I.T.As Nos. 595/KB to 597/KB of 2002, decided on 1st June, 2002. VS I.T.As Nos. 595/KB to 597/KB of 2002, decided on 1st June, 2002.
2002 P T D (Trib.) 2705
[Income‑tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and
Muhammad Akhtar Nazar Mian, Accountant Member,
I.T.As Nos. 595/KB to 597/KB of 2002, decided on /01/.
st
June, 2002. (a) Interpretation of fiscal statute‑‑‑
‑‑‑‑ Principle of interpretation‑‑‑Fiscal laws are interpreted strictly‑‑ Various provisions of the fiscal statute are to be interpreted in such a Way that these remain consistent with one another.
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.66(1)(c), 52, 86, 132(a) & 135(4)‑‑‑Limitation‑‑‑Limitation prescribed in S.66(1)(c) of the Income Tax Ordinance, 1979 was relevant to the orders made by the First Appellate Authority under S.132(1)(a) or to the orders made by the Appellate Tribunal under. S.135(4) of the Income Tax Ordinance, 1979 relating to the orders of assessment only as the stress is on setting aside of the assessment‑‑‑In this view of the matter, Appellate Tribunal held that the limitation as prescribed under S.66 of the Income Tax Ordinance, 1979 was not applicable to carrying out the instructions given by First Appellate Authority in its order under S.132 while sitting in appeal against orders under S.52 or S.86 of the Income Tax Ordinance, 1979.
(c) Income Tax Ordinance (XXXI of 1979)‑---‑
‑‑‑‑Ss. 66(1)(c), 52 & 86‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Liability of person failing to pay or deduct tax‑‑‑Additional tax for failure to deduct and pay tax ‑‑‑Limitation‑‑‑Assessee in view of provisions of S.66(1)(c) of the Income Tax Ordinance, 1979 contended that the order in response to the setting aside of an issue by the First Appellate Authority under S.132 of the Income Tax Ordinance, 1979 could be passed by the Assessing Officer within one year from the end of the financial year in which the First Appellate Authority order was received by the Assessing Officer‑‑‑Since the time passed after the First Appellate Authority's order, dated 7‑1‑1999 was more than one year, the Assessing Officer was barred to give any finding in his orders dated 25‑1‑2002 on the issues set aside by the First Appellate Authority‑‑‑Validity‑‑‑Appellate Tribunal maintained the order of the Assessing Officer dated 25‑1‑2002 and that of the First Appellate Authority dated 21‑3‑2002 to the extent that the Assessing Officer was justified in carrying out the instructions of the First Appellate Authority contained in his order, dated 7‑1‑1999 against the order passed by the Assessing Officer under Ss.52/86 of the Income Tax Ordinance, 1979 and the matter was not considered barred by time by the Tribunal.
(d) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.52‑‑‑Liability of person failing to deduct or pay tax‑‑‑Withholding agent ‑‑‑Assessee in default‑‑‑Principle‑‑‑For the purpose of treating the withholding agent as assessee in default it was incumbent upon the officer passing order under S.52 of the Income Tax Ordinance, 1979 to see that no tax had been paid on the same receipts by the recipient‑‑‑In case it was established that the recipient had paid tax on the payments or the authority having jurisdiction over the recipient had declared that no tax was payable on such payments, then there would be no justification with the officer having jurisdiction over the withholding agent to treat the withholding agent as assessee in default, since the same payments could neither be subjected to tax at two stages nor could a person be considered as assessee in default in respect of payments which in the hands of the recipient were adjudged as non‑chargeable to tax.
(e) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.52 & 86‑‑‑Liability of person failing ,to deduct or pay tax‑‑‑Charge of additional tax for such failure ‑‑‑Assessee in default‑‑‑First Appellate Authority maintained the orders of the Assessing Officer to the extent of holding the assessee as assessee in default" for non‑deduction of tax from payments made to non‑resident‑‑‑Validity‑‑‑Appellate Tribunal set aside the point with the direction that necessary enquiries may be made by the Assessing Officer from the authority having jurisdiction to levy tax in the case of recipient company‑‑‑If Assessing Officer found that tax on these payments had been paid by the recipient company then no order under S.52 of the Income Tax Ordinance, 1979 would be exigible, and this Assessing Officer would be justified to pass order only under S.86 of the Income Tax Ordinance, 1979 for late payment of tax for the period from the date this tax was deductable to the date the tax was actually paid by the recipient company‑‑‑If the concerned Authority had declared these payments to be not chargeable to tax in the hands of the recipient company, then there would be no occasion with the Assessing Officer to hold the assessee as "assessee in default" in respect of these payments‑‑‑In the third situation if the Assessing Officer finds that notwithstanding the receipts having been taxed in the hands of the recipient company, no tax had been paid by the recipient company, then his orders under Ss.52 & 86 of the Income Tax Ordinance, 1979 would hold good ‑‑‑Assessee will have to be confronted after making the enquiries.
Nadim Tirmizi and Khaliq‑ur‑Rehman, FCAs for Appellant.
Muhammad Farid, Legal Advisor of Respondent and Inayatullah Kashani, D. R. for Respondent.
Date of hearing: 1st June, 2002
ORDER
These appeals by a private limited company are directed against Orders passed by the learned AAC Sukkur Range, Sukkur vide orders Nos.282, 283 and 284 on 21‑3‑2002 while disposing appeals against the orders of the Deputy Commissioner of Income Tax, Circle‑1, Quetta under sections 135/52/86 of the Income Tax Ordinance (hereinafter referred to as the Ordinance) for the assessment years 1996‑97, 1997‑98 and 1998‑99.
2. Before us the case has been presented by Mr. Nadeem Tirmizi and Mr. Khaliq‑ur‑ Rehman, FCAs on behalf of the assessee and by Mr. Inayatullah Kashani, learned D.R. and Mr. Muhammad Farid, Advocate on behalf of the Department. The learned representatives of both the parties have been heard, orders of the authorities below have been perused and due consideration has been given to the instructions of the Appellate Authorities which were to be complied with by the Assessing Officer while passing the orders now merged with the order of the learned AAC and presently impugned before us. We have had the privilege of going through a write up given by the learned representatives of the assessee appellant.
3. The facts so far as relevant for the disposal of these appeals are that on September 15, 1998 orders under sections 52/86 of the Ordinance were passed by the DCIT, Quetta for the assessment years 1996‑97, 1997‑98 and 1998‑99 whereby he treated the appellant Messrs Habibullah Coastal Power (Pvt.) Ltd. as assessee in default for non‑deduction of tax out of payments made to the following parties, some of whom were residents while others were non residents.
| Name of Contractor Assessment year 1996‑97 | Amount paid Rs. | Tax | Amount of Tax Rs. |
| Fiat Avio Italy | 504,422,342 | 8% | 40,353,787 |
| Habibullah Energy | 2,804,379 | 5% | 140,218 |
| Coastal Power | 381,907 | 8% | 30,552 |
| Enerpo Limited | 178,365 | 8% | 142,692 |
| Assessment year 1997‑98 | | | |
| Fiat Avio Italy | 1,504,422,342 | 8% | 80,980,854 |
| Habibullah Energy | 3,910,370 | 5% | 195,518 |
| Coastal Power | 944,600 | 8% | 75,568 |
| Common Wealth Development | 916,719 | 8% | 73,337 |
| Corpn. Mott Macdonald Corpn | 1,410,718 | 8% | 352,857 |
| Mehar M. Siddiqui | 282,447 | 5% | 14,122 |
| Assessment year 1998‑99 | | | |
| Fiat Avio Italy | 1,290,014,000 | 8% | 103,201,120 |
| Fiat Avio‑Pakistan Branch | 271,335,000 | 8% | 21,708,400 |
4. The appellant being aggrieved against these orders went in appeal to the learned AAC, Quetta who maintained the orders of the learned DCIT on January 7, 1999 to the extent of holding the appellant as assessee in default for non‑deduction of tax from payments made to non‑resident Messrs Fiat Avio SPA and he set aside the order of the DCIT relating to the tax deductions from payments made to the non residents Messrs Coastal Powers Company, Messrs Common Wealth Development Corporation of U.K. and Messrs Mott McDonalds Corporation. The learned AAC confirmed the orders in toto so far as these were relevant to the Resident recipients. Effect to these orders of the learned AAC was given by the DCIT for the assessments years 1996 97 and 1997‑98 vide his DCR No.8/146 and No.7/146. While doing so, the learned DCIT ignored the set aside portion by giving following notes in his orders: ‑‑‑
ASSESSMENT YEAR 1996‑97:
Note.-‑‑The payments made to Messrs Coastal Powers is being set apart for time being till fresh orders.
ASSESSMENT YEAR 1997‑98:
Note.‑‑‑The payments made to Messrs Coastal Powers, Messrs Common Wealth Development Corporation and Messrs Mott McDonalds Corporation are being set apart for time being till fresh orders.
5. Meanwhile the appellant had come in appeal to this Tribunal against the orders of the learned AAC dated 7‑1‑1999 referred supra and the only issue agitated before the Tribunal was with reference to non -deduction of tax from payments made to Messrs Fiat Avio SPA. No appeals were filed by the Department. The ITAT decided the appeals ultimately on September 11, 2001 vide ITA Nos. 1077, 1078 and 1079/KB of 1998‑99 (Assessment Years 1996‑97, 1997‑98 and 1998‑99 respectively) and at the time of hearing Mr. Iqbal Naeem Pasha, Advocate representing the appellant pressed only one ground in respect of rate of deduction of tax to be applied under section 50(4) in base of the recipient of payments. He submitted that the issue stood resolved by the decision of ECC of the Federal Government dated 8‑2‑1999 which provided that withholding tax at the rate of 4% would be collected under section 50(4) from the independent. Power Producers (IPPs) and their contractors/sub‑contractors. The learned Bench of this Tribunal concluded the order by saying that "We deem it fair to set aside the impugned orders under sections 52/86 of the Income Tax Ordinance, 1979 for fresh adjudication by the assessing officer in accordance with law after verifying the factual position relating to pending litigation, status of the assessment of the recipient company and applicability of the decision of the ECC of the Federal Government dated 8‑2‑1999. to the case of the assessee.
6. The assessing officer took up the case for implementing the order of the Tribunal dated 11‑9‑2001 referred supra. Through lengthy orders he came to the conclusion that the appellant was required to deduct tax from the payments made to Messrs Fiat Avio SPA in all the years under appeal. While passing the order under sections 135/52/86 the learned DCIT also took up the issues set aside by the AAC in his order dated 7‑1‑1999 pertaining to tax deductions out of payments made to Messrs Coastal Power Company, Messrs Common Wealth Development Corporation of U.K. and Messrs Moot McDonalds Corporation which were left over earlier as stated in Notes mentioned in para.4 supra. He came to the conclusion that the payments made to Messrs Fiat Avio SPA were liable to tax deduction at the rate of 4% and that this objection of the appellant was not tenable that at this point of time the learned DCIT was barred by limitation for giving any finding on issues set aside by the AAC in his order dated 7‑1‑1999. These orders of the DCIT have been upheld by the learned AAC and that is why the matter is now before us.
7. It is argued by the learned A.R. that the payments made to Messrs Fiat Avio SPA were not chargeable to tax in Pakistan as the transaction regarding purchase of material and equipment had been completed outside Pakistan and the payments were made to the non resident company outside Pakistan. In respect of the issues set aside by the learned AAC on 7‑1‑1999 it is argued by the learned A.R. that in view of the provisions of section 66(l)(c) the order in response to the setting aside of an issue by the AAC under section 132 could be passed by the DCIT within one year from the end of the financial year in which the AAC's order was received by the DCIT. Since the time passed after the AAC's orders dated 7‑1‑1999 is more than one year, the DCIT is barred now to give any finding in his orders dated 25‑1‑2002 on the issues set aside by the AAC. Alternately it is submitted by the learned A.R. that while giving findings on the issues set aside by the learned AAC, his directions have been flouted by the DCIT without giving hearing to the appellant.
8. After giving due consideration to the submission made by the representatives, we feel that this Tribunal has to decide:
(i)As to whether the DCIT kept in view the directions of the Appellate Authorities while giving effects thereto; and
(ii)As to whether the action of the DCIT was barred by time under section 66 when he was passing the order under sections 135/52/86.
9 We shall first take up the second issue i.e. limitation in carrying out instructions of the AAC. For the sake of facility we quote below provisions of section 66(1) of the Ordinance which are relevant to the
66. Limitation for assessment in certain cases.‑‑‑(1) Notwithstanding anything contained in section 64 and subsection (3) of section 65 where in consequence of, or to give effect to, any finding or direction contained in any order made under this Chapter or Chapter VIII, XIII or XIV or any order made by any High Court or the Supreme Court of Pakistan in exercise of its original or appellate jurisdiction,‑‑‑
(a)an assessment is to be made on any firm or a partner of any firm; or
(b)an assessment is to be made on the assessee or any other person; or
(c)an assessment has been set aside, in full or in part, by an order under section 132 or section 135 and no appeal is filed under section 134 against such order or no appeal filed under section 136 in respect thereof, as the case may be
such assessment may be made at any time within two years in any case to which clause (a) or clause (b) applies, and within one year in any case to which clause (c) applies, from the end of the financial year in which such order is received by the Deputy Commissioner.
(Underlining is busy us for the sake of emphasis).
10. Plain reading of the provision of law as quoted above brings out clearly that the limitation prescribed in this section relates to the appeals against orders made under Chapters VII, VIII, XIII or XIV or any order made by High Court or the Supreme Court of Pakistan in exercise of its original or appellate jurisdiction. We have noticed that the orders passed under sections 52 and 86 are respectively under Chapter VI and Chapter IX of the Ordinance and these Chapters are not included in section 66(1). We have also noticed that in section 129 of the Ordinance (Appeal to the Appellate Commissioner), appeal has been provided against to the orders of assessment and certain orders other than orders of assessment. Section 132 of the Ordinance prescribes as to how the decision in an appeal is to be made. Similarly section 135 prescribed the procedure for the disposal of appeals by the Income Tax Appellate Tribunal. We quote below relevant provisions viz. subsection (1) section 132 and subsection (4) of section 135 of the Ordinance: ‑‑
132. Decision in appeal.‑‑‑(1) In disposing of an appeal, the Appellate Additional Commissioner may,‑‑
(a)in the case of an order of assessment,‑‑‑
(i)set aside the assessment and direct the assessment to be made fresh after making such further inquiry as the Appellate Additional Commissioner may direct or the Deputy Commissioner thinks fit;
(ii)confirm, reduce, enhance or annul the assessment;
(b)in the case of an order imposing a penalty, confirm, set aside or cancel such order or enhance or reduce the penalty; and
(c)in any other case, pass such order as he thinks fit."
Section 135(4):
(4)If the Appellate Tribunal is satisfied that an assessment which is the subject of appeal‑‑‑
(a)ought to be reduced or annulled, it shall reduce or annul the assessment accordingly; or
(b)is insufficient, it shall enhance the assessment accordingly; or
(c)ought to be set aside, it shall set aside the assessment and direct the Deputy Commissioner to make a fresh assessment.
11. It is trite principle of interpretation that various provisions of the statute are to be interpreted in such a way that these remain consistent with one another and that the fiscal laws are interpreted strictly. With these principles in view, the simultaneous reading of sections 66(1), 132(1) and 135(4) of the Ordinance and especially the portion underlined by us takes us to irresistible conclusion that the limitation prescribed in section 66(l)(c) is relevant to the orders made by the AAC under section 132(1)(a) or to the orders made by the ITAT under section 135(4) relating to the orders of assessment only as the stress is on setting aside of the assessment. In the view of the matter, we hold that the limitation as prescribed under section 66 is not applicable to carrying out the instruction given by the ACC in order under section 132 while sitting in appeal against orders under section 52 or 86 This being the position, we maintain the order dated 25‑1‑2002 of the D.C.I.T. and that of the learned A.A.C., dated 1‑1‑3‑2002 to the extent that the D.C.I.T. was' justified in carrying out the instructions of the AAC contained in his order dated 7‑1‑1999 against the order passed by the DCIT under sections 52/86 and the matter is not barred by time.
12. Now we take up and examine as to whether the instructions of the Appellate Authorities have been faithfully carried out by the Assessing Officer while passing the order under sections 135/52/86 now impugned before us.
13. We take up first the instructions of this Tribunal in I.T.As. Nos.1077, 1078 and 1079/KB of 1989‑90 (Assessment years 1996‑97, 1997‑98 and 1998‑99) dated 11‑9‑2001. Instructions of the Tribunal are reproduced verbatim as below: ‑‑
After consideration of the facts, we deem it fair to set aside the impugned orders under sections 52/86 of the Income Tax Ordinance, 1979 for fresh adjudication by the Assessing Officer in accordance with the law after verifying the factual position relating to pending litigation, status of the assessment of the recipient company and applicability of the decision of the ECC of the Federal Government dated 8‑2‑1999 to the case of the assessee.
14. What the DCIT was supposed to do while complying with the orders of the Tribunal was that in the case of the appellant, he was .to verify the factual position relating to:‑‑‑
(a)Pending litigation;
(b)Status of the assessment of the recipient company; and
(c)Applicability of the decision of the ECC of the Federal Government dated 8‑2‑1999.
15. The Assessing Officer applied the rate of 4% as was decided by ECC in case of Contractors and Sub‑contractors of IPPs which means that he has verified the position in respect of (a) and (c) of para. 14 supra. With reference to (b) of the said para. i.e. the status of assessment of the recipient company, the Assessing Officer has made lenghty discussion about chargeability of receipts as income in the hands of non resident recipient. We are afraid this could never be the intention of the ITAT because the ITAT could not ignore the fact that chargeability of receipts is never an issue in respect of tax deduction. under section 50(4). Further, the ITAT could not give the powers, to an officer who under the law had no jurisdiction to assess the recipient company to determine as to whether or not the receipts were chargeable to tax in the hands of the recipient company.
16. For the purpose of treating the withholding agent as assessee in default it is incumbent upon the officer passing order under section 52 of the Ordinance to see that no tax has been paid on the same receipts by the recipient. In case it is established that the recipient has paid tax on the payments or the authority having jurisdiction over the recipient has declared that no tax is payable on such payments, then there would be no justification with the officer having jurisdiction over the withholding agent to treat the withholding agent as assessee in default, since the same payments can neither be subjected to tax at two stages nor can a person be considered as assessee in default in respect of payments which in the hands of the recipient are adjudged as non‑chargeable to tax. In view of the ITAT's instructions in the present case, the Assessing Officer was supposed to contact the officer holding legal jurisdiction for assessment over the case of Messrs Fiat Avio SPA and if it was established that tax on the payments received from the appellant was duly paid by the recipient company or if it was held that in respect of these payments no tax was payable by the recipient company then the DCIT in the present case could not treat the appellant as assessee in default.
17. Since action as stipulated in the ITAT's order has not been taken by the Assessing Officer in this perspective, or if taken at the back of the assessee, it has, not at all been confronted to the appellant, we are constrained to set aside the point with the direction, that necessary enquiries may be made by the Assessing Officer from the authority having jurisdiction to levy tax in the case of recipient company Messrs Fiat Avio SPA. If he finds that tax on these payments has been paid by the recipient company then no order under section 52 would be exigible and this Assessing Officer would be justified to pass order only under section 86 for late payment of tax for the period from the date this tax was deductable to the date the tax was actually paid by the recipient company. If the concerned authority has declared these payments to be not chargeable to tax in the hands of the recipient company, then there would be no occasion with the DCIT of the appellant to hold the assessee as assessee in default in respect of these payments. In the third situation if the DCIT finds that notwithstanding the receipts having been taxed in the hands of the recipient company, no tax has been paid by the recipient company, then his orders under sections 52 and 86 would hold good. Needless to say that the appellant will have to be confronted after making the enquiries as directed above.
18. Regarding the directions of the ACC on issues set aside by him, we have already held that the DCIT's action was illegal not barred by time, but we find force in the submission of the learned A.R. that reasonable opportunity to explain the case was not afforded to them. As stated by the learned A.R., the notice issued by Assessing Officer in this respect contained an annexure which showed that (contrary to the actual, position) tax deducted had duly been deposited. The learned A.R. had then not only objected to the DCIT in respect of the action having been barred by time, but had, also written to him that the notice was non specific and the annexure did, not support, the allegation on which the appellant was intended to be treated as asses see in default. It was further submitted to: the DCIT, the learned A.R. has asserted before us, that they were willing to give any further information, if so required, but the learned DCIT had never reverted to this issue thereafter. In these circumstances, we agree with the learned A.R. that the assessee has been condemned unheard on this issue. In this view of the matter findings of the DCIT on this point are also set aside with the direction that proper opportunity of hearing be given to the appellant for deciding the point referred to in para. 4 supra in the light of the directions of the learned AAC as contained in his order dated 7th January, 1999.
19. Consequently all the appeals succeed to the extent and in the manner indicated above.
C.M.A./M.A.K./398/Tax (Trib.)
Appeals succeeded.