CONTINENTAL CHEMICAL CO. (PVT.) LTD. VS PAKISTAN
2001 P T D 570
[Karachi High Court]
Before Saiyed Saeed Ashhad, Dr. Ghous Muhammad and Ata‑ur‑Rehman, JJ
Messrs CONTINENTAL CHEMICAL CO. (PVT.) LTD.
versus
PAKISTAN and others
Constitutional Petition No.D‑707 of 1999, decided on 30/03/2000.
Per Dr. Ghous Muhammad, J.‑‑‑
(a) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.52‑‑‑Deduction of income‑tax at source‑‑‑Failure to deduct such income‑tax ‑‑‑Effect‑‑‑Assessee who fails to deduct income‑tax at source is treated as "assessee in default"‑‑‑Where payee/deductee pays his full tax, any shortfall in or failure to deduct income‑tax at source by the deductor/payer would not make the latter an assessee in default, since shortfall in relation thereof would be of no consequence.
Commissioner of Income‑tax v. Manager, Madhya Pradesh State Cooperative Development Bank Ltd. (1982) 137 ITR 230; Commissioner of Income‑tax y. Divisional Manager, New India Assurance Co. Ltd. (1983) 140 ITR 818; Gwalior Rayon Silk Co. Ltd. v. Commissioner of Income‑tax (1983) 140 ITR 832; Commissioner of Income‑tax v. Shri Synthetics Ltd. (1985) 151 ITR 634 and Commissioner of Income‑tax v. M.P. Agro Morarji Fertilizers (1989) 176 ITR 282 ref.
(b) Interpretation of statutes‑‑‑
‑‑‑‑Taxing statute‑‑‑Words in a taxing statute including notifications and orders, unless ambiguous, must be given their ordinary and natural meaning‑‑‑Subject is not to be taxed unless the statute clearly imposes the burden of tax, while language of the taxing statute must not be strained to tax a transaction on the premise that had the Legislature thought of the same, it would have covered the events by appropriate words.
Pakistan Textile Mills Owners' Association v. Administrator of Karachi PLD 1963 Kar. 137; Lt.‑Col. Nawabzada Muhammad Aamir Khan v. Controller of State Duty PLD 1961 SC 119; Commissioner of Income‑tax v. B.W.M. Abdul Rehman 1973 SCMR 445; Bisvil Spinners Ltd. v. Superintendent, Central Excise PLD 1988 SC 370 and Sterling Engineering Corporation v. Collector of Customs PLD 1986 Kar. 211 rel.
(c) Income Tax Ordinance (XXXI of 1979)‑‑ ‑
‑‑‑S.50(4)(a)‑‑‑Deduction of tax at source‑‑‑Precondition enlisted.
Following are the preconditions for deduction of tax at source:
(a) The credit of tax deducted or imposed has to be passed on to deductee;
(b) the deductee shall be allowed to claim the benefit of this deduction in his return of total income‑tax and towards his final tax liability.
(d) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.50(4) & 80C(4)‑‑‑Central Board of Revenue Circular No. 19 of 1991, dated 8th July, 1991‑‑‑Deduction of tax at source‑‑‑Exemption‑‑‑Exemption in relation to deduction of tax at source under S.50(4) of Income Tax Ordinance, 1979, has been extended by the C.B.R. Circular to all recipients who may enjoy exemption under any of the provisions of the Ordinance as such the same includes further exemption prescribed by S.80C(4) of Income Tax Ordinance, 1979.
(e) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.8 & 80C(4)‑‑‑Central Board of Revenue Circular No. 19 of 1991, dated 8th July, 1991‑‑‑Instructions given by Central Board of Revenue‑‑‑Failure to comply with the instructions‑‑‑Effect‑‑‑Where the instructions were issued in keeping with the provisions of S.80C(4) of Income Tax Ordinance, 1979, the Authorities under the provisions of S.8 of Income Tax Ordinance, 1979, were bound to obey such instructions‑‑‑Failure to disregard the Circular was ipso facto unlawful exercise of jurisdiction in circumstances.
Julian Hoshang Dinshaw Trust v. Income‑tax Officer 1992 SCMR 250; Paramount Electric Co. v. Income‑tax Officer 1973 PTD 511 and Navitlal C. Javeri v. K.K. Sen (1965) 56 ITR 198 rel.
(f) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.50(4) & 53‑‑‑Advance income‑tax, deduction of‑‑‑Jurisdiction to apply provisions of Income Tax Ordinance, 1979‑‑‑Such jurisdiction is not restricted to the proceedings for the assessment or recovery of final income tax liabilities but also relates with the same force in respect of advance tax, be it under S.50(4) or S.53 or any other provision of Income Tax Ordinance, 1979.
(g) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.50(4)(a), proviso‑‑‑Non‑resident‑‑‑Provision of S.50(4)(a) of Income Tax Ordinance, 1979‑‑‑Applicability‑‑‑Section 50(4)(a) of the Income Tax Ordinance, 1979 is applicable to non‑residents also but only mutatis mutandis.
(h) Constitution of Pakistan (1973)‑‑‑
‑‑‑‑Art. 199‑‑‑Constitutional jurisdiction of High Court‑‑‑Scope‑‑‑Void order‑‑‑Effect‑‑‑Where orders are void and completely without jurisdiction, petitioner can directly approach High Court in its Constitutional jurisdiction.
Gattron Industries v. Collector of Customs 1999 SCMR 1072; Kamran Industries v. Collector of Customs PLD 1996 Kar. 68; Premier Cloth Mills Ltd. v. Sales Tax Officer 1972 SCMR 257 and The Murree Brewery Co. v. Pakistan PLD 1972 SC 279 rel.
(i) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.50(4)(a) & 53‑‑‑Advance income‑tax‑‑‑Deduction of tax after end of the year‑‑‑Effect‑‑‑Provision of S.50(4)(a) having been made subject to S.53 of Income Tax Ordinance, 1979, the tax to be deducted was advance tax‑‑ Such tax had to be imposed before the year ran out‑‑‑Income‑tax to be deducted had to be a percentage of purchase and was directly linked up with the transactions‑‑‑If the tax under S.50(4)(a) or under S.53 of Income Tax Ordinance, 1979, was, imposed after the end of the year to which it related the same would cease to have the character of advance income‑tax.
(j) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.50(4)(a)‑‑‑Advance income‑tax‑‑‑Failure to deduct the same‑‑‑Show cause notice‑‑‑Limitation‑‑‑Case related to assessment year 1996‑97 for the purpose of advance income tax and the same had run out on 3‑6‑1996 and the assessment year 1997‑98 on 30‑6‑1997, respectively, while the Authorities had issued first notice on 1‑6‑1998 and then on 3‑6‑1998 and had completed orders in July/August, 1998‑‑‑Validity‑‑‑Proceedings and orders of the Authorities were beyond S.50(4)(a) of Income Tax Ordinance, 1979, incompetent and time‑barred.
(k) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.50(4)(a) & 53‑‑‑Advance income‑tax‑‑‑Failure to deduct advance tax when time framing regular assessment or end of assessment year had reached‑‑‑Effect‑‑‑Any payment under S.53 of Income Tax Ordinance, 1979 being a credit with the exchequer which was liable to be adjusted with the actual liability for that year, the substantive default of S.53 of Income Tax Ordinance, 1979, would automatically lapse‑‑‑High Court extended the application of such benefit to S.50 of Income Tax Ordinance, 1979, as well since the same was also an advance tax and had to be given adjustment as prescribed.
(l) Void order‑‑
‑‑‑‑ Where the order is void, all subsequent orders are also void.
Yousuf Ali v. Muhammad Aslam Zia PLD 1958 SC 104 ref.
Per Ata‑ur‑Rehman, J disagreeing with Dr. Ghous Muhammad, J.‑‑‑
(m) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.50(4) & 80C‑‑‑Advance income‑tax‑‑‑Failure to deduct the tax at source‑‑‑Presumptive tax regime has been made applicable to limited number of items but the deduction made at source has been made liable for adjustment against the tax demand created on regular assessment.
Commissioner of Income‑tax v. Manager, Madhya Pradesh State Cooperative Development Bank Ltd. (1982) 137 ITR 230; Commissioner of Income‑tax v. Divisional Manager, New India Assurance Co. Ltd. (1983) 140 ITR 818; Gwalior Rayon Silk Co. Ltd. v. Commissioner of Income‑tax (1983) 140 ITR 832; Commissioner of Income‑tax v. Shri Synthetics Ltd. (1985) 151 ITR 634 and Commissioner of Income‑tax v. M.P. Agro Morarji Fertilizers (1989) 176 ITR 282 distinguished.
Per Saiyed Saeed Ashhad, J.‑‑‑
(n) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.50 & 52^ Explanation‑‑‑Advance tax, deduction of‑‑‑Explanation added to S.52 of Income Tax Ordinance, 1979‑‑‑Effect‑‑‑Explanation has not created any new obligation or liability on the taxpayers but has been solely designed to bring about a change in the forum where a person responsible for deducting advance tax on behalf of another assessee as per requirement of S.50 of Income Tax Ordinance, 1979, is to be proceeded against on his failure to deduct or collect the advance tax and to deposit the same in Government treasury.
(o) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑Ss.50 & 52, Explanation‑‑‑Advance tax, deduction of‑‑‑Explanation added to S.52 of Income Tax Ordinance, 1979‑‑‑Retrospective effect‑‑ Retrospective operation of the Explanation would have arisen only if the same had the effect of imposing new liability or obligation on the taxpayer or had effected any existing rights either by taking them away or curtailing them‑‑‑Explanation had only provided a change in the forum whereby the powers to hold. proceedings against the taxpayer as a deemed assessee in default had been taken away from the Assessing Officer/Deputy Commissioner of Income‑tax dealing with the tax proceedings of the recipients and had been conferred on the Assessing Officer/Deputy Commissioner of Income‑tax having power to deal with the tax proceedings of the payer‑‑‑Explanation of S.52 of Income Tax Ordinance, 1979, had not taken away the right of appeal or revision or had not curbed the rights available to the deemed assessee in default and was merely in the nature of the change of officer/authority.
Adnan Afzal v. Cap. Sher Afzal PLD 1969 SC 187; Dr. Sheer Afghan v. Amir Hayatkan and others 1987 SCMR 1787; Yew Bon Tev v. Kanderan Bas Mara 1983 PSC 1200 (PC); Hakim Ali Zardari v. The State and another PLD 1998 SC 1; Malik Gul Hasan & Co. and another v. Allied Bank of Pakistan 1996 SCMR 237; Yusuf Ali Khan v. Shanghai Banking Corporation 1994 SCMR 1007 and Messrs Ever Shine Limited v. Commissioner of Income‑tax 1995 PTD 624 rel.
(p) Interpretation of statutes‑
‑‑‑‑ Change in forum‑‑‑Retrospective effect of such change‑‑‑Scope‑‑‑When Legislature brings about a change in the forum then the same is always with retrospective effect unless the same had the effect of curtailing the existing rights available to a party for challenging any adverse order.
(q) Interpretation of statutes‑‑‑
‑‑‑‑ Explanation to a statutory instrument‑‑‑Object‑‑‑Object of the Explanation to a provision is to clarify, to facilitate proper, understanding of a provision and to serve as a guideline.
Naveed Textile Mills Ltd. v. Assistant Collector' (Appraising), Customs House and others PLD 1984 SC 92 rel.
(r) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.52 & 86‑‑‑Assessee in default, proceedings against‑‑‑Petitioners failed to deduct advance income‑tax and were proceeded against as assessee in default under the provisions of Ss.52 & 86 of Income Tax Ordinance, 1979‑ Validity‑‑‑Authorities with the tax assessment proceedings of an assessee would have the right to initiate and finalize the proceedings against such assessee in cases where the assessee was to be treated as an assessee in default.
Commissioner of Income‑tax v. Manager, Madhya Pradesh State Cooperative Development Bank Ltd. (1982) 137 ITR 230; Commissioner of Income‑tax v. Divisional Manager, New India Assurance Co. Ltd. (1983) 140 ITR 818; Gwalior Rayon Silk Co. Ltd. v. Commissioner of Income‑tax (1983) 140 ITE 832; Commissioner of Income‑tax v. Shri Synthetics Ltd. (1985) 151 ITR 634; Commissioner of Income‑tax. v. M.P. Agro Morarji Fertilizers (1989) 176 ITR 282; (1961) 42 ITR 589; (1964) 53 ITR 250; (1979) 119 ITR 475; (1984) 149 ITR 143 and Hakim Ali Zardari v. The State PLD 1998 SC 1 distinguished.
Per Saiyed Saeed Ashhad, J., disagreeing with Dr. Ghous Muhammad, J. and agreeing with Ata‑ur‑Rehman, J.‑‑‑
(s) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.50(4), 52 & 86‑‑‑Constitution of Pakistan (1973), Art.199‑‑ Constitutional petition‑‑‑Failure to deduct advance income‑tax at source‑‑ Show‑cause notice, issuance of‑‑‑Authorities initiated proceedings against the petitioners for not deducting advance income‑tax and held the petitioners as assessees‑in‑default under Ss.50(4), 52 & 86 of Income Tax Ordinance, 1979‑‑‑Contention of the petitioners was that since the advance tax had already been deducted of their suppliers at the time of import of the goods, therefore, the petitioners were not required to deduct the tax and the Authorities had no jurisdiction to initiate such proceedings ‑‑‑Validity‑‑ Petitioners should have satisfied themselves by reliable and satisfactoryevidence that the importers had been subjected to tax and should not have relied on assumptions, surmises and conjectures for non‑performance of the obligations cast upon them by S.50(4) of Income Tax Ordinance, 1979, i.e. deduction and collection of tax from the amount which they had paid to the importers‑‑‑In view of the addition/incorporation of the Explanation to S.52 of Income Tax Ordinance, 1979, the Authorities had the jurisdiction and authority to initiate proceedings under S.52 of Income Tax Ordinance, 1979, against the petitioners as assessees‑in‑default in the assessment proceedings relating to the petitioners‑‑‑No exceptions could be taken to the orders passed by the Authorities under S.52, read with S.86 of Income Tax Ordinance, 1979.
Mamy Beverages v. Naseem 1995 PTD 91; Kamran Industries v. Collector of Customs PLD 1996 Kar. 68; PTCL 1991 St. 741(1); Union Bank Ltd. v. Federation of Pakistan 1998 PTD 2116; Elahi Cotton Mills v. Federation of Pakistan PLD 1997 SC 582; 1997 PTD (Trib.) 1143; (1965) 55 ITR 741 (SC); (1972) 86 ITR 2 (SC); Molasses Trading Export (Pvt.) Ltd. v. Federation of Pakistan and others 1993 SCMR 1905; Mirpurkhas Sugar Mi11s,Limited v. District Council, Tharparkar and 3 others 1991 MLD 715; Province of East Pakistan v. Sharafatullah and 87 others PLD 1970 SC 514; Arshad Akram & Co. and others v. Divisional Superintendent, Pakistan Railways and others PLD 1982 Lah. 109; Pakistan v. Muhammad Himayatullah Farukhi PLD 1969‑SC 407 and Province of Punjab and another v. Mian Manzoor Ahmed Wattoo 1998 CLC 1585 ref.
(t) Words and Phrases----
‑‑‑‑"Supply"‑‑‑Connotation‑‑‑Word "supply" includes the sale of goods by the sellers in return for their price from the buyer.
Commissioner of Income‑tax/Wealth Tax v. Messrs Prime Dairies Ice-Cream Limited 1999 PTD 4147 ref.
Muhammad Naseem for Petitioner.
Shaikh Hyder for Respondents
Date of hearing: 15th July, 1999.
JUDGMENT
DR. GHOUS MUHAMMAD, J.‑‑‑The main controversy in the instant petition is whether the Assistant Commissioner of Income‑tax, Circle A‑04, Companies III, the Respondent No.3, held the lawful jurisdiction under the provisions of the Income Tax Ordinance, 1979 (hereafter: "the 1979 Ordinance") in taking the petitioner in default under section 52 of the 1979 Ordinance for the assessment years 1996‑97 and 1997‑98 for failing to deduct advance tax at source under section 50(4) and also in imposing additional tax under section 86 of the 1979 Ordinance. Other demands raised subsequently in consequence are also challenged. By consent of parties we have proceeded to decide the main case at Katcha Peshi stage; as done in so many other cases by the various learned Benches of this Court.
2. The facts giving rise to the case are discussed hereafter. The respondent No.3 issued show‑cause notices dated 3‑6‑1998 and 1‑6‑1998 (Annexures A‑1 and A‑2) threatening to treat the petitioner‑as an assessee‑in default under section 52 for the latter's failure to deduct tax at source under section 50(4) in relation to purchases made by it; additional tax under section 86 was also sought to be imposed. In response the petitioner through reply (Annexure A‑3) challenged the jurisdiction of the respondent No. 3 and otherwise denied his liability to deduct tax under section 50(4) on the purchases made by it. The respondent No.3 framed the assessment orders under section 52 and also imposed additional tax under section 86 of the 1979 Ordinance as under (Annexures B‑1 to C‑2):‑‑‑
| Assessment Year | Demand under section 52 | Demand under section 86 |
| 1986‑87 | 13,92,853 | 6,80,096 |
| 1987‑88 | 12,27,200 | 3,05,118 |
In consequence the petitioner filed revision petitions with the Commissioner of Income‑tax, Companies III, the respondent No.2, under section 138 of the 1979 Ordinance, who rejected the same vide order, dated 28‑11‑1998 (Annexure D).
3. The respondent No.3 thereafter further proceeded to impose the following further demands under the 1979 Ordinance. The learned counsel for the petitioner has contended that these demands were raised without a show‑cause notice, without a hearing and so much so even the copies of these orders were also not furnished despite requests. The details of demands are as under:‑‑‑
| Nature of tax Demand | Assessment year 1996‑97 | Assessment year 1997‑98 |
| Under section 156 | 1,76,664 | ‑ |
| Under section 88 | 7,331 | ‑ |
| Under section 89 | 4,376 | 13,423 |
| Under section 89 | 14,396 | - |
The petitioner has also impugned the above orders and demands.
4. Aggrieved by the above treatment, the petitioner has filed this petition under Article 199 of the Constitution. In the meantime the respondents succeeded in collecting Rs.9,00,000 against the demand by adopting certain coercive measures for which a refund is also claimed.
5. Mr. Muhammad Naseem, the learned counsel for the petitioner, has furnished copies of the following jurisdictional orders and extracts from the Karachi Income Tax Guide 1996‑97:‑‑‑
(i) Jurisdictional order of all Commissioner of Income‑tax Southern Region, Karachi as notified by the C.B.R. vide C. No.3681- S(DTA/93, dated 22nd August, 1994 including jurisdiction of:‑‑‑
(a) Commissioner of Income‑tax, Zone‑A, Karachi
appearing on pages 1‑2 of the order
(b) Commissioner of Income‑tax, Zone‑E, Karachi
appearing on pages 5‑6 of the order
(ii) Jurisdictional order notified for all Commissioners of Income‑tax, Cooperate Region by the C.B.R. vide No.2(1)DTA‑11/94, dated 24‑9‑1995; the jurisdiction of Commissioner of Income‑tax, Companies Zone‑III, Karachi appears on pages 5 and 6 of the order.
(iii) Jurisdictional Order No.2(10)R&C/97, dated 24‑11‑1997 passed by C.B.R. specifying the jurisdiction of Commissioner of Income‑tax, Companies Zone‑III, Karachi, appearing on pages 4 and 5 of the order.
(iv) Karachi Income Tax Guide 1996‑97 by Azhar Chaudhari showing the jurisdictions of the respective Deputy Commissioners:‑‑‑
| (a) Jurisdiction of Circle A‑4 Companies III (b) Jurisdiction of Circle 02, Companies IV (c) Jurisdiction of Circle A‑7, Zone A (d) Jurisdiction of Circle E‑10/E‑02 Zone E (e) Jurisdiction of Circle E‑4, Zone‑E (r) Jurisdiction of Circle E‑6/E‑7, Zone‑E (g) Jurisdiction of Circle E‑8, Zone‑E | On Pages 31 37 50 93 94 95 96 |
6. Accordingly, on the basis of the above jurisdictional orders, the petitioner has identified the jurisdictions of the respective Commissioners and Deputy Commissioners of Income‑tax who were authorised and entitled to deal with the liability under the provisions of the 1979 Ordinance in respect of the eleven parties from whom purchases were made by the petitioner, during the assessment years 1996‑97 and 1997‑98. These parties with their addresses and the concerned Deputy Commissioners and Commissioners are highlighted in a chart appearing on pages 243 of the petition and is reproduced as below:‑.‑‑
| S.Name and AddressSales inSales in*Commissioner *Assessing No. of the partiesassessmentassessmentHoldingOfficer holding year 1997‑98year 1996‑97 jurisdictionjurisdiction |
| 1. M/s. Akasa (Pvt.)1,47,31,096 1,87,73,071 Companies IVCircle 02, Ltd. TD‑14, 6th FloorCos. IV Sea Breeze Medical Complex M. A. Jinnah, Road. Karachi. |
| 2.M/s. Yahya Aftab & 44,54,52267,90,987Zone 'E' Circle 06 Co. 907, 9th Floor,Zone‑E Uniplaza, I. I. Chundrigar Road Karachi. |
| 3.M/s. Horizon Inter64,92,31772,22,608Zone 'E'Circle 01, national G‑3, Super Zone E Mahal Hasrat Mohani Road, Karachi. |
| 4.M/s. Pharma Drug,6,04,572NilZone 'E'Circle 01 305, Chapal PlazaZone‑E Hasrat Mohani Road, Karachi. |
| 5.M/s. Zareen Inter‑32,75,00032,20,837Zone 'E'Circle 02, national B‑9, 2ndZone E Floor Mehra Sons State, Talpur Road, Karachi. |
| 6.M/s. Dow Pharma,17,99,22110,60,230Zone 'A'Circle 07, Plot No.4,'K, C‑1Zone‑A Area, Liaquatabad, Karachi. |
| 7.M/s. Emmar Traders, 37,06,12328,23,249Zone 'E'Circle 04, Room No.6, 2nd FloorZone‑E Shalimar Centre Tariq Road, Karachi. |
| 8.M/s. Allied General Nil 71,88,903Zone 'A'.Circle 06 Trading Co., 3‑F,Zone‑A 19/13, Nazimabad, Karachi. |
| 9.M/s. Commerce Inter‑ Nil21,91,442Zone 'E'Circle 02 national 2/6, FatimaZone‑E Zohra Building, Abdullah Square, Altaf Hussain Road, Karachi. |
| 10.M/s. ContinentalNil58,51,760Zone "E'Circle 04 Chemical ShalimarZone‑E Centre, Tariq Road Karachi. |
| 11.M/s. Hilal PaperNil5,90,717Zone 'E'Circle 08 Corporation SaifiZone‑E Market, Shahrah‑e Liaquat, Karachi. |
| Total Purchases3,50,62,8515,57,13,804 |
7. The learned counsel for the petitioner has further raised the following pleas:‑‑‑
(i) That the impugned orders under sections 52, 86, 88, 89 and 156 are all without jurisdiction. The Assessing Officer i.e. the respondent No.3 who passed these orders had no jurisdiction to deal with the tax matters or liability of the sellers from whom the petitioner had made the purchases. The jurisdiction to deal with them under the provisions of the 1979 Ordinance vested with the respective officers and respective Commissioners of the said sellers and not with respondents Nos.2 and 3. And accordingly when there was a complete lack of jurisdiction for the substantive and regular assessment of tax, any jurisdiction under section 50(4) (which was only an advance and provisional tax) and in consequence under sections 52, 86, 88, 89 or 156 could not have been assumed by the said respondent No.3.
(ii) The persons to whom purchases were made were not liable to any further income‑tax since they had already suffered income‑tax at import stage in advance under section 80C of the 1979 Ordinance and their total liability had been discharged and extinguished in terms of subsection (4) of section 80C itself. Thus, when there was no tax liability whatsoever under the 1979 Ordinance on these purchases (i.e. the same having been fully paid by the sellers under section 80C), the question of any advance income‑tax or default in regard thereto, in relation to those purchases was absolutely out of question.
(iii) That the Assessing Officer had acted beyond jurisdiction for yet one more reason in that he violated the orders of the Central Board of Revenue contained in Circular No. 19 of 1991 dated 8‑7‑1991 (Annexure H) since the persons from whom purchases were made having discharged their full income‑tax liability were also declared to .be not liable for any further deduction of income‑tax at source under section 50(4) of the 1979 Ordinance. The Assessing Officer had thus, violated the orders of the Central Board of Revenue (violating section 8 of the 1979 Ordinance), which orders were only in keeping with section 80C of the 1979 Ordinance which starts with a non‑obstante clause and is to be given an overriding effect.
(iv) That section 50(4) has been looked upon and treated erroneously as a provision of regular tax, although it is only an advance tax, since the benefit/credit of tax so deducted or imposed has not been imparted to the deductees, nor it was capable of being passed on. The respondent No.3 could not invoke and implement section 50(4) half way. It is settled‑law that where the final liability to tax cannot be imposed, no advance tax can be deducted.
(v) The liability under section 50(4) having been characterised as one under section 53 of the 1979 Ordinance, and being merely an advance tax, the jurisdiction to collect advance tax terminated on 30‑6‑1996 and 30‑6‑1997 for the two years under consideration. The proceedings to collect this advance tax, however, only commenced vide letter, dated 3rd June, 1998 after the lapse of one and two years, respectively. In this manner, the very assumption of jurisdiction was ipso facto incompetent, invalid, without jurisdiction, barred by limitation and beyond the scope of sections 50 and 53.
(vi) That the sellers/deductees, having paid their full and complete tax liability already, under the 1979 Ordinance, the imposition of tax under the garb of sections 50(4) or 52 etc. was, in fact, an exercise of double taxation not contemplated by the provisions of law.
(vii) That the petitioner had made purchases from the market on competitive rates and accordingly these purchases did not constitute "supplies" within the meaning of section 50(4) of the 1979 Ordinance.
(viii) That no additional tax under sections 86, 88 and 89 could have been imposed since all these additional taxes were imposed without a show‑cause notice. The additional taxes are in fact penal taxes which could not have been imposed without construing deliberate default in any manner.
(ix) Section 86 of the 1979 Ordinance had been invoked while the terminal date of payment had not yet arrived.
(x) It is also pointed out that the additional tax could not have been imposed from the back date i.e. from the date when the demand had not existed was unreal and unreasonable.
(xi) With regard to the demand under section 156 it is pointed out that the same has been imposed without a show‑cause notice and without a hearing.
8. In support of his contention that there was no jurisdiction on the part of the respondent No.3 to frame orders under sections 52 and 86 and other orders under sections 88, 89 and 156 of the 1979 Ordinance, the learned counsel for the petitioner has cited recent judgment of the Division Bench of this Court in C.P. Nos. 1335/98 and 1336/98 and a decision of the Income‑tax Appellate Tribunal (hereafter: "ITAT") in I.T.As. Nos.1034 to 1037/KB of 1998‑99 dated 10‑6‑1998. With regard to the imposition of additional tax the learned counsel for the petitioner has cited the following decisions in addition:
(a) Mamy Beverages v. Naseem 1995 PTD 91; and.
(b) Kamran Industries v: Collector of Customs PLD 1996 Kar. 68:
9. The learned counsel for the respondents, Mr. Shaikh Haider, has vehemently contested the petition since according to him:‑‑‑
(i) the respondent No.3 while passing the orders under section 52 was not dealing with the cases of sellers/suppliers but with the case of the petitioner for which he had held the lawful jurisdiction. The petitioner was liable to deduct the income‑tax in terms of section 50(4), while making payment of consideration to the sellers/suppliers from which there was no escape except to ask for exemption certificates so as to show that the sellers were not liable to income‑tax.
(ii) That the orders of the Division Bench relied upon by the petitioner and contained in C.P. Nos.1335/98 and 1336/98 related to non- residents and had no application in the present case, which is a case of a resident.
(iii) That the purchases were covered within the term "supplies" as provided clearly in the Explanation added to section 50(4) of the 1979 Ordinance by the amendment of 1998. Reliance in this regard is placed on C. B. R's. Circular No. 11 of 1998, dated 25‑7‑1998 and the definition of the term "supplies" appearing in some Law Lexicon (source not specifically stated).
10. In order to examine and appreciate the merits of the respective contentions it appears necessary to examine various relevant provisions of the 1979 Ordinance and the text of the C.B.Rs. Circular cited. The relevant extracts thereof are reproduced as .under:‑‑‑
(a) On Jurisdiction:
(i) Subsection (2) of section 3 of the 1979 Ordinance (dealing with Income‑tax Authorities) reads as under:‑‑‑
"Inspecting Additional Commissioner, Income‑tax Panel, Deputy Commissioner of Income.‑tax shall be subordinate to the Commissioner of Income‑tax within whose jurisdiction they perform their functions. "
(ii) Subsection (1)(b) and (1)(c) of section 5 of the 1979 Ordinance reads as under:‑‑‑
"(b) The Commissioner and the Appellate Additional Commissioner shall perform their functions in respect of such persons and such areas as the Central Board of Revenue may direct .. .. ... ... "
"(c) The Inspecting Additional Commissioner and the Deputy Commissioner shall perform their functions in respect of such persons or such areas as the Commissioner to whom they are subordinate may direct . .. . .. . . . . "
(iii) Section 8 of the 1979 Ordinance reads as under:‑‑‑
"All Officers to follow the orders of the Central Board of Revenue.‑‑‑All officers and persons, employed in execution of this Ordinance shall observe and follow the orders, instructions and directions of the Central Board of Revenue."
(iv) Subsections 4(a) and 4(b) of section 50 of the 1979 Ordinance read as under:‑‑‑
"(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 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 debt' as referred to therein, falls whichever is the later.
[Provided that the provisions of this clause shall mutatis mutandis apply to any payment made on or after the first day of July, 1992 to any non‑resident person as they apply to any payment made to a resident recipient on account of execution of a contract for construction, assembly or like project in Pakistan:]
(b) the Commissioner may, on an application made by any such recipient and after making such enquiry as he thinks fit, allow, by an order in writing, any person responsible for making such payment not to deduct any tax from any payment or payments made to such recipient in any financial year; and where such order is made, the person responsible for making any payment shall thereafter, and until such order is cancelled, make such payment without deduction of tax under clause (a) [and]
(v) Section 52 of the 1979 Ordinance, 1979 reads as under:‑‑
"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."
(vi) Section 53 of the 1979 Ordinance reads as under:‑‑‑
"53 Advance payment of tax.‑‑‑(1) An assessee‑‑
(a) other than a company or a registered firm, whose total income (excluding income to which section 27, section 80B, section 80C, section 80CC of subsections (1) and (2) of section 50 applies) for the latest assessment year in respect of which the tax payable by him has been determined under sections 59, 59A, 60, 62, 63 or 65, is not less than one hundred and fifty thousand rupees shall be liable to pay by way of advance tax, an amount equal to one‑fourth of ‑the full amount of income‑tax and super tax so determined to be payable in respect of that assessment year (without making any adjustment for' any tax already paid by way of advance tax or otherwise), as reduced by the tax, if any, already collected or deducted and paid under section 50 in the said financial year; and
(b) being a company or a registered firm shall, in respect of its income (excluding income to which section 27, section 80C, section 80CC or subsection (2) of section 50 applies) be liable to pay by way of advance tax an amount which bears the same proportion to the company's or a registered firm's turnover for that year as the tax assessed, bears to the turnover assessed, for the latest assessment year in respect of which the tax payable by the company or registered firm has been determined under sections 59, 59A, 60, 62, 63 or 65 as reduced by the tax already paid under section 50 in the said financial year.
(2) The tax payable,‑‑‑
(i) Under clause (a) of subsection (1) (i.e. by assessee other than companies and registered firms) shall be paid to the credit of the Federal Government, on or before the fifteenth day of September, the fifteenth day of December, the fifteenth day of March and the fifteenth day of June in each financial year; and
(ii) under clause (b) of subsection (1) (i.e. by companies and registered firms) shall be paid to the credit of the Federal Government in each financial year, according to the following schedule:
| TURNOVER RELATING TO THETAX TO BE PAID ON OR PERIODBEFORE |
| From 1st of July to 30th of Septemberthe seventh day of October From 1st of October to 30th of Decemberthe seventh day of January From 1st of January to 30th of Marchthe seventh day of April From 1st of April to 30th of Junethe seventh day of June (turnover for 16th June to 30th June shall be taken equal to the turnover of between 1st of June to 15th of June)" |
(vii) Subsection (4) of section 80C of the 1979 Ordinance reads as under:‑‑‑
"(4) Where the assessee has no income other than the income referred to in subsection (1) in respect of which the 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."
(viii)The text of C.B.R's. Circular No.19 of 1991, dated 8‑7‑1991 is reproduced below:‑‑‑
"CIRCULAR NO. 19 OF 1991, DATED 8TH JULY, 1991
[Reported as PTCL 1991 St. 741(1)]
SUBJECT: DEDUCTION OF TAX UNDER SUBSECTION (4) OF SECTION 50 OF INCOME TAX ORDINANCE, 1979‑‑‑CLARIFICATION `REGARDING AMEND MENT IN NOTIFICATION NO. S.R.O. 586(1)/91, DATED 30TH JUNE, 1991.
Notification No.S.R.O. 586(1)/91, dated 30th June, 1991 was issued by the Board to grant exemption from withholding of tax to certain recipients under section 50(4). Accordingly, Circular No.11 of 1991, dated 30th June, 1991 was also issued in this regard. Vide clause (iv) of the said Notification, recipients enjoying income from exempt sources under the Second Schedule to the Income Tax Ordinance, 1979, were exempted from withholding of tax under section 50(4).
2. The issue of exemption from deduction of tax to such receipients has been reconsidered in the Board and. the scope of exempt income has been enlarged by deleting the words 'under the Second Schedule to the Income Tax Ordinance, 1979'. Now, exemption under clause (iv) of Notification, No. S.R.O. 586(1)/91, dated 30th June, 1991 shall apply to all recipients whose income is exempt from tax under any provision of the Income Tax Ordinance, 1979, or any other law.
3. Necessary amendment in Notification No. S.R.O. 586(1)/91, dated 30th June, 1991 has also been issued through the Notification No. S.R.O. 626(1)/91, dated 4th July, 1991.
4. These instructions shall take effect from the first day of July, 1991.
[Issued by the C.B.R. Islamabad, under the signature of Mr. Abdur Rehman Dogar, Second Secretary, vide File C. No. ITJI‑1(7)l84 vol‑II.J"]
(b) On Additional Tax:
Sections 86. 88 and 89 of the 1979 Ordinance read as under:‑‑‑
(i) "86. Charge of additional tax for failure to deduct and pay tax.‑‑‑Where any person fails to deduct, or having deducted, fails to pay any tax, required section 50, such person shall, without prejudice to any other liability which he incur, be liable to pay additional tax at the rate of [twenty‑four] per cent, annum on the amount not paid for the period commencing from the date which he was required to pay such tax to the date of the payment thereof."
(ii) "88. Charge of additional tax for failure to pay tax with the return.‑ Where any assessee fails to pay tax under section 54 or the tax so paid is less than the tax payable under that section, he shall be liable to pay additional tax at the rate of [twenty‑four] percent., per annum of the amount not paid or the amount by which the tax paid by him falls short of the tax payable under that section, as the case may be, and such additional tax shall be calculated from the first day of October or the date on which the tax was payable, whichever is the later, to the date on which the tax is paid or the date on which an order under subsection (1) of section 59, [section 59A], section 62, section 63 or section 65, as the case may be, is made, whichever is the earlier."
(iii) "89. Charge of additional tax for failure to pay tax or penalty.‑‑ Where any assessee fails to pay the whole or any part of the tax levied under Chapter VII or the whole or any part of any penalty levied under Chapter XI, [or has been allowed stay of payment or payment in instalments of the tax under subsection (2) of section 85] he shall be liable to pay additional tax at the rate of [twenty‑four] percent., per annum on the amount of such tax or penalty or any part thereof, as the case may be, which has not been paid; and such additional tax shall be calculated from the date on which such tax or penalty or part thereof, as the case may be was originally payable to the date on which it is paid, in respect of each instalment, the date on which it is paid."
(c) On rectification:
Section 156(1) of the 1979 Ordinance reads as under:‑‑‑
"156 Rectification of mistakes.‑‑‑(1) Any Income‑tax Authority or the Appellate Tribunal may amend any order passed by it to rectify any mistake apparent from the record on its own motion or on such mistake being brought to its notice by any other income tax authority or by the assessee.
Word 'Record' as used in section 156, Income Tax Ordinance, 1979.‑‑‑Meaning. Power of Income‑tax Authorities and Income‑tax Appellate Tribunal to rectify their own mistakes. Scope.
Scope. ‑‑‑Overlooking a mandatory provision of law can be rectified. Rectification can be carried out on the finding of fault from the record of the assessee and not from subsequent information.
Originally a good order may subsequently reveal a mistake in the light of a subsequent decision.
Assigning of a wrong status to the assessee being a mistake if apparent from record. Provisions of section 156, Income Tax Ordinance, 1979 could be invoked.
Income‑tax Authority or Income‑tax Appellate Tribunal may amend an earlier order, passed by it to rectify mistake."
11. We have heard the learned counsel for parties; perused the record, the comments filed by the respondents, facts and the law on the subject.
12. The respondents or their learned counsel have not disputed that the parties (listed in para. 6 above) from whom purchases had been made by the petitioner during the two years under review were all importers and that the goods in question had suffered tax at import stage in the hands of those importers under section 50(5) read with section 80C of the 1979 Ordinance. This being the correct factual state of affairs, the said importers (or sellers, in the case of the petitioner) could not have suffered any further tax, on subsequent sale or otherwise, under any of the provisions of the 1979 Ordinance, including under section 50(4), directly or indirectly. The reason for this is very simple. Under section 80C(4), the tax paid under section 50 is the final discharge of liability, entailing no further liability. In this case the deduction of tax in the hands of the importers at import stage having been effected under section 50(5), the same had thus, constituted a final discharge of liability of such importer. In other words, any further tax liability of the sellers in the event of subsequent sale or otherwise stood extinguished. These sellers were not liable to any further tax and were even not liable to file a return of total income under section 55 of the 1979 Ordinance. Recently the Lahore High Court in Union Bank Ltd. v. Federation of Pakistan 1998 PTD 2116 has held that where no final tax liability is payable, the tax department cannot insist upon the payment of any advance tax. The Lahore High Court in deciding this case had followed the judgment of the Hon'ble Supreme Court in Elahi Cotton Mills v. Federation of Pakistan PLD 1997 SC 582. This settled law has full application in the present case. When the sellers/importers in the present case after suffering tax under section 50(5) were required to pay no further tax in view of section 80C(4), they under any other provision were not to suffer any further advance tax by way of deduction at source under section 50(4) on sales made by them. This being the correct legal position, the petitioner in turn was not liable to deduct income tax at source on the purchases of merchandise of the sellers, which had already suffered tax under section 50(5) and were liable to suffer no further tax in view of section 80C(4). This conclusion is fully supported by the' judgments from the Indian jurisdiction also. Before discussing the Indian judgments suffice would it be to observe that under the Indian Income Tax Act, 1961, section 201 thereof provides for the consequence for an assessee in failing to deduct income tax at source, in which event the assessee is treated as an assessee in default. This section 201 from the Indian Act is in para. materia with our section 52 of the 1979 Ordinance. In Commissioner of Income‑tax v. Manager Madhya Pradesh State Cooperative Development Bank Ltd. (1982) 137 ITR 230, a Division Bench of the Madhya Pradesh High Court took the view that where the regular assessment of an employee had been completed and the full amount of tax had been paid by him, the Income‑tax Officer possessed no further jurisdiction under section 201 of the Indian Income‑tax Act to demand any further tax from the employer in respect of the tax alleged to have been short‑deducted at source in relation to the employee. This was a case where the employer was under an obligation to deduct income‑tax at source from the salary paid to the employee; the tax was short‑deducted by the employer, however, full tax in the hands of the employee had been paid by the employee at the end of the year, in view whereof it was found that any default attributable to the employer in not fully deducting the tax was of no consequence. There are other decisions from the Indian jurisdiction which propound the same principle of law. These decisions are Commissioner of Income‑tax v. Divisional Manager, New India Assurance Co. Ltd. (1983) 140 ITR 818 decided by a Division Bench of Madhya Pradesh High Court; Gwalior Rayon Silk Co. Ltd. v. Commissioner of Income‑tax (1983) 140 ITR 832 also decided by a Division Bench of the Madhya Pradesh High Court; Commissioner of Income‑tax v. Shri Synthetics Ltd. (1985) '151 ITR 634 decided by a Division Bench of the Madhya Pradesh High Court; in the latter judgment the, head note of the case in italics confirm that leave to appeal to the Supreme Court against this judgment was also refused, in view whereof it can be said that this view is also fully endorsed by the Indian Supreme Court; Commissioner of Income tax v. M.P: Agro Morarji Fertilizers (1989) 176 ITR 282, also decided by a Division Bench of Madhya Pradesh High Court. In our view the principle of law which thus, emerges from these Indian authorities is that where the 8 payee/deductee pays his full tax, any short‑fall in or failure to deduct income‑tax at source by the deductor/payer would not make the latter an assessee in default, since non‑deduction or short‑fall in relation to thereof would be of no consequence. This principle is squarely applicable in the present case since the sellers/importers in the present case having paid their full tax, any failure to deduct the tax by the petitioner would be of no consequence. Accordingly, the petitioner cannot be termed as an assessee in default under section 52 in relation to goods upon which the said petitioner was not liable to deduct any tax under section 50(4). Any other interpretation would militate against the clear mandate of section 80C(4) prescribing a final discharge of liability in relation to goods on which tax had already been paid under section 50(5). Reliance by the learned counsel for the respondents on C.B.R's. Circular No.11 of 1998 dated 25‑7‑1998, as reproduced in the parawise comments of the respondents, seems misplaced. All that this Circular confirms is that "an explanation has been added to section 50(4)" according to which "the expression 'supply of goods' includes both cash and credit purchases by a payer irrespective of the fact whether these are under a contract or not". This Circular is irrelevant to the controversy at hand. Even if we assume that the purchases made by the petitioner constitute 'supplies', the liability of the sellers to suffer any further tax cannot exist in view of the final discharge of liability under section 80C(4) since the said sellers have paid the full tax at import stage under section 50(5). This interpretation is further confirmed by C.B.R's. Circular No.19 of 1991, dated 8‑7‑1991, discussed in more detail in para. 14 below. We have also been able to lay our hands on a decision of the learned I.T.A. reported in 1997 PTD (Trib.) 1143 which has suquarely dealt with this controversy in detail conforming to our interpretation as above and which exposition we find in accordance with law.. The above analysis of sections 50(4), 50(5) and 80C(4) is in keeping with the fundamental principles of interpretation of taxing statutes to the effect that words in a taxing statute, including notifications and orders, unless ambiguous, must be given their ordinary and natural meaning (see Pakistan Textile Mills Owners Association v. Administrator of Karachi PLD 1963 Kar. 137); a subject is not to be taxed unless the statute clearly imposes the burden of tax, while the language of the taxing statute must not be strained to tax a transaction on the premise that had the legislature thought of the same, it would have covered the events by appropriate words (see Lt.‑Col. Nawabzada Muhammad Aamir Khan v. Controller of State Duty PLD 1961 SC 119; Commissioner of Income‑tax v. B.W.M. Abdul Rehman 1973 SCMR 445; Bisvil Spinners Ltd. v. Superintendent Central Excise PLD 1988 SC 370) and that there is no equity and presumption about tax and nothing is to be implied (Sterling Engineering Corporation v. Collector of Customs PLD 1986 Kar. 211).
13. The orders passed by the respondent No.3 and confirmed by respondent No.2 would appear fallacious all the more from yet another angle highlighted by the learned counsel for the petitioner. It is pointed out that the respondent No.3 has created a liability which cannot be ascribed as one under section 50(4)(a) of the 1979 Ordinance. In fact the deduction of tax contemplated under section 50(4)(a) also makes the following incumbent conditions:‑‑‑
(a) the credit of the tax deducted or imposed has to be passed on to the deductee;
(b) the deductee shall be allowed to claim the benefit of this deduction in his return of total income‑tax and towards his final tax liability.
No benefit of tax deducted or imposed whatsoever could have been passed on to the parties facing deductions. In fact it was incapable of being passed on since the eleven parties to whom these deductions related held no further tax liability and they were not even liable to file returns. And even if they had to file the returns, the dates of filing returns had already gone by when the demands for the two years were raised in July/August, 1998. The respondent No.3 was not entitled to implement section 50(4) only half way.
14. The respondents do not dispute the categorical directions and orders of the Central Board of Revenue contained in C.B.R. Circular No. 19 of 1991, dated 8th July, 1991. Earlier, the recipients of payments enjoyed exemption from deduction at source under section 50(4) in case their income was exempt under the Second Schedule. However, through the Circular under discussion the exemption in relation to deduction at source under section 50(4) has been extended to all recipients who may enjoy exemption under any of the provisions of the 1979 Ordinance. This would surely include the further exemption prescribed by section 80C(4). Applying this Circular also the petitioner was under no obligation to deduct tax at source under section 50(4) in relation to the purchases on which tax at import stage had been deducted under section 50(5) and which constituted a final discharge of liability under section 80C(4). The respondents 2 and 3 were bound to obey these orders/instructions under section 8 of the 1979 Ordinance, while these instructions were also in keeping with the provisions of the 1979 Ordinance in particular section 80C(4). Failure to disregard this C. B. R. Circular is ipso facto an unlawful exercise of jurisdiction. If there are any authorities needed for the proposition, the same are Julian Hoshang Dinshaw Trust v. Income‑tax Officer 1992 SCMR 250, Paramount Electric Co. v. Income‑tax Officer 1973 PTD 511 (Lahore High Court), and Navitlal C. Javeri v. K.K. Sen (1965) 56 ITR 198 (SC of India). The discussion and findings in paras. 12 to 14 above are enough to allow the present petition. However, since a lot was submitted on the point of jurisdiction we would venture to discuss the same as well.
15. The jurisdictional orders of the C.B.R. submitted on record as per paragraph 5 above are not held in dispute. Accordingly, the analysis of those orders show that the jurisdiction conferred by the Central Board of Revenue to exercise powers under the provisions of the 1979 Ordinance (and of course it would mean all powers exercisable under the said 1979 Ordinance except where they are assigned to other authorities under specific orders) would vest with the respondents Nos.2 and 3 in relation to the petitioner and with the officers mentioned in para. 6 above in relation to the eleven parties from whom the petitioner has purchased the goods. It is thus not disputed that while the respondents Nos.2 and 3 held jurisdiction to deal with the income tax liability of the petitioner company, the said respondents did not hold any jurisdiction to deal with the income‑tax liability of the eleven parties from whom the petitioner had made purchases. Their jurisdictions were to be exercised by the officers mentioned in columns 5 and 6 of the chart in para. 6 above. The jurisdiction to apply the provisions of the 1979 Ordinance in any manner is not restricted to the proceedings for the assessment or recovery of final income‑tax liabilities but also relates with the same force in respect of advance tax, be it under section 50(4) or section 53 or any other provision of the 1979 Ordinance. In the context of advance deduction of income‑tax at source there is no provision in the 1979 Ordinance nor any jurisdictional order issued by C.B.R. confers jurisdiction on the respondents Nos.2 and 3. The jurisdiction to deduct tax under section 50(4) cannot be simply assumed or implied. In analysing the provisions of sections 3 and 5 of the 1979 Ordinance and the jurisdictional orders of the C.B.R. we find ourselves in complete agreement with the judgment of another learned Division Bench comprising Saiyed Saeed Ashhad and Abdul Ghani Shaikh, JJ. in C.Ps. No.1335/98 (i.e. Tapal Energy Ltd. v. Federation of Pakistan and 1336/98 (i.e. Gul Ahmed Energy Limited v.. Federation of Pakistan); which has already settled this issue. In that case the petitioners were IPPs who had hired non‑resident contractors to instal. their plant and equipment. The Assessing Officers holding the jurisdiction to assess the petitioners found the petitioners to be assessees in default under section 52 for having failed to deduct income tax at source under section 50(4) in respect of payments made by them to the non‑resident contractors; consequently additional tax was also imposed. The learned Division Bench in that case after exhaustively reviewing the scheme of the 1979 Ordinance held that the jurisdiction to hold the petitioners as assessees in default under section 52 for their failure to deduct income‑tax of the non‑resident contractors at source under section 50(4) could not be assumed by the Assessing Officers holding the jurisdiction to assess the petitioner; such jurisdiction could only be assumed by the Assessing Officers holding the jurisdiction in relation to the non resident contractors. The impugned orders were found to be void acid completely without jurisdiction. The case of Tapal Energy has full application to the facts of the present petition. In other words, the jurisdiction to treat a particular assessee (i.e. "A") as an assessee in default under section 52 for failure to deduct tax at source under section 50 does not vest with the Assessing Officer of that assessee; such jurisdiction even in the case of this assessee (i.e. "A") for the limited purpose of treating him as an assessee in default under section 52 would vest with the Assessing Officer in whose jurisdiction the payee is assessed. The learned counsel for the respondents states that the Tapal Energy case has no application here as in that case the payees or recipients of consideration were non‑residents. This contention of the learned counsel for the respondents is not correct and we are unable to subscribe thereto. The scheme of the 1979 Ordinance in relation to section 52 read with section 50 does not spell out the distinction attempted by the learned counsel for the respondents in relation to non-residents. On the contrary, the proviso to section 50(4)(a) categorically confirms that the substantive provision of section 50(4)(a) is to apply to non-residents as well, but only mutatis mutandis. In this regard, the learned counsel for the petitioner has placed on record a copy of the order of the learned ITAT in I.T.As. Nos.1034 to 1037/KB/1998‑99, dated 10‑6‑1999 wherein the Tapal Energy case of the High Court has been followed. In the I.T.A.T's. order the payee or recipient was not a non‑resident. We cite the I.T.A.T's. order with approval and hold the impugned order in the present case to be void and completely without jurisdiction. The verbal objection with regard to maintainability of the petition is also not in order since it is settled law that where impugned orders are void and completely without jurisdiction (as in this case) a petitioner can directly approach the Court in its Constitutional jurisdiction. If there are any, authorities needed for the proposition reference is invited to Gattron Industries v. Collector of Customs 1999 SCMR 1072, Kamran Industries v. Collector of Customs PLD 1996 Kar. 68 and the Tapal Energy case itself recently decided by this Court; older authorities on the point, still good today, are Premier Cloth Mills Ltd. v. Sales Tax Officer 1972 SCMR 257 and The Murree Brewery Co. v. Pakistan PLD 1972 SC 279. In the comments no such objection was taken.
16. Lastly, it is an admitted position that the tax to be deducted is an advance tax, more particularly when the provision of section 50(4)(a) has been made subject to section 53 of the 1979 Ordinance. Any advance tax, of necessity thus, has otherwise to be imposed as per the scheme of advance tax under section 53, before the year runs out. The income‑tax to be deducted has to be a percentage of purchase and is directly linked up with the transactions. But if the tax under section 50(4)(a) or under section 53 is imposed after the end of the year to which it relates, it would cease to have the character of advance tax. Under section 53 of the 1979 Ordinance the last instalment of advance tax is to be paid or collected by 15th June. In this case for the purposes of advance tax, the assessment year 1996‑97 had run out on 30‑6‑1996 and the assessment year 1997‑98 on 30‑6‑1997, respectively, while the respondent No.3, however, admittedly had issued his first notice on 1‑6‑1998 and then on 3‑6‑1998 and had completed orders in July/August, 1998. These proceedings and orders were thus, beyond section 50(4)(a) incompetent and time‑barred as well. In coming to this conclusion we find further support from Pak Saudi Fertilizer v. Federation of Pakistan C.P. No.282 of 1999 (unreported) wherein a Division Bench of this Court comprising Dr. Ghous Muhammad and S. A. Sarwana, JJ. had to deal with the interpretation of advance income‑tax under section 53. Writing for the Court; one of us i.e. Dr. Ghous Muhammad, J. came to the conclusion that in case an assessee continues default of section 53 and the time for framing the regular assessment or the end of the assessment year reaches, the substantive default of section 53 (i.e. advance income‑tax) would automatically lapse since under law any payment of section 53 is a credit with the exchequer which is liable to be adjusted with the actual liability for that year. We extend the application of these observations to section 50 as well since the same is also an advance tax and has to be given adjustment as prescribed therein.
17. We, therefore, allow this petition and hold that the orders passed by respondent No.3 under sections 52, 86, 88 and 89 as per Annexures B‑1 to C‑2 alongwith other consequential orders, notices or demands, including notices under section 92 of the 1979 Ordinance to be without lawful authority. and jurisdiction and are ordered to be cancelled.
18. In respect of demand of 1,76,664 constituted under section 156 the learned counsel of the petitioner has stated that although a paid challan was submitted and repeated requests were made in writing and otherwise by him, copy of the order was not furnished. If this demand relates in any manner to section 50(4)(a) or 52 as per the controversy settled above it will also stand cancelled since if the original order is void all subsequent orders are also void (See Yousuf Ali v. Muhammad Aslam Zia PLD 1958 SC 104). However, if it has no nexus with the action under section 50(4) or 52 it is, being set aside to be reconstituted in accordance with law after giving proper opportunity and hearing.
19. It is not disputed that the respondent No.3 has collected the sum of Rs.9,00,000 and that as we have already held above that the orders passed against which the collection was made lack lawful authority and jurisdiction, the' respondents are directed to issue the said refund within three months of this order:
20. There shall be no order as to costs.
(Sd.)
DR. GHOUS MUHAMMAD
ATA‑UR‑REHMAN, J.‑‑‑I have gone through the judgment proposed to be delivered by my learned brother Dr. Ghous Muhammad, J. in this case. With great respect I do not agree with him for the reasons to follow.
2. Petitioner is a limited company and had made purchases from various parties. It had avoided to deduct tax under section 50(4) of the Income Tax Ordinance, 1979 without obtaining exemption certificate as was required under section 50(4)(b) of the Ordinance, 1979. In support of this default it has been contended by the petitioner that the parties from whom purchases were made were covered under section 80C of the Ordinance and as they at the time of import has paid tax under section 50(5) of the Ordinance, 1979 they had made final discharge of tax liability and thus, no further tax was due from them. In this connection reliance has been placed on a number of decisions from Indian jurisdiction but in my humble view the said decisions do not improve the case of the petitioners nor in any manner favour them. Under the Indian Income‑tax Act, 1961 presumptive tax regime has been made applicable to limited number of items but the deduction made at source has been made liable for adjustment against the tax demand created on regular assessment.
3. The petitioner has relied upon a decision of I.T.A.T. which is reported in 1997 PTD (Trib.) 1143; the facts of that case are different from the case of the petitioner. In that case ' A' had made imports and had complied with the provisions of section 80C of the Ordinance, 1979, the same goods were sold to 'B' who had not complied with the provisions of section 50(4) of the Ordinance, 1979. However, the Assessing Officer of 'A; had charged the tax from ' A' which was to be deducted by ' B'.
4. Two unreported cases on which the petitioner placed reliance, are C.P. No.1335/98 (Tapal Energy Ltd. v. Federation of Pakistan) and C.P. No.1336/98 (Gul Ahmed Energy Ltd. v. Federation of Pakistan) to support the contention about lack of jurisdiction of the respondents for invoking sections 5.2, 86 and other sections of the Ordinance. These two cases also do not help the petitioner in view of the explanation inserted in section 52 vide Finance Act, 1999 which reads as under:‑‑‑
"Explanation.‑‑‑For the purpose of this section, the Deputy Commissioner having jurisdiction under section 5 over the case of assessee in default may initiate action."
5. The contentions which have been raised by the respondent No.3 (which are reproduced in para. 9 of the judgment of my brother (Dr. Ghous Muhammad, J.) have got force and agreeing with the said contentions I find that this petition is not maintainable.
In view of the above the action taken by the respondents is in order and petition is, therefore, dismissed.
(Sd.)
ATA‑UR‑REHMAN
SAIYED SAEED ASHHAD, J.‑‑‑This Constitutional petition was referred to me as a referee Judge as my learned brothers of the Division Bench, Dr. Ghous Muhammad, J. (as he then was) and Ata‑ur‑Rehman, J., who had heard the Constitutional, petition, had expressed different opinions. .
The facts of the Constitutional petition have been given in detail by Dr. Ghous Muhammad, J. (as he then was) and it is not necessary to reproduce them here.
The first issue involved in this Constitutional petition is whether order made by the Deputy Commissioner of Income‑tax under section 52 read with section 86 of the Income Tax Ordinance (hereinafter referred to as the Ordinance) against the petitioners as deemed assessee in default in accordance with the provisions of section 50(4) of the Ordinance could validly be passed by the Assessing Officer having jurisdiction to decide the assessment proceedings of the petitioners and whether in such proceedings action against them in accordance with the provisions of sections 52 and 86 of the Ordinance could be initiated. Another issue involved in this Constitutional petition is whether in view of the provisions of section 80C(4) of the Ordinance, the Assessing Officer had authority to proceed against the petitioners in their capacity as deemed assessee in default inasmuch as the contractors/importers from whom the petitioners had made the purchases in dispute must or ought to have been subjected to tax at the time of clearance of their consignment on its import/arrival in Pakistan and no further tax was to be deducted in respect of the said consignment which was ultimately purchased by the petitioners and, therefore, the question of deduction and collection of advance tax by the petitioners from the said importers/suppliers of medicines and deposit thereof in the Government treasury did. not arise. The third issue involved herein is whether the transaction of sale and purchase between the petitioners and seller mentioned in para. 2 of the petition attracted the provisions of section 50(4) of the Ordinance so as to cast a duty on the petitioners to deduct and collect advance tax from the said sellers/importers.
I have heard the arguments of M/s. Muhammad Naseem and Shaikh Haider, the learned counsel appearing on behalf of the parties, have perused the relevant provisions of law as well as the case law relied upon by the learned counsel for the parties in support of their respective arguments
It is the case of the petitioners that they had purchased medicines during the assessment years 1996‑97 and 1997‑98 from 11 suppliers/importers of medicines whose names have been mentioned in paragraph No.2 of the petition. At the time of making payment to the aforesaid 11 sellers/importers, the petitioners did not make deduction as required by section 50(4) of the Ordinance for depositing the same in Government treasury. On this fact coming to the knowledge of Assessing Officer, who in this particular case was respondent No.3, a notice was issued under section 52 read with section 86 of the Ordinance to the petitioners as to why proceedings should not be initiated against them in their capacity as deemed assessee in default. Ultimately, respondent No.3 framed the assessment under section 52 of the Ordinance and imposed additional tax under section 86 of the Ordinance. He also imposed further demands against the petitioners.
Mr. Muhammad Naseem submitted that in view of the provisions of section 52 of the Ordinance, respondent No.3 had no authority whatsoever to proceed against the petitioners for their failure to deduct or collect tax as required by section 50(4) of the Ordinance, even if it was proved that such deduction or collection was to be made by them notwithstanding the ground raised by the petitioners that the sellers were the importers of medicines/drugs purchased by the petitioners and in accordance with section 80‑C(1) of the Ordinance they would have been, as of necessity, subjected to tax at the time of clearance of the imported medicines/drugs, inasmuch as these proceedings could only have been initiated by the concerned Assessing Officer having jurisdiction to frame assessment against the sellers/importers of the medicines/drugs. In support of his above contention, he had placed reliance on the case of M/s. Tapal Energy Limited and another 1999 PTD 4037 and M/s. Gul Ahmed Energy Limited reported in 1999 80 Tax (sic), wherein this Court while dealing with similar issues, situations and questions had pronounced that the Assessing Officer having jurisdiction to frame an assessment in respect of the income of an assessee in default would not have jurisdiction to proceed against him under section 52 for his failure to deduct advance tax under section 50(4) of the Ordinance and such power or authority would vest and be exercisable by the Assessing Officer having jurisdiction to decide and frame assessment against the importers/sellers or the persons on whose behalf the deemed assessee in default was under a legal duty or obligation to deduct or collect advance tax. Mr. Muhammad Naseem submitted that, in view of the pronouncement made in the above case, which was based on the interpretation of sections 5, 9, 50(4) (a) and 53, there remains no room for doubt that the assessment framed by respondent No.3 under section 52 arid levy of additional tax under section 86 of the Ordinance was absolutely illegal, without any authority, void ab initio and ought to be set aside.
Mr. Shaikh Haider on the other hand submitted that the contention advanced by Mr. Muhammad Naseem would have held ground but for the change brought about by the legislature by adding/incorporating an explanation in section 52, of the Ordinance, whereby the Deputy Commissioner/Assessing Officer having jurisdiction under section 5 of the Ordinance to proceed and frame assessment against the assessee in default would have the authority to initiate proceedings under section 52 of the Ordinance against the deemed assessee in default. He further submitted that after the aforesaid explanation any doubt with regard to the jurisdiction or authority of the Deputy Commissioner/Assessing Officer to proceed with the assessment proceedings against the assessee in default with regard to the initiation of proceedings under section 52 of the Ordinance stands clarified and respondent No.3 was fully authorized and clothed with power to proceed with the framing of assessment under section 52 of the Ordinance against the petitioners during the course of finalization of their Income Tax proceedings. In order to appreciate the arguments of Mr. Shaikh Haider and to find out as to whether the explanation referred to by Mr. Shaikh Haider has the effect of nullifying the pronouncements made by this Court in the case of M/s Tapal Energy Limited and another and Gul Ahmed Energy Limited and whether the Assessing Officer having jurisdiction to frame assessment against the assessee in default has been conferred the power to initiate proceedings under section 52 of the Ordinance in the assessment proceedings relating to the assessee in default, it will be appropriate to reproduce section 52 of the Ordinance as well as explanation incorporated/added to section 52 of the Ordinance by Finance Act, 1999, which is as under:‑‑‑
"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 purpose of this section, the Deputy Commissioner having jurisdiction under section 5 over the case of the assessee in default may initiate action. "
A bare perusal of the explanation added to section 52 of the Ordinance is sufficient to conclude that it has not created any new obligation or liability on the taxpayers but has been solely designed to bring about a change in the forum where a person responsible for deducting advance tax on behalf of another assessee as per requirement of section 50 of the Ordinance is to be proceeded against on his failure to deduct or collect the advance tax and to deposit the same in Government treasury. In the case of M/s Tapal Energy Limited and another and M/s. Gul Ahmed Energy Limited this Court had held that proceedings for being an assessee in default against the person saddled with the responsibility of deducting or collecting tax from the payments which were to be made by him to another person could only be initiated against him in the tax proceedings of the recipients. The reason for such conclusion was that the assessee in default who had been saddled with the responsibility of deducting, collecting and depositing the tax on behalf of recipient; which in absence of section 50 of the Ordinance would have been the responsibility/liability of the recipients themselves and any default in deduction/collection and deposition of the tax would have rendered the actual recipients liable to action; but for section 50 of the Ordinance such responsibility has been placed on the payer and he was to be deemed as an assessee in default, therefore, the proceedings under section 56 of the Ordinance for levying additional tax under section 86 of the Ordinance were to be initiated in the assessment proceedings of the recipients. However, the explanation added to section 52 of the Ordinance had brought about a change and it has been provided that the proceedings against the deemed assessee in default can be initiated and finalized during the tax proceedings of the payer on whom the responsibility of deduction and collection lies and further that the Assessing Officer/Deputy Commissioner of Income‑tax having jurisdiction to proceed with the tax assessment of the payer responsible for making collection, deduction and payment would have the jurisdiction to initiate and finalize the proceedings under section 52 read with section 86 of the Ordinance against the deemed assessee in default.
Mr. Muhammad Naseem vehemently attacked the explanation added/incorporated in section 52 of the Ordinance and submitted that even if it be admitted that it had legally conferred jurisdiction on the Assessing Officer/Deputy Commissioner of Income‑tax, having jurisdiction to frame assessment against the petitioners, to initiate proceedings under section 52 of the Ordinance against the deemed assessee in default in the tax proceedings relating to the assessee in default, the fact was that the order in dispute under section 52 read with section 86 of the Ordinance was finalized much earlier than the addition/incorporation of the explanation in section 52 of the Ordinance and therefore, it would have no application to an order which had already been passed prior to the addition/.incorporation of the aforesaid explanation. In support of his above contention, he placed reliance on the following cases:‑‑
(i) Adnan Afzal v. Capt. Sheer Afzal (PLD 1969 SC 187);
(ii) Dr. Sher Afghan v. Amir Hayatkan and others (1987 SCMR 1787); and
(iii) Yew Bon Tev v. Kanderan Bas Mara 1983 PSC 1200 (PC).
I have considered the arguments of Mr. Muhammad Naseem and I am not at all impressed with the contention raised by him. The question of retrospective operation of the explanation would have arisen only if it had the effect of imposing new liability or obligation on the taxpayer or had effected any existing rights either by taking them away or curtailing them. A bare perusal of the explanation is enough to hold that it only provides a change inthe forum, whereby the powers to hold proceedings against the payer as a deemed assessee in default have been taken away from the Assessing Officer/Deputy Commissioner of Income‑tax dealing with the tax proceedings of the recipients and have been conferred on the Assessing Officer/Deputy Commissioner of Income‑tax having power to deal with the tax proceedings of the payer. It is a well‑established principle of law that when the legislature brings about a change in the forum then the same is always with retrospective effect unless it has the effect of curtailing the existing rights available to a party for challenging any adverse order. By the aforesaid explanation, the legislature has not taken away any right of appeal or revision or has not in any manner curbed the rights available to a deemed assessee in default and is merely in the nature of a change of officer/authority. In support of the above, reliance is placed on the following cases:‑‑‑
(i) Hakim Ali Zardari v. The State and another PLD 1998 SC 1;
(ii) Malik Gul Hasan & Co. and another v. Allied Bank of Pakistan 1996 SCMR 237; and
(iii) Yusuf Ali Khan v. Shanghai Banking Corporation 1994 SCMR 1007.
In this connection. I may also refer to the case of Messrs Ever Shine Limited v. Commissioner of Income‑tax (1995 PTD 624), wherein this Court while discussing the scope of an explanation added to a provision of a Statute had pronounced that where an explanation was not of penal nature and did not impose any new obligation/liability on the taxpayer, then the same would be considered to operate retrospectively. In view of the above, the contention advanced is without any substance. It may also be stated that the object of an 'explanation' to a Statutory instrument is to clarify, to facilitate proper understanding of a provision and to serve as a quideline as pronounced by the Hon'ble Supreme Court in the case of Naveed Textile Mills Ltd. v. Assistant Collector (Appraising) Customs House and others reported in PLD 1984 SC 92. It will be useful to reproduce the relevant portion from the cited judgments of the Hon'ble Supreme Court which is as under:‑‑‑
"We have heard the learned counsel at length. We are in agreement with him that the ordinary function of any explanation is to clarify, to facilitate the proper understanding of a provision, to serve as a guide, as held in the case of Muhammad Hussain Patel. Nevertheless, it does not exhaust or complete the function and the purpose of an explanation. In the Privy Council case of Krishna Ayyangar; In re (ILR 43 Mad. 550), it was held that 'The construction of the explanation must depend upon its terms, and no theory of the purpose can be entertained unless it is to be inferred from the, language'. In another case from Indian jurisdiction, State of Bombay v. United Motors (AIR 1953 SC 252), the explanation was found to contain a legal fiction, to provide a simpler and workable test directed at facilitating the operation of the statute itself.
The object or the function of the explanation incorporated/added to section 52 of the Ordinance is to take away the jurisdiction from one Deputy Commissioner of Income‑tax and to confer the same on another Deputy Commissioner of Income‑tax relative to their powers to initiate proceedings under section 52 of the Ordinance against 'payer' as envisaged in section 50(4) of the Ordinance on his failure to make deduction/collection of advance tax from the payments made by him to the recipients. Such a change according to Mr. Shaikh Haider would result in facilitating the working and operation of the Ordinance by providing a simple procedure for initiating proceedings under section 52 of the Ordinance against the deemed assessee in default. The case law relied upon by the learned counsel for the petitioners has no application to the facts and circumstances of this case and is of no assistance to the petitioners. As a matter of fact, the pronouncement made in the case of Adnan Afzal v. Capt. Sheer Afzal PLD 1969 SC 187 supports the version raised on behalf of the Department that the explanation would operate retrospectively.
Mr. Muhammad Naseem further submitted that the explanation would not be effective in view of the fact that the jurisdiction to proceed against a deemed assessee in default could not be conferred on the Assessing Officer/Deputy Commissioner of Income‑tax having jurisdiction to undertake the tax proceedings against the recipients unless necessary amendments were made in sections 5, 9, 50(4)(a) and 53 of the Ordinance inasmuch as this Court in the case of M/s. Tapal Energy Limited and another and M/s. Gul Ahmed Energy Limited had relied on the aforesaid section for holding that the proceedings against the payer for being deemed assessee in default could only be undertaken in the assessment proceedings of the recipients. In support of the above, he placed reliance on the following cases:‑‑‑
(i) (1965) 55 ITR 741 (SC);
(ii) (1972) 86 ITR 2 (SC); and
(iii) Messrs Elahi Cotton Mills v. Federation of Pakistan and six others PLD 1997 SC 582, p.677.
This contention is also without any substance inasmuch as the explanation has taken care of section 5 of the Ordinance which is the most important section for determining the jurisdiction of Assessing Officer/Deputy Commissioner of Income‑tax to deal with the tax assessment proceedings of an assessee. The explanation specifically states that the 'Assessing Officer/Deputy Commissioner of Income‑tax having jurisdiction under section 5 of the Ordinance to deal with the tax assessment proceedings of the payer would have the jurisdiction to initiate proceedings under section 52 of the Ordinance against the deemed assessee in default. The effect of these words is that the Assessing Officer/Deputy Commissioner of Income‑tax having jurisdiction to proceed with the tax assessment proceedings of the recipients has ceased to have jurisdiction. Amendments or changes in sections 9, 50(4)(a) and 53 are not at all necessary to take away the jurisdiction from one Assessing Officer/Deputy Commissioner of Income‑tax and for conferring the same on another Assessing Officer/Deputy Commissioner of Income‑tax as the explanation added/inserted satisfactorily takes care of all the provisions contained in the aforesaid sections. A minute examination of sections 9, 50(4)(a) and 53 of the Ordinance reveals that they do not contain any provision which would cause any hindrance for effective operation of the explanation in question. The pronouncement made in the afore-cited cases relied upon by Mr. Muhammad Naseem are of no advantage to the petitioners in view of the observations made hereinabove that the only hurdle in the change of forum by the explanation would 'have been faced in view of sections 5 and 52 of the Ordinance but the explanation has amply taken care of the provisions of both the sections by specifically providing that Assessing Officer/Deputy Commissioner of income‑tax having jurisdiction to frame assessment against the payer/assessee in default would have the jurisdiction to initiate proceedings against a deemed assessee in default under section 52 of the Ordinance.
Mr. Muhammad Naseem further submitted that in the absence of any corresponding changes in sections 9, 50(4)(a) and 53 of the Ordinance the jurisdiction of the Assessing Officer/Deputy Commissioner of Income‑tax to initiate proceedings against a deemed assessee in default could not be taken away and the amendment brought by the legislature in adding/incorporation of the explanation to section 52 would not have the effect of reversing or invalidating the pronouncements made by this Court in the case of Messrs Tapal Energy Limited and another and Messrs Gul Ahmed Energy Limited. In support of the above, Mr. Muhammad Naseem placed reliance on the following cases:‑‑
(i) Molasses Trading Export (Pvt.) Ltd. v. Federation of Pakistan and others (1993 SCMR 1905); and
(ii) Mirpurkhas Sugar Mills Limited v. District Council, Tharparkar and 3 others (1991 MLD 715).
As per my observations hereinabove, I have expressed the view that after amendment in section 5 of the Ordinance, no further amendments were required in sections 9, 50(4)(a) and 53 for validly conferring the jurisdiction on the Assessing Officer/Deputy Commissioner of Income‑tax to initiate proceedings against the assessee in default in the tax proceedings. Furthermore, the case law relied upon by Mr. Muhammad Naseem also does not support his contention as the explanation does not have the effect of imposing new obligations or liabilities on the tax payer nor has the effect of taking away or curtailing the rights available to a taxpayer and is merely in the nature of change of forum, which the legislature had ample power to make and no exception can be taken to the amendment/change brought about by the said explanation.
Mr. Muhammad Naseem relying on sections 6 and 21 of the General Clauses Act further submitted that the explanation could not relate to past and closed transaction and as the order in dispute had been passed prior to the addition/incorporation of the explanation in dispute, the same could not be effective and useful invalidating the impugned order. Reliance for the above was also placed on the following cases:‑‑‑
(i) Province of East Pakistan v. Sharafatullah and 87 others PLD 1970 SC 514;
(ii) Arshad Akram & Co. and others v. Divisional Superintendent Pakistan Railways and others PLD 1982 Lah. 109;
(iii) Pakistan v. Muhammad Himayatullah Farukhi PLD 1969 SC 407; and
(iv) Province of Punjab and another v. Mian Manzoor Ahmed Wattoo 1998 CLC 1585.
This issue has already been discussed by me while discussing the question of retrospectivity of the explanation wherein it has been observed that the amendment/clarification brought about by the explanation related to change of forum and an amendment/clarification relating to change of forum operates retrospectively unless by such change of forum there is curtailment or taking away of a vested right or a right of appeal or revision available to the aggrieved party.
In the circumstances, the arguments advanced by Mr. Muhammad Naseem are without any substance and I have no doubt in my mind in concluding that by virtue of the explanation added/incorporated in section 52 of the Ordinance, the Assessing Officer/Deputy Commissioner of Income‑tax dealing with the tax assessment. proceedings of am assessee would have the right to initiate and finalize the proceedings against the said assessee in cases where he is to be treated as an assessee in default. As such in view of this, no exception can be taken to the orders passed under section 52 read with section 86 of the Ordinance by Assessing Officer/Deputy Commissioner of Income‑tax, respondent No.3, against the petitioners.
Mr. Muhammad Naseem has also referred to me the following cases in support of his contention that where full tax has been paid, default cannot be considered in the hands of deducting assessee or those liable to deduction and that no further tax could be imposed by way of default.
(i) (1982) 137 ITR 230;
(ii) (1983) 140 ITR 818;
(iii) (1985) 151 ITR 634; and
(iv) (1989) 176 ITR 282.
The contention advanced as well as the case law relied upon by Mr. Muhammad Naseem has no relevancy or application to the facts and circumstances of this case and is absolutely of no assistance to him in advancing the cause of the petitioner. He further submitted that section 52 of the Ordinance construed default and imposed a new tax which is not income tax but is penal and quasi‑criminal in nature and imposition of a new tax which was penal and quasi‑criminal would not have retrospective effect. In support of the above contention, he placed reliance on the following cases;
(i)(1961) 42 ITR 589;
(ii) (1964) 53 ITR 250;
(ii) (1979) 119 ITR 475;
(iv) (1984) 149 ITR 143; and
(v) PLD 1998 SC 1.
In deciding the issue with regard to the effectiveness of the explanation added/inserted in section 52 of the Ordinance, the question whether section 52 of the Ordinance imposed a new tax which was penal and quasi- criminal in nature is lot at all in issue requiring determination. The question in issue is whether the explanation added/inserted to section 52 of the Ordinance, which brings about a change in the forum/Deputy Commissioner of Income‑tax to initiate proceedings under section 52 of the Ordinance against an assessee in default for non‑compliance by his of the provisions of section 50(4)(a) of the Ordinance, would operate retrospectively. The case law relied upon by the Advocate for the petitioner has no applicability and relevancy to the facts and circumstances of this case.
It was submitted on behalf of the petitioner that the addition/insertion of the explanation to section 52 of the Ordinance was in the nature of an incompetent legislation as it was contrary to the provisions of sections 5, 50(4)(a) and 53 of the Ordinance and also because it had the effect of nullifying the judgment of this Court in the case of Messrs Tapal Energy Limited and Messrs Gul Ahmed Energy Limited. In support of the above, reliance was placed on the case of Molasses Trading Export v. Federation of Pakistan and others PLD 1993 SC 1905. In this case, the Supreme Court had laid down the requirements which were to be followed by the legislature, if it wanted to bring an amendment in a statute for nullifying or invalidating the judgment of a Court and it was further observed that in the ultimate analysis it will have to be examined whether the validating piece of legislation removed the defect which the Court had found in the existing law and whether adequate provisions in the validating law for valid imposition of tax were made. In the present case, the question of imposition of a tax or a liability does not arise nor this Court in the case of Messrs Tapal Energy Limited and Messrs Gul Ahmed Energy Limited had pointed out to any defect in the Ordinance which is sought to be rectified/removed by the explanation. On the contrary, the explanation brings about a change in the forum and the words used in the explanation satisfactorily and with clarity give out the intention of the legislation.
Mr. Muhammad Naseem next submitted that the petitioners had purchased imported drugs/medicines from eleven different dealers who used to import the drugs/medicines and according to section 50(5)(a), the said 11 importers of the drugs/medicines were liable to deduction of advance tax computed on the bases of the value of such medicines/drugs as increased by Customs duty/Sale Tax if any levies thereon at the rates specified in the First Schedule and such advance deduction of tax was deemed to be the final discharge of the tax liabilities of all the aforesaid importers in view of the provisions of section 80C(4) of the Ordinance thereby discharging the petitioners of obligation/liability to deduct tax from the payments made or the price paid by them to the aforesaid eleven sellers/importers for purchase of the medicines from them. He further submitted that in view of the provisions of section 50(5)(a), it was impossible that the medicines offered by the eleven importers for sale to the petitioners were taken out of the bonded Customs area without payment of advance tax by the said eleven importers and, therefore, the petitioners did not deduct or collect advance tax from the payments made by them as such deduction would have amounted to subjecting the eleven sellers/importers to tax liability which they had already discharged but this fact was not at all considered either by the original Assessing Officer/Deputy Commissioner of Income‑tax or by the Assessing Officer/Deputy Commissioner of Income‑tax, who had finalized the proceedings under section 52/86 of the Ordinance. In advancing the aforesaid arguments, Mr. Muhammad Naseem perhaps seems to have lost sight of section 50(4)(b) of the Ordinance which empowers the Commissioner of income‑tax to issue directions to the person, who is saddled with the responsibility of deducting or collecting tax from the recipients, not to deduct any tax from any payment or payment to the trade to such recipients in any financial year and the payer or person responsible for making any payment shall thereafter, till such order is cancelled, make such payment without deduction of tax under section 50(4)(a). The proper course in view of the provisions of section 50(4)(b) for the said eleven sellers/importers in question was to obtain the necessary order from the concerned Commissioner after satisfying him that they had paid advance tax on the medicines/drugs sold by them to the petitioners at the time of their clearance by the Customs Authorities and they were not under any liability or responsibility' to pay further advance tax and had the said sellers/importers obtained such a certificate and produced it before the petitioners, then the petitioners would have been justified in not deducting/collecting advance tax from the payments made by them to the said sellers/importers by way of price of the medicines purchased by them. In the absence of any such certificate, the contention of Mr. Muhammad Naseem that in view of the provisions of section 50(5)(a) the relevant authorities would have collected advance tax from all of them on the basis of the value of the medicines imported by them as increased by Customs duty and Sale Tax as the said medicines would not have been cleared without collection of the advance tax is based merely on assumption and surmises without being supported by any substantive material on record. Mr. Muhammad Naseem's contention that it was not for the importers in question to obtain a certificate as required by section 50(4)(b) as they would not have been able to clear the imported medicines without collection of advance tax at the stage of payment of Customs duty and it was for the relevant authorities of the Income Tax to satisfy themselves as to whether such advance tax had been collected or not is without any substance inasmuch as it is the case of the petitioners that the importers in question would have been subjected to tax on the medicines which had been purchased by the petitioners and under the law they could not be subjected to further tax in view of the provisions of section 80‑C(4) and, therefore, the petitioners did not deduct or collect tax from the payments made by them. The petitioners should have satisfied themselves by reliable and satisfactory evidence that the said importers had been subjected to tax and should not have relied on assumptions, surmises and conjunctures for non‑performance of the obligations, cast upon them by section 50(4) of the Ordinance i.e. deduction and collection of tax from the amount which they had paid to the eleven importers/sellers off' medicines.
The last ground raised by Mr. Muhammad Naseem in support of the petition was that the responsibility of deduction or collection of tax and deposit thereof in the Government treasury in pursuance of section 50(4)(a) of the Ordinance has been placed on a person responsible for making any payment in full or in part on account of 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 contractors/consultants or consortium in any financial year where the total value of the goods supply or contract executed exceeded Rs. 50,000 and he submitted that in the present case, the said eleven importers/sellers had neither supplied medicines nor has rendered any service to the petitioners so as to attract the provisions of section 50(4)(a) of the Ordinance. He further submitted that the transactions between the petitioners and the eleven importers/sellers were in the nature of transactions of sale of the medicines by the importers/sellers and purchase thereof by the petitioners for which the petitioners made payments to the importers/sellers towards the price of the medicines/drugs sold by them and such transactions would not amount to supply of goods of tradition of service or execution of a contract as envisaged in the aforesaid section so as to cast a liability/responsibility on the petitioners to deduct and deposit the advance tax from the amounts paid by them to the importers/sellers as price of the medicines/goods purchased. This contention is without any substance and merits no consideration in view of the pronouncements made by the Lahore High Court in the case of Commissioner of Income Tax/Wealth Tax v. M/s Prime Dairies Ice Cream Limited, reported as 1999 PTD 4147. In the cited case the issue involved before the learned Division Bench of the Lahore High Court was whether word "supplies" was general in its nature and was inclusive of sale when the seller supplied his goods in lieu of the price to the buyer and the learned Division Bench after taking into consideration the meaning of the words "sale" and "supply" as per legal dictionaries as well as ordinary dictionaries pronounced that the words "supply" included the sale of goods by the sellers in return for their price from the buyer. It will be appropriate to reproduce the relevant portions from the judgment of the Lahore High Court which is as under:‑‑‑
"From the aforesaid examination, it is thus, clear that expression 'supplies' is of wide amplitude. Manifestly, 'sale' means transfer of sold or agreed to be sold property from seller to buyer in future for payment of price. Such transfer is for a consideration/payment of money or promise thereto by the buyer. Necessarily, it so means a transfer of title in property from seller to buyer. Briefly, sale and purchase are two phases of transaction of sale. If we look it from the side of purchasers, it is a purchase of the title in the property and if we see it from seller's side it is a sale or transfer of the title in the property from seller to purchasers. The supply on the other hand is expression of general nature. It connotes the, availability of aggregate of things needed or demanded for a given use of purpose. Consequently, the supply may include sale but this cannot be synonymous with the aforesaid expression. This view was taken in Exh. P. Turner. Re Hardy (1948) 18 N.S.W.S.R. 133. It is settled that statute are to be construed with reference to plain language of such statutes and Courts are not required to add or omit to clear the language of such statute. Tested on the above touch stones, we are, in no manner, of doubt that the word supplies is general in nature and is inclusive of sale when the seller supplies his goods in lieu of their price to buyer. The interpretation of Tribunal, to our view is completely illegal, based upon totally irrelevant consideration and cannot be sustained. A bare reading of section 50(4)(a) of Ordinance shows that in order to eliminate any possibility of doubt the legislature has used word supply of goods and further used the word maker of payment and recipient of payments/as a 'payer' and recipient. Even the case of a recipient/recipients who were not liable to pay any tax under section 9 of the Ordinance, have been taken care of by legislature in section 50(4)(b) of the Ordinance. This provision is as follows:‑‑‑
(b) the Commissioner may on an application made by any such recipient and after making such inquiry as he thinks fit, allow, by an order in writing any person responsible for making such payment not to deduct any tax from any payment or payments made to such recipient in any financial year, and where such order is made, the person responsible for making any payment shall thereafter, and until such order is cancelled, make such payment without deduction of tax under clause (a).."
This provision has two parts. In first part, the recipient has been equipped with a right to move the Commissioner for seeking certificate that he is not liable to pay any tax and so the payer/buyer be restrained from deducting the prescribed tax from him. The Commissioner is empowered to hold the necessary inquiry and if he finds that the recipient or the supplier is not liable to pay any tax under section 9 of the Ordinance, he may accept his application and grant, him such certificate. Resultantly, thereafter, the payer/buyer will not deduct the amount of prescribed tax from such suppliers/sellers. On the above analysis, we have no difficulty in holding that the expression 'supplies' as embodied in section 50(4) of Income Tax Ordinance (XXXI of 1979) does include 'sales' and so the view taken by the learned Income Tax Appellate Tribunal is wholly illegal, erroneous on the face of record and so is hereby set aside. These income tax appeals are so decided in the above terms. "
After going through the cited judgment. I do not find any reason for not agreeing with the observation made by the Lahore High Court and the objections to the effect that the transactions between the petitioners and the eleven sellers/importers did not attract the provision of section 50(4)(a) of the Ordinance holds no ground.
Upon the above discussion, I am unable to concur with the view expressed by Dr. Ghous Muhammad, J. (as he then was) and hold that in view of the addition/incorporation of the explanation to section 52 of the Ordinance, respondent No.3 had the jurisdiction and authority to initiate proceedings under section 52 against the petitioners as assessee in default in the assessment proceedings relating to the petitioners and no exceptions can be taken to the order passed by him under section 52 read with section 86 of the Ordinance. Consequently, this Constitutional Petition is found to be without any substance and must fail. Accordingly concurring with the view expressed by Ata‑ur‑Rehman, J. this Constitutional Petition stands dismissed with no order as to costs. The petitioners will be at liberty to approach the concerned forum/authority for establishing the fact that the sellers/importers had been subjected to income tax liability at the time of clearance of the imported medicines by the Customs Authorities and that the petitioners were under no obligation to make deduction or collection of the advance tax in accordance with the provisions of section 50(4) of the Ordinance.
Q.M.H./C‑27/KPetition dismissed