under section 62 does not arise. He has contended that the presumptive tax regime has its own mechanism which is summary in nature and the long drawn process of normal incidence of tax and the assessment proceedings are not to be resorted. He has contended that if department is of the view that any tax which was to be deducted under section 50(5) and was not deducted, the department can resort to the provisions contained in section 52 and the newly inserted section 52A which is retrospective in effect being procedural in nature. Thus, the main contention of Mr. Rehan Hassan Naqvi is that the entire proceedings initiated under section 65 and the assessment under section 62 are without jurisdiction and that the department can have recourse to the provisions contained in sections 52 and 52A for the recovery of legitimate tax not payable under the presumptive tax regime. The learned D.R. is not able to rebut the contentions.

3. We have carefully considered the contentions raised before us and have perused the assessment order. We are persuaded to agree with the submissions of Mr. Rehan Hassan Naqvi. As it is admitted fact that the tax liability arises out of imports which is covered under the presumptive tax regime under section 80C, therefore, in view of our earlier decisions reported .as 1997 PTD (Trib.) 1143, it is held that the assessment order is without jurisdiction and stands annulled. The department can resort to the provisions contained in sections 52 and 52A of the Income Tax Ordinance and can recover the legitimate tax in accordance with the law. The appeal is allowed accordingly."

Further, in I.T.As. Nos.1416/1417/KB of 1999-2000, it has been held as under:---

"4. Mr. A.S. 3afry, learned counsel for the appellant has submitted that subsection (7C) of section 50 enjoins upon the deducting authority to deduct the tax from the payment made to recipient and the income is covered under the presumptive tax regime under section 80B of the Income Tax Ordinance. He has submitted that the presumptive tax regime has its own mechanism and has nothing to do with the return filed under self-assessment scheme.. He .has further submitted that if a deducting authority has failed to deduct the tax under section 50(7C) of the Income Tax Ordinance, the Assessing Officer can initiate proceedings against him under section 52 as well as under section 86 of the Income Tax Ordinance, and now by virtue of insertion of section 52A in the Income Tax Ordinance by Finance Act, 1999, the tax can be recovered from recipient also. He has further reiterated his contention that prize won by the appellant was not liable to deduction of tax under section 50(7C) because no prize was individually in excess of Rs.25,000.

5. The learned D.R. has though supported the-orders of the learned two officers below but he is not able to rebut the contention that if any deducting authority has failed to deduct the tax under section 50 and the amount liable to deduction is covered under the presumptive tax regime, it shall not have the effect of conferring jurisdiction on Assessing Officer for rectification of an assessment order which pertains to the normal tax regime. He is further unable to rebut the contention that there was no mistake in the assessment order under section 59(1) and, therefore, question of rectification never arose and that the legitimate tax can be recovered by recourse to the provisions contained in sections 52 and 52A.

6. We have carefully considered the contentions raised by the learned representatives for the parties and have perused the material available on record. We are persuaded to agree with the submission of learned counsel for the appellant that the Assessing Officer has incorrectly invoked jurisdiction under section 156. The correct course open to the Assessing Officer is to have recourse to the provisions contained in sections 52 and 52A of the Income Tax Ordinance, 1979. Consequent to this finding it is held that the order under section 156 and order under section 88 both are without jurisdiction and consequently both the orders are hereby annulled. The Assessing Officer may initiate proceedings under sections 52 and 52A if so advised and warranted in law. The ~ appeals are allowed as above. "

12. The learned counsel has further referred to the following dictum laid down by the Honorable Supreme Court of Pakistan in the case of M/s. Elahi, Cotton Mills Limited reported as PLD 1997 SC 582:--

"We may observe that the object of section 80C seems to be to eliminate the hassle of filing of returns by an assessee and going through the normal procedure culminating in framing of an assessment order and to eliminate the involvement, to the minimum extent, of the Income-tax Department. To achieve the above object, above subsection (4) was enacted. "'

13. The learned D. R. initially contented that there was no mistake of law apparent on record which is sought to be rectified. He contented that in subsection (7) of section 80 C an order under section 59(A) shall be deemed to have been made in respect of income referred to in subsection (1).He further submitted that in section 65(1) if in any year for any reason, the total income of assessee and the tax payable by him has been assessed or determined under subsection (1) of section 59 or section 59-A or is deemed to have been so assessed or determined under subsection (1) of section 59 or section 59A, the Deputy Commissioner of Income-tax may issue a notice to the assessee containing all or any of the requirements of a notice under section 56 and may proceed to assess or determine, by an order in writing the total income of the assessee or the tax payable by him as the case may be and all the provision of the Income-tax Ordinance shall so far as may be apply accordingly.

14.Howevr; he was pointed out that under the normal tax regime, theincome-tax is charged on, total income and section 65(.1)(c) also speaks of the assessment or determination of total income-or deemed assessment or determination of total income and empowers the Deputy ,Commissioner of Income-tax to assess or determine the total income of assessee or tax payable by him while section 80C does not speak at all about the assessment or determinationof total- incomeand on the contrary, provides that nowithstanding anything contained in this Ordinance or any other law for the time beingin force the amount referred to in subsection (2) which is received, accrue or arisento any person, the whole of saidamount shall be deemed to be income of the said person. Thus is a basic and fundamental difference in the provisions related tonormal regime of tax, 'and the presumptive tax regime. In the former, tax is levied on the total income or deemed total income.The learned D.R. was further pointed out that the total income has a defined con notation and is arrived at after making compliance with process of assessment, prescribed in the Ordinance while the deemed income envisaged, in section 80C, is the totalamount of receipts., The learned D.R. had no option but to concede that the concept ofnormal tax regime and presumptive tax- regime are totally different and distinct.

15. We have carefully considered the contentions raised by the representative for the parties and thetwo orders- sought to berectified. We are of the considered opinionthat the mistake of law crept in the order dated 23-10-1999 when the learned -Members' of the Division 'Bench posed a question as to how the Assessing Officer would proceed to tax the escaped receipts and under what provision of 'the Ordinance and then proper assistance was notprovided to them, to the effect that there is inbuilt the mechanism contained in the scheme of presumptivetax regime and if any deemed Income under presumptive tax regime escapes deduction of tax, the revenue can ` be retrieved by' recourse to theprovisions 'contained in sections 52 and 86 of the Ordinance and now by recourse to the provisions contained in section 52A inserted by Finance Act, 1999 which is retrospective in effect being procedural in nature. Again the mistake of law took place in the order dated 27-12-1999 when the learned Members of the Division Bench failed to notice that section 65 caters the requirements of: normal tax regime where total income is assessed/determined after filing of returns while under the `Presumptive tax regime neither return of income is required to be filed nor any, total, income .is assessed/determined. The learned Members of the Division Bench further fell 'in error of law apparent on record by ignoring that any non-compliance to requirement of law pertaining' to presumptive tax regime, shall not have the effect of taking the case to the normal tax regime. Once it is held that any transactionis covered under .the presumptive tax ,regime, then all subsequent, actions are to be taken pertaining to the presumptive tax regime and no provisions relating to the normal tax regime shall be attracted until and unless provided for to be otherwise,the Ordinance. We may point out that under section- 52 it is provided that where any person` fails to deduct or collect or having deducted or collected, fails to pay the tax, he shall be deemed to be an assesseein default in respect of such tax and all the provisions relatingto recovery of tax from the assessee shall be applicable.It is specifically provided in section 52Athat if tax has not been deducted or collected under section 50 it may be recovered from the person 'from whom taxwas to bededucted or collected and all the provisions of Ordinance relating to recovery of taxshall apply. Thus complete answer to the questionposed by the learned Member of the Division Bench in the order dated 23-10-1999 is available in the provisions contained-in secdons'52 and 52A. of the OrdinanceWe are of the considered opinionthat, the findings that if, the tax is not deducted or collected in respect of a deemed ,income under-section80C theAssessing Officercan resort to the provisionscontained- in section 65- is the mistake of law apparent on record and consequently the orders dated 23-10-1999 and 27-12-1999 are hereby recalled It is heldthat the allegedreceiptsin the hand ofthe applicant/assessee are admittedly covered under the presumptive tax regime, therefore the Assessing Officer had no jurisdiction to reopen the assessment under section 65 and call upon the applicant/assessee, to file return of income in, dear contravention and violation of the provisions contained in section 80C of the Ordinance.The Assessing Officer had no jurisdiction to issue notice under section 654 which is held to be illegal and of no legal effect.The entire proceedings in pursuance of notice under s3ection 65 are held to be 2without jurisdiction illegaland void.The application at the instance of applicant is allowed.The appeal is also allowed accordingly.

C.M.A/M.A.K./25/Tax(Trib)Appeal allowed.