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

‑‑‑‑Ss. 86, 52, 52A & 50‑‑‑Charge of additional tax for failure to deduct and pay tax‑‑‑Additional tax was imposed under S.86 of the Income Tax Ordinance, 1979 in addition to creation of demand under S.52A of the Income Tax Ordinance, 1979‑‑‑Assessee contended that additional tax under S.86 of the Income Tax Ordinance, 1979 could be recovered only from the payer/deducting agent and not from the recipient/deductee as there was no nexus between Ss. 86 & 52A of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Section 52A of the Income Tax Ordinance, 1979 empowered the Department to make recovery of the amount of tax from the deductee/payee if the deducting agent/payer failed to make deduction of tax or failed to make deduction of full amount of due tax under S.50 of the Income Tax Ordinance, 1979‑‑‑Section 52A of the Income Tax Ordinance, 1979 did not empower the Department to impose additional tax under S.86 of Income Tax Ordinance, 1979 in the case of the deductee/payee, neither S.86 of the Income Tax Ordinance, 1979 empowered the Department to do so‑‑‑Section 52A of the Income Tax Ordinance, 1979 no doubt ended with the words, "and all provisions of this Ordinance relating to recovery of tax shall apply" but additional tax under S.86 of the Income Tax Ordinance, 1979 was not a provision of Income Tax Ordinance, 1979 relating to recovery of tax despite the fact that S.86 of the Income Tax Ordinance, 1979 had been incorporated in Income Tax Ordinance, 1979 under its Chap. IX which dealt with recovery of tax‑‑Sections relating to recovery of tax in the said chapter of Income Tax Ordinance, 1979, were in fact those sections which deal with levy of penalty like S.91 of the Income Tax Ordinance, 1979 and recovery of tax like Ss.92, 93, 93A & 94 of the Income Tax Ordinance, 1979‑‑‑If S.86 of the Income Tax Ordinance, 1979 was taken to be a provision relating to recovery of tax even then it would not be applicable to a deductee or payee‑‑‑Section 86 of the Income Tax Ordinance, 1979, actually related to recovery of additional tax from the withholding agent who failed to comply with the provisions of S.50 of the Income Tax Ordinance, 1979 regarding deduction of tax at source and the payment thereof‑‑‑Provisions of Ss.52 & 52A of the Income Tax Ordinance, 1979 were the same and S.86 of the Income Tax Ordinance, 1979 could be invoked against the deductee in‑case of recovery of tax from him under S.52A of the Income Tax Ordinance, 1979 as it was invoked against the deducting agent when recovery of tax from him was made under S.52 of the Income Tax Ordinance, 1979‑‑‑Section 86 of the Income Tax Ordinance, 1979 had no nexus with S.52A of the Income Tax Ordinance, 1979 so demand of additional tax created by Revenue under S.86 of the Income Tax Ordinance, 1979 were not justified‑‑‑Appellate Tribunal held that provisions of S.86 of the Income Tax Ordinance, 1979 not applicable to the assessee in circumstances and additional tax under S.86 of the Income Tax Ordinance, 1979 had illegally been levied‑‑ Additional tax levied in the case of the assessee in all the years under consideration was deleted by the Appellate Tribunal to meet the ends of justice.

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

‑‑‑Ss.52 & 52A‑‑‑Distinction‑‑‑Difference between Ss.52 & 52A of the Income Tax Ordinance, 1979 was that S.52 of the Income Tax Ordinance, 1979 empowers the Assessing Officer to treat the deducting authority in case of its default as assessee in default while S.52A of the Income Tax Ordinance, 1979 did not give his power to the Assessing Officer and so the Assessing Officer could recover only the undeducted, tax or shortfall in deductible tax from the deductee but he could not treat the deductee as assessee in default‑‑‑No nexus existed between Ss.52 & 52A of the Income Tax Ordinance, 1979.

Imtiaz Amad, A.C.M.A. for Appellant.

Muhammad Zulfiqar Ali, D.R. for Respondent.

Date of hearing: 2nd August, 2002.

ORDER

MUHAMMAD SHARIF CHAUDHRY (ACCOUNTANT MEMBER). ‑‑‑These three appeals have been filed at the instance of a limited company to challenge appellate order dated 3‑12‑2001 passed by Commissioner of Income‑tax Appeal Zone‑I, Faisalabad under section 132 of the Income Tax Ordinance, 1979 for the years 1995‑96 to 1997‑98. It has been contended in the identical grounds of appeal in all the years under consideration that the learned Commissioner has wrongly and illegally confirmed additional tax levied by the D.C.I.T. under section 86 of the Income‑Tax Ordinance.

2. Appellant's A.R. and respondent's D.R. have been heard. Available records have been perused.

3. It has been submitted by the A.R. of the assessee that assessee company makes supplies to WAPDA and when WAPDA makes the payments for these supplies it deducts tax under section 50(4). However, in the years under consideration tax deducted by WAPDA was less than the due tax and so the shortfall in deductible tax was recovered by the Assessing Officer from the assessee‑company under section 52A of the Income Tax Ordinance. The Assessing Officer also proceeded to impose additional tax under section 86 in addition to creation of demand under section 52A of the Income Tax Ordinance. The learned A.R. contends that additional tax under section 86SA can be recovered only from the payer/deducting agent and not from the recipient/deductee as there is no nexus between sections 86 and 52A. In support of this contention the A.R. has relied upon a judgment of the I.T.A.T. reported as 2002 PTD (Trib.) 1930. In this judgment the I.T.A.T. has held that charge of additional tax under section 86 from the deductee/recipient is unjustified as he cannot be penalized on the default of the payer/withholding agent who failed to deduct due amount of tax at source.

4. The above mentioned contentions of the assessee and the pleas of his A.R. have been strongly rejected by the learned D.R. on behalf of Revenue. According to the learned D.R. since the appellant company has been treated as assessee in default under section 52A of the Income Tax Ordinance and demand of short fall in tax has been created against him, the D.C.I.T. is justified to levy additional tax under section 86 for the period of default. In the opinion of the learned D.R. section 86 is as much concerned with section 52A as it is concerned with section 52.

5. We have considered the view point of both the parties and have gone through the order of the D.C.I.T. and the appellate order of the learned Commissioner. We have also consulted the reported judgment of the I.T.A.T. which has been quoted by the A.R. of the appellant in support of his viewpoint. The only issue before us, briefly speaking, is whether additional tax under section 86 can be imposed in a case where section 52A of the Income Tax Ordinance is invoked to recover full or part amount of tax deductible under section 50 from the payee or deductee? Our decision on this issue is as follows:

6. Section 52A of the Income Tax Ordinance was inserted by Finance Act, 1999. It reads as follows:

"52A. Recovery from the person from whom tax was not deducted or collected. ‑‑‑Where any sum deductible or collectable by any person has not been deducted or collected as required by, or under section 50, the Deputy Commissioner having jurisdiction over the case of the person from whom tax was deductible or collectable, without prejudice to any liability which the person responsible for deduction or collection of tax under section 50 may incur under this Ordinance, may recover the sum not deducted or collected from the person from whom tax was to be deducted or collected and all provisions of this Ordinance relating to recovery of tax shall apply."

From the plain reading of the above mentioned section it is clear that full amount of deductible tax or any short fall in deductible tax can be recovered by the Income Tax Department from the person from whom due amount of tax was not deducted or collected by the deducting or withholding agent. According to this section, where any sum deductible or collectable by any person has not been deducted or collected as required under section 50, the D.C.I.T. having jurisdiction over the case of the person from whom tax was deductible or collectable can recover the sum not deducted or collected from such person and all provisions of Income Tax Ordinance relating to recovery of tax shall apply.

7. Section 86 of the Income Tax Ordinance which deals with charge of additional tax is reproduced as under:

"86. Charge of additional tax for failure to deduct and nay tax.‑Where any person fails to deduct, or having deducted, fails to pay any tax, as required by section 50, such person shall, without prejudice to any other liability which he may incur, be liable to pay additional tax at the rate of (twenty‑four) percent per annum on the amount not paid for the period commencing from the date of which he was required to pay such tax to the date of the payment thereof."

A plain reading of section 86 brings home this fact that additional tax for failure to deduct and pay tax can be imposed on such person who is responsible for deduction of tax under various provisions of section 50 and who fails to make deduction of tax or fails to make the payment of deducted tax. Thus the provisions of section 86 cannot be invoked and additional tax cannot be levied in the case of a deductee or payee. It is the withholding agent or payer against whom section 86 can be invoked and additional tax can be levied in case of his non‑compliance with the provisions of section 50.

8. Section 52A of the Income Tax Ordinance empowers the Income Tax Department to make recovery of the amount of tax from the deductee/payee if the deducting agent/payer fails to make deduction of tax or fails to make deduction of full amount of due tax under section 50 Section 52A, in our considered opinion, does not empower the Income Tax Department to impose additional tax under section 86 in the case of the deductee/payee, neither section 86 empowers the Department to of so. No doubt section 52A ends with the words, "and all provisions of this Ordinance relating to recovery of tax shall apply." But additional tax under section 86 is not a provision of Income Tax Ordinance relating the recovery of tax despite the fact that section 86 has been incorporated Income Tax Ordinance, 1979 under its Chapter IX which deals wit recovery of tax. Sections relating to recovery of tax in this chapter of the Income Tax Ordinance are in fact those sections which deal with levy of penalty like section 91 and recovery of tax like sections 92, 93, 93A and 94. Even if section 86 is taken to be a section relating to recovery of tax even then it is not applicable to a deductee or payee. Section 86, as discussed above, actually relates to recovery of additional tax from the withholding agent who fails to comply with the provisions of section 50 regarding deduction of tax at source and the payment thereof.

9. We do not agree with the contention of the learned D.R. Chat provisions of sections 52 and 52A are same and, therefore, section 86 can be invoked against the deductee in case of recovery of tax from him under section 52A as it is invoked against the deducting agent when recovery of tax from him is made under section 52. We have already reproduced and discussed section 52A in this order. Let us reproduce section 52 as under:

"52. Liability of persons failing to deduct or pay tax.‑‑‑Where any person fails to deduct or collect, or having deducted or collected, as the case may be, fails to pay the tax as required by, or under section 50, he shall, without prejudice to any other liability which he may incur under this Ordinance, be deemed to be an assessee in default in respect of such tax.

[Explanation.‑‑‑For the purposes of this section, the Deputy Commissioner having jurisdiction under section 5 over the case of the assessee in default may initiate action.]"

From section 52 it is evident that where any person fails to deduct or collect or having deducted or collected as the case may be fails to pay the tax as required under section 50 he shall be deemed to be an assessee in default in respect of such tax. The difference between sections 52 and 52A is that section 52 empowers by D.C.I.T. to treat the deducting authority in case of its default as assessee in default. But section 52A does not give this power to the D.C.I.T. and so the B D.C.I.T. can recover only the undeducted tax or shortfall in deductible tax from the deductee butte cannot treat the deductee as assessee in default. Hence there is no nexus between sections 52 and 52A.

10. In view of the foregoing discussion, we agree with the A.R. of the assessee that section 86 has no nexus with section 52A and so demand of additional tax created by Revenue under section 86 is not justified. The reported judgment of the I.T.A.T. cited by the A.R. is so relevant which supports our interpretation of sections 52A and 86 as discussed above. Therefore, we do not feel any hesitation to old that provisions of section 86 are not applicable to the assessee and, therefore, additional tax under this section has illegally been levied in his case. So, it would meet the ends of justice if the additional tax levied in the case of the assessee in all the years under consideration is deleted.

C.M.A./540/Tax(Trib.) Order accordingly.