I.T.As. Nos. 1856/LB to 1858/LB of 2001, .decided VS I.T.As. Nos. 1856/LB to 1858/LB of 2001, .decided, 2002 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1971 (2002)

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑Ss. 52 & 50(1)‑‑‑Liability of persons failing to deduct or pay tax‑‑Assessee in default ‑‑‑Assessee had provided rent‑free un furnished/furnished accommodation to his employees‑‑‑Assessing Officer considered its rental value as more than 45% of the basic pay which if added would have resulted in more than declared income ‑‑‑Assessee was declared as "assessee in default" under S.52 of the Income Tax Ordinance, 1979 on account of failure of deduction of tax from such deemed addition in its income‑‑‑Validity‑‑‑Holding the assessee as assessee in default on the basis of such estimates and presumptions that the rent‑free accommodation could fetch more rent in open market and that this could have increased assessee's income was just a far‑fetched presumption which had no leg to stand so far as S.50(1) of the Income Tax Ordinance, 1979 was concerned ‑‑‑Deduction having not been made on average basis, even if there was some short deduction, the provision of S.52 of the Income Tax Ordinance, 1979 did not come into picture‑‑ Withholding tax was a mode of recovery and could not be equated with the charge or tax demand after assessment‑‑‑Section 52 of the Income Tax Ordinance, 1979 could only, come into picture if there was default under S.50(1) of the Income Tax Ordinance, 1979 which in the present case, had not been established ‑‑‑Assessee was not liable to be subjected to any further deduction‑‑‑Order of the Assessing Officer was cancelled by the Tribunal.

Yousaf Saeed, F.C.A. for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 10th January, 2002.

ORDER

KHAWAJA FAROOQ SAEED (JUDICIAL MEMBER). ‑‑‑These appeals have been filed by the assessee. These are against the confirmation of the order of the I.T.O. through which the assessee has been considered as an assessee‑in‑default.

Brief facts leading to these appeals are that the assessee Educational Institution has provided rent‑free unfurnished/furnished accommodation to his employees. The IAC considered its rental value as more than 45% of the basic pay which if added would have resulted in more than declared income. The College having failed to deduct tax from such deemed addition in its income has defaulted. This default in the opinion of the Assessing Officer is covered by the provision of section 52 and the Institution has become an assessee‑in‑default.

The second issue is that the employees of the College not being Government servants were not entitled to the exemption of conveyance allowance and if the same amount is added in their income their taxable value shall increase. Here, again the Aitchison College having not taken cognizance of the same and having not deducted tax on the additional amount of L.C.A. has been considered as an assessee‑in‑default and tax has been charged on the same.

The learned A.R. has argued the case at length. He has mainly challenged the method and have argued that the accommodation provided is more than 100 years old and it is beyond comprehension that its annual letting value can be more than 45% of the basic pay except for the cases of 2/3 employees. Further, all the employees are existing assessees of the same Circle in which this assessment has been finalized, hence the additions should have been made in their own assessment and not in the case of the disbursing authority. Regarding compensatory allowance he said that these employees are Government servants and that L.C.A. is exempt. He produced before us ‑a judgment of the High Court in which the Honourable High Court had considered the Aitchison College to be a statutory body, a Corporation and a body Corporate and a person against which a writ can be filed under Article 199(5) of the Constitution of Islamic Republic of Pakistan, 1973. He, therefore, claimed that the employees were exempt from L.C.A. and that its addition to income is beyond comprehension. Even otherwise he added that the employees being assessees these amounts should have been included in their own income and should not adversely used against the institution.

The learned D. R. strongly supported the orders of the subordinate officers. He said that the payment due to the assessee being higher was applicable. Further, L.C.A. is not exempt in the case of employees of Aitchision College and while making the payment deduction on this amount has been ignored. We brought his attention to section 50(1) wherein deduction was to be made at the time of making payment and that the house provided by the principal can hardly be termed as a payment on which he did not comment. The provision that is relevant for this issue speaks as follows:

"50. Deduction of tax at source.‑‑‑(1) Any person responsible for paying any income chargeable under the head `Salary' shall at the time of payment, deduct tax on the amount payable at the average rate of tax computed at the rates specified in the First Schedule on the estimated income of the assessee under this head for the financial year in which the payment is made after making such adjustment, as may be necessary, for any excess deduction. of deficiency arising out of, a previous deduction or failure to make such deduction during the said financial year."

The plain reading makes few things very clear. Firstly; that the person responsible for paying any income chargeable under the head "salary" is required to deduct tax at the time of "payment". How a building provided by the Institution to its employees can be considered, as a payment has neither been replied by the Assessing Officer nor by the CIT(A).

The second and the more important requirement is of deducting tax on the amount payable at the "average rate" of tax computed on the rates specified in the First Schedule on "estimated income". The emphasis in the provision is on 'average rate' of tax and on `estimated income' as per the Second Schedule. How in above circumstances a person can be termed as defaulter is not understandable. The tax deduction by the withholding agent is on estimated basis and on average rate of tax and the provision does not speak of actual calculation or the exact tax. Even in other similar provisions law does not provide for payment of 100% tax before the end of the previous year. For example in section 53 the taxpayer is supposed to pay 80% of the tax on the basis of assessment of the previous years and is also permitted to re‑calculate the same before the end of the year if in his opinion his income for the present year is likely to be less than the preceding year. The Assessing Officer has completely ignored the provision and its requirements. Holding the college as an assessee‑in‑default on the basis of such estimates and presumptions that the rent‑free accommodation could fetch more rent if given in open market and that this could have increased assessee income, is just a far‑fetched presumption which have no legs to stand so far as section 50(1) is concerned. Since it is not in dispute that deduction has not been made on average basis hence even if there was some short deduction the provision of section 52 does not come into picture. The withholding tax basically is a mode of recovery and cannot be equated with the charge or tax demand after assessment. In this regard cases quoted by learned A.R. as well as by learned D.R. do not need reference as we have dilated upon the issue from a different angle. Section 52 could only come into picture if there was a default of section 50(1) which in this case has not been established. We, therefore, without any further hesitation hold that Aitchison College was not liable to make any further deduction and that the order of the ITO as well as of the First Appellate Authority both are not maintainable.

The appeals are allowed and the order of the ITO, is hereby cancelled.

C.M.A./M.A.K./292/Tax(Trib.) Appeals allowed.