I. T. As. Nos. 611/IB and 612/IB of 1998-99, decided on 15th June, 2002. VS I. T. As. Nos. 611/IB and 612/IB of 1998-99, decided on 15th June, 2002., 2003 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 101 (2002)

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

‑‑‑‑S.109‑‑‑Penalty for failure to maintain prescribed accounts‑‑‑Word "payable"‑‑‑Connotation‑‑‑Word "payable" appearing in S.109 of the Ordinance connotes the amount of tax which is calculated to be leviable on the assessee.

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

‑‑‑‑Ss.109 & 32‑‑‑Income Tax Rules, 1982, Rr. 28 & 29‑‑‑Penalty for failure to maintain prescribed accounts‑‑‑Income from salary and private medical practice‑‑‑Non‑maintenance of requisite book of accounts as prescribed under Rr.28 & 29 of the Income Tax Rules, 1982‑‑ Calculation of penalty‑‑‑Basis‑‑‑"Tax payable" or "Tax chargeable"‑‑ First Appellate Authority directed that penalty should be calculated on the basis of tax payable whereas the same was calculated on the basis of tax chargeable‑‑‑Validity‑‑‑If the word "payable" used in S.109 of the Income Tax Ordinance, 1979 was taken, to be a tax found to have not been paid after assessment proceedings then there might be a situation where the assessee had paid the entire amount before filing the return and during assessment proceedings no further tax was determined to be payable and nothing remained to be paid‑‑‑In such case there shall be no amount of tax which could be made the basis of imposition of penalty, thus it could be inferred in the present case that it was that amount of tax which was leviable or chargeable on a source of income, for which books of accounts as required under S.32 of the Income Tax Ordinance, 1979 read with Rr.28 & 29 of the Income Tax Rules, 1982 had not been maintained and that would constitute the basis of penalty and the word "payable" used in S.109 of the Income Tax Ordinance, 1979 shall accordingly be construed‑‑‑As regards question pertaining to the proportionate tax determined in respect of the income from private medical practice for which the books of accounts had not allegedly been maintained, being made the basis of imposition of penalty, the Department had no objection‑‑‑Was axiomatic in relation to the incidence of liability, be it under the Income Tax Ordinance, 1979, 'that a net subjecting a multitude of people had to extricate those who were not clearly amenable to culpability‑‑‑Basis of the penalty would be the tax chargeable on the source of income, namely private medical practice, for which the books of accounts had allegedly not been maintained‑‑ Assessing Officer was expected to keep in mind all the attending circumstances of a given case in the context of imposition of penalty, particularly the existence of the mens rea on the part of the assessee‑‑ Appellate Tribunal disposed of the appeal accordingly.

Naushad Ali Khan, D.R. for Appellant.

Ghulam Hussain, I.T.P. for Respondent.

Date of hearing: 4th June, 2002.

ORDER

The above mentioned appeals are directed against two orders dated 10‑11‑1998 passed by learned CIT(A) Rawalpindi is respect of assessment years 1992‑93 and 1993‑94.

2. Relevant brief facts are that assessee an individual, deriving income from salary and private medical practice, was found to have not maintained requisite books of accounts as prescribed under rules 28 and 29 of the Income Tax Rules, 1982 and was subjected to a penalty of Rs.25,763 and Rs.21,714 for the assessment years 1992‑93 and 1993‑94 respectively. The assessee preferred appeal against the said penalty order and through impugned orders learned CIT(A) held that although penalties have been imposed rightly yet those have not been properly calculated and directed that penalty should be calculated on the tax payable. Hence these appeals by the Department on the following ground:

"That the learned CIT(A) was not justified to direct that penalty should be calculated imposed on the tax "payable" and has erred in interpreting the "tax payable" and "tax chargeable", after giving credit of tax paid."

3. Learned D.R. maintained that learned CIT(A) was not justified to direct that penalty should be calculated on the tax payable whereas the same is on the tax chargeable. He contended that learned CIT(A) found force in the argument of the A.R. that the assessee cannot be penalised for the amount of tax which he has already paid and the penalty should be imposed in relation to the tax payable. These findings are exceptionable as the penalty has to be imposed on the amount of the tax chargeable. He added that in case it is found after assessment that requisite books of accounts were not maintained and all the tax due has been paid then, will it be possible, to impose the penalty, and if so, what shall be its basis. Learned A.R. on the other hand contended that in section 109 of the Income Tax Ordinance the word "payable" has been used which signifies that the penalty; if at all has to be imposed, it should hinge upon that amount of tax which is found to be paid by the assessee after assessment. He further contended that the income of the assessee comprises of two sources; one from salary and the other from private medical practice and if at ail the penalty is to be imposed that should relate to the proportionate tax arising out of the income from private medical practice respecting which it is alleged by the Department that no books of accounts had been maintained. So far as the income from salary is concerned, it is verifiable from the salary certificate, produced before the Assessing Officer.

4. We have heard the learned counsel and perused the orders passed by the forums below. In the assessment order, it was observed that the assessee had failed to maintain proper books of accounts as prescribed under rules 28 and 29 of the Income Tax Rules, 1982 and it is prudent to calculate the amount of penalty on the basis of tax calculated. In appeal the contention of the assessee as mentioned by learned CIT(A) was, "it was further argued that penalty has been imposed equal to tax charged instead of tax "payable" i.e. amount of tax charged less tax already paid with the return. Actually, penalty should have been levied with reference to tax "payable". It was stated that appellant cannot be penalised for the amount of tax which he has already paid". Learned CIT(A) found the plea of the learned A.R. has carried force and held that although penalty has been rightly imposed yet it has not been properly calculated. He directed that penalty should be calculated/imposed on the tax "payable" as explained above. It is thus discernible that so far as the question of the imposition of penalty is concerned the learned CIT(A) through the impugned orders dated 10‑11‑1998 for the assessment years 1992‑93 and 1993‑94 has held that the penalty was rightly imposed but it has not been properly calculated. The assessee is not in appeal before us and it is not open to scan other aspects of the case culminating into the imposition of penalty. We are here concerned only with the question of basis of 'calculation of the amount of penalty to be imposed either on the tax charged or on the amount of tax remained to be paid after the assessment which is said to be payable. Before proceeding further it is advantageous to reproduce here section 109 which prescribes penalty for failure to maintain prescribed books of accounts. Earlier to amendment in .the said section by Finance Act, 1997, it stood as under:

"109. Where any person has, without reasonable cause failed to comply with the provisions of any order or rule made under or in pursuance of section 32 the Deputy Commissioner may impose on him a penalty not exceeding two and a half times but in no case less than the amount of tax payable by him and where the total income of such person does not exceed the maximum amount on which tax is not chargeable the amount payable by him by way of penalty under this section shall not exceed Rs.100."

5. It has been contended by. learned D.R. that the word "payable" as used in the section is referable to the tax charged on the total income of the assessee and if the contention of the assessee is accepted as correct then the penalty in the event of non‑maintenance of books of accounts shall be imposed in relation to the amount of tax which is found to be unpaid after assessment proceedings. In that case, in some situations the amount of tax may be nil for the assessee might have already paid the entire tax and then no penalty could be imposed for violation of section 32 of the Income Tax Ordinance read with rules 28 and 29 of the Income Tax Rules. Learned D.R., however, conceded that the contention of the assessee, that in relation to imposition of penalty, proportionate tax leviable only on that source of income for which the books of accounts have not been maintained should be made the basis carries weight. On the other hand learned A.R. argued that a bare reading of section 109 of the Income Tax Ordinance suggests that the penalty is relateable to the tax which is found to be payable after the assessment proceedings. It appears that Income Tax Ordinance has visualized a methodology of ensuring the maintenance of books of accounts in certain cases as contemplated in section 32 of the Ordinance read with rules 28 and 29 of the Income‑tax Rules and certain penalty as laid down in section 109 of the Ordinance is to be imposed for default. The rate of penalty has been laid down in the section. It seems that the penalty is relateable to the amount of tax which is leviable on an assessee from a source of income in respect of which the books of accounts were not maintained. The word "payable" here connotes the amount of tax which is calculated to be leviable on the assessee. In this regard the argument of the learned D. R. carries much weight which is to the effect that if the word "payable" used in section 109 (ibid) is taken to be a tax found to have not been paid after assessment proceedings then there may be a situation where the assessee had paid the entire amount before filing the return and during assessment proceedings no further tax is determined to be payable and noshing remains to be paid. In that case there shall be no amount of tax which could be made the basis of imposition of penalty. It may thus be inferred that it is that amount of tax which is leviable or chargeable on a source of income, for which books of accounts as required under section 32 of the Ordinance read with rules 28 and 29 of the Income Tax Rules, 1982 have not been maintained, that would constitute the basis of penalty and the word "payable" used in section 109 (ibid) shall accordingly be construed. Another question pertaining to the proportionate tax determined in respect of the income from private medical practice for which the books of accounts have not allegedly been maintained being made the basis of imposition of penalty the Department has no objection. In the given circumstances, the contention of the assessee carries weight. It is axiomatic n relation to the incidence of liability, be it under the Ordinance that a net subjecting a multitude has to extricate those who are not clearly amenable to culpability. In this view of the matter the basis of the penalty would be the tax chargeable on the source of income, namely private medical practice, for which the books of accounts had allegedly not been maintained. It goes without saying that while proceeding it is expected of the Assessing Officer to keep in mind all the attending circumstances of a given case in the context of imposition of penalty, particularly the existence of the mens rea on the part of the assessee. With these observations, the instant .appeals are disposed of in the manner indicated above.

C. M. A./495/Tax(Trib:)Order accordingly.