Income Tax Ordinance (XXXI of 1979)---

----Ss. 50(4), (2), 2(29)(32), 2(34) & 34---Circular No. 11 of 1991, dated 30-6-1991---Deduction of tax at source-- -Assessee in default ---WAPDA-- Bank---Collection of bills---Service fee---Bank charged service charges on collection of electricity bills from WAPDA in violation of agreement between WAPDA and Bank that Bank will not be entitled to charge any Bank commission and will render all services free of cost to WAPDA---Assessing Officer treated the Dir9ctor Finance, Area Electricity Board as assessee in default for non-deduction of tax on service charges paid to Bank and demanded payment---First Appellate Authority confirmed the action of the Assessing Officer---Validity----Perusal of procedure laid down for collection of payment of electricity bill clearly shows that no commission or any other charge was to be paid by WAPDA to Banks---Assessing Officer and First Appellate Authority acted in excess of their jurisdiction in treating the Director Finance as assessee in default---Further, WAPDA was a company formed under a statute and was deemed to be a company within the meaning of Income Tax Ordinance, 1979---Principal Officer had been defined in S.2(34) of the Income Tax Ordinance, 1979 and Director Finance did not fall in any of the categories in S.2(34)(a) of the Income Tax Ordinance, 1979---If Director Finance, Area Electricity Board was to be treated a Principal Officer by the Assessing Department notice should have been served upon him in terms of S.2(34-b) of the Income Tax Ordinance, 1979---Orders of the Department were declared without lawful authority and of no legal effect in the circumstances by the High Court.

Mian Ashiq Hussain for Petitioners.

Shahbaz Butt for Respondents.

Date of hearing: 7th April, 2000.

JUDGMENT

The Water and Power Development Authority has filed this petition under Article 199,of the Constitution of Islamic Republic of Pakistan, 1973 to challenge orders, dated 26-3-1997 and 19-4-1995 passed by respondents Nos.l and 2 whereby the Director Finance of WAPDA who is petitioner No. 1 in this petition has been treated as assessee in default.

2. The facts relevant for the present purposes are that WAPDA is a statutory body set up by the Water and Power Development Authority Act, 1958. Petitioner No. 1 is working as Director Finance, Area Electricity Board Water and Power Development Authority, Gujranwala. Pursuant to the public statement made by the Prime Minister procedure for collection of payment of electricity bills by the Banks was introduced. A copy of which has been filed as Annexure-A. In the said procedure it has been specifically laid down that the banks entrusted with the collection of payment of electricity bills will not be entitled to charge any bank commission and will render all services free of cost to WAPDA. It appears that the Banks contrary to the aforesaid procedure stated collecting Rs.2 per electricity bill. This controversy with the Banks was still going on when respondent No.2 treated petitioner No. 1 as an assessee in default and demanded payment of Rs.10,34,620 for the assessment year 1994-95. The petitioners filed the revision against the order of the said respondent which, however, was dismissed by respondent No. 1. Hence this petition.

3. It has been strenuously argued on behalf of the petitioners by their learned counsel that there is no agreement between the petitioners and the commercial banks for payment or deduction of any amount as service charge, and therefore, respondents Nos. l and 2 have misdirected themselves in holding the petitioners liable to deduct tax payable on Rs.2 per bill. It has further been contended that the respondents have failed to draw distinction between service charges under section 50(4) of the Income Tax Ordinance, 1979 and the service fee payable to the Banks as service charge which is recognised by Circular NO. 11 of 1991 issued by the Central Board of Revenue whereby, it has been clarified that the payments made for services rendered under section 54 related to the services rendered by professionals such as medical practitioners, legal practitioners, accountants and consultants etc. and not Banks which in fact constitutes interest as defined in section 2(29) of the. Income Tax Ordinance, .1979. In the last it was submitted that respondent No. 1 who is Finance Manager of an area is not the Principal Officer of respondent . No, l company, and therefore, the respondents could not treat him to be an assessee in default.

4. Learned counsel for the respondents has on the other hand stated that the petitioner is under an obligation to deduct tax on Rs.2 paid to the Bank as service charge for each bill and by not doing so petitioner No: l has become assessee in default within the meaning of section 50(4) of the Income Tax Ordinance, 1979. The other arguments of the learned counsel for the petitioners have also been controverted.

5. Having heard the learned counsel for the parties and perused the record with their assistance I am of the view that respondents, Nos.l and 2 acted in excess of their jurisdiction in treating petitioner No. 1 as assessee in default. The first reason for holding so is that a perusal of the procedure laid, down for collection of payment of electricity bill effective from 1st of July, 1993 copy of which has been appended with this petition as Annexure-A clearly postulates that no commission or any other charge shall be paid by the WAPDA to the Banks. The relevant clause is clause (9.3) which may be reproduced. It reads as under:--

"The Bank entrusted with collection of payment of electricity bills will not be entitled to charge any bank commission and will render ail services free of cost to WAPDA."

6. It is, therefore, obvious that the Banks -have no right to claim or charge any commission or service charge from WAPDA. The petitioners have also placed on. record a letter addressed to the General Manager/Chief Executive of all the Banks, dated 23-1-1990 in which it has been stated that WAPDA is not paying collection charge of Rs.2 per bill to the respondents and the Wafaqi Mohtasib had directed that so far as the collection during .evening hours was concerned the welfare charge of Rs.1.01 per bill be paid to the bank. However, on appeal filed by the Pakistan Banking Council, Islamabad the President has stayed the implementation of the aforesaid order and as such even recovery of Rs.1.01 was not being enforced. The letter further went on to state that if any amount has been charged by the Banks it may be refunded to the Bank. In none of the orders passed by the respondents this aspect of the matter has been adverted to which has vitiated their orders. It may also be noted that section 50(4) starts with the words any person responsible for making payment. The respondents have not been able to show that WAPDA is responsible for making any payment to the Banks, and therefore, so far as the petitioners are concerned they were not obliged to deduct the advance tax.

7. There is also force in the contention of the learned counsel that petitioner No. 1 who is the Director Finance, Area Electricity Board of Water and Power Development Authority could not have been treated as assessee it default as according to the wording of section 50(2) read with section 2(32) and section 2(34) of the Income Tax Ordinance, 1979. Admittedly petitioner No.2 is a company formed under a statue and is deemed to be a company within the meaning of the Income Tax Ordinance, 1979. The Principal Officer has been defined in section 2(34) as meaning Managing Director Secretary, treasurer, manager, agent or accountant, by whatever designation known, of the authority, company or association; and any person connected with the management or administration. of the local authority, company, or association, upon whom the Deputy Commissioner has served a notice of his intention of treating him as the Principal Officer thereof. The Director Finance, Area Electricity Board, Gujranwala does not fall in any of the categories in clause (a) of section 34, and therefore, if he was to be treated as Principal Officer by the Department notice should have been served upon him in terms of section 2(3-1-b) of the Ordinance. It follows from the above that the action of the respondents in treating petitioner No.l as an assessee in default and demand for payment of Rs.10,34,620 as also the order passed in this behalf by respondents Nos. i and 2 are not sustainable.

In view of the above, this petition is allowed and the impugned orders are declared to be without lawful authority and of no legal effect.

C.M.A./M.A.K./D-13/LPetition allowed.