MUHAMMAD AMJAD, Messrs RAWALPINDI METAL CORPORATION (PVT.) LTD., RAWALPINDI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2003 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 167 (2002)

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

‑‑‑‑S.50(4)(a) & Expln.‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Deduction of tax at source‑‑‑Explanation added to S.50(4)(a), Income Tax Ordinance, 1979‑‑‑Scope‑‑‑By insertion of Explanation to S.50(4)(a) of the Income Tax Ordinance, 1979, the shape of the Income Tax Ordinance, 1979 had not been changed from procedural to substantive‑‑‑Explanation in the section clarified and explained the provision and did not extend the scope‑‑‑Explanation was inserted by Finance Ordinance, 1998 w.e.f. 1‑7‑1984 and therefore, question of retrospective operation did not arise.

(b) Income Talc Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.50(4) & Expln.‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000, S.9‑‑‑Deduction of tax at source‑‑‑Supply of goods‑‑‑Purchases on cash or credit‑‑‑Purchases on cash or credit were covered under the term "supply of goods"‑‑‑No new meaning/law was introduced by the Explanation in the existing S.50(4) of the Income Tax Ordinance, 1979 and the Explanation as such was retrospective in effect.

1999 PTD 4147 rel.

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

‑‑‑‑Ss.52, 86, 50(7A) & 50(4)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Liability of person failing to deduct or pay tax‑‑‑Charge of additional tax for failure to deduct and pay tax‑‑‑Tax was deducted under S.50(7A) of the Income Tax Ordinance, 1979 on the purchases made by the assessee‑complainant and assessee did not deduct tax under S.50(4) of the Income Tax Ordinance, 1979 on payment of such purchases‑‑‑Department contended that the assessee company while making payment for its purchases of scrap should have deducted tax under S.50(4) of the Income Tax Ordinance, 1979 as the exclusion of purchases covered by S.50(7A) of the Income Tax Ordinance, 1979 was not available under S.50(4) of the Income Tax Ordinance, 1979‑‑‑Assessee pleaded that since the seller/payer had already paid tax on the transaction in question the assessee purchaser/prayer could not be treated as an assessee in default‑‑ Validity ‑‑‑Complainant/assessee by not deducting tax on payment made to supplier, violated the provision of S.50(4) of the Income Tax Ordinance, 1979 and rendered itself liable to action under S.86 of the Income Tax Ordinance, 1979‑‑‑Federal Tax Ombudsman recommended that (i) the additional tax under S. 86 of the Income Tax Ordinance, 1979 is chargeable from the date of payment from the purchases of scrap made by the complainant till the date tax was paid in respect of the said transaction and (ii) if the additional tax charged by the Assessing officer is at variance with the quantum of tax as required to be computed it may be rectified to that extent.

(1996) 73 Tax 75 and (1999) 79 Tax 267 distinguished.

1999 PTD 4147 and 2001 PTD 570 rel.

Muhammad Aslam Sheikh for the Complainant.

Farooq Nasir, D.C.I.T. for Respondent.

DECISION/FINDINGS

Relevant facts in brief are that Messrs Rawalpindi Metal Corporation (Pvt.) Ltd. is an existing assessee in Circle 19, Companies Zone, Rawalpindi. The complainant has taken exception to an order passed on 5‑1‑2001 by the Deputy Commissioner of Income‑tax under sections 52/86 of the Income Tax Ordinance (hereinafter called "the Ordinance") thereby creating a demand of Rs.615,113. The contention of the complainant is that purchases made by it from Messrs Wah Industries Limited, Wah, are not covered under the term "supply of goods" and that Explanation added to section 50(4)(a) on 1‑7‑1998 is not retrospective in effect, as the said section has assumed the character of a substantive section rather than a procedural one. It has further been alleged that since the seller/payer had already paid tax on the transaction in question the assessee/purchaser/payer could not be treated as an assessee in default.

2. Further the complainant company has submitted that it had paid interest to its two directors who had offered it for taxation and paid due tax on it. The company was held liable to additional tax under section 86 of the Ordinance on that account which was in violation of legal provisions of the Ordinance. All these actions of the Assessing Officer amounted to maladministration hence, this complaint.

3. The Department on the other hand has taken the plea that as per certificates issued by Wah Industries Ltd., available on record the tax was deducted under section 50(7A) on the purchases made by the complainant. It has further been admitted by the department that an explanation in subsection (4)(a) of section 50 of the Ordinance was inserted by the Finance Act, 1998, w.e.f. 1‑7‑1984 which reads as under:‑‑‑

Explanation:

"For the purpose of clause (a) the expression `supply of goods' includes both cash and credit purchases of goods by the payer, whether under a contract or not, on credit or in cash."

4. As regards the claim of the complainant that by insertion of the above Explanation the shape of the Act has been changed from procedural to substantive, is not correct. An Explanation in a section clarifies and explains the provision 'and does not extend the scope. This Explanation was inserted by Finance Ordinance, 1984 w.e.f. 1‑7‑1984. Therefore, question of retrospective operation does not arise.

5. The Department has further' explained that the plea of the complainant that in case tax is not deducted from the payment made to he recipient and the said recipient on the said transaction pays the tax himself could not be treated as an assessee in default, is not correct. However, the department feels that the deducting authority cannot be exonerated from the non‑deduction of tax under section 50 even if at a later stage the recipient paid the tax on the said transaction. With reference to the two decisions of the Income‑tax Appellate Tribunal reported as (1996) 73 Tax 75 and (1999) 79 Tax 267, it was submitted that in both the cases it was held. by the Tribunal that if tax on any allowances or deduction has been paid by the assessee the disallowance under sections 24(b) and 24(c) shall not be made in the cases of Deducting Authority. These two cases do not relate to the issue of making the Deducting Authority as an assessee in default under section 52 and levy of additional tax under section 86 of the Ordinance.

6. As regards the assessee being declared as an assessee in default for non‑deduction of tax from payment of interest for the charge years 1995‑96 to 1997‑98, it was submitted that the change was introduced by the Finance Act, 1995 under section 50(2A) of the Ordinance. It was considered that tax under sections 52/86 levied for the assessment years 1996‑97 and 1997‑98 was inadvertent and the mistake was apparent from the record. It was, therefore, rectified under section 156 of the Ordinance.

7. After hearing the arguments put forth by Mr. Farooq Nasir representing the Department and Mr. Muhammad Aslam Sheikh, Advocate appearing on behalf of the complainant company, it emerges that Wah Industries Ltd. a public company auctioned the scrap (its property) to the complainant and collected tax under section 50(7A) of the Ordinance. The complainant company while making payment for its purchases of scrap should have deducted tax under section 40(4) of the Ordinance as the exclusion of purchases covered by section 50(7A) is not thereunder section 50(4) of the Ordinance.

8. In another complaint bearing No. 427 of 2001 after examining provisions of sections 50,52 and 86 I have given a finding that section 86 is attracted only where deduction of advance tax is to be made on payments for purchases made and it is not attracted in the case of recipient who is supposed to collect the tax and deposit it. In this case the complainant did not deduct tax under section 50(4) of the Ordinance, which it was supposed to do on its purchasers of scrap from Wah Industries Ltd.

9. As regards the contention of the complainant that the Explanation added to section 50(4)(a) on 1‑7‑1998 enlarges the scope of the expression "supply of goods" to include purchases whether in cash or on credit is not correct. In fact the controversy of the word "sales and supply" was settled by the Lahore High Court in the case of Messrs Prime Dairy Ice Cream Limited, reported as 1999 PTD 4147.

10. The A.R. of the assessee while trying to differentiate the word "sales/purchases" from the "supply of goods" argued that the word "Purchases" has been used in the Explanation for the first time. It was further argued that word "Supplies" did not include the purchases and sales and the words added "cash and credit purchases", in the Explanation are alien to the existing statute. The point of view of the A.R. of the assessee is again incorrect in view of the decision of Lahore High Court. The relevant portion of the decision is reproduced as under:‑‑‑

"From the aforesaid examination, it is thus clear that expression `supplies' is of wide amplitude. Manifestly, `Sales' means transfer of sold or agreed to be sold property from seller to buyer in future for payment of price. Such transfer is for a consideration/payment of money or promise thereto by the buyer. Necessarily, it so means a transfer of title in property from seller to buyer. Briefly, sale and purchase are two phases of transaction of sale. If we look it from the side of purchaser, it is a purchase of the title in the property and if we see it from seller's side it is a sale or transfer of the title in the property from seller to purchasers. The supply on the other hand is expression of general nature. It connotes the availability of aggregate of things needed or demanded for a given use or purpose. Consequently, the supply may include sale but this cannot be synonymous with the aforesaid expression. This view was taken in Exh. P. Turner Re‑Hardy (1984) 18 N.S.W.S.R. 133. It is settled that statutes are to be construed with reference to plain language of such statutes and Courts are not required to add or omit to clear the language of such statute. Tested on the above touch stones, we are, in no manner, of doubt that the word `supplies' is general in nature and is inclusive of sale when the seller supplies his goods in lieu of their price to buyer."

"On the above analysis, we have no difficulty in holding that the expression `supplies' as embodied in section 50(4) of Income tax Ordinance (XXXI of 1979) does include `sales' and so the view taken by learned Income Tax Appellate tribunal is wholly illegal, erroneous on the face of record and so is hereby set aside."

11. From the above judgment it is noted that supply is general in nature and is inclusive of sales. Supply is not restricted to the limited scope/meaning as claimed by the A.R. of the assessee.

12. From the above discussion it is clear that the purchases on cash or credit are covered under the term "supply of goods" and this issue has already been settled. So no new meaning/law is introduced in the existing section of 50(4) and the explanation as such is retrospective in effect.

13. In a recent judgment the Honourable Sindh High Court also discussed this issue in the case reported in 2001 PTD 570. In the said case the purchases were made by the assessee from the importers who were being assessed under section 80‑C. The assessee did not deduct the tax and claimed that since the tax had already been collected under section 50(5) from the importers/sellers and there was no further tax liability on the importers/sellers with respect to the purchases made by the assessee, the assessee was not liable to deduct tax under section 50(4) and accordingly it could not be made assessee in default for non‑deduction of tax. The Assessing Officer rejected the plea of the assessee and declared it as assessee in default. The assessee filed revision petition before the Commissioner of Income tax concerned who rejected the petition. Aggrieved from the above treatment the petitioner, filed petition under Article 199 of the Constitution. The Honourable Judges dismissed the petition and upheld the order of the Assessing Officer whereby the assessee was made assessee, in default under sections 52/86.

14. For the foregoing reasons, it is quite evident that the complainant by not deducting tax on payment made to Wah Industries Ltd., violated the provision of section 50(4) of the Ordinance and rendered itself liable to action under section 86 of the Ordinance.

15. It is, therefore, recommended that:

(i) The additional tax under section.86 is chargeable from the date of payment for the purchases of scrap made by the complainant till the date tax was paid in respect of this transaction by Wah Industries Ltd.

(ii) If the additional tax charged by the D.C.I.T. is at variance with the quantum of tax as required to be computed in para. 15 above, it may be rectified to that extent.

(iii) Compliance may be reported within 30 days.

M.A./479/FTOOrder accordingly.