I.T.As. Nos. 2346/LB and 2347/LB of 2002, decided on 28th June, 2002. VS I.T.As. Nos. 2346/LB and 2347/LB of 2002, decided on 28th June, 2002., 2002 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 3118 (2002)

Income Tax Ordinance (XXXI of 1979)‑‑‑--

‑‑‑‑Ss.66‑A, 62, 24(c), 50(4), 52 & 156‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑ Deductions not admissible‑‑‑Liability of persons failing to deduct or pay tax‑‑ ‑Assessment was finalized under S.62 of the Income Tax Ordinance, 1979‑‑‑Assessee failed to deduct tax under S.50(4) of the Income Tax Ordinance, 1979 on the payments made as expenses‑‑‑Assessing Officer allowed such payments as expenses but proceeded to treat the assessee as an assessee in default under S.52 of the Income Tax Ordinance, 1979 and created demand of tax on such payments ‑‑‑Assessee paid such demand‑‑‑Inspecting Additional Commissioner cancelled the assessment on the ground that Assessing Officer had failed to treat the payments made without deduction of tax at source as inadmissible expense under S.24(c). of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑When an assessee failed to make deduction of tax from certain payments under S.50(4) of the Income Tax Ordinance, 1979, the same could be disallowed as expense by the Assessing Officer under S.24(c) of the Income Tax Ordinance, 1979 but if the Assessing Officer allowed assessee's claim of expenses regarding such payments and proceeded to hold the assessee as assessee in default under S.52 of the Income Tax Ordinance, 1979 and recovered the amount of tax involved under S.52 of the Income Tax Ordinance, 1979 read with S.50(4) of the Income Tax Ordinance, 1979 then claim of such payments could not be subsequently disallowed under S.24(c) of the Income Tax Ordinance, 1979 by resorting to Ss.65, 66A or 156 of the Income Tax Ordinance, 1979‑‑ Such was because of the fact that any income could not be subjected to income‑tax twice in the hands of the same assessee in the same assessment year for the same default or reason‑‑‑Once the Department exercised the option to charge amounts of certain payments to tax under S.52 of the Income Tax Ordinance, 1979 by holding the assessee as an assessee in default then the same could not be subjected to tax again under S.24(c) of the Income Tax Ordinance, 1979 for the same reason that the assessee had failed to withhold tax from those sums under S.50(4) of the Income Tax Ordinance, 1979; it would clearly amount to double taxation which was not allowed under the scheme of Income Tax Law‑‑‑When the Inspecting Additional Commissioner cancelled the assessment order, the defaulted tax had already been paid by the assessee under S.50(4) read with S.52 of the Income Tax Ordinance, 1979 and the defect in ‑the assessment order existed no longer‑‑‑If an assessee failed to deduct tax under any subsection of S.50 of the Income Tax Ordinance, 1979 on payments made by him but the tax was paid by the recipient of such payments, then no action could be taken against the assessee under S:52 .of the Income Tax Ordinance, 1979 or any other provision of income Tax Ordinance, 1979 in respect of such payments ‑‑‑Assessee itself had paid tax in response to Assessing Officer's order under S.52 of the Income Tax Ordinance, 1979 and no action under S.66A of the Income Tax Ordinance, 1979 on the pretext of S.24(c) of the Income Tax Ordinance, 1979 was warranted‑‑‑Order passed by the Inspecting Additional Commissioner under S.66‑A of the Income Tax Ordinance, 1979 was declared illegal and unjustified in circumstances and the same was cancelled by the Appellate Tribunal.

2002 PTD 1; Civil Petitions Nos.2789/L and 2791/L of 2001; I. T. A. No.2047/LB of 2000 and 2002 PTD 877 ref.

Muhammad Sarfraz, .F.C.A. for Appellant.

Muhammad‑Zulfiqar Ali, D.R. for Respondent.

Date of hearing: 27th June, 2002.

ORDER

MUHAMMAD SHARIF CHAUDHRY (ACCOUNTANT MEMBER).‑‑‑These two appeals have been filed at the instance of a private limited company deriving income from manufacture and sale of pharmaceutical goods to challenge order passed by the Range IAC under section 66A for the assessment years 1997‑98 and 1998‑99. It has been contended in the grounds of appeal that the learned IAC was not justified in cancelling the assessment order of the DCIT under section 66A of the Income Tax Ordinance without appreciating the reply submitted by letter, dated 29‑3‑2002 wherein it was explained that the tax, which the assessee had failed to deduct tax under section 50(4), was subsequently paid under section 52 read with section 50(4) and, therefore, the provisions of section 24(c) of the Income Tax Ordinance were not attracted.

2. Appellant's AR and respondent's DR have been heard. Available records have been perused.

3. Brief facts of the case are that the assessee, a private limited company, was obliged under section 50(4) to make deduction at source on its following payments but it failed to do so:

Assessment year 1997‑98:

Tax @ 5%

Machinery Repair.Babar Service Store.Rs.11,470Rs. 574

Naseer Electric Works.Rs.16,792Rs. 840

New Malik Engg. Works.Rs.22,560Rs.1,125

Pakistan Tech. Services.Rs.19,300Rs. 965

Building Repair.Imran Bors. Paint & H/Store.Rs.68,753Rs.2,406

Kamran Bros. Paint and

Hardware Store.Rs.81,030Rs.2,836

Gardi Traders.Rs.43,000Rs.1,505

Assessment year 1998‑99:

Legal expenses.Manzoor Ahmad Mir & Co.Rs.49,500Rs.2,475

Plant and MachineryAI‑Manzoor Turbbing Works.Rs.36,000Rs.1,260

Repair.Sigma Cool Centre.Rs.15,250Rs. 763

Bismillah Cool Centre.Rs.18,500Rs. 925

Champion Autos.Rs.24,500Rs.1,225

Ch. & Co.Rs.15,000Rs. 750

Lasani Techno Service.,Rs.36,500Rs.1,825

Naseer Refrigeration Ser.Rs.31,200Rs.1,560

The DCIT, while making assessment under section 62 allowed these payments as expenses but he proceeded to treat the assessee company as assessee in default under section 52 of the Income Tax Ordinance and passed order under section 52 read with section 50(4) creating the demand of tax on the said payments. This demand of tax was paid by the assessee‑company.

4. Subsequently, the IAC examined the assessment record and he cancelled the assessment order of the ITO holding it as erroneous and prejudicial to the interest of Revenue on the ground that the DCIT had failed to treat the payments made by the assessee without deduction of tax at source as inadmissible expense under section 24(c) of the Income Tax Ordinance. Assessee's explanation that the defaulted tax had been paid by him in response to order passed by the DCIT under section 52 read with section 50(4) was rejected by the learned JAC for the following reasons:

"(1) The A.R. admitted that tax was not deducted under section 50(4) on petty figures of services rendered. The perusal of order under section 52 revealed that on certain payments tax under section 50(4) was deductible but not deducted by the assessee which were duly confronted through notice under section 66A. As such the contention of the AR is not convincing.

(2)Section 24(c) manifestly makes it clear that payment made for services rendered on which income‑tax is not deducted under section 50(4) are not allowable as business expenditure. Therefore, allowing this expenditure in P&L account by the DCIT amounts to erroneous insofar as it is prejudicial to the interest of Revenue.

(3)The Honourable Supreme Court of Pakistan through its judgment (2002 PTD 1) on Civil Petitions Nos. 2789‑L, 2791‑L of 2001 decided on 25‑9‑2001 wherein it has been held that it is a settled principle of law that a fiscal statute has to be construed in its true perspective and in respect of payment of income‑tax, if it is found due against a party then such statute cannot be interpreted liberally in order to make out .a case in favour of an assessee who has failed to pay the tax."

5. It has been contended by the A.R. of the assessee that the action taken by the IAC in cancelling the assessment order of the ITO on the ground that the ITO had not disallowed assessee's claim of expenses under section 24(c) is illegal and unjustified because demand raised by the Assessing Officer in consequence of his order under‑Section 52(86) read with section 50(4) was paid by the assessee. Since the payment of tax on the expenses under section 50(4)/52 has already been made, the said expenses cannot be disallowed under section 24(c), as asserted by the learned A.R., because section 24(c) empowers the department to disallow only those sums paid on account of salary, interest, profit, services rendered, brokerage or commission or rent of house property on which tax is deductible under section 50 but such tax has not been paid or deducted and paid under section 50. The AR has also contended that two penalties for the same offence cannot be allowed, once in the form of charge of tax under section 50(4)/52 and once in the form of disallowance of expenses under section 24(c). According to the AR, this would amount to double taxation which is not allowed under the Income Tax Ordinance. It hat been further pleaded by the AR that the company has filed appeals for both the years before the learned CIT against order of DCIT under section 62 and so the provisions of section 66A are not applicable. In support of this plea the AR has placed reliance on ITAT order, dated 30‑4‑2002 in I.T.A. No.2047/LB/2000. The AR has also submitted that it is a trite law that if two interpretations of a statute are possible then the one favourable to the assessee would prevail. In support of this plea reliance has been placed on Supreme Court judgment reported as 2002 PTD 877.

6. The learned DR has opposed the contentions and the arguments of the AR of the assessee. However, the arguments given by him are same on the basis of which the IAC has cancelled the assessment order of the DCIT. No further material evidence or any cogent reason has been put up by the learned representative .of the respondent.

7. We have gone through the relevant records and .the impugned order of the learned IAC. We have also considered and evaluated the arguments of both the parties before .us. We do not agree with the AR of the assessee that action under section 66A cannot be taken when assessee has filed appeal against the assessment order of the ITO because subsection (1 A) of this section does not place any such bar. We also do not agree with the view‑point of both the parties on the issue of interpretation of statute because no such complicated interpretation is involved in the case before us. The case before us is simple and it does not involve any two interpretations out of which we have to choose one, either in favour of Revenue as asserted by the learned I.A.C. on the strength of Supreme Court of Pakistan judgment reported as 2002 PTD 1 or in favour of the assessee as asserted by his AR on the strength of Supreme Court judgment reported as 2002 PTD 877.

8. The question before us is that when an assessee fails to deduct tax under section 50(4) on certain payments and tax is recovered from him by resorting to section 52, whether IAC can treat such payments as an inadmissible expense under section 24(c)? Our answer to this question is in negative. In our opinion the learned IAC cannot take action under section 66A in these circumstances. When an assessee fails to make deduction of tax from certain payments under section 50(4) of the I.T. ` Ordinance the same can be disallowed as expense by the DCIT under section 24(c) of the I.T. Ordinance. But if the DCIT allows assessee's claim of expenses regarding such payments and proceeds to hold the assessee as assessee in default under section 52 and recovers the amount of tax involved under section 52 read with section 50(4) then claim of such payments cannot be subsequently disallowed under section 24(c) of the I.T. Ordinance by resorting to section 65, section 66A or section 156 of the I.T. Ordinance It is because of the fact that any income cannot be, subjected to income‑tax twice in the hands of the same assessee in the' same assessment year for the same default or reason. Once the department exercises the option to charge amounts of certain payments to tax under section 52 by holding the assessee as an assessee in default then the same sums cannot be subjected to tax again under section 24(c) for the same reason that the assessee had failed to withhold tax from those sums under section 50(4). It would clearly amount to double taxation which is not allowed under the scheme of income‑tax law as in vogue in Pakistan. We do not accept the plea advanced on behalf of the department that the order passed by the DCIT under section 62 was erroneous and prejudicial to the interest of Revenue on the date when it was passed and so action under section 66A is justified, because the Assessing Officer subsequently recovered the amount of defaulted tax under section 52 and, therefore, the defect in the order was cured on the issue under consideration. When the IAC cancelled the assessment order on 30‑4‑2002 the defaulted tax had already been paid by the assessee under section 50(4) read with section 52 and the defect in the assessment order of the ITO existed no longer. The Appellate Courts have been so liberal in interpreting the law relating to withholding tax that it has been consistently held that if an assessee fails to deduct tax under any subsection of section 50 on payment made by him but the tax is paid by the recipient of such payments, then no action can be taken against the assessee under section 52 or any other provision of Income Tax Ordinance in respect of the said payments. In the instant case ,the assessee‑company itself has paid tax in response to DCIT's order under section 52, and, therefore, no action under section 66A on the pretext of section 24(c) of the I.T. Ordinance is warranted.

9. In view of the foregoing discussion, we do not feel any hesitation in holding that the action taken by the learned IAC under section 66A is illegal and unjustified. Therefore, it would meet the ends of justice if the appeals of the assessee are allowed and the order passed under section 66A is cancelled.

C.M.A./M.A.K./450/TaX (Trib.)Appeals allowed.