I.T.As. Nos. 2613/LB to 2619/1 13 of 2001, decided on 13th October; 2001. VS I.T.As. Nos. 2613/LB to 2619/1 13 of 2001, decided on 13th October; 2001.
2002 P T D (Trib.) 1930
[Income-tax Appellate Tribunal Pakistan]
Before Khawaja Farooq Saeed, Judicial Member and Javed Tahir Butt, Accountant Member
I.T.As. Nos. 2613/LB to 2619/1 13 of 2001, decided on 13/10/2001.
(a) Income Tax Ordinance (XXXI of 1979)---
----Eighth Sched., Part 'I, S. No.9(xi)---Bed linen---Export of---Rate of tax. deduction---Assessment years 1994-95 to 2000-2001---Bed linen was part of Part I and entire Part I was entitled to deduction at the rate of 0.50%--Charge of deduction @ 0.75%, therefore, was not justified.
(b) Income 'Tax Ordinance, (XXXI of 1979)--
---Ss.80CC, 14313, 62, 50(5), 52 & Eighth Sched., Part I, S.No.9(xi)-- Assessment under S.62 of the Income Tax Ordinance, 1979 and rate of withholding tax charged @ 0.75 % on export proceeds were challenged to be unjustified---Validity---Assessee had gone through many rounds of litigation and facts regarding filing of statement under S. 143B or a return under S.55 of the Income Tax Ordinance, 1979 were also .not very clear---Facts showed that for the assessment year 1994-95 assessee had a claim of exemption under the Second Schedule of Income Tax Ordinance, 1979 which was quite confusing---Tribunal found that `bed linen' were chargeable to withholding tax @ 1/2% hence a finding on such issue would only be academic.
1988 PTD (Trib.) 1206 ref.
(c) Income Tax Ordinance (XXXI of 1979)---
---Ss.86, 88, 80CC, 143-B & 50---Additional tax- --Additional tax was charged on excessive tax calculated on the basis of difference between tax deducted and deductable---Validity---Deduction of tax @ l/2% was correct and charge of additional tax could not be maintained---Contention that charge was not consequent and it was to be separately adjudicated as a separate proceeding, academically might be correct but 1/2% deduction was a correct deduction, the additional tax for calculated default of 0.25%o tax could not be maintained and even if there be any default it was not on the part of' assessee---Assessee should not have been penalized-on the default of withholding agent---Charge of additional tax under Ss.86 and 88 of the Income Tax Ordinance was declared to be unjustified by the Tribunal.
PTCL 1995 CL 1 (SC of Pakistan) and PTCL 1997 CL 213 ref.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.50---Deduction of tax at source---Custom rebate and Professional tax-- -Withholding tax---Validity---Deduction was to be made on account of export proceeds from the foreign exchange receipt by the withholding agent---Custom rebate was neither a part of export receipts nor was paid in foreign exchange same being basically a compensation or rebate on export performance by the Government, of Pakistan---Such amount wits neither export proceed nor fell through the withholding agent thus, there was no question of any deduction on the same---Charge created was declined by the Tribunal.
(e) Income-tax---
----Professional tax---Charge of by the Assessing Officer---Validity-._ Professional tax did not come under the ambit of Central Board of Revenue in any manner for it was a Provincial charge created by the Government of Punjab and Income - tax Department did not find any place in it in any manner---Charge of professional tax was a total misconception which could not be supported by the Tribunal.
M. Siraj Khalid and Ehsan Sheikh, I.T.P. for Appellant.
Muhammad Asif, D.R. for Respondent.
Date of hearing :26th September, 2001.
ORDER
KHAWAJA FAROOQ SAEED (JUDICIAL MEMBER).---In these appeals filed by the assessee the assessment under section 62 on the basis of a statement under section 14313 is challenged to be unjustified. In addition to above, rate of withholding tax charged al 0.75 % application of section 50(5) on custom rebate, charge of professional tax and additional tax under sections 86 and 88 are challenged to be unjustified.
Brief facts of the case are that the assessee is an exporter of textile made-up and bed linens Before reaching this stage and prior to the orders impugned which are dated 9-1-2001 and 30-5-2001 decided by the Assessing Officer and CIT respectively, the case has gone through two rounds of litigation from 1994-95 to 1998-99. The statement of facts as furnished speaks as follows:---
MESSRS SILVER TEXTILES LIMITED, LAHORE
STATEMENT OF FACTS
ASSESSMENTS FOR 1994-95 TO 2000-2001
| 1994-95 (i) u/s 62on 28-12-1997Charged u/s 80D387,692 CIT (A) set aside the assessment on 4-6-1997. (ii) u/s 62/132 on 26-6-1999Charge a/s SOD502,482 CIT (A) set aside the assessment on 20-4-00 Income assessed under section 80CC/143B Asstt.u/sdate ofTextileBedTotal Yearordermadeupslinens 1994-95(iii) 62/1329-1-01charged u/s 80CC 0.50%9,517,060 0.75%57,480.510 Confirmed by CIT(A) on 30-5-2001---Hence appeal before ITAT 1995-96 (i) 59A23-5-97329,951,192 329,951,192 (@0.50%) Cancelled by IAC under section 66A on 30-6-1999---IAC order remanded by ITAT on 23-5-2000 (ii)62/13513-12-0057,100,193 272,850,999 ( @ 0.50%)(@ 0.75%) 329,951,192 Confirmed by CIT(A) on 30-5-2001-Hence appeal before ITAT 1996-97(i)59A30-4-97399,928,274399,928,274 ( @ 0.50%) Cancelled by IAC under section 66A on 30-6-1999-IAC order remanded by /TAT, on 23-5-2000 (ii)62/13513-12-0032,694,135367,234,139399,928,274 (@ 0.50%)(@ 0.75%) Confirmed by CIT(A) on 30-5-2001-Hence appeal before ITAT 1997-98 (i)59A28-4-99376.208,362376,208,362 ( @ 0.50%) Cancelled by IAC under section 66A on 30-6-1999---IAC order remanded by ITAT on 23-5-2000 (ii)62/13513-12-0037,657,448338,550,914 376,208,362 (@ 0.50%) (@ o.7s%) Confirmed by CIT(A) on 30-5-2001-Hence appeal before /TAT 1998-99 (i)59A16-12-98361,934,050361,934,050 (@ 0.50% 80D) Set aside by CIT(A) on 16-6-1999. (ii)59A/13230-11-99.361,934,050 361,934.050 (@ 0.75%) Set aside by CIT(A) on 20-4-2000 (iii)59A/1329-1-200153.977,266307,950,784 361,934,050 (@ 0.50%) (@ 0.75%) Confirmed by CIT(A) on 30-5-2001-Hence appeal before ITAT 1999-2000 (i) 62 23-12-00100,940,505321,439,929 422,380,434 (@ 0.50%) (@ 0.75%) Confirmed by CIT(A) on 30-5-2001-Hence appeal before ITAT 2000-2001 (i) 62 23-12-0086,234,922286,777,053 355,011,975 (@ 0.50%) (@ 0.75%) |
Confirmed by CIT(A) on 30-5-2001---Hence appeal before ITAT
The argument now advanced by learned AR which is in respect of all the years is that the assessments under section 62 are without lawful jurisdiction. It is said that it is a case of presumptive tax regime. The assessee is admittedly an exporter and tax from him is deducted on realization of foreign exchange as per rates prescribed by the relevant provisions of law. Such cases the AR argue are fully covered under the provisions of .section 80CC by operation of which the assessee does not have any option but to file a statement under section 143B which the ITO is legally bound to accept without further probe or investigation. He cannot issue a notice to the assessee either under section 61 or 62 or under any other such section. Further taking any action other than accepting the statement is not akin to his powers as are assigned to him by the Income Tax Ordinance under section 80CC. Placing reliance upon 1988 PTD (Trib.) 1206 he said that the only option available to him is to have recourse to the provisions contained in section 52 of the Income Tax Ordinance. The assessee, therefore, under the law would only come into picture if the withholding agent contacts him for making good the deficit 'of the deduction of the law so provides. However, the assessing officer has no jurisdiction to approach this assessee under any provision of law. The relevant para. of the judgment referred by him from the Supreme Court Judgment is as follows:---
"With regard to the question of proceedings under section 62 of the Income Tax Ordinance on the basis of a statement by the respondent under section 143-B of the Income Tax Ordinance for alleged failure of the respondent to make the deductions/collection from the payments made by it by way of sale price to its sister concern Messrs Jaffar Brother Limited it is to be observed that a statement filed under section 143 of the Income Tax Ordinance cannot by any stretch of imagination be treated or considered as a return of total income which could be subjected to assessment for determining income-tax liability under section 62 of the Income Tax Ordinance. In case a perusal of the statement file under section 143-B of the Income Tax Ordinance discloses a short fall payer/deemed assessee in default envisaged under section 50(4) of the Income Tax Ordinance and not made deductions or collections of advance tax from the payment made by it to the contractor for supply of goods or rendering services etc. as required bythe said section 50(4) of the Income Tax Ordinance then recourse could be had under section 52 of the Income Tax Ordinance against the payer on whom the obligation or liability to deduct or collect the advance tax has been placed by section 50(4) of the Income Tax Ordinance by charging additional tax under section 86 of the Income Tax Ordinance in the circumstances and facts of the case the Assessing Officer could not issue a notice to the respondent for furnishing return of total income as it was not required to do so in view of the provision of section 143-B of the Income Tax Ordinance. Similarly no action under section 65 of the Income Tax Ordinance could be taken against the respondent for its alleged failure to deduct and collect the advance tax from the payments made by it to its sister concern by way of purchase price for the machinery imported by its sister concern M/s. Jaffar Brothers Limited inasmuch as the notice envisaged for initiating the proceedings under section 65 of the Income Tax Ordinance is similar and analogous to a notice to be issued under section 56 of the Income Tax Ordinance. In the circumstances, the Tribunal had rightly come to the conclusion that if on perusal of the statement under section 143-B an Assessing Officer finds that any default has been taken place then he can have recourse to the provisions contained in section 52 of the Income Tax Ordinance but would have no authority to embark to or call upon the respondent to file a return to total income under section 56 or 65 of the Income Tax Ordinance and to proceed for making regular assessment under section 62 of the Income Tax Ordinance."
The acquiring of jurisdiction in the opinion of the learned AR, therefore, was not legal and the Assessing Officer having no authority was debarred from making an assessment in this case. He added, at best the learned ITO could ask the withholding agent to deduct tax @ 0.75 % if he was so convinced and the question of an assessment in this case does not arise at all.
Coming to the merits he remarked that the subordinate officer has confirmed the treatment under a misconception. The assessee is involved in the business of export of bed linens and other textile made- ups. So far as the deduction tax on made-ups is concerned since the Department has not touched it there is no need to comment. However, with regard to bed linens, the 8th Schedule provides for tax deduction @ 0.50%. He said that prior to the presumptive tax regime in 1988 leather and textile garments were entitled to deduction of the tax rate by 75 % and subsequently on such-like items withholding tax was fixed @ 0.50%. After amendment in 1997 this provision was simplified and the items placed in Part-1, of the 8th Schedule have been fixed for deduction of tax @ 0.50%. The matter he said has further been classified by mentioning in Part-1, para. (xi) of its table the words "bed linen, table linen. And kitchen linen". He remarked that the whole of Part-1 being chargeable to withholding tax @ 0.05 % said rate is applicable to bed linens, without any doubt. To further strengthen his arguments he also produced the custom tariff wherein bed linen, table linen and toilet linen etc. have been placed under Head No.63.02 which item has been placed in Part-1 of the 8th Schedule and that Part-1 charges tax @ 0.50%. Cist of his arguments all that in earlier years on export of leather and textile garments the assessee was entitled to rebate 75% of its income-tax and its corresponding deduction was 0.50% under section 50(5A) While after amendment on 1st of July, 1997 the directions for deduction of tax became straight and withholding agents were directed to charge taxes half per cent to bed linens etc.
Regarding charge of additional tax a said section 86 in no way was applicable as it is not the assessee who has paid the taxes either before or with the return but it is the withholding agent who has deducted his tax and paid to the Income Tax Department. The question of default on the part of this assessee, therefore, does not arise Regarding additional tax under section 88 he said that 'the charge here again besides being consequential to excessive tax calculated on the basis of difference between 0.50 % to 0.75 %is illegal. Even otherwise, the ITO under law was legally bound to issue a show-cause notice to the assessee before calculating additional tax under section 88. Firstly, he remarked if the ' Hon'ble Court feels that the demand created a$ well as the increase in the rate is not justified the additional tax shall automatically crumble to ground being in consequence thereof. Secondly, even on legal premises the same cannot stand the test as the Hon'ble superior Court in the cases reported PTCL-1995 CL 1 (SC of Pakistan) and PTCL 1997 CL 213 have held that the words used as `shall be liable' in Sales Tax Act do not make the additional tax as mandatory. The legislature in the opinion of the Hon'ble superior Court has intentionally kept the words as above or otherwise they could have replaced it by shall pay. He further remarked that the difference between the two connotations has been discussed in detail and shall be liable has been held to as an option for the Assessing Officer which obviously was not to be exercised casually or suo motu: Such-like discretion wherever provided is always subject to a show-cause notice as no one can be condemned unheard. In the present case this tax has been calculated suo motu, hence, is liable to cancellation.
The last point was in relation to charge of Professional Tax which the AR said again is a misconception. The Assessing Officer without having any authority has applied a Provincial Tax in the Federal proceedings and the same is without any lawful jurisdiction. The Professional Tax is an independent charge for which separate authorities have been prescribed by said law which does not include offices subordinate to Central Board of Revenue. He, therefore, urged cancellation of all the taxes, including additional tax or other charges created by the Assessing Officer.
The learned DR firstly said that the issue regarding jurisdiction is taken at a very belated stage. This case was earlier decided under section 62 and prior to these proceedings before the ITAT it has gone to two rounds of litigation. The arguments regarding the same in his opinion, are of no help, hence should be ignored. He further said that the assessee is not exporter of `bed linens' but of some of other fabrics as mentioned by the learned IAC in its order. He therefore was not entitled to deduction @ 0.50. This is where we feel that the controversy regarding exported items needs to be settled first before proceeding further with the arguments.
In this order impugned before us the learned CIT after perusal of the assessment order has observed that during the original assessment proceedings, the IAC/Chairman Panel-G6, Special Zone, Lahore; collected relevant details from the appellant. In keeping view the contents of the said details and shipping bills filed by the appellant it was established that appellant is engaged in export of fabrics which are ultimately used for bed sheets. It has been further, remarked that a part of export rebates, export proceeds consist of cotton made-ups like bed sheets etc. The findings of the IAC in this regard are reproduced, as follows:---
"The arguments reproduced above are not appealing at all. Perusal of assessment order indicates that during the original assessment proceedings the IAC/Chairman, Panel-06, Special Zone, Lahore collected relevant details from the appellant. Keeping in view the contents of the said details and shipping bills filed by the appellant during assessment proceedings, it was rightly established that the appellant is engaged in export of fabrics which are ultimately used for bed sets. However, it was noticed that a part of export proceedings consisted of the cotton made-ups like bed sets etc. Perusal of the assessment order further indicates that the appellant was provided sufficient opportunity of being heard through the specific notices.
From the above findings, it is accepted by the IAC that the assessee had filed certain documents before Panel as well as before the First Appellate Authority. The I.A.C. has further observed that plea taken by the appellant during appeal proceedings was not before the Panel at the time of original assessment, hence this stand was not to be entertained at this stage. This is where we consider that the I.A.C. is not justified. The proceedings in this case are on the basis of jurisdiction available to .him under section 66(A) the jurisdiction under which can be exercised on order being erroneous and prejudicial to the interest of revenue for which IAC is to arrive at a conclusion after necessary inquiries. Even otherwise these documents were very well before learned Panel who has itself mentioned in the order that:---
"In view of above textile made-up are charged to tax @ 0.50% whereas the rest of export proceedings are to be taxed @ 0.75 % under Part I and Part II of the 8th Schedule respectively. The detailed discussion that bed linen are not covered for charge of tax a 0.50% has already been made in the assessment order for the assessment years 1995--96 to 1997-98 and assessee's plea was rejected."
Above lines are then supported with the findings that `bed linens' are not covered for the charge of tax @ 0.50%.
In view of above description saying that documents are being placed for the first time before the First Appellate Authority is a misconception as the same were available on record earlier. Even otherwise in such-like situation evidence that goes to the very root of the order should not be refused by the Appellate Authorities as this goes to negate the concept of substantial justice.
Though in the presence of findings of learned I.A.C. as above, the mentioning of document is unnecessary, however, for substantial justice, we re-produce the contents of the Certificate issued by Export Promotion Bureau which speaks as follows:
GOVERNMENT OF PAKISTAN,
EXPORT PROMOTION BUREAU,
62-GARDEN BLOCK, GARDEN TOWN,
LAHORE: 29-1-2000
TO WHOM IT MAY CONCERN
Certified that Messrs Silver Textile Limited, 148-Industrial Estate, Kot Lakhpat, Lahore are engaged in processing and Export of `Bed linen' and `made-ups' e.g. Bed sets, Bed spread, Bed covers etc. of different constructions and blends to USA and EU.
(Sd.)
Executive Officer,
EPB, Lahore.
In view of the above description and more for the reason of the order of the I.A.C. (Chairman Panel) itself, whose case is not that the assessee has not exported bed linens, but that the bed linens are not covered within the reduced deduction @ 0.50%, we hold that the assessee was not exporting simple fabrics but was actually engaged in the export of bed linens.
Reverting to the main issue bed linens have been specified Under Sub-heading No.63.02 of the Pakistan Custom Tariff and in the relevant Eighth Schedule of the Income Tax Ordinance. The same speaks of charge @ 0.50%. Here, again for benefit of everybody we reproduce the relevant para. of Part I of the Eighth Schedule:---
(THE EIGHTH SCHEDULE See Part IV of the First Schedule)
RATES OF TAX REBATE ON INCOME FROM EXPORT OF GOODS
Subject to the provisions of sub-paragraph (2) of paragraph A of. Part IV of the First Schedule, the Income-tax and Super tax in respect of income from export of goods manufactured in Pakistan, specified in column 2 of the table below shall be reduced by such percentage as is shown to column 3 thereof:
TABLE
| Sr. NoGoods specified under Chapters,Percentage Heading and Sub-Heading Nos. of the Pakistan Customs Tariff. (1)(2)(3). 1.Leather and Textile Garments75 per cent.. F.F. Rate for collection or income-taxOne per cent. of such income under subsection (5A) of section 50: |
Provided that where an assessee was entitled to reduction of income-tax and super-tax equal to fifty per cent. and seventy-five per cent, under clause (a) of sub-paragraph (2) of Paragraph A of Part IV of the First Schedule, Part III of the Second Schedule and the Eighth Schedule as the case may be, the rate of collection of income-tax shall be three-fourth of one per cent. and one-half per cent. of such income respectively."
Above provisions basically speak about reduction in tax by 75 % as it originally stood before 1992. After amendment such items which were entitled to reduction in tax by 75 % were placed for withholding tax @ 0.50%. Proviso to para. FF above refers.
Above situation changed in 1997 when the relevant schedule was arranged to simplify it. After re-arrangement in 1997 the same speaks as follows:---
(THE EIGHTH SCHEDULE See Part IV of the First Schedule)
RATES OF TAX ON INCOME FROM EXPORT OF GOODS
The rate of tax payable under section 801C and subsection (5A) of section 50, in respect of income of a person (being a resident), from
export of goods shall be:
Where the income pertains to
Exports covered underThe rate
(a) Part I0.50% of such income.
(b) Part II0,75% of such income.
(c) Part III1 % of such income.
PART I
(Specified goods manufacture Pakistan)
Sr. No.Description
1. Leather and textile made-ups-."
TABLE
Sr. No.Goods specified under Chapter.
Heading and sub-Heading Nos. ofDescription.
The Pakistan Custom Tariff.
((ix)63.02 .Bed linen, table linen and kitchen linen.
Above description, therefore, makes it clear that bed linens are part of Part I and entire Part I is entitled to deduction at the rate of 0.50%. So without going into further discussion, we consider it imperative to hold that the charge of deduction (D 0.75 % was not justified.
As regards the argument on the issue of assessment under normal law is concerned. Prior to reaching before us this appellant has gone in many rounds of litigation and facts regarding filing of statement under section 143B or a return under section 55 ate also not very clear. This observation finds place from the fact that for the assessment year 1994-95 assessee had a claim of exemption under the Second Schedule of Income Tax Ordinance. The facts, therefore, are quite confusing. In any case we have found in an unequivocal terms that the `bed linens' are chargeable to withholding tax @ 1/2% hence a finding on this issue shall only be academic.
Regarding charge of additional tax under sections 86 and 88. here again in view of our observation that the deduction of tax @ 1/2% was correct, the charge of additional tax is not to be maintained. The A.R/'s saying that the charge is not consequent and it was to be separately adjudicated as a separate proceeding; academically may be correct but, however, in view of our unequivocal observation that 1/2% deduction was a correct deduction, the additional tax for calculated' default of 0.25 % tax cannot be maintained. Further; in this case even if there be any default it is not on the part of the assessee. He should. therefore, not have been penalized on the default of withholding agent. had there been any.
The result is obvious the charge of additional tax under sections 86 as well as 88 both are unjustified.
This leaves us to the issue regarding charge of withholding tax on custom rebate as well as professional lax. The directions of the Assessing Officer and its confirmation by the First Appellate Authority are surprising. The deduction is to be made on account of export proceeds from the foreign exchange receipt by the withholding agent. Custom rebate is neither a part of export receipts nor is paid in foreign exchange. It is basically a compensation or rebate on export performance by the Government of Pakistan. This amount is neither export of proceed nor comes through the withholding agent. There was, therefore, no question of any deduction on the same. This new charge created by the Assessing Officer, cannot be supported by us.
Regarding professional tax for 1998-99 we are afraid that it does not come under the ambit of the Central Board of Revenue in any manner. It is a provincial charge created by the Government of Punjab and Income-tax Department does not find any place in it in any manner. Charge of the same is a total misconception which obviously cannot be supported at the stage of ITAT.
In view of the above discussion it is obvious that none of the proceedings initiated by the Assessing Officer and confirmation by the First Appellate Authority holds the sanctity of law. We, therefore, without any hesitation accept these appeals and delete all the charges created as well consequential penalties and taxes.
Appeals are decided accordingly.
C.M.A./M.A.K./267/Tax(Trib.)
Appeals accepted.