I.T.As. Nos. 4204/LB of 2000, 442/LB, 1239/LB, 1240/LB of 2001, decided on 14th November, 2001. VS I.T.As. Nos. 4204/LB of 2000, 442/LB, 1239/LB, 1240/LB of 2001, decided on 14th November, 2001.
2002 P T D (Trib.) 1952
[Income‑tax Appellate Tribunal Pakistan]
Before Khawaja Farooq Saeed, Judicial Member and Imtiaz Anjum, Accountant Member
I.T.As. Nos. 4204/LB of 2000, 442/LB, 1239/LB, 1240/LB of 2001, decided on 14/11/2001.
(a) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss. 24(c) & 156‑‑‑Inadmissible deductions ‑‑‑Salary‑‑‑Rectification‑‑ Balance payment with return‑‑‑Expenses of salary allowed‑‑ Disallowance by way of rectification ‑‑‑Validity‑‑‑Company/assessee having filed return after settlement of the accounts by its employee with the Tax Department by payment of tax as per return filed, the rigors of S.24(c) of the Income Tax Ordinance. 1979 became inapplicable‑‑‑‑Purpose behind the legislation was not to disallow verifiable expenses but to ensure prompt and timely payment of taxes by the people who receive salary‑‑‑Spirit of law should not be ignored as such provisions should also only be invoked when they apply in letter and spirit on the facts and circumstances of the case‑‑‑Rectification was a void action and its disapproval by the First Appellate Authority was quite justified.
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.24(c)‑‑‑inadmissible deduction‑‑‑Word "sum"‑‑‑Interpretation‑‑‑Key words used in S.24(c) of the Income Tax Ordinance, 1979 were "any sum paid to any person"‑‑‑Word "sum" could not be interpreted as to include delivery of goods‑‑‑"Sum" represents payment made in cash and not in kind and did not represent anything other than cash.
1968 PTD 724 rel.
(c) Interpretation, of statutes‑‑‑
‑‑‑‑ Spirit of law should not be ignored as such provisions should also only be invoked when they apply in letter and spirit on the facts and circumstances of the case.
(d) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss. 24(c), 50(4)(a) & 156‑‑‑Inadmissible deduction‑‑‑Commission and discount‑‑‑Payment of, in kind‑‑‑Disallowance on account of non -deduction of tax‑‑‑Validity‑‑‑"Sum paid" means cash payment and not the payment in kind‑‑‑Distribution of ball point pencils to its distributors on their good performance free of cost could trot be considered as "sum paid" and thus the provisions of S.50(4)(a) and of S.24(c) of the Income Tax Ordinance also remained inapplicable‑‑‑Issue set aside by the First Appellate Authority was considered as insufficient relief as the case was that of cancellation of the rectification order under 5.156 of the Income Tax Ordinance, 1979‑‑‑Order was declared void and illegal ab initio and the same was cancelled by the Tribunal.
I.T.As. Nos.3526 and 3527/LB of 1998 and 1994 PTD (Trib.) 1278 ref.
1968 PTD 724 rel.
(e) Income‑tax‑‑‑
‑‑‑‑Appeal‑‑‑Limitation‑‑‑Condonation of delay‑‑‑Limitation starts running from the date of ~ service of the order on assessee and the Commissioner respectively and not from service on another person‑‑ Appeal in the present case, apparently was within time but the same was not clear from the record‑‑‑Putting reliance on the affidavit of the assessee which was further supported by an application and unequivocal statement of the Authorised Representative at the Bat, Tribunal condoned the delay and decided the issue on merits.
1984 PTD (Trib.) 143 and 2000 PTD 344 rel.
Syed Zafarullah Shah, F.C.A. for Appellant/Assessee.
Anwar Ali Shah, D.R. for Respondent/Department.
Date of hearing: 14th November, 2001.
ORDER
In these cross appeals various issues have been taken by both the parties. The same are disposed of in the following manner:‑‑‑
Assessment year 1997‑98 and 1998‑99
In above four cross‑appeals, two are by the department while the other two have been filed by the assessee. The learned AR has argued that the Assessing Officer has mentioned three reasons to propose rectification of mistakes in the order of the earlier Assessing Officer. After obtaining reply of the assessee one out of said three issues, which was about sales tax, was dropped and no addition was made on that account. The rectification order therefore, was on two issues one of which has been deleted by the CIT(A) while on the other issue the case has been set aside. The department says that deletion and set aside both are unjustified, while the AR is against the very rectification under section 156. He said that on first issue, which was in rely to deduction of tax on salary, 'section 24(c) is very clear. It speaks of payment of tax either by the assessee himself or deducted and deposited by the principal. In either of the two situations such expense becomes allowable. Since the assessee himself has settled entire amount of tax sad this fact is not disputed the First Appellate Authority has rightly deleted this amount and the department's agitation against the same is quite irrelevant. In his opinion having found that the issue was legally incorrect the First Appellate Authority should have cancelled the rectification order in entirety and should not have deleted one issue and set aside the other. Explaining the nature of the third issue; which was regarding payment of commission and discount, he said in categorically terms that the entire claim represents goods given by the assessee to its dealers in appreciation of their better performance, free of cost. This by no means was a commission liable to deduction under section 50(4)(a). He said that even if assessee claims it as commission it does not change its status. Such and similar payments have been considered as discount and not commission by Hon'ble Tribunal in number of cases. He referred some judgments including of Messrs N. B... in I.T.A. Nos.3526 and 3527/LB/1998, decided on 19‑6‑1999 and 1994 PTD (Trib.) 1278.
In above two judgments the Hon'ble ITAT have considered similar payments to be a discount and not commission. It has been held therein that commission is the amount paid to a third party for his help in arriving at a deal between the two parties. Gifts or prizes paid to distributors in terms of ball pencils by no means can be called as commission. Even otherwise it looks quite surprising that how a deduction can be made from the goods passed on by manufacturer to its distributors.
At this juncture it will be appropriate to refer the arguments of the learned DR also who quite vehemently was supporting the order of the Assessing Officer. His comment that there was so mentioning of the issue in the earlier orders of the Assessing Officer is self‑negating. A point that does not float from the order, as a mistake apparent from record cannot be rectified.
He also argued that it seems impossible rather out of context that some body can pass on its products to a person free of cost. In his opinion the amount in question was cash commission on which deduction should have been made. He however, could not support from record that this figure represents payment of commission in cash by the company to its distributors. Regarding payment of salary his observation was that reduction in comparison to actual payment was ridiculously low. In his opinion even less payment by the principal from the salary of its employees invokes the provisions of section 24(c). He, therefore, wants restoration of the order on both the points.
Before giving our finding it will be in the fitness of things to recapitulate the facts on record. The salary is paid by the company to its directors of which tax deduction oh regular basis is being made and the same is paid in Government treasury as per rules. The employee at the time of filing his return takes benefits of its deduction and pays the balance alongwith the return. Thus requirement of section 24(c) stands complied with. Since the company filed return after settlement .of .the accounts by its employee with the Tax Department by payment of tax as per return filed by him, the rigors of section 24(c) become inapplicable. The purpose behind this legislation is not to disallow verifiable expenses but to ensure prompt and timely payment of taxes by the people who receive salary from such‑like institutions. The spirit of law should not be ignored and such provisions should also only be invoked what they apply in letter and spirit on the facts and circumstances of a case. It is still more surprising that such an action has been initiated after completion of the assessment by invoking the provisions of section 156. Allowance of salary in this case was never a mistake. Its rectification, therefore, was a void action and its disapproval by the CIT is, quite justified.
The amount referred commission in fact represents the goods given by the principal to its distributors. This is not against services rendered by them as a third party but on their good performance as distributors and it is practically a sale promotion gift. The AR says that though it is not a commission but wherever this incentive has been Paid in cash, the assessee has deducted tax from the same and has paid in Government treasury. However, the figure under discussion represents incentives in kind. Such gift parcels are credited to sale account of the assessee and the cost thereon is debited to the P&L as commission and discount. Even the ACIT in its show‑cause notice, dated 13‑4‑2000 has observed that this amount is in the shape of goods. In such circumstances the application of section 24(c) was beyond any question. The keywords used in section 24(c) are "any sum paid to any person". There is no way to interpret the word `sum' as to include delivery of goods. The word `sum' represents payment made in cash and not in kind. This Tribunal has already in a number of judgments held that the word 'sum' does not' represent anything other than cash. It does not require any support, however for the one who may desire we refer with advantage 1968 PTD 724.
In this judgment the Hon'ble Court has held that exemption of donation to a charitable institution does not include a grant given in 'the shape of shares. This finding has been given after holding that 'sum paid' means cash payment and not the payment in kind. In view of the same distribution of its product i.e. ball point pencil to its distributors on their good performance free of cost cannot be considered as 'sum paid' and thus the provisions of section 50(4)(x) and of section 24(c) also remain inapplicable. The set aside on this issue by the CIT therefore, is considered as insufficient relief. This was a clear case of cancellation of the rectification order under section 156. We, therefore, hold that there was no mistake apparent from record and the order under section 156 was void and illegal ab initio. The same is hereby cancelled and the original order of the ITO is restored in toto.
Assessment year 1988‑89 and 1989‑90
The appeals are again cross and the same are against the order of the CIT(A). The issue involved is common. The department is against relief allowed by the learned CIT(A) in various P&L expenses while the assessee is dissatisfied with partial modification in various heads of P&L.
Before we dispose of the issue on. merits it will be pertinent to mention that the assessee appeal for 1998‑99 is late by 27 days. This delay is on account of non‑intimation to the assessee by the AR of the receipt of the order by him. The AR himself before us has accepted this fact that he received the order but could not pass it on to the assessee and nor could intimate them. A formal application for condonation of delay has been filed with affidavit while reliance has been placed on the judgment of the ITAT in the case reported as 1984 PTD (Trib.) 143. 2000 PTD 344. In aforementioned two judgments the Hon'ble ITAT and High Court Sindh service of order on AR and on Inspector of the Commissioner to be as invalid. In both the cases in view of specific mentioning in section 85 the hon'ble Tribunal and the superior Court have held that the limitation starts running from the date of the service of the order on assessee and the Commissioner respectively and not from service on another person. In the present case D the order has been served on 28‑9‑2000 respectively have held and the appeal has been filed an 25‑11‑2000, which is obviously within the 60 days. Though from the record it is not clear however, putting reliance on the affidavit of the assessee which is further supported by an application and unequivocal statement of learned AR at bar we condone this delay and consequently decide the issue on merits.
As already mentioned both the parties have contested the order of the CIT(A). The learned AR is against inadequacy of the relief and the DR is against reduction of the disallowance. We have gone through the comparative position of the two years. In our opinion in keeping view the turnover of the assessee the addbacks are still quite excessive. We, therefore, deem it more appropriate to reduce the various addbacks to the following figures:‑‑‑
| S.No | Particulars | Asstt.Year 1998-99 | Asstt.Year 1999-2000 |
| Administrative Expenses |
| 1. | Directors Travelling. | Rs.1,00,000 | Rs.1,25,000 |
| 2. | Staff Travelling | Rs.1,50.000 | Rs.1,00,000 |
| 3. | Entertainment | Rs.1,00,000 | Rs.1,00,000 |
| 4. | Vehicle running & Maint. | Rs.2,00,000 | Rs.2,00,000 |
| 5. | Printing & Stationery. | Confirmed | Confirmed |
| 6. | General Repairs | Rs.1,20,000 | Rs.1,25,000 |
| Selling & Distribution. |
| 1. | Travelling | Rs.1,00,000 | Rs.1,20,000 |
| 2. | Postage. Telex & Telephone | Rs. 50,000 | Rs. 60,000 |
| 3. | Vehicle running and Maint; | Rs.1,40.000 | Rs.1,10,000 |
| 4. | Printing & Stationery | Confirmed | Confirmed |
| 5. | Export expenses | Confirmed | Confirmed |
This dispose assessee as well as departmental appeals in the manner and to the ‑extent as mentioned above.
C.M.A./M.A.K/270/Tax (Trib.)
Order accordingly.