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

----Ss. 24(ff), 24(c) & 50(7B)---C.B.R. Circular No. 6 of 1990, dated 15-7-1990---Deductions not admissible---Addition was made by disallowing the claim in respect of rent of premises for the reason that the amount in question was not paid through crossed cheque and was not allowable under S.24(ff) of the Income Tax Ordinance, 1979---Assessee contended that payment of rent of house property was covered both, by Ss.24(c) & 24(ff) of the Income Tax Ordinance, 1979---Since S.24(c) of the Income Tax Ordinance, 1979 did not require payment to be made through crossed cheque, it was more beneficial to assessee and should have been applied to it and the landlady had already paid tax on the rent in question---Validity---Section 24(c) of the Income Tax Ordinance, 1979 was applicable only to such rent of house property which was hired by a Government a company etc. who, in turn, was liable as a payer, to deduct advance tax at the time of making payment of rent---Since assessee did not fall in any category of tax withholding agent specified in S.50 (7B), the provisions of S.24(c) of the Income Tax Ordinance, 1979 were not attracted---Contention that assessee was covered simultaneously by the provisions of Ss.24(c) & 24(ff) of the Income Tax Ordinance, 1979 was incorrect---Beneficial interpretation of law was not relevant-- Treatment accorded by the Assessing Officer was correct in law---Order of First Appellate Authority upholding the add-back was confirmed by the Appellate Tribunal ---Assessee must pay the rent through crossed cheque as per law contained in S.24(ff) of the Income Tax Ordinance, 1979 and such rent/payment had no nexus with the amount of tax payable by either of the two parties.

1998 PTD 1908; 1998 PTD 1558 and NTR 1992 HC 46 ref.

I.T.As. Nos. 858 to 868/IB of 1996-97 distinguished.

(b) Income-tax----

----Gross profit rate---Rejection of gross profit rate without assessing any reason---Validity---Assessing Officer had accepted the declared sales on the basis of sales certificate issued by the principals of the assessee while no observation at all was recorded about the verifiability or otherwise, of the return version of the assessee---No finding had been recorded either to reject the declared 'version nor any reason given therefor---In absence of specific reasons, the return trading results could not be so substituted with estimate of his own by the Assessing Officer---First Appellate Authority rightly directed that declared GP rate should be accepted Ana the same was upheld by the Appellate Tribunal.

Abdul Jaleel, D.R. for Appellant.

G. Abas Chatha for Respondent.

Date of hearing: 8th March; 2003.

ORDER

These two cross-appeals for the assessment year 2000-2001 filed by the Department as well as the assessee, impugn the order of the Commissioner Appeals, Islamabad. While the assessee is aggrieved that the finding of the Commissioner Appeals upholding the add-back of rent amounting to Rs.107,250 under section 24(ff) of the Income Tax Ordinance, 1979, is illegal, the department is agitated against the appellate direction to accept the declared GP rate of 1.5%. The two appeals shall be disposed of by this combined order.

2. Briefly, the facts are that the assessee, an individual, declared a net income of Rs.2,41,851 which was not accepted by the department. An addition of Rs.107,250 was made disallowing in full the claim in respect of rent of premises for the reason that the amount in question was not paid through crossed cheque and was accordingly found not allowable under section 24(ff) of the Ordinance. The sales were accepted as declared after being found verifiable from the sales certificate issued by the principals of the assessee. However, the declared GP rate was not accepted. Instead, a rate of 1.5 % was applied statedly, "as in other parallel cases". From the expenses claimed at Rs.35,000 for telephone, a 20% add-back of Rs.2,697 was made. The assessee went in appeal before the Commissioner Appeals, who directed that the declared GP rate be accepted and reduced the add-back out of telephone expenses to 15 % of the claim. The Commissioner Appeals, however, relied upon Circular No.6 of 1990, dated 15-7-1990 issued by the C.B.R. to explain the newly-inserted clause (ff) and rejected the plea that the add-back under section 24(ff) was incorrect in law. The argument that the payment fell under section 24(c) of the Ordinance as the landlady had already paid tax on the rent received by her was disregarded by him. Relying on Circular No.6 of 1990, dated 15-7-1990 as issued by the C.B.R. He upheld the add-back as made by the Assessing Officer. The order so passed has given rise to the two appeals presently before us.

3. Parties have been heard. Regarding the addition made under section 24(ff), the AR argued that the payment of rent of house property was covered both, by sections 24(c) and 24(fo . of the Ordinance simultaneously. Since section 24(c) did not require payment to be made through crossed cheque, it was more beneficial to the assessee and should have been applied to it. The Assessing Officer was wrong in rejecting this plea of the assessee while the Commissioner Appeals wrongly upheld the add-back of the rent payment. Evidence furnished during the assessment and appellate proceedings to show that the land lady had already paid tax on the rent in-question, had been wrongly disregarded by the two officers, it was contended. In support of his case on the beneficial interpretation of law, he placed reliance on a case reported as 1998 PTD 1908 (para. b), 1998 PTD 1558 (para-b) and NTR 1992 H.C. 46 (para. c). He pleaded that tax liability under section 24(c)/24(ff) of the assessee was in any case extinguished because the landlady had .paid tax on her rent receipts. He relied upon an un reported judgment in I.T.As. Nos.858 to 868/113 of 1996-97 passed on 26-11-1997, in this context.

4. The D.R. on his part claimed that the beneficial interpretation concept should not apply to fiscal statutes. It is the object of a law that should instead be kept in yew, he contended. As regards the directions to accept the declared G.P. rate, he pointed out that the assessee had in past years been assessed under the Self-Assessment Schemes and, as such, the history was of no help in determining the adequacy of the declared a G.P. rate. He pleaded that the 1.5 % rate applied by the Assessing Officer as in other parallel cases, may be upheld/restored.

After hearing the parties, we find it appropriate to deal first with .the beneficial interpretations issued by referring to relevant provisions of law. The same are reproduced as under:--

Section 24. "Deductions not , admissible. ---Nothing contained in section 23 shall be so construed as to authorize the allowance or deduction--

(a) ..............

(b) ............ ..

(c)any sum paid to any person on account of salary, interest or profit, services rendered, brokerage or commission or rent of house property, on which taxis deductible under section 50, unless such tax has been paid or deducted and paid under section 50, as the case may be.

(ff)Any payments, made on or after the first day of July, 1998, on account of expenditure under a single account head which, in aggregate, exceed fifty thousand rupees made otherwise than through a crossed bank cheque or by a crossed bank draft except transactions not exceeding five hundred rupees or payments on account of postage or utility bills."

Section 50." 7(B) Any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person, on account of rent of house property) including rent of furniture, fixture and services), if any on behalf of Government, a local authority, a company a non-governmental charitable institution, a private educational institution a hospital, a clinic or a maternity home) or the diplomatic mission of a foreign State shall, where the annual rent of such property exceeds one hundred thousand rupees, deduct advance tax, at the time of making such payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies; the assessment year, if any, in which the "said date", as referred to therein, falls, whichever is the later.

(Words typed in underlined to focus attention).

6. A plain reading of the provisions of law reproduced above show that section 24(c) is applicable only to such rent of house property which is hired by a Government a company etc. who, in turn, is liable as a payer, to deduct advance tax at the time of making payment of rent. Since the assessee did not fall in any category of tax withholding agents specified in section 50(7B), the provisions of section 24(c) are not attracted to it. As such, the contention of the AR that the assessee is covered simultaneously by the provisions of sections 24(c) and 24(ff) is incorrect. Resultantly, the plea of beneficial interpretation of law is not relevant in the case of the assessee. In the circumstances, the treatment accorded by the Assessing Officer is correct in law. . The order of the Commissioner Appeals to uphold the assessed add-back is, therefore, confirmed.

7. Regarding the extinguishing of tax liability under section 24(c) as a consequence of payment of tax by the landlady, on her income, the assessee has wrongly sought support from a case decided in the aforementioned orders of the Tribunal, dated 26-11-1997. The facts of the case relied upon in this context are not attracted to the present case. While the orders of Tribunal in the cited case relates to tax liability under sections 52 and 86 of the Ordinance in the backdrop of the recipient company having already paid tax on its income (which was otherwise liable .to deduction of tax under section 50(4), the assessee in appeal before us .has a totally different case. Being so distinguishable, the cited case is found inapplicable to. the assessee. The concept of extinguished tax liability of the payer if the recipient has paid tax on the amount involved, is based on a vicarious tax liability of the payer. In the instant case, no such position exists. The appellant must pay the rent through crossed cheque as per law contained in section 24(ff) of the Ordinance and such rent payment has no nexus with the amount of tax payable by either of the two parties. As such, the ratio enunciated in the quoted cases is not attracted to the present case under appeal. The argument is found without any force and is rejected.

8. Coming to the departmental appeal against the direction of the Commissioner to accept the declared GP rate, we find that the Assessing Officer has accepted the declared sales on the basis of sales certificate issued by the principals of the assessee while no observation at all is recorded about the verifiability or otherwise, of the returned version of the assessee. No finding has been recorded either to reject the declared version nor any reasons given therefor. A bland remark confronting the assessee with relevant facts sought to be relied upon, has been used to estimate the assessed GP rate at, 1.5 %. In the absence of any of specific reasons, the returned trading 'results cannot be so substituted with estimate of his own by the Assessing Officer. As such, the Commissioner has rightly directed that the declared GP rate should be accepted. We uphold his order.

9. As a result of the foregoing observations, both appeals fail and are rejected.

C.M.A./692/Tax (Trib.)Appeal rejected