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

‑‑‑‑Ss. 52 & 50(3), (4)‑‑‑Liability of persons failing to deduct or pay tax‑‑‑Deduction of tax at source‑‑‑Non‑deduction of tax ‑‑‑Assessee contended that no order under S.52 of the Income Tax Ordinance, 1979 could legally be passed against the withholding agent for the default of non‑deduction of tax under S.50(4) of the Income Tax Ordinance, 1979 if the payments in the hands of recipients were ultimately adjudged not chargeable to tax and if it Was held that withholding agent was not authorized under the law to adjudicate upon the chargeability or otherwise of the payments in the hands of the recipients, then this would result into anomalous situation because all the importers will be required to deduct tax under S.50(4) of the Income Tax Ordinance, 1979 out of payments made by them to non‑resident from whom imports were effected‑‑‑Validity‑‑‑Provisions of S.50(4) of the Income Tax Ordinance, 1979 were applicable when the withholding agent was a person as prescribed in said section and whenever he made payments for contracts, supplies or services rendered as prescribed‑‑‑Only situation in which the withholding agent need not deduct any tax was that when the recipient produces a certificate from Commissioner to this effect‑‑‑Admittedly no such certificate was produced by the recipient‑‑‑Withholding agent was not authorized to determine the chargeability of tax on the payments and then to decide as to whether tax under S.50(4) of the Income Tax Ordinance, 1979 was to be deducted or not‑‑‑Only provision of law where chargeability of receipts had been made basis for withholding tax was S.50(3) of the Income Tax Ordinance, 1979‑‑No anomalous situation could arise because payments of all types to non‑residents were not covered by S.50(4) of the Income Tax Ordinance, 1979‑‑‑Payments to non‑residents on account of execution of turnkey contract, a contract or sub‑contract for designing, supply of plan and equipment and construction of power projects, a contract of‑construction, assembly or like project in Pakistan or any other contract for construction or for services other than that to which the provisio is of subsection (3A) and (4A) of the Income Tax Ordinance, 1979 apply were covered by S.50(4) of the Income Tax Ordinance, 1979‑‑‑Payments to non‑residents other than said payments were covered under S.50(3) of the Income Tax Ordinance, 1979 where the withholi4ing agent was to withhold tax only when such payments in the hands of non‑residents were chargeable under the provisions of Income Tax Ordinance, 1979‑‑‑Even in S.50(3) of the Income Tax Ordinance, 1979 withholding agent may not withhold tax from payments if he himself was liable to pay tax thereon as agent of the non‑resident‑‑‑Consequently, when no certificate under S.50(4) of the Income Tax Ordinance, 1979 from the Commissioner holding jurisdiction over the recipient was produced before the withholding agent, he was under the law obliged under all circumstances to withhold tax under S.50(4) of the Income Tax Ordinance, 1979, and therefore, when tax had not been deducted or lesser amount of tax from lesser amount of payments was deducted, as the case may be, the Assessing Officer having jurisdiction over the withholding agent had legal jurisdiction to proceed under S.52 of the Income Tax Ordinance, 1979.

1996 PTD (Trib.) 1128 distinguished.

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

‑‑‑‑Ss. 86, 89, 52 & 50‑‑‑Additional tax‑‑‑Default in deduction of tax‑‑ Setting aside of demand under S.52 of the Income Tax Ordinance, 1979‑ Distinction between Ss.86 & 89 of the Income Tax Ordinance, 1979‑‑ Assessee contended that the additional tax under S.86 of the Income Tax Ordinance, 1979 should not have been charged for the period during which the demand under S.52 of the Income Tax Ordinance, 1979 remained as set aside‑‑‑Validity‑‑‑When an order of assessment had been set aside then there was no demand against the assessee during the period intervening the setting aside of the order and passing of fresh order‑‑‑No additional tax under S.89 of the Income Tax Ordinance, 1979 could be charged for such period‑‑‑Situation for charging additional tax under S.86 of the Income Tax Ordinance, 1979 was different‑‑‑Under S.89 of the Income Tax Ordinance, 1979, the additional tax was to be calculated from the date the demand was made payable to the date it was actually paid, the calculation of the additional tax, therefore, depended upon the date when the demand was payable‑‑‑Such date may vary every time a fresh demand was created after passing the assessment order consequent upon setting aside of the original order by the Competent Authority‑‑ Whenever an order under S.86 of the Income Tax Ordinance, 1979 will be passed for default of provisions of S.50 of the Income Tax Ordinance, 1979 the additional tax will be calculated from the date when the tax deducted or liable to be deducted was required to be paid as prescribed in S.50 of the Income Tax Ordinance, 1979 which meant that notwithstanding setting aside of order under S.52 of the Income Tax Ordinance, 1979 whenever the fresh order under S.52 would be passed the date from which the additional tax was to be calculated shall remain the same and the additional tax would need be computed till the date when the tax under S.52 of the Income Tax Ordinance, 1979 was actually paid‑‑‑Initially the additional tax had been calculated by the Assessing Officer from the date it was required to be paid under S.50 of the Income Tax Ordinance, 1979 to the date of passing the order under S.52 of the Income Tax Ordinance, 1979 by the Assessing Officer‑‑ Payments of the tax under S.52 having actually been made, the Assessing Officer was legally justified in revising his order under S.86 of the Income Tax Ordinance, 1979 so as to calculate the additional tax for the period starting from the date on which the tax was payable under S.50 of the Income Tax Ordinance, 1979 to the date on which the actual payment was made.

I.T.A. No. 4643/LB of 1997 distinguished.

Nadim Tirmizi and Khaliq‑ur‑Rehman, F.C.As. for Appellant.

Shaheen Aziz Niazi, D.R. and Saeed Ahmed, D.C.I.T. for Respondent.

Date of hearing: 7th September, 2002.

ORDER

MUHAMMAD AKHTAR NAZAR MIAN (ACCOUNTANT MEMBER). ‑‑‑These appeals by a private limited company are directed against order by the learned C.I.T.(A) Hyderabad Zone, Hyderabad made on 2‑8‑2002 against the order dated 4‑7‑2002 passed by the D.C.I.T., Circle I, Quetta under sections 135/52/86 of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance) for the assessment years 1996‑97, 1997‑98 and 1998‑99).

2. The learned representatives of both the parties have been heard and orders of the authorities below perused.

3. The facts so far as relevant for the disposal of these appeals are that the Assessing Officer had found that the appellant failed to withhold the tax under section 50(4) of the Ordinance out of payments made by it to certain recipients, the most important being a non‑resident Messrs Fiat Avio S.P.A. Italy. Consequent upon two rounds of appeals, the orders of the authorities below were set aside on 1‑6‑2002 by this Tribunal vide I.T.A. No.595/KB of 2002 (Assessment year 1996‑97), I.T.A. No.596/KB of 2002 (Assessment year 1997‑98) and I.T.A. No. 597/KB of 2002 (Assessment year 1998‑99). The operating part of this Tribunal's order referred to supra is reproduced below:‑‑‑

"17. Since action as stipulated in the I.T.A.T's. order has not been taken by the Assessing Officer in this perspective, or if taken at the back of the assessee, it has not at all been confronted to the appellant, we are constrained to set aside the point with the direction that necessary enquiries may be made by the Assessing Officer from the authority having jurisdiction to levy tax in the case of recipient company Messrs Fiat Avio SPA. If he finds that tax on these payments has been paid by the recipient company then no order under section 52 would be exigible, and this Assessing Officer would be justified to pass order only under section 86 for late payment of tax for the period from the date this tax was deductable to the date of the tax was actually paid by the recipient company. If the concerned authority has declared these payments to be not chargeable to tax in the hands of the recipient company, then there would be no occasion with D.C.I.T. of the appellant to hold the assessee as assessee in default in respect of these payments. In the third situation if the D.C.I.T. finds that notwithstanding the receipts having been taxed in the hands of the recipient company, no tax has been paid by the recipient company, then his orders under sections 52 and 86 would hold good. Needless to say that the appellant will have to be confronted after making the enquiries as directed above.

18. Regarding the directions of the A.A.C. on issues set aside by him, we have already held that the D.C.'I.T's. action was legally not barred by time, but we find force in the submission of the learned A.R. that reasonable opportunity to explain the case was not afforded to them. As stated by the learned A.R., the notice issued by Assessing Officer in this respect contained an Annexure which showed that (contrary to the actual position) tax deducted had duly been deposited. The learned A.R. had then not only objected to the D.C.I.T. in respect of the action having been barred by time, but had also written to him that the notice was non‑specific and the Annexure did not support the allegation on which the appellant was intended to be treated as assessee in default. It was further submitted to the D.C.I.T., the learned A.R. has asserted before us, that they were willing to give any further information, if so required, but the learned D.C.I.T. had never reverted to this issue thereafter. In these circumstances, we agree with the learned A. R. that the assessee has been condemned unheard on this issue. In this view of the matter findings of the D.C.I.T. on this point are also set aside with the direction that proper opportunity of hearing be given to the appellant for deciding the points referred to in para. 4 (supra) in the light of the directions of the learned A.A.C. as contained in his order, dated 7th January, 1999."

4. Upon receipt of this order of the Tribunal, the Assessing Officer issued a notice on 24‑6‑2002 reproduced by him at page 2 of the order passed by the D.C.I.T. The matters pertaining to para. 18 of the Tribunal's order quoted supra were duly confronted to the appellant and the matter pertaining to para. 17 of the Tribunal's order was referred to in this notice at para. 2 indicating that verification from the office holding tax jurisdiction over the case of Fiat Avio S.P.A. Italy, the non resident was being made and would be confronted to the appellant as soon as the report from his counter‑part was received. This notice was served on the assessee on 25‑6‑2002 and the compliance was required by 3‑7‑2002 (10‑00 a.m.). Meanwhile the Assessing Officer received report from his counterpart holding jurisdiction over the case of Fiat Avio SPA Italy and through his letter dated 30‑6‑2002, a copy of the report was sent to the assessee asking it to respond to this report as well, if so required, on the date for which the case had already been fixed (i.e. 3‑7‑2002 through his notice served on 25‑6‑2002). Instead of respondent to the notices of the Assessing Officer, the learned A.Rs. of the company Messrs Hussain Rehman, C.As. applied on 2‑7‑2002 for extension in time for 15 days. This extension in time was refused by the Assessing Officer who proceeded to pass the order which was impugned before the learned C.I.T.(A) Hyderabad and as the appeals were rejected by the First Appellate Authority these appeals before the Tribunal have now been filed.

5. The orders of the authorities below have been challenged on the following common grounds in each year:‑‑‑

(1) That the learned C.I.T.(A) failed to appreciate that the learned Assessing Officer has passed his order in violation of directions of the Honourable Income‑tax Appellate Tribunal.

(2) That the learned C.I.T.(A) erred in law in holding that due inquiry has been made by the learned Assessing Officer as per directions of the Honourable Income‑tax Appellate Tribunal.

(3) That the learned C.I.T.(A) erred in concluding that reasonable opportunity was afforded to the Appellant.

(4) That the learned C.I.T.(A) is not justified in upholding the levy of additional tax for the set aside period during which there was no tax demand.

(5) That the learned C.I.T.(A) failed to appreciate that action of the learned Assessing Officer is without jurisdiction inasmuch as order under section 156 has been merged with the instant order ignoring the fact that Honourable Income‑tax Appellate Tribunal has set aside the original orders.

6. It is argued by Mr. Nadim Tirmizi, the learned A.R. that the report of the D.C. I.T. Karachi holding jurisdiction over the case of Fiat Avio SPA Italy showed that some amounts of payments were declared in the assessment year 1998‑99 and the tax deducted was also shown simultaneously and therefore, the Assessing Officer could not declare the withholding agent as assessee in default for the assessment year 1998‑99. For the assessment years 1996‑97 and 1997‑98 the Assessing Officer at Karachi had not yet declared the receipts to be chargeable in the hands of Fiat Avio SPA Italy and therefore, the action of the Assessing Officer was before time and thus the order of the learned D.C.I.T. is bad in law. According to him the withholding agent could not be treated as an assessee in default under section 50(4) of the Ordinance if the payment in the hands of the recipient were not chargeable to tax in Pakistan. According to him, no action under section 52 could be taken in the light of the directions contained in order dated 1‑6-2002 of this Tribunal referred supra, unless the assessment in the case of Fiat Avio SPA Italy had been completed and that also if the receipts were held chargeable to tax.

7. The second leg of argument of the learned A.R. is that sufficient opportunity had not been provided by the Assessing Officer before passing the order now impugned and therefore, his orders need to be cancelled. In respect of additional tax, it is argued that no additional tax could be charged for the period during which the demand remained set aside and in this connection reference has been made to an unreported case in I.T.A. No.4643/LB of 1997 (Assessment Year 1991‑92) decided un 17‑1‑1998.

8. Mr. Saeed Ahmed, D.C.I.T. while defending his order has stated that whereas his actions were prompt, these could not be treated as having been taken in haste. He submits that in this case the Hon'ble Balochistan High Court had directed that the appeals intended to be filed before the I.T.A.T. would be decided by the Tribunal in the given period; and if those appeals of the appellant succeed before the Tribunal, the Department would issue the refund within 13 days of the receipt of the appellate order. When the orders of the Assessing Officer had been set aside by the Tribunal on 1‑6‑2002 the assessee immediately approached him to issue refund vouchers in compliance to the orders of the Hon'ble Balochistan High Court. Since no refund voucher could be issued unless the refund was determined, he was obliged under these directions of the Hon'ble High Court to complete the set aside proceedings within 15 days so that refund, if any, is determined and issued to the assessee. This was to be done specially in the circumstances when the assessee had applied for the refund referring to the instructions of the Hon'ble Balochistan High Court. He, therefore, submits that he promptly proceeded to comply with the instructions of the Income‑tax Appellate Tribunal within the stipulated time as directed by the Balochistan High Court and in this connection he did not show any haste notwithstanding that the matter had to be pursued with the D.C.I.T. at Karachi so that compliance of the instructions of the Hon'ble Balochistan High Court was ensured.

9. The learned D.C.I.T. has further argued that the first notice had duly been served on 25‑6‑2002 for compliance on 3‑7‑2002 and the period for compliance can in no way be construed as unreasonable in the circumstances of the case. Unfortunately the assessee did not respond even to the objections pertaining to non‑deduction of tax under section 50(4) from the recipients other than Fiat Avio Itlay as confronted to it in the first notice served on 25‑6‑2002. With regard to the report of the D.C.I.T., Karachi, the learned D.C.I.T. has submitted that this report was complete and met with the directions contained in the order of this Tribunal and therefore, he was justified in proceeding under section 52 of the Ordinance. It is further explained by the learned D.C.I.T. that for the assessment year 1998‑99, the default had been restricted to the payments made by the appellant in excess of the payments declared by the PE of the non‑resident at Karachi and the payments of tax as reported by the PE have duly been considered while passing order under section 52 for the assessment year 1998‑99.

10. For the sake of convenience, we have hereinabove quoted the operative part of the order passed by this Tribunal. The fact of the matter is that sufficient time had now passed between the time of making payments to the recipients and the time of passing order under section 52. It was in these circumstances that the Tribunal had considered it imperative to advise the D.C.I.T. holding jurisdiction over the withholding agent to find out from his counter‑part having jurisdiction over the non‑resident as to whether tax on these payments was paid by the non‑resident or these payments were adjudged to be not chargeable to tax in the hands of the non‑resident because in these situations it would be worthless to create demand against the withholding agent which ultimately is to be given credit for in the assessment of the said non‑resident thereby creating unnecessary refund at Karachi. The report of the D.C.I.T. Karachi insufficient to meet with the directions of the Tribunal as contained in para. 17 of its earlier order dated 1‑6‑2002 (as has been quoted supra) because the Assessing Officer at Karachi had confirmed that no tax had so far been paid by the non‑resident or determined in its case for the assessment years 1996‑97 and 1997‑98 and that the payments and tax paid for the assessment year 1998‑99 through the PE were less than what had been actually received from the withholding agent.

11. During discussion at the time of hearing the learned A.R. submitted that if the payments in the hands of recipients were ultimately adjudged not chargeable to tax, still no order under section 52 could legally be passed against the withholding agent for the default of non- deduction of tax under section 50(4). We are afraid we cannot subscribe to this view of the learned A.R. In our view the provisions of subsection (4) of the section 50 are applicable when the withholding agent is a person as prescribed in that subsection and whenever he makes payments for contracts, supplies or services rendered as prescribed. The only situation in which the withholding agent need not deduct any tax is that when the recipient produces a certificate from his Commissioner to this effect. Admittedly in this case no such certificate was produced by the recipient. The withholding agent is not authorised to determine the chargeability of tax on the payments and then to decide as to whether tax under subsection (4) of section 50 is to be deducted or not. The only provision of law where chargeability of receipts has been made basis for withholding tax is subsection (3) of section 50 of the Ordinance and it is undisputed, that in the instant case before us relevant actions were legally taken under subsection (4) of section 50 of the Ordinance. We may state here that the learned A.R. has referred to a case reported as 1996 PTD (Trib.) 1128 to contend that even for withholding tax under sub‑section (4) of section 50, the withholding agent can look into chargeability of the receipts in the hands of the recipient. We have had benefit of going through the case‑law referred to by the learned A.R. In that case the issue before the learned Chairman (as he then was) of this Tribunal was that of determining as to whether the words "house property" used under section 50(7B) would have the same meanings as were assigned to them in section 19(2)(a) of the Ordinance. It was held by the learned Chairman that since the deductions made under section 50(7B) of the Ordinance were to be adjusted against income from house property, the words "house property" as used in section 50(7B) and section 19(2)(x) have the same meanings. The facts of this case are quite distinguishable from the facts of the instant case.

12. During hearing of the appeals Mr. Khaliq‑ur‑Rehman, F.C.A. submitted that if it held that withholding agent is not authorized under the law to adjudicate upon the chargeability or otherwise of the payments in the hands of the recipients, then this would result into anomalous situation because, according to him, all the importers will be required to deduct tax under section 50(4) out of payments made by them to non resident from whom imports are effected. In this connection we are of the opinion that no anomalous situation can arise because payments of all types to non‑residents are not covered by subsection (4) of section 50. It is only the payment to non‑resident on account of execution of turnkey contract, a contract or sub‑contract for designing, supply of plant and equipment and construction of power projects, a contract of construction, assembly or like project in Pakistan or any other contract for construction or for services other than that to which the provisions of subsections (3A) and (4A) apply which are covered by subsection (4) of section 50. The payments to non‑residents other than these payments are covered in subsection (3) of section 50 where the withholding agent is to withhold tax only when such payments in the hands of non‑resident are chargeable under the provisions of the Ordinance. Even in subsection (3) of section 50, withholding agent may not withhold tax from payments if he himself is liable to pay tax thereon as agent of the non‑resident. We hasten to add that in the case under appeal before us there has never been any dispute regarding applicability of subsection (4) of section 50 in the circumstances of this case. We have made the observations hereinabove just to counter the argument which the learned A.R. made during hearing of appeal and to prove that the law as contained in various subsections of section 50 nowhere creates anomaly in any circumstances.

13. Consequent upon the discussion made above, .we hold that when no certificate under subsection (4) of section 50 of the Ordinance from the Commissioner holding jurisdiction over the recipient was produced before the withholding agent, he was under the law obliged under all circumstances to withhold tax under subsection (4) of section 50 and therefore, when tax had not been deducted or lesser amount of tax from lesser amount of payments was deducted, as the case may be, the Assessing Officer having jurisdiction over the withholding agent had legal jurisdiction to proceed under section 52 of the Ordinance.

14. In the circumstances of the case as explained by the learned D.C.I.T. before us, his action of completing the set aside assessments was prompt action for which he completed all the legal requirements by giving ample time to the assessee for giving its point of view both in respect of non‑deduction of tax from payments made to Messrs Fiat Avio Italy and the other recipients, as well, since the matter was duly confronted in the notice, dated 24‑6‑2002 served on 25‑6‑2002 for compliance on 3‑7‑2002.

15. Now we are left with the charging of additional tax under section 86 of the Ordinance. It is submitted by the learned A.R. that the additional tax under section 85 should not have been charged for the period during which the demand under section 52 remained set aside. In this connection he has referred to an unreported case in I.T.A. No. 4643/LB of 1997 (Assessment year 1991‑92), dated 17‑1‑1998. We have gone through this decision which pertains to an order and section 89 of the Ordinance. It has been held therein that when an order of assessment has been set aside then there is no demand against the assessee during the period intervening the setting aside of the order and passing of fresh order, therefore, no additional tax 89 could be charged for this period. This situation, however, is different under section 86 of the Ordinance. Under section 89 the additional tax is to be calculated from the date the demand is made payable to the date it is actually paid, the calculation of the additional tax, therefore, depends upon the date when the demand is payable. This date may vary every time a fresh demand is created after passing the assessment order consequent upon setting aside of the original order by the Competent Authority. On the other hand, whenever an order under section 86 will, be passed for default of provisions of section 50, the additional tax will be calculated from the date when the tax deducted or liable to be deducted was required to be paid as prescribed in section 50. This means that notwithstanding setting aside of order under section 52 whenever the fresh order under section 52 would be passed the date from which the additional tax is to be calculated shall remain the same and the additional tax needs to be computed till the date when the tax under section 52 is actually paid. Even in the instant case, initially the additional tax had been calculated by the Assessing Officer from the date it was required to be paid under section 50 to the date of passing the order under section 52 by the Assessing Officer. Now the payment of the tax under section 52 has actually been made the Assessing Officer is legally justified in revising his order under section 86 so as to calculate the additional tax for the period starting from the date on which the tax was payable under section 50 to the date on which the actual payment was made.

16. Consequently the appeals fail on all grounds and are hereby dismissed.

C.M.A./542/Tax (Trib.) Appeals dismissed.