W.T.AS. NOS.2666/LB TO 2670/LB OF 2000 VS W.T.AS. NOS.2666/LB TO 2670/LB OF 2000
2001 P T D (Trib.) 2605
[Income-tax Appellate Tribunal Pakistan]
Before Khawaja Farooq Saeed, Judicial Member
Mazhar Farooq Sherazi, Accountant Member
W.T.As. Nos. 2666/LB to 2670/LB of 2000, decided on 03/03/2001.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.52---Assessee in default---Where seller himself is paying taxes as a taxpayer and withholding agent has not deducted tax from his supplies, he could not be held an assessee in default for non-deduction from such assessee.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.52---Assessee in default---When a withholding agent is held to be an assessee in default and tax has been collected from him, the Department should not ask the seller (supplier) for further payment of tax liability and their tax liability shall be settled from the amount collected from the assessee in default.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss. 52, 50(4)(a) & 143-B---Liability of persons failing to deduct or pay tax ---Assessee in default ---Assessee a private company involved in construction work, filed statement under S.143-B of the income Tax Ordinance, 1979 which was accepted---Subsequently, on a show-cause notice, tax was charged under S.52 of the Income Tax Ordinance, 1979 on the basis of 65 % of the contractors receipts by treating the same as purchases---Order was set aside by First Appellate Authority ---Validity-- Department could not be permitted to just go for a loud estimate to say that if the assessee was doing a business he must have made some purchases and that such purchases attracted the provisions liable to deduction so as to penalize him as an assessee in default---Even if the assessee was to be held an assessee in default, the tax calculated had to be adjusted against the recipients of the amount on account of supplies where the purchases were not identifiable there was no question of any deduction and holding the assessee in default was also unnecessary- --Order to set aside by the First Appellate Authority was not considered appropriate as it had left the door for the Department and the same was cancelled by the Tribunal.
1995 PTD 614; 2000 PTD (Trib.) 2664; 1997 PTD (Trib.) 1771 and CIT v. Abbestos Cement Industries Ltd. and others 1992 SCC 904 ref.
(d) Interpretation of statutes---
---- Mode of expression has to be interpreted according to the Legislature's will and then to discover such will in letter and spirit---One should not go beyond the intentions and will of the Legislature with its background and state of circumstances should not be ignored.
(e) Income Tax Ordinance (XXXI of 1979)---
----S.52---Assessee in default---Section 52 of the Income Tax Ordinance, 1979 by no means is a charging provision and is only a mode of ensuring collection of taxes before the assessment, which later is to be adjusted against the income of the said person on whose behalf it is deducted---Department cannot be allowed to use it as a substitute of a normal assessment or as a new source of revenue.
Muhammad Iqbal Hashmi and Yousaf Ali Ch., I.T.P. for Appellant.
Muhammad Asif, D.R. for Respondent.
Date of hearing: 3rd February, 2001.
ORDER
KHAWAJA FAROOQ SAEED (JUDICIAL MEMBER).----In this appeal filed by the assessee petitioner has shown his dissatisfaction with the order of the CIT(A) who has remanded the case back for reassessment.
The A.R. of the assessee before us firstly explained the facts of the case on the basis of which the order of determining the assessee in default under section 52 was finalized. It was explained that the Assessee Company is a private company involved in contractor's work. During the impugned year, he has filed statement under section 143B, which was accepted being correct as per rules. On the basis of declaration of the contractor receipts a notice was issued to the assessee under section 144 vide No. 1712483/199, dated 20-11-1991 through which the assessee was asked to furnish following details :--
(1) Complete details of purchases made on party-wise, transaction-wise, item-wise and date-wise alongwith copies of challans in token of proof of tax deduction under section 50 of the Income Tax Ordinance, 1979.
(2) Purchases Books in support of above.
(3) A copy of Memorandum and Article of Associati6n.
(4) A copy of Incorporation Certificate of the Company.
The notice was not complied with when another notice to show cause was again issued under section 52 through which the intention was shown that .tax shall be charged on the basis of 65 % of the contractor receipts by treating the same as purchases/supplies. The relevant content of the notice speaks as follows:---
| A/Year | Nature of receipts declared | Nature receipts | Adopted at of Contracts | Taxu/s 50receipts |
| 1995-96 | Contracts | 14213270 | 9238624 | 323351 |
| 1996-97 | Contracts | 27162708 | 17655760 | 617952 |
| 1997-98 | Contracts | 17719949 | 11517969 | 575898 |
| 1998-99 | Contracts | 13189953 | 8573469 | 428673 |
| 1999-2000 | Contracts | 30966703 | 20128357 | 1006418 |
| 1997-98 | Supplies | 6993228 | @2.5 % | 174831 |
| 1999-2000 | Supplies | 3884285 | @3.5 % | 135950 |
The assessee requested for adjournment' which was, allowed. However, on the next specific date nobody attended the office, It was presumed that the assessee has nothing in his favour for compliance he, therefore, was considered as an assessee in default and tax of Rs. 32,63,074 in all .was charged to him. The assessee non-compliance does speak of an evasive attitude for which penalty proceedings should have been initiated separately however, it does not give the Assessing Officer a free-band for considering the purchases to be liable to deduction without determining the actual nature of transaction. The method of adopting this assessee in default is equally surprising. The Assessing Officer presumably considered him liable to deduction under section 50(4)(a), which speaks as follows:---
(4) Notwithstanding anything contained in the Ordinance.
(a) any person responsible for making any payment in full or in part (including a payment by Way of an advance) to any person (being resident) (hereinafter referred to respectively as "payer" and "recipients"), on account of the supply of goods or for services rendered to, 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 shall deduct advance tax, at the time of making such payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July next following the said financial year,, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, if any, in which the 'said date', as referred to therein, falls whichever is the later."
The above provisions of law makes a legal compulsion for a person who is responsible for making any payment to any person on account of supply of goods. The word supply of goods has further been explained through an explanation inserted by Finance Act, 1998, which speaks as follows:---
"Explanation for the purposes of clause (a) the expression 'supply of goods' includes both cash and credit purchases of goods. by the payer, whether under a contractor or not, on credit or in cash."
It is with reference to' above provisions that the defaulter has been brought to charge and is being treated as an assessee in default for non- deduction of the tax in the case of the suppliers. For further dilation it will be appropriate if we make mention to section 52 as well which is 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 section 50 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.
Explanation.---For the purposes of this action, the Deputy Commissioner having jurisdiction under section 5 over the case of the assessee in default may initiate action.
From the above provisions of law it appears that the legislature has extended the meanings of the expression supply of goods and it has included cash and credit both in the definition. Further, the purchase of goods and it has included cash and credit both in the definition of the term supply of goods. This definition is inclusive but it does not explain the term supply as it should be it is for this reason that the same has brought a lot of controversy until this day, no straight and undisputed definition of the expression is available. The issue, therefore; should be decided on the merits of each case in keeping view the intention of legislation which in such cases becomes more relevant. The intention of the legislature is to be gathered not merely from the words in a statute but also by the overall consequences which may follow the legislation 1995 PTD 614. The purpose of the legislature of introducing this provision is obvious, however, this Tribunal has elaborated the same in judgments reported as 2000 PTD (Trib.) 2664 and 1997 PTD (Trib.) 1771. In the first judgment, the learned Tribunal has held that:---
"This is a principle of interpretation that in order to ascertain the intent of the statute the various provisions are read together. The construction should not be such so as to make any part of the law as redundant or superfluous.
If the persons who were made payments where from deductions under section 50(4) have been made are not identified, the burden of tax under section 50(4) will fall on the payer which could not be the intention of the legislature. Section 50 is a part of Chapter V of the Income Tax Ordinance and this Chapter bears the heading of 'payment of tax before assessment'. It .is the assessment of the person who is paid some amount that the chapter deals with. The deducting authority is merely an agent acting--on behalf of the Department to deduct. A tax that is the responsibility of the recipient cannot be shifted to the payer who is not receiving but is parting with money unless of course it can be shown that he failed to deduct tax from a particular payment to a specified person. Unless these persons are specified the whole of the tax burden will be shifted to the payer. Subsection (8) of section 50 provides that the sum deducted under section 50 shall be. treated as payment of tax on behalf of the assessee. "
Above paras., therefore, give an obvious conclusion. It holds that withholding agent is not to be saddled with the liability of the recipient of the amount on account of sales. He is only to act as agent of the CBR to the extent of the deduction covered under concerned provisions. Neither the amount deducted nor the services thus provided come to his credit under any provision of law. It is someone else's money which he is retaining for the credit of such person on determination of his tax facility.
The principle settled that he should be an identifiable party, therefore, is unexceptionable.
The other judgment speaks as follows:---
"To my humble mind the proposition is very simple and clear. Once we arrive at the conclusion that basically the payment of tax is the liability and obligation of an assessee and that the advance deduction/collection of tax is a part of recovery proceedings, the next logical conclusion is that no independent tax liability is created against the assessee in default. The original and real liability to pay taxis of an assessee and the responsibility of deducting or deducting the advance fax under section, saddled on another person is co extensive with the original assessee. "
Para. now referred by us has been referred by the first appellate authority as well as he was convinced that the same is applicable on all fours. He; however, has still opted to set aside which the assessee feels was not a remedy after holding that the action was incorrect. His observation as per para.6 of his order is that the Assessing Officer framed the assessment in a summary manner and particularly on the hypothetical working of the purchases confronted through a formal notice. The observation is 100 % correct as is obvious from the style of considering the assessee in default, already mentioned by us in the earlier part of our order The theory of probability on hypothetical assumptions cannot be made basis in the absence of identification of the supplies. This Tribunal has further held in a number of judgments that where seller himself is paying taxes as a taxpayer and withholding agent has not deducted tax from his supplies, he cannot beheld an assessee in default for non-deduction from such assessees. Here again the underlying principle is identification. The above observation gets further support from C.B.R. Circular No. 19 of 1999 through which it has been explained that when a withholding agent is held to be an assessee in default and tax has been collected from him, the department should not ask the seller (supplier) for further payment of tax liability and their tax liability shall be settled from the amount collected from assessee in default. All these arrangements establish that the revenue wants to collect tax on income of the supply contractor and does not want to put any additional burden on the withholding agent. In such like circumstances assuming that the purchases of the assessee would be 65 % to 75 % of the sales and the entire amount is supply attaching provisions of section 50 cannot be supported at the stage of the Income-tax Appellate Tribunal it is a deduction from contractor, a mode of collecting tax, a retained amount, a provisional payment of an amount towards the tax-due. The said amount does not become the property of the Government but remain vested in the assessee. In the language of honourable apex Court it is not a payment of the Income tax in advance but merely the credit of an amount with the Government which can be utilized and adjusted to the extent necessary towards the ultimate liability of income tax due after it has been determined. C.I.T. v. Asbestos Cement Industries Ltd. and others 1992 SCC 904. The Department, therefore, cannot be permitted to just go for a lound estimate to say that if the assessee is doing a business he must have been making some purchases and that such purchases attract the provisions liable to deduction so as to penalize him as an assessee-in-default. The result of the binding judgments and C.B.R. Circulars mentioned by us supra is that even if the assessee is to be held an assessee-in-default, the tax calculated had to be adjusted against the recipients of the amount on account of supplies. In the present situation where the purchases are not identifiable there was no question of any deduction and holding the assessee-in-default was also unnecessary. The judicial interpretation of law is made pending on their completeness. The date of the Court, therefore, is to start on the basis that the mode of expression has to be interpreted according to the legislature's will and then to discover such will in letter and spirit. While interpreting entering into the sphere of legislation, is strictly prohibited. Similarly the famous rule of interpretation as has been quoted in dozens of cases is that one should not go beyond the intentions and will of legislature with its back-ground and state of circumstances should not be ignored. These are the fundamental principles of interpreting a Statute like this. Section 52 by means is 'a charging provision. It is only a mode of ensuring collection of taxes before the assessment, which later is to be adjusted against the income of the said person on whose behalf it is deducted. The Department, therefore, cannot be allowed to use it as a substitute of a normal assessment or as a new source of revenue.
In the present case in the state of circumstances there is no way that one can adjust the amount of deduction against any person. This amount cannot be retained by the Department as there is no head available against which it is to be adjusted. The retaining of the same, therefore, is beyond its jurisdiction. The decision to set aside by the first appellate authority as such is not appropriate as it had left the door open for the departments which is against the spirit of law. The orders of the subordinate officers as a result, therefore, are cancelled.
As regards the issue of purchases, sales and supplies is concerned, the same is, not applicable in this case as we have decided the same on the issue of determination of the identification of the suppliers etc.
The assessee appeal as such is allowed in the manner and to the extent as indicated above.
C.M.A./M.A.K./87/Tax(Trib.)Order accordingly.