I.T.A. No. 1442/KB/DB of 2001, decided on 24th April, 2002. VS I.T.A. No. 1442/KB/DB of 2001, decided on 24th April, 2002., 2002 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2428 (2002)

Income Tax Ordinance (XXXI of 1979)‑‑‑

---‑First Sched., Part I, para. CCC & Ss.52A & 88‑‑‑Rate of tax‑‑ Assessing Officer passed order under S.52A of the Income Tax Ordinance, 1979 calling upon the assessee to deposit the short payment alongwith additional tax by considering that since contracts with each payee exceeded 30 Million, tax at the rate of 6% was to be deducted under para. CCC of Part I of the Income Tax Ordinance, 1979‑‑ Assessee contended that Assessing Officer misinterpreted the law that where contractual receipts from one payer exceed Rs.30 million, the rate of deduction under S.50(4) of the Income Tax Ordinance, 1979 and of assessment under S.80C of the Income Tax Ordinance, 1979 was to be taken at 6% of the income representing payments on account of execution of contracts and further contended that as per sub‑clauses (i) and (ii) of cl. (a) of sub‑para. (i) of para. CCC it was the value of the contract which was material, notwithstanding the amount of payments received in respect of that contract or in respect of receipts from the same payer relating to different contracts that word contract in para. CCC (i) (ii) had been used in singular which meant that the higher rate of 6% was to be applied on payments if the value of the overall contract exceeded Rs.30 million‑‑‑Validity‑‑‑Appellate Tribunal agreed with the submissions made by the assessee and observed that the value of a contract was the determining factor for application of rate of 5% or 6% as the case may .be on the income representing the payments on account of execution of contracts‑‑‑Each of the contract in the present case, the amount not exceeding Rs.30 million‑‑‑Payments received during the year regarding said contracts were to be subjected to the tax rate of 5 % and not 6% .

Muhammad Siddique, I.T.P. for Appellant.

Inayatullah Kashani, D.R. for Respondent.

Date of healing: 24th April, 2002.

ORDER

MUHAMMAD AKHTAR NAZAR MIAN (ACCOUNTANT MEMBER).‑‑‑The appellant company is a contractor which submitted statement under section 143‑B of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance). This statement stood accepted on its filing as per law. The Assessing Officer, however, considered that since contracts with each of the payers viz. Agha Khan University relating to Sports Complex or C.H.S. and JBR, Siemens Pakistan Limited, and Procon Engineering Ltd. exceeded Rs.30 million, tax at the rate of 6% was to be deducted under para. CCC of Part I of the 1st Schedule. The Assessing Officer, therefore, passed order under section 52A calling upon the appellant to deposit the short deduction of payment amounting to Rs.10,453,962." He also charged additional tax under section 88 of the Ordinance.

2. The appellant went in appeal before the CIT(A) who upheld the order of the Assessing Officer. It is in these circumstances that the appellant has come in appeal before us.

3. It is contended by the learned A.R. that the provisions contained in paras. CCC or para. E of Part I of the 1st Schedule have been misinterpreted by the authorities below. For the sake of convenience para. CCC quoted supra is reproduced below; the provisions of para. E being similar need not be reproduced.

"CCC. (i) In the case of every resident person holding a National Tax Number and to whom section 80C applies,‑

(a) From the assessment year commencing on or after the first day of July, 1999, on the income representing payment on account of execution of contracts other than the income to which clause (b) or (c) or (cc) applies‑

(i) Where the value of contractfive per cent. of income;

does not , exceed thirty

million rupees

(ii) Where the value of contractsix per cent. of such

exceeds thirty millionincome

rupees

(b)...........................................

(c) ...........................................

(cc) ...........................................

(d)...........................................

(dd) ..........................................."

(The words are underlined above by us for the sake of emphasis).

4. It is argued by the learned A.R. that the officers below have interpreted the law that where contractual receipts from one prayer exceed Rs.30 million, the rate of deduction under section 50(4) and of assessment under section 80‑C is to be taken at 6% of the income representing payments on account of execution of contracts. He asserts that as per sub‑clauses (i) and (ii) of clause (a) of sub‑para (i) of para. CCC it is the value of the contract which is material, notwithstanding the amount of payments received in respect of that contract or in respect of receipts from the same payer relating to different contracts. In these two sub‑clauses quoted supra, the word contract has been used in singular. This means that the higher rate of 6% is to be applied on payments (of whatever amount received in a year) if the value of the overall contract exceeds Rs.30 million. The D.R. on his turn supports the order of the authorities below.

5. After perusing the orders of the authorities below and the provisions of law as quoted supra, we are inclined to agree with the submissions made by the learned A.R. It is the value of a contract which is determining factor for application of rate of 5% or 6%, as the case may be, on the income representing the payments on account of execution of contracts. With this observations, we have found that with) the Agha Khan University in respect of Sports Centre, 3 contracts were entered into by the appellant with the said University. The first contract for total amount of Rs.19,861,224 was entered into on 20‑6‑1998 for civil and Structural works, the second Generic contract for Civil and Architectural works was entered into on 21‑9‑1998 and the payments were to be made on the basis of contract documents as specified in the Notice to Proceed and the third contract for Civil and Architectural Works was entered into on 20‑5‑1999 for a consideration of Rs.27,037,748. Each of the contracts for Sports Complex was of an amount not exceeding Rs.30 million. In this view of the matter payments received during the year regarding these contracts were to be subjected to the tax rate. of 5% and not 6%: So far as the contract with Agha Khan University pertaining to CHS and JBR is concerned, this was for an amount of Rs.69,878,841 entered on 22‑1‑1998. In this view of the matter the rate of 6% was to be applied in respect of payment of Rs.42,52,160 received during the year in respect of this contract with Siemens Pakistan Ltd:, was for an amount exceeding Rs.30 million and therefore, the payments received in respect of this contract were to be subjected to the tax rate of 6%. In respect of Procon Engineering Ltd. the contract was entered into on 9‑9‑1998 and the contract amount was of Rs.29,891,305 and, therefore, the tax to be deducted at the rate of 5%.

6. In view of the analysis given above, we direct that the demand under section 52‑A may be revised by the Assessing Officer accordingly with consequential effect to be given in respect of additional tax as well.

C.M.A./M.A.K./362/Tax(Trib.)

Order accordingly.