Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑S.50(4)‑‑‑Sales Tax Act, 1990, S.3A‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑Contract Act (IX of 1872), S. 23‑‑‑C.B.R. Letter C.No. 1(74) WHT/2000, dated 16‑4‑2001‑‑‑Sales tax‑‑‑Deduction of tax at source‑‑‑Complaint before Federal Tax Ombudsman‑‑‑Purchaser was liable to pay sales tax under an agreement with the supplier/complainant‑‑‑Purchaser had charged Income‑tax under S.50(4) of the Income Tax Ordinance, 1979 on the amount of Sales Tax reimbursed to the complainant and had deducted the amount from the bills payable to complainant/assessee under the instruc tions of C.B.R. vide Letter C.No. l(74)WHT/2000, dated 16‑4‑2001‑‑ Validity ‑‑‑Withholding tax was an advance collection of Income‑tax charged on payment made by recipient of supplies‑‑‑Payment, in the present case, included Sales Tax as well‑‑‑Complainant/supplier was relying on the arrangement with the purchaser but no one can contract out of a statute‑‑‑Such contract or arrangement in violation of law was void and not enforceable‑‑‑Complainant had not been able to produce any notification as provided by S.3A of the. Sales Act, 1990 in support of his plea‑‑‑Complainant's case, thus had no merit and no mal-administration on the part of the Revenue Division had been established‑‑‑Complaint was rejected by the Federal Tax Ombudsman.

Khurshid A. Sheikh for the Complainant.

Pervaiz Akhtar, Secretary (WHT), C.B.R. for Respondents.

DECISION/FINDING

The complainant is a supplier of goods to the CMA(DP) (Army) and had an arrangement with the latter wherein the complainant deposited the sales tax due on the supplies on behalf of the CMA (DP) and claimed reimbursement of the same front the CMA who used to reimburse to the complainant the sales tax amount in full. This arrangement continued, prior to August, 2001, but afterwards, the CMA started deducting the withholding tax under section 50(4) of the Income Tax Ordinance, 1979, (Hereinafter referred as Ordinance) on payments inclusive of the sales tax amount, claimed by the complainant as fully reimbursable to him. The CMA relied on the C.B.R.'s. letter dated 16‑4‑2001 issued in this regard wherein it is stated:

"That withholding tax is attracted on account of gross payments inclusive of Sales Tax, Customs Duty or Central Excise Duty."

2. According to the complainant, the CMA has charged Income‑tax under section 50(4) of the Ordinance upon the amount of Sales Tax reimbursed to the complainant and has deducted the amount from the bills payable to the latter. Under an arrangement between the complainant and the purchaser whereby the Sales Tax is payable by the purchasers (DP Army) and is only deposited in advance by the complainant to be subsequently reimbursed by the purchaser. The complainant pleaded that it only acts as collecting agent and that the sales ‑tax is leviable upon the purchaser (DGP (A)). It is neither a part of the price nor an Income, and charge of Income‑tax on Sales Tax was never provided for in the agreement made with the purchaser.

3. It is further stated that the conditions about Taxes under the said contract provides that any additional taxes or change in the rate of taxes shall be the liability of the purchaser. Sales Tax has been mentioned separately apart from the price of the store in the contract, Sales Tax thus is neither part of price of the store, nor an income. No such deductions were made from the bills prior to August 2001, and notification issued. The complainant has requested that‑ CMA (DP) may be directed to refund the amount of sales tax deducted and restraining order for future deductions be issued,

4. The reply, dated 24‑9‑2001 submitted by the C.B.R. is as follows;

C.B.R. is not a party to the transaction between the complainant and DP (Army). The contents of C.B.R.'s letter, dated 16‑4‑2001 are based upon provisions of the section 50(4) of the Ordinance, which stipulates that WHT on supply of goods is deductible on payments made for such supplies and there is no provision for exclusion of Sales Tax which forms a part of payment. The provisions of a contract cannot override specific provisions of the Ordinance. WHT is deductible on the amount of payments for supplies and no part of payment can be excluded for this purpose. It is prayed that complainant's request may not be acceded to. Thus the complaint relates to charge of Income‑tax under section 5001) of Income Tax Ordinance, 1979 by the CMA (DP) (The Accounts Officer for Directorate of Procurement Army) upon the amount of Sales Tax reimbursed to complainant.

5. During the course of hearing Mr. Khurshid A. Sheikh, on behalf of the complainant submitted, that, Sales Tax deposited by the contractor is an adjustable security payment made on behalf of the purchaser to the C.M.A. as basically the purchaser is responsible for the payment of sales tax. This argument is not valid in the light of section 3(3)(a) of the Sales Tax Act, 1990, wherein liability to pay the tax shall be of the‑person snaking the supply and the new subsection (3A) inserted vide Finance Act, 1998 is also inapplicable because no notification in the official Gazette whereby liability of person receiving the supply is established has been submitted by the complainant thus this plea is rejected. It was further contended that "Goods are defined in Sales Tax Act, 1951 as all kinds of movable property other than Actionable claims (money, stocks, shares, and securities) (section 2(6) ibid), and thus reimbursement of sales tax does not constitute payment for "Goods" for the purpose of sales tax or Income‑tax. This plea of the complainant is irrelevant, because it is receiving payment from C.M.A. on supply of taxable goods "shaft assembly etc? and is not supplying the latter with any actionable claims.

6. Mr. Pervaiz Akhtar, Secretary ‑(WHT) C.B.R., representing the respondent, submitted that the contents of C.B.R.'s Letter C. No.l(74)WHT/2000, dated 16‑4‑2001, are based upon provisions of subsection (4) of section 50 of the Income Tax Ordinance, 1979, which stipulates that withholding tax on supply of goods is deductible on payments made for such supplies. There is thus no provision for exclusion of Sales Tax, which forms a part of payment. It was contended that Excise Duty was a component affecting total payment and as Excise Duty has been replaced with Sales Tax, Sales Tax is also a part of payment, subject to Withholding tax.

7. In order to clarify the issue a reference to section 50(4) of the Income Tax Ordinance, 1979 is necessary which is as follows:

"(4) Notwithstanding anything contained in this Ordinance;

(a) any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person (,being resident,) (hereinafter referred to respectively as `payer' and `recipient'), on account of the supply of goods or for service rendered to, or the execution of a contract with the Government, or a local authority, or (a company), (or a registered firm,) or any foreign contractor or consultant or consortium shall, deduct advance tax, at the time of making such payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July next following the said financial year, ......

(Explanation.‑‑‑For the purpose of clause (a) the expression `supply of goods' includes both cash and credit purchases of goods by the payer, whether under a contract or not, on credit or in cash.)"

8. The issue raised in the instant case is whether WHT is leviable on `payment of goods only', or "on the payment of goods + sales tax". The point which needs to be noted is that the expression used in 50(4), is "making any payment in full or in part", the term payment does not exclude any component thereof, thus exclusion of sales tax is not indicated. In order to remove the ambiguity, the point which needs to be understood is that supplier is receiving payment from the purchaser on sale of goods and tax is made on such payment as is evident from Para. 'E' of part 1 of the First Schedule of the Income Tax Ordinance, 1979, which says that Tax deducted has to be percentage of payment and there is no provision for excluding any component thereof.

9. The clarification offered in C.B.R.'s letter dated 16‑4‑2001 is as follows:

"that withholding tax is attracted on account of gross payments inclusive of Sales Tax, Customs Duty or Central Excise Duty."

10. This stand taken by the C.B.R. has been examined and nothing patently wrong has been found in it. Withholding tax is an advance collection of Income‑tax charged on payment made by recipient of supplies. In the present case the payment includes, Sales Tax as well. The complainant is relying on the arrangement with CMA(DP) but it is a well‑settled principle of law that no one can contract out of a statute. Such contract or arrangement in violation of law is void and not enforceable. The complainant has not been able to produce any notification as provided by section 3‑A of the Sales Tax Act.

11. The complaint has no merit and no mal-administration on the part of the Revenue Division has been established. The complaint is rejected in the light of above.

C.M.A./M.A.K./260/FTO

Complaint rejected.