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

‑‑‑‑Ss. 108(b), 142, 50 & 86‑‑‑Income Tax Ordinance (XLJX of 2001), 5.182‑‑‑Penalty for failure to furnish return of total income and certain statements ‑‑‑Default in filing of statements‑‑‑Levy of initial penalty of Rs.2,001 before proceeding to levy the penalty for continuing default of each day separately‑‑‑Validity‑‑‑Law required that in case of default in filing of the statements the Deputy Commissioner shall impose a penalty on an "Amount equal to two thousand rupees and a further sum equal to two hundred rupees for every day during which the default continues"‑‑ In law. penalties are not meant to be source of Revenue but only a deterrent for default or concealments ‑‑‑Under the provisions of S.50 of the Income Tax Ordinance, 1979 a person was duty bound to collect tax from persons to whom he was making payments whereas tax collection was fundamentally the function of the Revenue Authorities‑‑‑Not only that S.142 of the Income Tax Ordinance, 1979 imposed duty upon such person who was making the payment to file certain statements giving the details of the payees which the payee might not be willing to provide to He Department‑‑‑Considering the prevalent tax culture and the lack of documentation; it was not surprising that many people should refuse to do business with a person who earnestly seeks to implement the law‑‑‑On top of all these obligations, the assessee was faced with the threat of penalties for non‑filing of such statements in addition to the action under S.52 of the Income Tax Ordinance, 1979 as well as S.86 of the Income Tax Ordinance, 1979‑‑‑In return for performing these services for the Revenue and under the threat of being held an assessee‑in‑default for any non‑deduction or short‑deduction of tax, the assessee was not entitled to any remuneration or relief for performing such functions on behalf of the Revenue‑‑‑No doubt one of the major considerations for making such laws and rules for deduction of tax at source was to discourage tax evasion, again it was strictly the function of the Tax Authorities to catch the tax evaders ‑‑‑Appellate Tribunal did not find any justification for the Assessing Officer to levy the initial penalty as well as the penalty for continuing default in one go without providing the assessee a further opportunity to correct the situation‑‑‑Revenue Authorities could not proceed to levy initial penalty as well as the continuing penalty in the same order and they must provide opportunity to the assessee before the levy of penalty for the continuing default‑‑‑Same also appears to be the intention of the law as laid down in S.182 of the new Income Tax Ordinance, 2001.

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

‑‑‑Ss. 108(b) & 142‑‑‑Income Tax Rules, 1982, R.61‑C.B.R. Circular No. 10 of 1997, dated 22‑8‑1999‑‑‑Penalty for failure to furnish return of total income and certain statements‑‑‑Assessee was, a non‑resident company‑‑‑Default in filing of statements‑‑‑Default was not wilful or without reasonable cause‑‑‑Explanations offered were not accepted‑‑ Penalty‑‑‑Validity‑‑‑Penalty could only be levied if the default was found to be deliberate or wilful‑‑‑Assessing Officer had rejected all the explanations of the assessee and found the assessee to be a wilful defaulter‑‑‑Main reason given by the

Assessing Officer was that the assessee had hired the services of the very efficient, chartered accountant who should have guided the assessee properly‑‑‑Other reasons such as the conditions of work and influence of the law had also been rejected‑‑ Was also argued that assessee was unable to find such persons to do business with, who were willing to suffer a deduction of tax‑‑‑When the assessee was a non‑resident corporation and working under difficult circumstances, this could be held to be a reasonable cause ‑‑‑Assessee had been charged to tax as an assessee‑in‑default and the tax had been recovered from it‑‑‑Business entity had to work to earn profits keeping in view the conditions prevalent in a society‑‑‑Might not always be possible plan the running of a business keeping in view the requirements of the law‑‑‑Basic objective of any business was to earn profit from which the Government recovers the tax due to it ‑‑‑Assessee coming from a foreign land may not be able to cultivate tax culture as appears to be the intention of the law under consideration‑‑‑There being no deliberate or wilful default, Appellate Tribunal upheld the order of the First Appellate Authority and dismissed the appeals of the Department.

1999 PTD (Trib.) 1661 ref.

1986 PTD (Trib.) 588 distinguished.

Bakht Zaman, D.R. for Appellant.

Yaqub Ali, F.C.A. and A.R. Nizami for Respondent.

Date of hearing: 27th July, 2002.

ORDER

INAM ELLAHI SHEIKH (CHAIRMAN). ‑‑‑These captioned departmental appeals arise out of an order, dated 15‑5‑2000 recorded by the learned Commissioner of Income‑tax (Appeals), Zone‑I, Karachi to agitate the cancellation of penalties levied under section 108(b) of the Income Tax Ordinance, 1979 (hereinafter called the 1979 Ordinance), for non‑filing of the statement required to be filed under section 142 of the 1979 Ordinance.

2. The relevant facts in brief are that the assessee is a non‑resident Chinese Corporation and executed certain contracts in Pakistan. As per impugned order of the Assessing Officer, the assessee was required to file monthly statement under rule 61 of the Income Tax Rules, 1982 (hereinafter called 1982 Rules) read with section 142 of the 1979 Ordinance by specified dates. No such statements were filed and show cause notice was issued on 27‑12‑1999 for the levy of penalties under section 108 of the 1979 Ordinance. The assessee took various grounds in defence, including the submission that the assessee was a non‑resident company and not well‑acquainted with the law. It was also submitted that there was lack of staff and the contracts were being executed in the interior of Sindh and Balochistan which hampered the submission of such statements. It was also submitted that the default was not neglectful or wilful and thus these were claimed to be reasonable cause. The attention was also drawn to the direction of C.B.R. However, all these explanations were rejected and the penalties were levied in all the years under consideration including initial penalty of Rs.2,000 for each default of statement and Rs.200 per day. Hence penalties were levied at Rs.2,579,200 in the assessment year 1997‑98, at Rs.1,705,800 in the assessment year 1998‑99, at Rs. 829,400 in the assessment year 1999‑2000 and Rs.86,400 in the assessment year 2000‑2001. After considering the written arguments of the A.R. of the assessee, the learned Commissioner of Income‑tax (Appeals) came to the conclusion that the assessee had a reasonable cause and that the penalties could not be levied. Reliance was also placed ‑ on a decision of the Tribunal reported as 1999 PTD (Trib.) 1661. Hence the orders of the Assessing Officer were cancelled.

3. The learned D.R. has, strongly argued that the learned Commissioner of Income‑fax (Appeals) was not justified to cancel the penalties as the assessee had failed to comply with the mandatory provisions of law without any reasonable cause. The learned D.R. read the provisions of section 142 and section 108 of the 1979 Ordinance to demonstrate that the assessee was under an obligation to file the statements where the tax was required to be deducted under section 50 of the 1979 Ordinance and that the Assessing Officer was obliged to levy the penalty where the provision of section 142 of the 1979 Ordinance was not complied with.

4. The learned counsel for the assessee, on the other hand, has submitted that the assessee has not in fact deducted any tax from any of the payments due to business exigencies. It was submitted that the assessee was unable to find any business connections where the parties were willing to suffer the deduction of tax. Hence the assessee had no choice but to proceed with the business without deducting tax, as required by the law. It was strongly argued by the learned counsel of the assessee that non‑compliance of the statutory requirement was not wilful. Another argument of the learned counsel of the assessee was that the Assessing Officer was not justified to levy the penalty at the minimum rate of Rs.2,000 for the initial default and Rs.200 per day for the continuing default in the same order without issuing separate notices. It was submitted by the learned counsel of the assessee that the Assessing Officer should have issued notices to the assessee for non‑filing of the statements well in time or within a reasonable time from the date when the statement was due to be filed. It was also submitted by the learned counsel of the assessee that the Assessing Officer has not issued the show‑cause notice within a reasonable time. It was pointed by the learned counsel of the assessee that the first default noted by the Assessing Officer is for the period July, 1996 and the statement for that month was due to be filed by 15‑8‑1996 whereas the notice was issued on 27‑12‑1997 which is more than 15 months after that. The learned counsel of the assessee was invited to dilate on 'a reasonable time' and how it could be practical. The learned counsel of the assessee was invited to comment as to how the Assessing Officer could have the knowledge of default when the possibility existed that the assessee may not have made any payment on which tax was liable to be deducted. The learned counsel of the assessee could not give any satisfactory answer to such queries.

However, he emphasized that the assessee should not be penalized unduly for the lethargy of the Assessing Officer and that the show‑cause notice had been issued after undue delay. The learned counsel of the assessee also referred to a Circular Letter of C.B.R. No.10 of 1997 to support this contention. The learned counsel has also referred to the provisions of section 182 of the new Income Tax Ordinance, 2001 to support of the contention that the Assessing Officer should levy the initial penalty of Rs.2,000 before proceeding further to levy the penalty for continuing default. The learned counsel of the assessee also rely on a decision of the Tribunal reported as 1986 PTD (Trib.) 588 to support the contention that the penalty could not be levied after the lapse of a reasonable time.

5. We have considered the submissions of both the parties: There are three questions which require attention in the present appeals. One of the questions is whether the Assessing Officer could issue a notice after an undue delay and whether there was any undue delay in the present case. The second question is whether the Assessing Officer could levy the initial penalty of Rs.2,000 before proceeding to levy the penalty for continuing default of each day separately. The third question before us is whether the default was wilful or without a reasonable cause.

6. Firstly we take up the objection with regard to the delay in the issuance of a notice or the levy of penalty. There is no time 'limit prescribed in the law and there is no dispute over this fact. The learned counsel of the assessee has relied on a decision of the Tribunal reported as 1986 PTD (Trib.) 588. A perusal of such order shows that in that case the penalty was levied after a lapse of 9 years from the date of issuance of the notice which was not approved. The facts in the present case are distinguishable. It is not the case of the assessee that the penalty was levied after an undue delay from 27‑12‑1997. when the show‑cause notice was issued. Hence we answer this question in favour of the Revenue.

7. The next question requiring our attention is whether the Assessing Officer should levy an initial penalty when he starts the proceedings. The law lays down that in case of default in filing of the statements, the Deputy Commissioner shall impose a penalty on an "amount equal to two thousand rupees and a further sum equal to two hundred rupees for every day during which the default continues". It A cannot be sufficiently stressed that penalties are not meant to be source of Revenue but only a deterrent for default or concealments. One must also bear in mind that under the provisions of section 50 of the 1979 Ordinance, a person has been charged with the duty to collect tax from the persons to whom he is making the payments whereas strictly speaking, the tax collection is fundamentally the function of the Revenue Authorities. Not only that, section 142 etc. imposes upon such person who is making the payment to file certain statements giving the details of the payees which the payee may not be willing to provide to the payers. Considering the tax culture as it is in our country and the lack of documentation, it is not surprising that many people should refuse to do business with a person who earnestly seeks to implement the law. On top of all these obligations, the assessee is faced with the threat of penalties for non‑filing of such statements in addition to the action under section 52 of the 1979, Ordinance as well as section 86 of the same. In return for performing. these services for the Revenue and under the threat of being held an assessee‑in‑default for any non‑deduction or short deduction of tax, the assessee is not entitled to any remuneration or relief for performing such functions on behalf of the Revenue. No doubt, one of the major considerations for making such laws and rules for deduction A of tax at source is to discourage tax evasion again it is strictly the function of the Tax Authorities to catch the tax evaders. In view of these observations, we do not find any justification for the Assessing Officer to levy the initial penalty as well as the penalty for continuing default in one go without providing the assessee a further opportunity to correct the situation. Hence we answer this question in favour of the assessee and we hold that the Revenue Authorities cannot proceed to levy initial penalty as well as the continuing penalty in the same order and they must provide another opportunity to the assessee before the levy of penalty for the continuing default. This also appears to be the intention of the law as laid down in section 182 of the new Income Tax Ordinance, 2001.

8. The last question before us is whether the default was wilful. The reasons given by the assessee for non‑compliance of the requirements have already been summarized in para. 4 above and we do not propose to repeat the same. There is no dispute that the penalty can only be levied if the default is found to be deliberate or wilful. The Assessing Officer has rejected all the explanations of the assessee and held the assessee‑respondent in the present case to be a wilful defaulter. The main reason given by the Assessing Officer is that the assessee had hired the services of the very efficient chartered accountant who should have guided the assessee properly. The other reasons such as the conditions of work and the influence of the law have also been rejected. It has also been argued before us that the assessee was unable to find such persons to do business with who were willing to suffer a deduction of tax. In the circumstances of this case, when the assessee is a non resident corporation and working under difficult circumstances, this could be held to be a reasonable cause. We also understand that the assessee/respondent in the present case has been charged to tax as an assessee‑in‑default and the tax has been recovered from it. We may also add that a business entity has to work to earn profits keeping in view the conditions prevalent in a society. It may not always be possible to plan the running of a business keeping in view the requirements of the law. The basic objective of any business is to earn profit from which the Government recovers the tax due to it. When an assessee who has come from a foreign land may not be able to cultivate tax culture as appears to be the intention of the law under consideration, we do not see any deliberate or wilful default in the present case. In these circumstances, we uphold the order of the learned CIT(A) and the appeals of the Department under consideration are dismissed.

C.M.A./497/Tax (Trib.)Appeal dismissed.