BEFORE INAM ELLAHI SHEIKH, CHAIRMAN AND JAVED IQBAL, JUDICIAL MEMBER VS BEFORE INAM ELLAHI SHEIKH, CHAIRMAN AND JAVED IQBAL, JUDICIAL MEMBER
2002 P T D (Trib.) 337
[Income-tax Appellate Tribunal Pakistan]
Before Inam Ellahi Sheikh, Chairman and Javed Iqbal, Judicial Member
I.T.As. Nos. 457/KB to 460/KB of 2000-2001, decided on /01/.
th
September, 2001. (a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 66-A & 134-B---Statement under S.143-B of the Income Tax Ordinance, 1979 was not an "order" so as to attract the provisions of S-66-A of the Income Tax Act Ordinance, 1979.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.156(2)---Rectification of mistake---Notice---Non-issuance of---Effect---Vacation or setting aside of order---Vacation of order passed under S.156 of the Income Tax Ordinance, 1979 by the First Appellate Authority for non-issuance of notice under subsection (2) of S.156 of the Income Tax Ordinance, 1979 was declared to be justified by the Tribunal for the provision of S.156(2) was mandatory in nature.
2000 PTD 2872; 1999 PTD 1655 and (2001) 83 Tax 221 ref.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss. 143-B & 55---Statement under S.143-B of the Income Tax Ordinance, 1979 could not be equated with a Return filed under S.55 of the Income Tax Ordinance, 1979.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss. 143-B & 52---Department could resort to the provisions of S.52 of the Income Tax Ordinance, 1979, if there was any shortfall in the deduction/payment of tax.
(e) Income Tax Ordinance (XXXI of 1979)---
----Ss. 156 & 143-B---Rectification of mistake---Where the Tribunal had declared that there was no "order" in existence, the rectification of the same under S.156 of the Income Tax Ordinance, 1979 was beyond the authority of the Assessing Officer.
(f) Income Tax Ordinance (XXXI of 1979)---
----Ss. 156, SOC & 22(c).---Rectification of mistake---Assessing Officer invoked the provisions of S.22(c) of the Income Tax Ordinance, 1979 and applied a normal rate of tax to the deemed income in the form of "tax on tax"---Income of the assessee would fall within the ambit of S. 80C of the Income Tax Ordinance, 1979 and such provisions of law exclude the application of any other provisions of' the Income Tax Ordinance, 1979---Rectification of such order, in the case, fell outside the scope of 5.156 of the Income Tax Ordinance, 1979.
(g) Income Tax Ordinance (XXXI of 1979)---
----S. 80C---Provisions of S. 80C of the Income Tax Ordinance, 1979 exclude the application of the normal assessment provisions of the Income Tax Ordinance, 1979.
Provisions of section 80C of the 1979-Ordinance exclude the application of the normal assessment provisions of the 1979-Ordinance.
Any amount on which tax is deductible under subsection (4) of section 50 of the 1979 Ordinance, whether actual or deemed, is chargeable under section 80C of the 1979-Ordinance and the application of the other provisions of the 1979---Ordinance, including the provisions of section 22 of the 1979---Ordinance, have been made inapplicable.
(h) Income Tax Ordinance (XXXI of 1979)---
----Ss. 80C, 50(4) & 22(c)---Tax on income of certain contractors and importers---Exclusion of other provisions---Where tax was deductible under S.50(4) of the Income Tax Ordinance, 1979, whether actual or deemed, and was chargeable under S. 80C of the Income Tax Ordinance, 1979, there the application of other provisions of the Income Tax Ordinance, 1979, including the provisions of S.22 of the Income Tax Ordinance, 1979, had been made inapplicable.
(i) Income Tax Ordinance (XXXI of 1979)---
----Ss. 22(c), 23, 80C & 143-B---Income from business or profession--?Crossing up the receipt of "tax on tax" ---Department treated the assessee's tax liability paid by the owner as income under S.22(c) of the Income Tax Ordinance, 1979---Validity---Philosophy of grossing up the receipt for "tax on tax" was that the assessee receiving the payment was deemed to have received gross amount, before deduction of tax, for rendering services or for execution of contracts---If provisions of S.22(c) were applied to the element of tax on tax, then the Department might face the question of allowing expenses under S.23 of the. Income Tax Ordinance, 1979 and allocation thereof between amounts covered by the presumptive tax regime and otherwise for which there was no provision in the law or any. rules---Provisions of S.22(c) of the Income Tax Ordinance, 1979 were not applicable to the amounts in question in circumstances.
Vishno Raja Qavi, D.R. for Appellant.
Hassan Naeem, I.T.P. for Respondent.
Date of hearing: 22nd August, 2001.
ORDER
INAM ELLAHI SHEIKH (CHAIRMAN).---These four departmental appeals are directed against an order, dated 31-7-2000 recorded by the learned Commissioner of Income-tax (Appeals), Zone-III, Karachi on the following ground:---
"That the learned Commissioner of Income-tax (Appeals) was not justified to vacate the order passed to treat the assessee's tax liability paid by the owner as income under section 22(C) of the Income-tax Ordinance, 1979."
2. The relevant facts in brief are that the assessee is a non-resident company and is a Contractor HUBCO. The assessee carried out certain contract for HUBCO. The income tax liability of the assessee was undertaken by the HUBCO to be borne by itself i.e. HUBCO. HUBCO filed statements under section 143-B of the Income-tax Ordinance, 1979 (hereinafter called the `1979 Ordinance') and paid tax at 4.166% by grossing up the amounts payable @ 4 %. Previously there was a dispute over the rate of tax to be charged between the HUBCO and the Revenue Department, so far as the Revenue intended to tax, the receipts at 7% treating the contract to be a turnkey contract.
3. In such earlier proceedings the learned IAC of Income-tax had invoked his jurisdiction under section 66-A of the 1979 Ordinance to levy the tax at 8% and such order of the learned IAC was vacated by the Tribunal holding that the statement under section 143-B of the 1979 Ordinance could not be held to be an order to attract the provisions of section 66-A of the 1979 Ordinance. In the meantime the order under section 66-A of the 1979 Ordinance was also amended under section 156 of the 1979 Ordinance and the Tribunal also cancelled such order under section 156 and the department is said to be in the High Court on this issue. In the impugned order the learned Commissioner of Income-tax (Appeals) has held that no notice under section 156(2) of the 1979 Ordinance was issued by the DCIT before passing the order under consideration. By such order, dated 18-11-1999, recorded under sections 59/156 of the 1979, Ordinance, the Assessing Officer has determined the benefit under section 22(c) of the 1979, Ordinance at Rs. 165,567,635 in the following manner:---
| "Deemed, Declared and Assessed???????????????????????????????? Rs. 2,110,987,361 income under section 80C from HUBCO Tax Payable @ 4%????????????????????????????????????????????????????? Rs. 84,439,494 Tax on the above amount on tax on tax ??????????????????????? Rs. 81,128,141 basis at normal rate of tax Q 49 % Tax Payable & 4 % x Normal Tax rate ??????????? 100-Tax Rate ??????????????????????????????????????????????????????????????????????????????????? ???????????????????????????. Total benefit under section 22(c)?????????????????????????????????? Rs. 165,567,635" |
4. The learned Commissioner of Income-tax (Appeals), after reproducing the arguments of the A.R. of the assessee, has passed the following order which is in dispute before us:---
"I have minutely gone through the contents of the impugned order vis-a-vis, the submission as reproduced herein as above. It was also urged that the- learned DCIT fell in error by not ad hearing to the finding of the learned Income-tax Appellate Tribunal (supra). 4 was further pointed out that in the absence of any main order the path followed by the learned officer by attracting of section 156 of the 1979, Ordinance is absolutely not in accordance with the statute. I would further like to add that no notice under section 156(2) of the 1979, Ordinance was issued as to be in line with the provision of law. For the foregoing reasons and attending circumstances I have no hesitation in vacating order in toto."
5. The learned D.R. strongly argued that the learned Commissioner of Income-tax (Appeals) was not justified to vacate the order of the Assessing Officer and that the proper course would have been to set aside the order of Assessing Officer. It was conceded that the Assessing Officer had not issued a notice under section 156(2) of the 1979, Ordinance but it was submitted that this should not be held to be fatal to the proceedings as the word `shall' used in said subsection may be read as `may'. Reliance was placed on a decision of Azad Jammu & Kashmir High Court reported as 2000 PTD 2872. The learned D.R. also produced a copy of IT-30(C) and notice of demand under section 143-B of the 1979 Ordinance showing nil demand for the assessment year 1994-95 but such copies had no official stamp of the authority issuing the same. No specific date has been mentioned and the learned D.R. had three copies of such IT-30(C) and two copies of notice of demand of the record. For the assessment year 1995-96 again two copies of IT-30(C) under section 80-CC/59A, dated 25-1-1995 were available without any official stamp. For the assessment year 1996-97 only a pink copy of IT-30(C), dated 17-2-1997 was available issued under sections 59A/80C of the 1979, Ordinance and again no official stamp was there. Also there was an order under sections 59A/80C(4) of the 1979 Ordinance available showing a demand of Rs. 28,099,033. In the assessment year 1997-98 IT-30(C), dated 30-4-1998 under sections 59A/80C was available show?ing a demand of Rs. 8,339,326 alongwith an order under section 59A of the 1979, Ordinance, No official stamp was affixed. The learned D.R. further submitted that the statement filed by the assessee under section 143-B of the 1979, Ordinance was deemed to be a return under section 55 of the 1979, Ordinance as the provisions of section 80C of the 1979, Ordinance prescribed that an order under, section 59A of the 1979, Ordinance deemed to have been passed. The learned D.R. relied on a decision of the Sindh High Court, Karachi reported as 1999 PTD 1655 The learned D. R. further submitted that under the provisions of section 156 of the 1979, Ordinance, an order, which could be rectified, would include an order deemed to have been passed under the provisions of the 1979 Ordinance. With regard to the earlier proceedings, the learned D.R. submitted that the appeal against the order under section 66A of the 1979, Ordinance may not have been argued properly before the Tribunal resulting in the acceptance of the assessee's appeal.
6. The learned A.R. of the assessee, on the other hand, strongly supported the order of the learned Commissioner of Income-tax (Appeals) with the submission that under the provisions of section 156 of the 1979, Ordinance, it was mandatory for the Assessing Officer to issue a notice to the assessee under subsection (2) of such section before passing an order to enhance the liability of the assessee. According to the learned A.R. of the assessee, non-issuing of such notice has violated the principle of 'audi alterm partm'. With regard to the decision of Hon'ble AJ&K High Court, as relied upon by the learned D.R. and mentioned above, it was submitted that the issue in that case was different and had been resolved in favour of the assessee. The learned A.R. of the assessee referred to the provisions of subsection (2) of section 13 of the 1979, Ordinance to draw an analogy and submitted that the I.A.C's. approval in that case is a mandatory approval and absence of any such approval always resulted in the deletion of the addition made under section 13 of the 1979,' Ordinance. The learned A.R. of the assessee, further argued that the Revenue 'has not given any reason for non-issuing of notice under section 156(2) of the 1979, Ordinance and also pointed out that the Assessing Officer while observing 'as per original order' has not pointed out as to which order he proposed to rectify. The learned A.R. of the assessee has referred to a decision of the Lahore High Court reported as (2001) 83 Tax 221 to support of his contention. The learned A.R. of the assessee again emphasis that there was no mention of the order that the Assessing Officer was trying to rectify. The learned A.R. of the assessee then suggested that the Bench should consider the following five questions:---
(1) Was there any order which could be rectified under section 156 of the 1979 Ordinance?
(2) Was there any mistake falling within the purview of section 156 of the 1979, Ordinance?
(3) The word `shall' used in subsection (2) of section 156 is mandatory or directory?
(4) Subject to the answer in Question No. 3 above whether the order under section 156 of the 1979 Ordinance is to be set aside or annulled?
(5) Can the provisions of section 156 be invoked when the Tribunal has already dilated upon the issue with regard to the existence of an order, while deciding the assessee's appeals against the order of the I.A.C. under section 66-A of the 1979, Ordinance?
7. We have considered the submissions of both the parties. First we would like to discuss the question whether the non-issuance of notice under subsection (2) of section 156 of the 1979 Ordinance, would justify the cancellation of the order passed under section 156 of the 1979, Ordinance. The learned D.R. relied on a judgment of Hon'ble AJ&K High Court. In that case the matter was procedural one and was resolved in favour of the subject. On the other hand the matter in the present case is not a procedural matter but the substantive provisions of the law. The arguments of the learned D.R., that the Court read the word `may' in place the word `shall' under subsection (2) cannot be entertained as this is a mandatory provision. Hence on this count, alone in our view, the learned Commissioner of Income-tax (Appeals) was justified to vacate the orders of the Assessing Officer.
8. Now we come to the question to whether there was any order, which could be rectified under section 156 of the 1979, Ordinance: As already mentioned above the Tribunal has already accepted the assessee's appeals against the orders of the learned IAC recorded under section 66A of the 1979, Ordinance and has held that there was no order in existence which could be revised, modified or cancelled by the learned IAA under the said provisions of the law. It was also held by the Tribunal that the statement under section 143-B of the 1979, Ordinance could not be equated with a return filed under section 55 of the 1979, Ordinance. The Tribunal even suggested that the department could take recourse to the provisions of section 52 of the 1979 Ordinance, if there was any shortfall in the deduction payment of tax. Such order of the Tribunal was passed on 14-9-1998 whereas the order now in dispute was passed by the Assessing Officer on 18-11-1999 which shows that the department has taken no notice of such order of the Tribunal, dated 14-9-1998. This has been done in violation of the legal procedure, which requires attention of the higher authorities of the department. In the presence of such clear finding of this Tribunal, we are constrained to hold that the Assessing Officer went beyond his authority to invoke E the provisions of section 156 of the 1979, Ordinance when there was no order in existence as already held by the Tribunal in I.T.A. Nos. 27 and 28/KB of 1998-99, dated 14-9-1998. It may also be mentioned that the Tribunal had already passed a detailed order on 7-9-1998 in I.T.As. Nos. 9 and 10/KB of 1998-99 in the case of Ishikawajima Harirna Heavy Industries Company Limited. Hence, on this count as well we do not find any force in these departmental appeals.
9. The next question we would like to discuss is whether there was any mistake apparent from record falling within the purview of section 156 of the 1979 Ordinance. The Assessing Officer has invoked the provisions of section 22(c) of the 1979, Ordinance and applied a normal rate of tax to the deemed income in the form of `tax on tax'. There is no dispute over the fact that the income of this assessee falls within the ambit of section 80C of the 1979, Ordinance and a perusal of F subsection shows that any income actually received or accrued or deemed to be received by a contractor is taxable under section 80C of the 1979 Ordinance and such provisions of the law excludes the application of any other provisions of the Ordinance. At least this becomes a arguable case which falls outside the scope of section 156 of the 1979, Ordinance. Hence this question is also answered against the Revenue.
10. Coming to the real matter in dispute, i.e., whether `tax on tax' is to be subjected to tax at normal rate or to a rate prescribed under section 80C of the 1979, Ordinance, read with section 50 of the 1979, Ordinance. As already said above, the provisions of section 80C of the 1979, Ordinance exclude the application of the normal assessment provisions of the 1979, Ordinance. The relevant provisions of law may be reproduced as below:---
"(80C) Tax on income of certain contractors and importers---(I) Notwithstanding anything contained in this Ordinance or any other law for the time being in force. . Where any amount referred to in subsection (2) is received by or accrues or arises or is deemed to accrue or arise to any person the whole of such amount shall be deemed to be income or the said person and tax thereon shall be charged at the rate specified in the First Schedule. (2) The amount referred to in subsection (1) shall be the following, namely (a) where the person is a resident (b) where the person is a non-resident, the amount representing payments on account of execution of a contract for construction, assembly or like project in Pakistan on which tax is deductible under subsection (4) of section 50. "
11. A plain reading of the above provisions of the law shows that any amount on which tax is deductible under subsection (4) of section 50 of the 1979, Ordinance, whether actual or deemed, is chargeable under section 80C of the 1979 Ordinance and the application of the other provisions of the 1979, Ordinance, including the provisions of section 22 of the 1979 Ordinance, have been made inapplicable. In our considered view the philosophy of grossing up the receipts for `tax on tax' is that the assessee receiving the payment is deemed to have received gross amount, before deduction of tax, for rendering services or for execution of contracts. If the pro-visions of section 22(c) were applied to the element of tax on tax, then the department may be faced with 'the question of allowing expenses under section 23 of the 1979, Ordinance and the allocation thereof between amounts covered by the presumptive tax regime and otherwise for which there is no provision in the law or any rules. Hence in our considered view the provisions of section 22(c) of the 1979 Ordinance are not applicable to the amounts in question in this case. Hence this question is also answered against the Revenue.
12. A copy of this order may be sent to the Chairman, Central Board of Revenue, Islamabad for his attention to our observations in para. 8 of this Order.
13. The appeals are dismissed.
C.M.A./M.A.K./167/Tax (Trib.)????????????????????????????????????????????????????????? Appeals dismissed.