Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.80C 143B, 50(5)(4), 55, 102 & Second Sched., Part IV, Cl.(9B)‑‑ S.R.O. No.97(I)/2002 dated 12‑2‑2002‑‑‑Establishment of Office .of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑Tax deducted on supplies under S.50(4) of the Income Tax Ordinance, 1979 was claimed as refund being the tax deducted under S.50(5) of the Income Tax Ordinance, 1979 on the same goods was the final discharge of tax liability‑‑ Department refused the claim of the complainant on the ground that conditions in the said clause had not been fulfilled because no Return had been filed by the complainant under S.55 and no irrevocable option was filed with the Return and thus, tax deducted under S.50(4) was covered by the provisions of S.80C of the Income Tax Ordinance, 1979 . Validity‑‑‑Mere import of goods was not an income‑generating activity and collection of income‑tax at import stage had been provided in law in anticipation of the fact that the goods would be sold subsequently to generate income‑‑‑Collection at import stage had been deemed to be a final discharge of tax liability‑‑‑Was against the scheme of presumptive taxation to again tax the proceeds from the same goods when these were actually supplied by the importer‑‑‑Complainant, having only made supplies, was not required to file Return under S.55 of the Income Tax Ordinance, 1979‑‑‑Clause (9B) of Part IV of Second Sched., Income Tax Ordinance, 1979 was in conformity with the discussion, Court rulings and complainant's view and cl. (9B) was not retrospective in nature‑‑ Even in the context to the earlier clause, said clause did not apply to the complainant's case a he was not required to file a Return under S.55 and that the complainant had acted in accordance with law by filing a statement under S.143B and by claiming a refund of fax paid under S.50(4) of the Income Tax Ordinance, 1979‑‑‑Clause (9B) only states an existing legal position in clear terms and that the complainant had rightly claimed the refund of tax deducted under S.50(4) in respect of supply of goods on which tax had already been paid under S.50(5) at the import stage‑‑‑Refund would, however, be due from the date on which the refund order was made and no additional sum was due under S.102 of the Income Tax Ordinance, 1979‑‑‑Federal Tax Ombudsman recommended that the tax deducted under S.50(4) on supply of goods on which tax had already been paid under S.50(5), be refunded to the complainant.

2002 PTD (Trib.) 532; 2001 PTD 1656; 1997 PTD (Trib.) 1143; Messrs Elahi Cotton Mill's case 1997PTD 582 and 2002 PTD 187 rel.

Bashir Ahmad and Mansoor Sattar, A.Rs. for the Complainant.

Mrs. Fareena Mazhar, I.A.C. for Respondent.

FINDINGS/DECISION

This is a complaint relating to non‑payment of refund claimed to have been wrongly deducted under section 50(4) of the Income Tax Ordinance. The main points in the complaint are as under: ‑

(i)During the period relevant to the assessment. year 2001‑2002, the complainant imported closed circuit cameras, accessories, VCRs and colour monitors etc. for further supply to the Motorway Police, Islamabad. ,

(ii)Total value of the imports was Rs.2,926,759 on which income‑tax @ 6% was paid under section 50(5) which amounted to Rs. 175,606.

(iii)The tax paid under section 50(5) constituted final discharge of tax liability under section 80C of the Income Tax Ordinance.

(iv)The entire abovementioned imported goods were then supplied to the Motorway Police who once again deducted a sum of Rs. 210,372 under section 50(4) on the said supply.

(v)Since the income tax of Rs. 175,606 collected under section 50(5) was the final discharge of the income tax liability in respect of the said goods, the amount deducted by the Motorway Police under section 50(4) was refundable to the complainant.

(vi)A statement under section 143B of the Income Tax Ordinance was filed for the assessment year 2001‑2002 claiming the refund of Rs.210,372 deducted under section 50(4). Subsequently, an application for refund was also filed on 27‑11‑2001.

(vii)The complainant's claim of refund is supported by the following case‑law:

(a)2002 PTD (Trib.) 532.

(b)2001 PTD 1656.

(c)1997 PTD (Trib.) 1143.

(viii) Despite a lapse of considerable time the refund has not been issued to the complainant.

It has been prayed that the Assessing Officer be directed to issue the refund of Rs.210,372 and also to pay compensation under section 102.of the Income Tax Ordinance.

2. The respondent's reply has been received and the main parts of the reply read as under:

"1.The complainant is a commercial importer and the tax‑withheld under section 50(5) at import stage constitutes final discharge of tax liability.

2.As per clause (9B) of Part IV of Second Schedule to the Income Tax Ordinance, the provisions of section 80C. in so far as relate to the payments on account of supply of goods on which tax is deductible under subsection (4) of. section 50, are not applicable in case of a person who is an importer of goods, from whom tax is collectable under subsection (5) of section 50 of the Income Tax Ordinance, 1979, subject to the following conditions:

(i)A declaration of final and irrevocable option is furnished in writing alongwith return of total income under section 55.

(ii)The aggregate overall tax liability in respect of such goods is not lees than 6 10 of the value of goods supplied. The complainant failed to fulfil the first condition; hence assessment was finalized under section 80C of the Income Tax Ordinance, ‑1979, as a result of which no refund became due to the complainant‑3 and 4.

5 and 6. Since the complainant 'failed to fulfil the conditions prescribed under, the law and no refund was determined as a result of completion of assessment under section 80C,. hence hisrequest was not acceded to by the Department."'

3. During the hearing the representative of the respondent again referred to the provisions of clause (9B) of the Second Schedule, Part IV to the Income Tax Ordinance, which before its substitution on 12‑2‑2002 read as under:

"(9B) The provisions of section 80C in so far as they relate to the payments on account of the supply of goods on which tax is deductible under subsection (4) of section 50 shall not apply to any person, being an importer of goods, from whom tax is collectable under subsection (5) of section 50 if supplies are made by the same importer under the same name and title and he opts out of the presumptive tax regime:

Provided that a declaration of final and. irrevocable option is furnished in writing alongwith the return of total income under section 55:

Provided further that nothing contained in this clause shall apply to any manufacturer of goods for which special rates of deduction of tax are specified under clause (c) of subsection (4) of section 50:

Provided also that the aggregate overall tax liability in respect of such goods shall not be' less than six per cent. of the value of goods supplied."

4. It was reiterated on behalf of the 'respondent that the conditions in the said clause had not been fulfilled because no return had been filed by the complainant under section 55 and no irrevocable option was thus filed with the return. Itwas contended that the tax deducted under section 50(4) was thus covered by the provisions of section 80C and no refund was, therefore, due to the complainant.

5. It was on the other hand stated on behalf of the complainant that since he had no other income except the supply of imported goods made to the Motorway Police he was not required to file any return under section 55 and the requirement of filing an irrevocable option with the return did not thus apply in his case. It was pointed our that the complainant had filed a statement under section 143B and had claimed a refund of the tax deducted under section 50(4) and thus the requirements of the then clause. (9B) had been duly met. It was also pointed out that it had been established. on the basis of the relevant provisions of law and .Court rulings that once tax had been collected at import stage no' further tax would be payable in respect of any further sale/supply of the same goods. It, was pointed out that this principle was, recognized in the Supreme. Court decision in the case of Messrs.. Elahi Cotton Mills reported as 1997 PTD 592. It was further stated‑that this principle was also followed in other cases e.g. in the Lahore High Court judgment reported as 2001 PTD 1656. It was pointed out that in this case the issue involved was the same as in the complainant's case and the following parts of the judgment were particularly relevant:

"2.The petitioner is an importer who derive his income from sale of pesticides. At the time of import the income‑tax is paid by the petitioner under section 50(5) of the Income Tax Ordinance. He has, however, been asked to pay the income‑tax as a supplier under section 50(4). Feeling aggrieved the petitioner has invoked the Constitutional jurisdiction of this Court.

3.Learned counsel for 'the petitioner has contended that as the petitioner had paid the tax at the time of import of the goods it amounted to final discharge of the liability in terms of section 80C(4) of the Inc6me Tax Ordinance, 1979. This contention of the learned counsel is supported by a judgment of Division Bench of Sindh High Court in the case of Commissioner of Income‑tax v. Messrs Sir E.H. Jaffer & Sons (T.T.A. No. 98 of 1998), decided on 27‑4‑2000 in which the Division Bench dismissed the reference filed by the Department holding that as the income‑tax has been paid under section 50(5) of the Income Tax Ordinance it cannot be called upon to pay any further tax. Reliance has been placed in support thereof on the case decided by the Supreme Court of Pakistan in Messrs Elahi Cotton Mills and others v. Federation of Pakistan (1997 PTD 582).

4 .

In view of what has been stated above, this petition, is allowed and the impugned demand is declared to be without lawful authority and of no legal effect.".

It was pointed out that a similar view was also taken in the Lahore High Court judgment reported as 2002 PTD 187.

6. On consideration, the complainant's plea is found to have definite merit. It is to be noted that mere import of goods is not an income generating activity and collection‑of income‑tax at import stage has been provided in law in anticipation of the fact that the goods would be sold subsequently to generate income. Through section 80C this collection at import stage has been deemed to be a final discharge of tax liability. Thus it is against the scheme of presumptive taxation to again tax the proceeds from the same goods when these are actually supplied by the importer. As regards the provisions of the then clause (9B), it is not very clear which situations it was meant to cover but it could certainly not have been meant to cover the complainant's situation since the complainant, having only made supplies, was not required .to file a return under section 55 of the Income Tax Ordinance. In fact the redundance of the earlier clause (9B) seems to have been realized now and vide 'S.R.O. No. 97(I)/2002 dated 12‑2‑2002 the Federal Government has substituted the said clause (9B) of the Second Schedule, Part IV which now reads as under:

"(9B) The provisions of subsection (4) of section 50 shall not apply in respect of payments received by a resident person for supply of such goods as were imported by the same person and on‑which tax has been paid under subsection (5) of section 50."

7. It is evident that the new clause (9B) is in conformity wit the discussion in para. 6 above, the Court rulings on the subject and the complainant's view‑point in the present case. It was, however, pointed out by the respondent's representative that the new clause is not retrospective in nature and that in the complainant's case the provisions A of the earlier clause were applicable. Even in the context of the earlier clause, however, it has already been noted that it did not apply in the complainant's case as he was not required to file a return under section 55 and that the complainant had acted in accordance with law by filing a statement under section 143B and by claiming a refund of tax paid under section 50(4). It can actually be said that the new clause (9B) only states an existing legal position in clear terms and that the complainant has rightly claimed the refund of tax deducted under section 50(4) in respect of supply of goods on which tax had already been paid under section 50(5) at the import stage. The refund would, however, be due from the date on which the refund order is made and no additional sum is at present due under section 102 to the complainant

8. In the light of the above it is recommended that:

(i) Tax deducted under section 50(4) on supply of goods on which tax had already been paid under section 50(5) be refunded to the complainant

(ii) Compliance be reported within 30 days.

C.M.A /M.A.K/308/FTOOrder accordingly