I.T.As. Nos. 368(IB) and 610 (IB) of 2002, decided on 20th March 2003. VS I.T.As. Nos. 368(IB) and 610 (IB) of 2002, decided on 20th March 2003.
2003 P T D (Trib.) 1948
[Income-tax Appellate Tribunal Pakistan]
Before Syed Masood-ul-Hassan Shah, Judicial Member and Mahmood Ahmad Malik, Accountant Member
I.T.As. Nos. 368(IB) and 610 (IB) of 2002, decided on /01/.
th
March 2003. (a) Income-tax---
----Sales--Estimation of sales---Telephone enquiry---Validity---Inquiries conducted with regard to sale of embroidered cloth on order basis were not relevant to the year under appeal---Order of First Appellate Authority deleting income under said head was upheld by the Appellate Tribunal.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 24(c) & (ff)---Deduction not admissible---Purpose---Purpose of S.24(c) of the Income Tax Ordinance, 1979 was to ensure compliance of tax withholding provisions---Purpose to introduce the provisions of cl. (ff) of S.24 of the Income Tax Ordinance, 1979 was to ensure documentation in taxation system---Since purpose of the two provisions was different the rule that specific provisions of law will have an over riding effect would not apply.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 12(18)---C.B.R. Circular No.3 of 1992, dated 27-10-1992-- Income deemed to accrue or arise in Pakistan---Purpose of the provision---Purpose of S.12(18) of the Income-Tax Ordinance, 1979 was to check fictitious loans and to preclude back-dated introduction of creditors---Central Board of Revenue's instruction that "Assessing Officer should not invoke the provisions of S.12(18) of the Income Tax Ordinance, 1979 in respect of genuine loans received by way of crossed cheques pay orders or telegraphic transfers etc. through the banking channels" did not mean to allow loans etc. paid otherwise than through banking channel as the Central Board of Revenue could not make the operation of S.12(18) of the Income Tax Ordinance, 1979 non functional.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss. 24(c) (ff) & 50---Deductions not, admissible---Deduction of tax source---Where payment exceeding Rs.50,000 was made under anyone of the heads specified in Cl. (c) of S.24 of the Income Tax Ordinance, 1979 in cash and tax was also deducted under S.50 of the Income Tax Ordinance, 1979, the payment, will still not qualify for deduction because though the provisions of Cl. (c) of S.24 of the Income Tax Ordinance, 1979 had been met the requirements of Cl. (ff) of S.24 of the Income Tax Ordinance, 1979 were not fulfilled---Sections 24(c)(ff) & 50 of the Ordinance were two independent and separate provisions and were not inter-related.
(e) Income Tax Ordinance (XXXI of 1979)---
----S. 24(c)---Deductions not admissible-Rent---Payment, of rent was not made through crossed cheque or by a crossed bank draft the assessee was not entitled to claim deduction on account of the rent paid---Such act may have caused hardship for the assessee but that would not stop operation of the provisions of law---Order of department was upheld by the Appellate Tribunal.
2000 PTD 39; 2002 PTD 1; Corpus Juris Secondum, Vol. LXXXIV, p.46 and 1997 SCC 1097 ref.
(f) Income Tax Ordinance (XXXI of 1979)---
----S. 24(c)---Deductions not admissible---Salary---Where salary exceeding Rs.5,000 was paid to an employee otherwise than through crossed cheque or banking channel, the amount paid would not be allowable as deduction even if the employee had filed returns and paid tax on salaries. Â
2002 PTD (Trib.) 364 rel.
Abdul Jaleel, D.R. for Appellant.
Ghulam Mohy-ud-Din Kharal for Respondent.
Date of hearing: 20th March, 2003.
ORDER
These are cross-appeals pertaining to an individual who derived income from sale of embroidered cloth.
2. The departmental appeal is on a single ground that the learned AAC was not justified to delete the estimate of sales of embroidered cloth because the assessee was engaged in this business since long.
3. The assessee is aggrieved against the order of the learned AAC in upholding the disallowances made under sections 24(ff) and 24(fff), The assessee's another ground of appeal is that the learned AAC had not provided adequate relief in respect of disallowances made by the Assessing Officer under the heads conveyance, POL. Shop contingencies, miscellaneous and entertainment.
4. The assessee had declared sales at Rs.10,500,000 on account of sales of cloth. The learned lady Assessing Officer issued a notice under section 62 to the assessee stating that the assessee was also carrying on the business of sale embroidered cloth on order basis and therefore, she proposed that sale of the embroidered cloth would be estimated at Rs.2,200,000. The assessee's AR submitted before the learned DCIT in his reply, dated 20-11-2001 that the assessee did not get prepared any embroidery work and therefore, there was no justification to estimate any sale of embroidered cloth prepared on order. The learned Assessing Officer has observed in the impugned order under section 62 that a salesman confirmed on telephone that the assessee also deals in "order sale of zari cloth". The Assessing Officer has further observed that this fact was also confirmed by Messrs Go Go Fashion, a shop adIACent to the assessee's shop vide a letter received by the Assessing Officer. Apart from estimate of sales of cloth at Rs.12,000,000 the DCIT also estimated sale of embroidered cloth at Rs.2,000,000 which was subjected to a GP rate of 30%. The Assessing Officer further invoked the provisions of section 24(ff) and disallowed the shop rent claimed at Rs.95,832 as the said sum had been paid other than through banking channel. The claim of salaries made at Rs.698,400 was curtailed by a sum of Rs.23,200 account of salaries paid to three employees in excess of Rs.5,000 each as being inadmissible in view of the provisions of section 24(fff) (wrongly written as 24(ff) in the assessment order). Accordingly against income declared at Rs.423,000 income was assessed after making disallowances under some other heads of the profit and loss expenses also at Rs.1,404,000.
5. The assessee being aggrieved filed appeal before the First Appellate Authority who reduced the estimate of sales of cloth to Rs.11,000,000. The assessee contended before the learned AAC that the telephonic inquiry made by the Assessing Officer with regard to the sale of embroidered cloth an order basis was not relevant to the year under appeal. The learned AAC accepted this plea and deleted the income on account of sale of embroidered cloth on order basis. The learned AAC further upheld the action of the Assessing Officer in making additions under sections 24(ff) and 24(fff) of the Income Tax Ordinance, 1979. The learned AAC also reduced the add-backs under the heads conveyance, POL, shop contingencies, miscellaneous and entertainment to 20% as against add-backs by the learned DCIT at 3% of the claim. Hence the cross-appeals.
6. The learned DR supported the order of the Assessing Officer. The learned AR submitted that no evidence had been brought on record by the learned Assessing Officer to estimate sales of embroidered cloth on order. He further submitted that the telephonic inquiries were not relevant to the year under appeal and that the assessee was not confronted regarding any information received from Messrs Go Go Fashion. He further submitted that there was no justification to disallow the claims made by the assessee under the heads rent and salaries, submitted that the landlord refused to receive rent through cheque and that similarly the employees refused to receive salary through cheques. The learned AR submitted that the assessee had given the NTN of the landlord as 29-19-065747 to the Assessing Officer and that any recovery of tax could be made from the landlord. He further submitted that the assessee had paid tax on behalf of the employees and therefore no addition could be made under section 24(fff) from the salaries paid to the employees. Further the learned AR submitted that the purpose of the provisions of sections 24(ff) and 24(fff) was that no loss of revenue takes place and that no fake payments were made on account of salaries etc. He submitted that parties to whom payments had been made were genuine and therefore no disallowances could be made under these heads. In support of his arguments the learned AR referred to Circular No.3 of 1992, dated 27-1-1992 which was issued in the context of provisions of section 12(18). It was stated in this circular that the basic purpose of section 12(18) was to check fictitious loans and to preclude back-dated introduction of creditors in the books of accounts. The learned AR submitted that on similar basis no addition could be made where the parties to whom payments on account of rent or salaries made were genuine and could be contacted. The learned AR further submitted that the learned Assessing Officer has also wrongly applied the provisions of section 24(ff) with regard to the sum paid on account of rent. He argued that the relevant provisions contained in section 24(c) which was the specific provision of law that will over-ride general provisions contained in clause (ff) of section 24. He submitted that clause (c) of section 24 provides that the deduction will not be allowed under section 23 where no deduction of tax had been made under the provisions of section 50 out of any sum paid to any person on account of salary, interest, rent of house property etc. He submitted that the landlord was an existing assessee. He was clearing his tax liability in accordance with the provisions of law and the same could be ascertained by the learned Assessing Officer from the assessment record of the landlord as the NTN Number which had been provided to him. In these circumstances, he averred that no addition could be made under section 24(ff).
7. We have perused the orders of the authorities below and have considered the arguments of both the parties. There is weight in the arguments of the learned AR that the inquiries conducted with regard to the sale of embroidered cloth on order basis were not relevant to the year under appeal. Therefore we uphold the order of the First Appellate Authority in deleting income under this head.
8. The learned AR submitted that the clause (c) of section 24 provides that any sum paid as rent would not be allowed as an expense where tax had not been deducted under section 50 and that these were specific provisions and therefore, these would apply in the case of claim made under the head rent and the provisions of clause (ff) of section 24 would not apply because these were general provisions: In order to look into the issue in proper perspective we may reproduce the relevant provisions of the clauses (c) and (ff) supra with advantage. Clause (c) of section 24 provides as under:--
"(24) Deductions not admissible.
Nothing contained in section 23 shall be so construed as to authorize the allowance or deduction of ....
(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 tax is 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."
9. Clause (c) supra provides, that no deduction will be allowed on account of claim of rent where tax had not been deducted under the provisions of section 50, unless such tax had been paid or deducted and paid under section 50, as the case, may be. Clause (ff) supra provides that no deduction will be allowed on account of any payment on account of expenditure under a single head which in aggregate exceeds Rs.50,000 made otherwise than through a crossed bank cheque or a crossed bank draft.
10. These are two independent provisions and do not cater to similar situations. The first referred provision deals with a situation where payment is made under the heads salary, interest, profit, brokerage or commission or rent of house property where tax had not been deducted at source. The second situation referred to in Clause (ff) does not pertain to any deduction of tax at source but it says that where any payment exceeding Rs.50,000 was not made through a crossed bank cheque or by a crossed bank draft the payment would not be allowed as a deduction. The purpose and logic behind these two provisions is different. The purpose of section 24 (c) was to ensure compliance of tax withholding provisions. A study of the Finance Minister's budget speech delivered at the time of enactment of Finance Act 1990 would indicate that the purpose to introduce the provisions of clause (ff) supra was to ensure documentation in the taxation system. Since the purpose of the two provisions is different the rule that specific provisions of law will have an over-riding effect, would not apply in this case.
11. We may now take up the argument that as per Circular No.3 of 1992 the purpose of section 12(18) was to check fictitious loans and to preclude back-dated introduction of creditors and therefore, what was to be seen was the purpose behind a provision of law. The C.B.R. has issued circular No.3 of 1992 and given instructions as referred to by the learned AR but it did not imply that the provisions of subsection (18) or section 12 became non-operative. If we read the circular further it goes on to say that "the Assessing Officer should not invoke the provisions of section 12(18) in respect of genuine loans received by way of crossed cheques, pay orders or telegraphic transfers etc. through the banking channels." Though the C.B.R. asked its officers to carefully look into the cases pertaining to the provisions of section 12(18) it did not ask them to allow loans etc. paid otherwise than through banking channel. The C.B.R. otherwise also could not make the, operation or section 12(18) non-functional.
12. In our view where payment exceeding Rs.50,000 is made under anyone of the heads specified in clause (c) supra in cash and tax is also deducted under section 50 the payment will still not qualify, for deduction because though the provisions of clause section 24(c) have been met the requirements of clause (ff) of section 24 were not fulfilled. These are two independent and separate provisions and are not inter-related.
13. The assessee does not deny that the payment of rent was made in cash and not through a crossed bank cheque or by a crossed bank draft. The arguments of the learned AR that the landlord does not accept payment through cheque may be a problem for the assessee but in tax laws there is no question of equity. It was held by the Lahore High Court in the case reported as 2000 PTD 39 (Lahore H.C.) that when law requires a thing to be done in a particular manner than it must be done in that manner or not at all. The Supreme Court held in the case reported as 2002 PTD 1 that fiscal statute has to be construed in its true perspective and in respect of payment of tax, if it is found due against a party, then such statute cannot be interpreted liberally in order to make a case in favour of an assessee who has failed to pay the tax. In the well-known case of Cape Brandy Syndicate v. Inland Revenue Commissions, Rowelt J. observed as under:--
"In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in: nothing is to be implied. One can only look fairly at the language used." [(1965) 741 (ITR)].
14. We may refer here with advantage to the subject of confiscatory nature of a tax which has been discussed in corpus juris secondum. Volume LXXXIV (Page 46) as under:--
"Taxing power as extending to confiscation. It has been broadly stated that the power to tax has no limits and carries with it inherently the power to embarrass and destroy a business, such fact alone would not invalidate the tax. It has also been held, however, that the taxing power is virtually unlimited only as long as it does not amount to confiscation, and that the legislature does not have the power to tax to the point of confiscation. "
15. The Supreme Court of Pakistan has deduced some principles of law in the case of Elahi Cotton Mills Ltd. and others v. Federation of Pakistan in 1997 SCC 1097. One of the -principle deduced from various caselaw and treatises is as under:---
"That the policy of a tax, in its operation, may result in hardships or advantages or disadvantages to individual assessees which are accidental and inevitable. Simpliciter this fact will not constitute violation of any of the fundamental rights."
16. In view of the discussion we are of the considered view that since payment of rent was not made through crossed bank cheque or by a crossed bank draft the assessee was not entitled to claim deduction on account of the rent paid. It may have caused hardship for the assessee but that would not stop operation of the provisions of law. Accordingly the order of the authorities below in this regard is upheld.
17. The next issue is regarding the disallowances of a claim of Rs.23,200 made under the provisions of section 24(fff) as payments of salary in excess of Rs.5,000 had not been made through crossed bank cheque or a crossed bank draft. The issue is similar in nature to the one relating to disallowance of an expense under clause (ff) supra as discussed above. Therefore, the arguments given above with regard to the payment of rent would also apply with regard to disallowance of salaries exceeding Rs.5000 per month otherwise through a crossed cheque or by direct transfer of fund to such employee's account while holding that where salary exceeding Rs.5,000 is paid to an employee otherwise than through crossed cheque or banking channel, the amount paid would not be allowable as a deduction even if the employees have filed returns and paid tax on salaries. We are fortified by a similar view taken in 2002 PTD (Trib.) 364. The disallowance of the claim of salaries was in accordance with the relevant provisions of law and therefore, it does not require any interference.
18. The relief allowed by the First Appellant Authority with regard to disallowances under the heads conveyance, POL, shop contingencies, miscellaneous and entertainment is one estimate against another which does not require any interference.
19. The two appeals are disposed of in the manner indicated above.
C.M.A./777/Tax/Trib.) Order accordingly.