Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 80‑C, 50(5) & 156‑‑‑Tax on income of certain contractors and importers‑‑‑Deduction of tax at source‑‑Sales tax and customs duty‑‑ Inclusion of in the value of imported goods for purpose of income‑tax deduction under S.50(5) of the Income Tax Ordinance, 1979‑‑‑Validity‑‑ Sales tax and customs duty shall not be added in the value of imported goods for the purpose of assessing income of the assessee under S.80‑C of the Income Tax Ordinance, 1979‑‑‑Tax liability was to be worked out after deducting sales tax and customs duty paid by the assessee‑‑‑Appeal of the assessee was accepted by the Appellate Tribunal.  

Messrs Ramma Pipe and General Mills (Pvt.) Limited through its Director v. The Federation of Pakistan through Secretary, Ministry of Finance, Islamabad and 3 others 1994 PTD 848 and Writ Petition No. 18286 of 2001 rel.

Shahid Abbas and Muhammad Hamid for Appellant.

Javed‑ur‑Rehman, D.R. for Respondent.

Date of hearing: 24th September, 2002.

ORDER

RASHEED AHMAD SHEIKH (JUDICIAL MEMBER), ‑‑Vide these appeals the assessee‑appellant has assailed the combined order passed by CIT(A) Zone‑I, Lahore, dated 3‑12‑2001 in respect of the assessment years 1996‑97 and 1997‑98 whereby the Appeal Commissioner has maintained the rectificatory order passed by the DCIT under section 156 of the Income Tax Ordinance, 1979: The precise question which came up for our consideration was as to whether sales tax and custom duty shall be included in the value of goods imported for the purpose of collecting advance tax under section 50(5) read with section 80(c) of the Income Tax Ordinance, 1919 or not.

2. What happened in this case was that value of the imported goods was declared by the assessee after exclusion of sales tax and was accepted by the Assessing officer as such. This resulted into creation of refund in favour of the assessee. Subsequently it was noticed by the Assessing Officer that correct value of the imported goods was not declared by the assessee and this being a mistake apparent from record, a show‑cause notice in terms of section 156 of the Income Tax Ordinance, 1979 was issued whereby the Assessing Officer intended to modify the order by assessing value of the imported goods inclusive of sales‑tax and custom duty. The reply furnished was not acceptable to the Assessing Officer. Accordingly, value of the imported goods was adopted by the Assessing Officer including sales‑tax and the custom duty.

3. Felt aggrieved by this order of the Assessing Officer the assessee filed appeal before the First Appellate Authority on the following grounds:‑‑‑

(1) There was no mistake, in. terms of section 156 of the Income Tax Ordinance, 1979 in assessment order under section 62 of the Ordinance, hence the impugned, order under section 156 of the Ordinance, dated 2‑6‑2001 is unlawful and liable to be cancelled.

(2) Sales tax is not part of the consideration of purchases/sales under section 2(46) of the Sales Tax, 1990, hence its inclusion in the value of import for levy of tax under section 80‑C of the Ordinance is unlawful.

(3) Sales tax, by no stretch of imagination, can be termed income. Hence, levy of income tax on sales tax is unconstitutional and unlawful.

(4) Without prejudice to the foregoing grounds, the levy of Income Tax on sales tax is amenable to more than one opinion, as held by the Honourable Lahore High Court in the decision cited as 1994 PTD 848, hence it is not a rectifiable point in terms of section 156 of the Ordinance.

(5) That impugned order is also violative of Article 201 of the Constitution of Islamic Republic of Pakistan, 1973.

(6) It is a case of further enquiry, hence beyond the purview of section 156 of the Ordinance.

(7) The impugned order is hit by laches.

4. The Appeal Commissioner, after weighing pros and cons of the relevant sections of the Income Tax Ordinance, 1979 maintained the order of the Assessing Officer by holding that sales‑tax shall be included in the value of goods for the purpose of collection of tax under section 50(5) and the tax so deducted shall be full and final discharge of the assessee's liability, hence no such refund can be created from the tax so collected under section 50(5) of the Income Tax Ordinance, 1979. Also held that since the declared version was accepted by the Assessing Officer minus the sales tax and the custom duty paid on import value and this being a mistake apparent from record the assessment order has rightly been rectified in trims of section 156 of the Ordinance. As regard parallel case relied upon by the assessee, the Appeal Commissioner observed that issue involved in that case was relating to inclusion of sales tax in supplies of goods for the purpose of levy of tax under section 50(4) read with section 80‑C and in that context the Hon'ble High Court held that sales tax cannot be subjected to payment of Income‑tax and that sales -tax cannot be included in the receipts enjoyed by the assessee from supplies of goods. It was thus held by the Appeal Commissioner that section 50(5) specifically hold that value of goods for the purposes of collection of Income‑tax under this section shall be worked out by including sales‑tax and custom duty.

5. The impugned order of the Appeal Commissioner has strongly been attacked by the learned counsel for the assessee. He contended that the facts of the case law reported as 1994 PTD 848, which was relied before the CIT(A) are squarely identical viz the appellant's case but he had failed to appreciate the facts of the judgment delivered.' by the Hon'ble High Court in its proper perspective. For argument sake if at all it is admitted that the case law which was referred to before the Appeal Commissioner was distinguishable yet the Hon'ble High Court in another case in similar circumstances has followed the aforesaid decision in a Writ Petition No.18286 of 2001. In this case the petitioner was an importer of sugar and its import was liable to be deduction of tax at source under section 50(5) of the Income Tax Ordinance and was being deducted by the Deputy Collector Custom on the value of goods imported including sales‑tax and custom duty. On Assessment the Assessing Office; adopted the value of goods imported, as was determined by the Deputy Collector Customs while charging tax under section 50(5), for the purpose of assessing under section 80(c). The High Court while deciding the writ petition has held that this issue may be disposed of in the reported precedent in re:‑ 1994 PTD 848. Meaning thereby that income‑tax shall be charged on the value of goods excluding the sales tax and custom duty. Thus, ratio and principle of both these judgments fully applies to the facts of the present case and the Appeal Commissioner has fallen in grave error in upholding the treatment accorded by the Assessing Officer in both the assessment years under consideration.

6. On the other hand the learned DR supported the orders of the two authorities below for the reasons recorded therein.

7. Upon having heard the parties we do not take long to resolve the controversy particularly in view of the two judgments of Lahore High Court relied upon by the learned counsel for the assessee one cited as 1994 PTD 848 and the other bearing Writ Petition No. 18286 of 2001, dated 16‑11‑2001. In the first case while assessing under section 80‑C of the Income Tax Ordinance, 1979, the sales tax paid on goods supplied by the petitioner was included in his income by the Department. Nevertheless the Hon'ble Court has directed to work out the tax liability of the assessee for computing tax under section 80‑C after deducting the sales tax paid by him with the following observations:‑‑‑

"Mr. Muhammad Ilyas Khan, learned counsel appearing for respondents on instructions from respondents has conceded that while charging income‑tax under section 80‑C of the Income Tax Ordinance, 1979, the amount paid as sales tax cannot be deemed to be the income of the petitioner and as such, cannot be subjected to payment of Income‑tax. He submits that tax liability of the petitioner shall be worked out after deducting the sales tax paid. "

Although the facts of this case are not exactly identical viz the reported case cited supra being the issue involved was that the Sales‑tax is to be added in the supplies for the purpose of charging tax under section 50(4) read with section 80‑C while the controversy in the second judgment of the Lahore High Court was exactly the same as is existent in the present case. In that case the assessee an importer of sugar was liable to deduction of tax on its imports under section 50(5) of the Income Tax Ordinance, 1979 and the Deputy Collector Custom deducted tax on the value of goods including Sales‑tax and custom duty (as has been done in the case of the asses see‑appellant). Against this treatment a writ petition was preferred before the Lahore High Court on the following grounds:‑‑‑

(i) That the deduction of tax, under section 50(5) of the Ordinance can be made upon the value of goods not on the sales and duties. Hence, the tax can only be deducted after excluding the sales tax and duties etc. The act of the respondents is against the Constitution of Islamic Republic of Pakistan, 1973 as well as against the Income Tax Ordinance, 1979.

(ii) That the respondents are violating the Articles of 4, 8 and 25 of the Constitution of Pakistan.

(iii) That the respondents can charge the Income‑tax upon the value of goods not upon the duties and sales hence same is not permissible by any law.

(iv) That the respondents have no authority charge Income Tax upon the value of the goods including the sales‑tax and other duties payable by the petitioner being importer.

(v) That the respondents are also violating the judgments passed by the Hon'ble High Court on the subject‑matter, case relied.

The Hon'ble High Court having taken cognizance of the above contentions as well as the aforesaid reported judgments held as under:‑‑‑

"The matter agitated in the present petition is the same which was decided by the learned Bench of this Court in the case titled Messrs Ramma Pipe and General Mills (Pvt.) Limited through its Director v. The Federation of Pakistan through Secretary, Ministry of Finance Islamabad and 3 others (1994 PTD 848). This petition is also disposed of in the light of the said precedent"

8. From these findings of the High Court a principle has been enunciated that Sales‑tax and Custom duty shall not be added in the value of imported goods for the purpose of assessing income of the assessee under section 80C of the Income Tax Ordinance, 1979. The underline purpose of these ratios seems to be that levy of further tax on Sales tax and custom duty is not permissible which sounds to reasonings. Considering the facts of the case in hand in its entirety, we feel convinced that the ratio decidendi applies on all four and the distinction drawn by the Appeal Commissioner is not correct. Respectfully following the above judgments we feel no hesitation in holding that tax liability is to be worked out after deducting sales‑tax and custom duty paid by the assessee in the two assessment years under appeal and it is ordered accordingly.

9. As a result the assessee's appeals are accepted.

C.M.A./579/Tax(Trib.) Appeals accepted.