I.T.AS. NOS.4605/LB AND 4606/LB OF 1999 VS I.T.AS. NOS.4605/LB AND 4606/LB OF 1999
2001 P T D (Trib.) 755
[Income-tax Appellate Tribunal Pakistan]
Before Khalid Waheed Ahmad, Judicial Member and Inam Ellahi Sheikh,
Accountant Member
I.T.As. Nos.4605/LB and 4606/LB of 1999, decided on 28/10/2000.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.50(4)(ii)---Deduction of tax at source---Expression "companies as payers" in S.50(4)(ii) of the Income Tax Ordinance, 1979---Connotation-- Companies defined as payers in S.50(4)(ii) of the Income Tax Ordinance, 1979 by itself means a "class ' of payers"---Analogy that the expression "companies as payers" appearing, in S.50(4)(ii) of the Ordinance has been used to mean a class of payers other than the companies considered as a class of payers was repelled.
(b) Income Tax Ordinance (XXXI of 1979)--
----S.8---Powers of Central Board of Revenue---Scope---Central Board of Revenue can only issue clarification and is not empowered to give any meanings to any provisions of the statute through its own interpretation.
(c) Interpretation of statutes---
----Fiscal statute---Construction---Fiscal statute must be construed in the light of what is clearly expresses.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.52 [as amended by Finance Act (IV of 1999), S.50(4)---Deduction of tax at source---Liability of persons failing to deduct or pay tax-- Interpretation of S.52 of the Income Tax Ordinance, 1979 [as amended]-- Amendment of S.52 by Finance Act, 1999---Nature---Withholding agent-- Jurisdiction to initiate proceedings against withholding agent under S.52, Income Tax Ordinance, 1979---Scope.
Section 52 of the Income Tax Ordinance, 1979 is not only a deeming section but at the same time it is also a penal section because under the provisions of this section a person is made liable for payment of the amount which is not his own tax liability but the liability of another person in respect of whom he has been made a withholding agent without payment of any compensation or reward for the services which are to be rendered by him for collection and depositing of tax in this regard. However, irrespective of the nature of the section, the amendment is of a procedural nature. Through this amendment, the DCIT having jurisdiction under section 5 over the withholding agent has also been empowered to take action under section 52 of the Ordinance with regard to payments attracting the provisions of section 50(4) of the Ordinance. This amendment has retrospective effect in the sense that proceedings under section 52 of the Ordinance can be initiated by the amending officer against the withholding agent in respect of payments made by him during the period relating to an assessment year which commenced even before the inception of this amendment. However, the defect of such a fatal nature i.e. the order having been passed without a lawful authority by an Assessing Officer is not curable with such kind of amendment unless expressly made applicable in this regard, This amendment was brought in the Ordinance by addition of Explanation in the section 52 through the Finance Act, 1999 and it came into force w.e.f. 1-7-1999. In the present case perusal of the order of the DCIT, revealed that the order under section 52 of the Ordinance was passed on 19-4-1999 which means that of the time when the order was passed, he was not yet vested with the powers to assume jurisdiction under section 52 of the Ordinance in respect of the assessee. Thus, the change brought in the procedure is to be followed from the date of its inception though its applicability is not restricted only to the subsequent years of assessment being an amendment effective retrospectively. In the present case the DCIT and WT, assumed jurisdiction under section 52 of the Ordinance when he was not considered to have jurisdiction to initiate proceedings under the said section in respect of the assessee considered as a payer under section 50(4) of the Ordinance. Under the circumstances of the case, the orders passed by the DCIT' and WT are not maintainable having been passed without lawful jurisdiction in respect of the assessee.
1993 SCMR 338; 1993 SCMR 683; 1990 PTD, PTD 62; PLD 1991 SC 329; PLD 1961 SC 375; PLD 1963 1927 Lah. 635; 1993 SCMR 1232; C. Ps. Nos. " I.T.As. Nos.64 to 67/LB1/DB/1991-92; I. T. As. Nos. 79 to 82 of LB1/1991-92; 1997 PTD (Trib) 1771 and Messrs Tapal Energy Ltd. V. D.C.I.T. Writ Petition No. 1335 of 19978 ref.
Shahbaz Butt, Advocate/A.R, for Appellant.
Javaid Iqbal Rana, D.R. alongwith Shafqat Mehmood Chohan, L.A. for Respondent.
Date of hearing: 18th December, 1999.
ORDER
KHALID WAHEED AHMAD (JUDICIAL MEMBER) ---The appellant-assessee in the instant case is a Trust treated as a Company under section 2(16)(bb) of the Income Tax Ordinance, 1979 (hereinafter referred to as "the Ordinance"). Through these two second appeals, the appellant assessee impugns the combined order, dated 21-7-1999 passed by the learned Commissioner of Income-tax and Wealth Tax (Appeals-1), Faislabad on the first appeal of the assessee filed against consolidated Assessment Order passed under section 52 of the Ordinance, dated 19-4-1999 by the DCIT and WT, Company Circle-09, Faisalabad pertaining to the assessment years 199&99 and 1999-2000.
2. Brief relevant facts of the case are that it was noticed by the Assessing Officer that during the period relevant to both the years under appeal, the appellant-assessee was not deducting the tax correctly as required under section 50(4) of the Ordinance. According to the Assessing Officer, on the payment made to the Transporters, tax was being deducted @2% against the required of 5% on total payments made to the Transporters. According to the Assessing Officer, the payments made by the appellant-assessee were payments to the Transporters in respect of the contracts executed between the appellant-assessee and the concerned Transporters. According to the Assessing Officer, the Transporters companies were bound to supply the required facilities on specific rates, which formed the contractual receipts. The appellant-assessee was confronted through a show-cause notice calling for the explanation that as to why the Company should not be treated as an assessee-in-default within the meaning of section 52 of the Ordinance. The reply of the assessee that the rate for deduction of tax under section 50(4) on payments of Truckers was 2% in view of the C. B. R's. Circular No. 1(29) IT-1/79 PT Ill; dated 7-1-1982 and not the payments under the Head Services Rendered and Execution of Contract was considered unsatisfactory and the assessee was treated as an assessee-in-default and the tax under section 52 of the Ordinance was imposed for the two years under appeal in the following manner:--
| A. Year | Amount paid | Tax @ 5% | Tax deducted | Tax levied |
| 1998-99 | 107191300 | 5259565 | 2143826 | 3215739 |
| 1999-2000 | 47305100 | 2365255 | 946102 | 1419153 |
3. Being aggrieved with the treatment meted out by the Assessing Officer, the assessee challenged the assessment order passed under section 52 of the Ordinance for both the years under consideration in first appeal. Learned CIT (A) rejected the contention of the appellant-assessee with the following findings:
"The Assessing Officer was justified to initiate the proceedings under section 52 against the appellant by treating him as an assessee -in-default in view of the explanation added into section 52 of the Income Tax Ordinance, 1979 through Finance Act, 1999. therefore, the contention of the appellant is rejected.
The contention of the appellant that he was liable to deduct tax at special rate of 2% is not correct, due to the following reasons:---
(1) S.R.O. 827(1)/91, dated 24-8-1991 through which the rate of 2% was notified was issued by C.B.R. in exercise of the powers conferred by clause (c) of section 50(4) of the Income Tax Ordinance, 1979. However, the said clause was omitted through Finance Act, 1994 whereas the appellant's appeals pertain to assessment years 1998-99 and 1999-2000.
(2) The A.R. has himself stated in the written arguments that although clause (c) was omitted by Finance Act, 1994 but the validity and continuity of all the Notification was confirmed by the Legislature by inserting subsection (10) in section 50 of Income Tax Ordinance, 1979 through Finance Act, .1995. But perusal of the proviso (ii) of section 50(4) of the Income Tax Ordinance, 1979 indicates that previsions of subsection (10) do not apply to the Companies as "Payers".
4. It was held by the Learned CIT (A) that the appellant-assessee was under obligation to deduct tax a 5% of the payments, therefore, the Assessing Officer rightly treated the appellant as assessee-in-default rejecting the appellant's contention as discussed above. The contention of the assessee before the learned CIT(A) that no further income tax can be recovered from the withholding agent by treating it as an assessee-in-default because the assessment in the case of Payee Transporters deemed to have been made under section 59(A) read with subsection (4) of the section 80C and the tax deducted under section 50 was deemed to be the final discharge of the liability was also rejected being devoid of any merit.
5. Before This Tribunal, the following common issues for both the years under appeal have been raised by the appellant-assessee through the lengthy and argumentative Grounds of Appeals:--
(i) That the initiation of the proceedings and subsequent passing of an order under- section 52 of the Ordinance being without lawful assumption of jurisdiction has no legal sanctity, therefore, the CIT(A) was not justified in upholding the same.
(ii) That the authorities below are not right in holding that the tax was deductible @5% in respect of the tax deducted @ 2% by the appellant-assessee from the Transporters.
(iii) That both the authorities below have failed to consider that liability under section 52 is vicarious in nature and specially in the circumstances of the present case, the recipient not being alien to taxing authority, the appellant cannot be declared as an assessee-in default.
6. The arguments narrated in support of the above contentions as Serial No. (i) are as under:--
(a) That the scope and ambit of a machinery section under fiscal statute cannot be enlarged or restricted through an explanation so added under section 52 cannot everride the main provision of law.
(b) That the explanation to section 52 was inserted through Finance Act, 1999 which shall have no retrospective effect unless specifically provided in the Statute.
(c) That the objection raised with regard to the jurisdiction cannot be cured by subsequent amendments which have no retrospective effect and both the authorities below were not justified in giving retroactive effect to an amendment brought through insertion of an explanation to the main section.
(d) That both the authorities below have miserably failed to consider the dictum laid down by the Superior courts in. relation to exercise of jurisdiction under section 52 of the Ordinance.
7. With regard to the contention of the assessee as Serial No.(ii) above, he arguments of the assessee are as follows:---
(a) That special reduced rate of tax deduction provided by the special enactment through special regulatory order shall override the higher rate of tax deduction provided in the First Schedule to the Ordinance unless specifically abrogated.
(b) That the CIT(A) was not justified in holding that deletion of clause (c) to section 50(4) of the Ordinance through the Finance Act, 1994, the reduced rate of deduction became inapplicable for the assessment years under appeal.
(c) That the CIT(A) was not right in holding that the provisions of section 50(10) of the Ordinance were not applicable in the case of the Companies as Payers in view of the proviso (ii) to section 50(4) of the Ordinance.
(d) That in the case of the contrary and conflicting position on the fiscal statute, the one beneficial to the assessee is to be adopted.
(e) That the tax liability determined and confirmed under section 52 of the Ordinance at Rs.32,15,739 and Rs.14,19,153 for the assessment years 1998-99 and 1999-2000 was unwarranted and unjustified because the assessee has correctly deducted the tax under section 50(4) of the Ordinance read with S.RO. 827(1)/91, dated 24-8-1991.
8. Before, proceeding further for the purpose of convenience, the relevant provisions of law and the notifications alongwith eventual changes brought therein are being reproduced in the following manner:---
(1) Para. (a) of subsection (4) of section 50 of the Ordinance regarding withholding of fax on supplies and contracts:
S. 50(4)(a):
(4) Notwithstanding anything contained in this 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 "recipient", on account of the supply of goods or for service 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.
Provided that the provisions of this clause shall' apply, mutatis mutandis, to any payment made on or after the first day of July, 1998, to a non-resident person on account of execution of a turnkey contract, a contract or sub-contract for designing, supply of plant and equipment and construction of power projects, a contract for construction, assembly or like project in Pakistan or any other contract for construction or for services rendered other than that to which the provisions of subsections (3A) and (4A) apply.
(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 contract or not, on credit or in cash).
II. Clause (c) of subsection (4) of section 50 inserted through the Finance Ordinance, 1980;
"(c) The Central Board of Revenue may, by Notification in the Official Gazettee specify special rates (such rates being less than the rates specified in the First Schedule) for the purpose of deduction of Advance Tax under this section in respect of the specified payments.
III. In exercise of the above quoted powers conferred by clause (c) of subsection (4) of the section 50 of the Ordinance, the C.B.R. through S.R.O. 600 (I)/91, dated 2-7-1991 specified the special rates in respect of the payment on account of supply of raw hides and skins.
IV. The further amendment was made by the C.B.R. in the above SRO No.827(1)/91 issued on 24-8-1991 in the following manner:
"In the aforesaid Notification, in the Table, after entry (iii), the following new entry shall be added, namely:
(iv) Payments on account of transportation of goods 2 per cent through goods transport vehicles.
This Notification shall take effect from the 1st July, 1991.
V. The above clause (c) was omitted by the Finance Act, 1994.
VI. The proviso (ii) to clause (c) of subsection (4) of section 50 of the Ordinance as amended by Finance Act reads as follows:
"Provided that nothing contained in clause (a) or clause (b) or clause (c) shall apply to
(i)----------------
(ii) Any Payer or Recipient or class of payers or recipients as may be specified in this behalf by the Central Board of Revenue by Notification in the Official Gazette.
VII. The above proviso empowering the C.B.R. to specify special rates being less than the rates specified in First Schedule were withdrawn with the omission of clause (c) of subsection (4) of section 50 of the Ordinance through the Finance Act, 1994.
VII. The notification issued under various provisions including clause (c) of subsection (4) of section 50 of the Ordinance uptill 30-6-1994 were provided savings and were made continue to remain in force untill specifically repealed or amended. The amendment was brought through insertion of subsection (10) in section 50 of the Ordinance by Finance Act, 1995.
IX. The proviso to subsection (4) of the section 50 of the Ordinance as substituted by the Finance Act, 1995 reads as follows:
"Provided that:
(i) ---------------
(ii) Nothing contained in subsection (10) shall apply to Companies as "Payers."
9. In his arguments, the main emphasis of the learned A.R. of the appellant-assessee, Mr. Shabaz Butt, Advocate was on the contention that the S.R.O. 827(1)/91, dated 24-8-1991 whereby the reduced rate of 2% for deduction of advance tax on payments to be made .on account of transportation of goods through goods transport vehicles prescribed against the specified rate of deduction as per First Schedule to the Ordinance is still in force because the validity and continuity of all the notifications issued under the provisions of omitted clause (c) of subsection (4) of section 50 of the Ordinance is protected by the insertion of subsection (10) of section 50 through the Finance Act, 1995. The contention of the learned A.R. is that clause (ii) of proviso to subsection (4) (supra) is not applicable in the case of the appellant-assessee. According to the learned A.R. in clause (ii) mentioned supra, the word "Companies" mentioned is with reference to Payers and the term used does not cover all the Companies. Learned A.R. of the assessee tried to elaborate his point of view through detailed arguments put forth by him in support of his abovementioned contention and also produced copies of the following document in support thereof.
(1) Show-cause notice under section 52, dated 16-3-1999 (Assessment years 1998-99 and 1999-2000).
(2) Reply to show-cause notice, dated 17-4-1999
(3) Application under section 156, dated 29-5-1999 (Assessment Year 1998-99).
(4) Application under section 156, dated 3-6-1999 (Assessment year 1999-2000)
(5) S.R.O. 707(1)/80, dated 26-6-1980.
(6) S.R.O. 739(1)/80, dated 10-7-1980.
(7) S.R.O. 600(1)/91, dated 2-7-1991.
(8) S.R.O. 827(1)/91, dated 24-8-1991.
(9) S.R.O. 828(1)/91, dated 24-8-1991.
(10) S.R.O. 368(1)/94, dated 7-5-1994.
(11) Circular No.4/95, dated 9-7-1995,
(12) Circular No.25/80, dated 23-9-1980. .
(13) Circular No.27/91, dated 24-8-1-991.
(14) Better C. No.1(1) 11, dated 7-1-1982.
Learned A.R. submitted that under the clause (c) of subsection (4) of section 50 of the Ordinance, the C.B.R. was empowered to specify special rates being rate less than the rates specified in First Schedule of the Ordinance for the purpose of deduction of advance tax under subsection (4) of section 50 of the Ordinance. Learned A.R. referred to S.R.O. 707(1)/80, dated 26-6-1980 and S.R.O. 739(1)/80, dated 10-7-1980 which were issued by the C.B.R. under the said provision. Learned A.R. further referred' to S.R.O. 600(1)/91, dated 2-7-1991 and the amendment made to it through S.R.O. 827(1)/91, dated 24-8-1991 whereby rate of 2% was specified for deduction of advance tax on payments made on account of transportation of goods through transport vehicles. In this context, learned A.R. also referred C.B.R's. Circular No.27/91 (I. Tax), dated 24-8-1991 whereby it was clarified that deduction of tax under section 50(4) was to be made @ 2% on the payments to be made to goods transporters/tanker transporters. While continuing his arguments, learned A.R. also drew our attention towards the provisions of proviso to subsection (4) of section 50 existing after clause (c) before its substitution through the Finance Act, 1994 which reads as follows:--
"Provided that nothing contained in clause (a), clause (b) or clause (c) shall apply to:
(i) ----------------
(ii) Any payer or recipient or class of payers or recipients may be specified in this behalf by the Central Board of Revenue by Notification in the Official Gazette."
Learned A.R. contended that the words "Companies as Payers" mentioned in the clause (ii) (supra) now existing after clause (b) after having been substituted by the Finance Act, 1995 are with reference to terms 'Payer or Class of Payers" as mentioned in earlier clause (ii) of proviso to subsection (4) of section 50 of the Ordinance existing after clause (c) before its substitution vide Finance Act, 1994. Learned A.R. further submitted that Payers and Class of Payers for the purpose of applicability of subsection (4) of section 50 of the Ordinance were further specified through S.R.O. 828(1)/91, dated 24-8-1991 issued by the C.B.R: In this context, Learned AR also referred to the Circular No.4 of 1995 (I. Tax)-dated 9-7-1995 issued by the C.B.R and stated that the Companies with Paid-up Capital of less than Rs.1.5 Million which were not liable to deduct tax under section 50(4) of the Ordinance as a Class of Payers by virtue of the S.R.O. 368(1)/94, dated 7-5-1994 were also made responsible to withhold tax on such payments irrespective of the amount of its share capital. Learned A. R. further submitted that the word 'Payers' with reference to subsection (4) of section 50 has been used by the C.B.R. for a specified class of persons and in this context quoted the example of C.B.R.'s Circular No.25 of 1980 (I. Tax), dated 23-9-1980. Learned A.R. also produced a copy of the C.B.R.'s Letter No.3(7) SS(WHT) of 1998-99, dated 10-6-1999 referred to by the Second Secretary (WHT), C.B.R. on the query raised by M/s. M. Yousaf Adil Saleem & Co., C.A. through letter, dated 4-9-1999 with regard to the applicability of reduced rates to Companies as Payers in view of the. Proviso to subsection (4) of section 50 having been substituted through the Finance Act, 1995 whereby the provisions of subsection (10) of the section 50 were made not applicable to the Companies as Payers. The contention of the learned A.R. is that his view-point is supported by the explanation provided by the C.B.R. vide its abovementioned Letter No.3(7), dated 10-6-1999 whereby it was clarified that the purpose of incorporating the proviso to subsection (4) of section 50 (through Finance Act, 1995) was to do away with the limitation of capital in the case of a company and further clarified that the interpretation that the facility of exemption of tax deduction under section 50(4) provided to the Exporters by the C.B.R. under omitted clause (ii) of proviso to section 50(4) was not available will be against the intention of the said proviso. The contention of the learned A.R. is that the words "Companies as payers" used in clause (ii) of proviso to section 50(4) specify a Class of Payers which has been made responsible for deduction of advance tax under subsection (4) of section 50 irrespective of the amount of the Paid-up Capital which view-point according to the learned A.R. is also supported by the clarification of C.B.R. issued through its abovementioned letter, dated 10-6-1999. According to the learned A.R., the word "Companies" used in clause (ii) of proviso to subsection (4) of section 50 does not include the Class of Payers and Recipients specified by the C.B.R. through Notification issued under omitted clause (c) and proviso (ii) of section 50(4) the validity and continuity of which have been provided by subsection (10) of section 50.
10. In addition to the documents produced as mentioned in para.9 above, a list with the following case law mentioned therein was also submitted by the learned A.R. of the assessee:---
(i) 1993 SCMR 338
Where irreconcilable inconsistency between a charging section and a schedule exists, later is to yield to the Act
(ii) 1993 SCMR 683
The taxing statute must be construed in the light of what is clearly expressed.
(iii) (1990) 61 Tax 144 (Trib.)
1990 PTD (Trib) 33.
(1990) 61 Tax 57 (H.C.)
1990 PTD 62 and
PLD 1991 SC 329.
When two interpretations are possible and the same deal with a substantive right of a subject, the interpretation which is beneficial to the subject shall be adopted by the Court in the interest of justice.
(iv) PLD 1961 SC 375
PLD 1963 Lah. 311
The Courts are bound to prefer such interpretation which is beneficial to the interest of the subject.
(v) AIR 1927 Lah. 635
(vi) 1993 SCMR 1232
C.B.R. not empowered to interpret.
11. The next objection raised by the learned A.R. of the assessee relates to the assumption of jurisdiction under section 52 of the Ordinance. According to Mr. Shahbaz Butt, Advocate/A.R. of the assessee the order passed under section 52 of the Ordinance for the two years under appeal by the DCIT and WT, Company Circle-09, Faisalabad was without lawful jurisdiction. The learned A.R. submitted that tax to be deducted under section 50(4) of the Ordinance as in respect of the liability of the Recipients, therefore, the CIT and WT having jurisdiction over the cases of Recipients could only initiate proceedings under section 52 of the Ordinance. In support of his contentions, learned A.R. produced photo copies of the decisions of Sindh High Court, Karachi passed in C.P. No.1335, 1336 and 1396 of 1998 and the Order of the I.T.A.T., dated 20-5-1992 in I.T.A. Nos.64 and 67/LB1/DB of 1991-92 and I.T.A. Nos. 79 to 82 of LB1/ 1991-92. In the abovementioned case decided by the I.T.A.T. vide order, dated 20-5-1992, the action taken under section 52 of the Ordinance by the Assessing Officer having jurisdiction over the case of the Payer Company which failed to deduct tax under section 50(4) of the Ordinance on the payments made to a Transport Company for transportation of goods was held to be without lawful jurisdiction. It was held by the learned Tribunal that the Assessing Officer having jurisdiction bf assessment of transporters had the jurisdiction to treat the company as an assessee-in-default under section 52 of the Ordinance.
12. The contention of the learned A. R. is that the Order passed under section 52 of the Ordinance for the year under appeal by the DCIT and WT, Coys. Circle-09, Faislabad on 19-4-1999 having jurisdiction over the case of the appellant-assessee i.e. the Payer is without lawful jurisdiction. Learned A.R. of the assessee also challenged the maintainability of order passed by the Assessing Officer for the year under consideration on the ground that since no demand was created against the Recipients in respect of the amounts received by them from the assessee-appellant, the liability created under section 52 of the Ordinance against the appellant-assessee in respect of the same amount was uncalled for and unjustified. The contention of the learned A.R. is that two different instances have been taken in respect of the same payments. Learned A.R. further stated that under subsection (7) of section 80C of the Ordinance, the assessments are deemed to have been made in respect of the payments received by the transporters. Learned A.R. contended that the provisions of section 52 of the Ordinance create vicarious liability and further stated that since the Department had not created any liabilities against the Recipient, the assessee-appellant could not be held as an assessee in default in respect of the same payments. Learned A.R. of the assessee contended that in case the liability was created against the Recipient and tax due was also paid by the assessee, no action could have been taker against the assessee-appellant which could have been absolved of the liability. In support of the contention that the amount could not be recovered from the Payer if already paid by the Recipient, the learned A.R. cited decision of the Tribunal reported as 1997 PTD (Trib.) 1771. Though not taken in the grounds of appeal nor agitated through the additional grounds of appeal, the learned A.R. of the assessee during the course of his arguments also challenged the validity of order passed under section 52 of the Ordinance on 19-4-1999 for the assessment year 1999-2000. The contention of the learned A.R. is that order under section 52 of the Ordinance has been passed for the assessment year 1999-2000 on 19-4-1999 before the start of the assessment year 1999-2000 or even at the end of the income year 1998 99. According to the learned A.R. the assessment year defined in section 2(8) of the Ordinance means the period of 12 months beginning on the 1st day of July next following the income year: It is the contention of the learned A.R. that the order passed under section 52 for the assessment year 1999- 2000 on 19-4-1999 was premature because no order in respect of the assessment year which has not yet commenced can be passed. Learned A.R. further contended that no piecemeal orders can be passed in respect of an assessment year by the Assessing Officer.
13. Mr. Shafqat Mehmood Chauhan, Advocate/Legal Adviser and Mr. Javaid Iqbal Rana, Departmental Representative appeared and argued the case on behalf of the Revenue. Learned Legal Adviser (L.A.) of the-Department contended that the assessee-company was rightly held an assessee-in-default under section 52 of the Ordinance for both the years under consideration because it failed to deduct tax correctly under the provisions of. section 50(4) of the Ordinance. According to the learned L.A., the incomplete or partial compliance of a provision of law amounts to its non-compliance.
14. Learned L.A. of the Department challenged as baseless the contentions of the learned A.R. for the assessee with regard to the validity and continuity of the notifications issued under proviso to clause (c) of subsection (4) of section 50 of the Ordinance after substitution of the proviso to section 50(4) of the Ordinance by the Finance Act, 1995. Mr. Shafqat Mehmood Chauhan, Advocate/L.A. of the Department contended that with the incorporation of new clause (ii) in the proviso to section 50(4) substituted by the Finance Act, 1995, the provisions-of subsection (10) of section 50 were made inapplicable in case of Companies being Payers. According to the learned L.A., the words "Companies as Payers" were used in clause (ii) of the proviso in the whole of their context and there was no scope for drawing any limitation on the word 'Companies' used therein by relying on interpretation provided through S.R.O's. and Circulars issued by the C.B.R: in view of the unambiguity of the language used in the said clause. It has also been argued on behalf of the Revenue that the payments made to the transporters on account of transportation of goods under a specified contract by the assessee company were liable to the deductions of advance tax under section 50(4) of the Ordinance at the rate specified in the First Schedule to the Income Tax Ordinance, 1979. It is submitted on behalf of the Revenue that since the tax was not deducted correctly according to the rates specified in the First Schedule on the payments made to the Transport Contractors covered under the provisions of section 50(4) of 'the Ordinance by the assessee company, it was rightly held as an assessee-in-default in respect of the short amounts of deduction.
15. On the issue of the jurisdiction, the contention of the learned L.A. of the Department is. that the action of the DCIT and WT, Coys. Circle-09, Faisalabad is justified in view of the amendment brought in section 52 of the Ordinance, through addition of Explanation by the Finance Act, 1999. It is the contention put forth on behalf of the Revenue that section 52 is of procedural nature, thus, amendment brought therein is effective retrospectively. Learned L.A. of the Department contended that an amendment in procedural section was applicable even on pending assessment before any Authority including the Appellate Authorities. Learned L.A. on behalf of the Department contended that the assessment of the Recipients has no relevancy to the default committed by non-compliance of the provisions of section 50(4) of the Ordinance. According to him, the provisions of section 52 are deeming provisions and where any person fails to deduct or collect or having deducted or collected as the case may be failed to pay the tax as required by or under section 50 he shall be deemed to be an assessee- in-default. Learned L.A. submitted that since the tax was not deducted correctly by the assessee company, it was rightly treated as an assessee-in default. Learned L.A. also stated that the assessments framed in cases of the Recipients may be erroneous assessments. Learned A.R. further added that in the instant case, the Recipients, as admitted by the learned A.R. have not paid actual amount due under subsection (4) of the section 50, therefore, the action against the assessee under section 52 was justified and such the assessee cannot claim the benefit of case law referred to in this behalf.
16. It was also the contention of the learned L.A. that under the provisions of section 52, there was no bar on passing on mere than one order for the repeated defaults of section 50(4) of the Ordinance during a year.
17. The arguments of the learned representatives of both the parties have been heard and the orders of the authorities below as well as the documents submitted by the learned A.R. and case law referred to have also been perused. The DCIT and WT, Coys, Circle-09, Faisalabad held the appellant assessee a Trust treated as a Company under section 2(16) of the Ordinance as an assessee-in-default for not deducting the advance tax correctly required under section 50(4) of the Ordinance from the payments made to the transporters on account of transportation of goods. The payments were treated as payments made under a contract as per agreements executed between the assessee company and the goods transporters. Before the learned First Appellate Authority, the deduction of tax at the reduced rate specified by the C.B.R. through S.R.O. 600(1)/91, dated 2-7-1991, and S.R.O. 827(1)/91, dated 24-8-1991 were pleaded to be justified by the assessee company. The CIT(A) rejected the contention of the assessee-company in view of the provisions of clause (ii) brought in through the substituted proviso to section 50(4) through the Finance Act, 1995. The objections raised by the assessee with regard to the jurisdiction of the DCIT and WT, Coy. Circle-09, Faisalabad "and validity of the creation of demand under section 52 challenged on the ground of non-creation of demands in the case of Recipients were also rejected by the learned CIT (A). The common issues raised by the assessee for both the years under consideration with regard to the validity of the deduction of tax at reduced rates by the assessee-company and jurisdiction of the DCIT and WT. Coy. Circle-09, Faisalabad are being decided through this combined order.
18. Learned A.R. of the assessee through his elaborative and very lengthy arguments has tried to establish that in spite of the incorporation of clause (ii) of the Proviso to subsection (4) of section 50 of the Ordinance by Finance Act, 1995, the validity and continuity of the notifications issued under the provisions of omitted clause (c) and omitted clause (ii) of the Proviso to subsection 50(4) is still in force and that these are applicable in case of payments to be made by the Companies responsible for making the payments under the provisions of section 50(4) of the Ordinance. We have given our anxious considerations to averments made by the learned representatives of both the parties and are of the opinion that the view-point held by Mr. Shahbaz Butt, Advocate/ A.R. of the assessee with regard to applicability of reduced rates of withholding tax is not correct. The main reason for the conclusion reached by us is the clear expression and unambiguity of the wordings used in the language of clause (ii) to proviso of subsection (4) of section 50 of the Ordinance which reads as follows:---
"(ii) Nothing contained in subsection (10) shall apply to Companies and Payers. "
From the bare reading of the clause, it gives a very clear and simple impression of what it means. Companies defined as Payers in the said clause by itself means a Class of Payers. We are not inclined to subscribe to the long drawn analogy of learned A.R. that the words 'Companies as Payers' appearing in the clause (ii) of proviso to section 50(4) have been used to mean a class of payers other than the Companies considered as a Class of Payers. The S.R.Os. and Circulars relied upon by the learned A.R. for his interpretation of the words Class of Payers have no relevance as they relate to the period prior to incorporation of the proviso except clarification Letter No.3(7) SS (WHT) of 1998-1999, dated 10-6-1999 which also have no validity. The C.B.R. can only issue clarifications and is not empowered to give any meanings to provisions of the statute through its own interpretation. Even otherwise, the so-called purpose mentioned by the C.B.R. in the abovementioned Clarification Letter, dated 10-6-1999 is neither manifested nor can be attributed in view of the simple and clear language of the clause as mentioned earlier. In the c4se referred by the learned A.R. reported as 1993 SCMR 683, the Hon'ble Supreme Court of Pakistan has held that the taxing statute must be construed in the light of what is clearly expressed. The view point held by us also finds support from the fact that both the provisions i.e. Proviso to subsection (4) of section 50 and subsection (10) of section 50 of the Ordinance were at the same time incorporated in the Income Tax Ordinance both by the Finance Act, 1995 i.e. the first by substitution of an existing proviso and the latter through insertion of a new subsection. Had there been any intention of the Legislature to provide the applicability of the said Notifications in respect of the payments to be made by the Companies as a Class of Payers, it would have been specifically provided, therein. The insertion of subsection (10) of section 50 through the Finance Act, 1995 and then at the same time exclusion of its applicability through provision of clause (ii) in the substituted, proviso to section 50(4) means that the Companies have been intentionally excluded from the applicability of subsection (10) of section 50. The decisions of the different Courts cited by the assessee in support of the case law that Courts are bound to adopt the interpretation favourable to the assessee need no discussion in view of our findings that the provisions of the Ordinance under question clearly express the meanings and there is no ambiguity in the language used therein.
19. The second objection raised by the learned A.R. is with regard to the validity of assumption of jurisdiction under section 52 of the Ordinance in respect of the assessee-appellant. The contention of the learned A.R. is that it was held by the Courts that jurisdiction of passing an order under section 52 of the Ordinance (sic) with the Assessing Officer having the jurisdiction of assessment in respect of the Recipient whereas in the instant case, order under section 52 of the Ordinance has been passed by the DCIT and WT, Coys, Circle-09. Faisalabad who had the jurisdiction over the case of the assessee-appellant who is a Payer in this case. The contention of the learned A.R. is that the orders under consideration passed under section 52 of the Ordinance for both the years are without lawful jurisdiction, thus, lack their validity. In support of his contention learned A.R. relied upon the decision of the Tribunal and of Honouable D.B. of Sindh High Court as discussed above. Learned A.R. has also referred to the C.B.R.'s Circular C. No.1(1)/98/Policy, dated 7-5-1999 whereby the verdict of Sindh High Court given in the judgment on the Writ Petition No. 1335. of 1998, dated 22-3-1999 in the case of M/s Tapal Energy Ltd. v. DCIT was accepted and instructions to the Regional Commissioners were issued for application of the provisions of section 52/86 in accordance with the interpretation of Sindh High Court made in the said case. The contention of the learned A.R. that the issue of jurisdiction having been finally settled through the decisions of the Higher Courts at the time of passing the order, the assumption of jurisdiction by the DCIT and WT, Company Circle-09, Faisalabad under section 52 of the Ordinance in respect of the assessee being a Withholding Agent was without any lawful authority carries weight. We are not inclined to accept the view-point of learned A.R. of the Department that since -the amendment brought through insertion of Explanation vide Finance Act, 1999 to section 52 is of procedural nature, it is effective retrospectively in view of the circumstances and facts of the case. In our view, the section 52 is not only a deeming section but at the same time it is also a penal section because under the provisions of this section a person is made liable for payment of the amount which is not his own tax liability of another person in respect of whom he has been made a Withholding Agent without payment of any compensation or reward for the services which are to be rendered by him for collection and depositing of tax in this regard. However, irrespective of the nature of the section, the amendment under consideration in itself is of a procedural nature. Through this amendment, the DCIT having jurisdiction under section 5 over the Withholding Agent has also been empowered to take action under section 52 of the Ordinance with regard to payments attracting the provisions of section 50(4) of the Ordinance. This amendment has retrospective effect in the sense that proceedings- under section 52 of the Ordinance can be initiated by the Assessing Officer against the Withholding Agent in respect of payments made by him during the period relating to an assessment year which commenced even before the inception of this amendment. However, the defect of such a fatal nature i.e. the order having been passed without a lawful authority by an Assessing Officer is not curable with such kind of amendment unless expressly made applicable in this regard. This amendment was brought in the Ordinance by addition of Explanation in the section 52 through the Finance Act, 1999 and it came into force w.e.f. 1-7-1999. The perusal -of the order of the DCIT and WT, Company Circle-09, Faisalabad revealed that the order under section 52 of. the Ordinance was passed on 19-4-1999 which means that of the time when the order was passed, he was not yet vested with the powers to assume jurisdiction under section 52 of the Ordinance in respect of the assessee appellant. Thus, according to our view, the change brought in the procedure is to be followed from the date of its inception though its applicability is no' restricted only to the subsequent years of assessment being an amendment effective retrospectively. In the case before us, the DCIT and WT, Company Circle-0h, Faisalabad assumed jurisdiction under section 52 of the Ordinance when he was not considered to have jurisdiction to initiate proceedings under 'the said section in respect of the assessee-appellant considered as a payer under section 50(4) of the Ordinance. Under the circumstances of the case, in our view, the orders passed by the DCIT and WT, Company, Circle-09. Faisalabad are not maintainable having been passed without lawful jurisdiction in respect of the appellant-assessee. As a result, the appeals of the assessee for both the years under consideration are accepted on the point of jurisdiction and the orders of both the Authorities below are hereby vacated.
20. Since the appeals of the assessee stand accepted as above, we do not feel any need to adjudicate the remaining issues raised by the assessee.
21. The appeals of the assessee for both the years 1998-99 and 1999 -2000 succeed in the manner as indicated above.
M.B.A./48/Tax(Trib.) Order accordingly.