I.T.As. Nos. 864/LB to 867/LB of 2002, decided on 30th May, 2002. VS I.T.As. Nos. 864/LB to 867/LB of 2002, decided on 30th May, 2002., 2003 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 975 (2002)

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

‑‑‑‑S. 50(4‑A)‑‑‑Deduction of tax at source‑‑‑Provision of S.50(4‑A) of the Income Tax Ordinance, 1979 shall be applicable to every sale made to the agencies noted therein unless and until specifically exempted from deduction of tax.

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

‑‑‑‑Ss. 66‑A, 80‑C, 59(1), 62 & Second Sched., Part IV, Cl. (9)‑‑ S.R,O. 828(I)91, Cl. (37A)‑‑‑S.R.O. 30(I)/99, dated 14‑1‑1999‑‑‑C. B. R. Letter C. No.3(7)SS(WHT)/98‑99, dated 10‑6‑1999‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Exemption from specific provisions‑‑‑Manufacturer‑‑‑Deduction of tax on receipts from exporters‑‑‑Assessment under Self‑Assessment Scheme and normal law‑‑‑Cancellation of such assessments on the ground that deduction of tax at source on such receipt was not assessable under normal law but were liable to tax under S.80‑C of the Income Tax Ordinance, 1979 as assessee did not fall within the purview of Cl. (9) of Part IV of Second Sched. of the Income Tax Ordinance, 1979‑‑‑Assessee contended that payments on which tax was deducted were received from exporters who were not liable to withhold tax had wrongly/unlawfully deducted tax and such deduction of tax would not render those receipts liable under S.80‑C of the Income Tax Ordinance, 1979‑‑‑Validity‑‑ provision of S.66‑A of the Income Tax Ordinance, 1979 were not invoked properly and order of the Inspecting Additional Commissioner was without lawful jurisdiction and the same was cancelled by the Tribunal and consequently order of the Assessing Officer stood restored.

2001 PTD (Trib.) 3810; Union Bank Limited v Federation of Pakistan 1998 PTD 2114; Ravi Spinning Limited v. ACIT/WT. 1998 PTD 3947; Central Insurance Co. and others v. C.B.R. 1993 PTD 766 = 1993 SCMR 1232 and C.B.R. and others v. Sh. Spinning Mills Ltd. 1999 SCMR 1442 = 1999 PTD 2174 ref.

Saleem Rathor for Appellant.

Mrs. Sabiha Mujahid, D.R. for Respondent.

Date of hearing: 18th April, 2002.

ORDER

MAZHAR FAROOQ SHIRAZI (ACCOUNTANT MEMBER), These four appeals are directed against the order of the Inspecting Additional Commissioner passed under section 66‑A of the Income Tax Ordinance, 1979.

2. Facts leading to these appeals are that assessment for all the assessment years stood completed by the Assessing Officer under self -assessment under section 59(1) except for Assessment year 1998‑99 for which the order was made under section 62 of the Ordinance. On scrutiny of the record it revealed to the I.A.C. that the assessments already finalized by the Assessing Officers were erroneous in so far as those were prejudicial to the interest of Revenue. For all the assessment years she observed that the Assessing Officer failed to take cognizance of the facts that the part of the receipts on which tax was deducted at source were not assessable under normal law but were liable to tax under section 80‑C of the Ordinance. For that she relied upon C.B.R.'s Circular No.7 of 1992, dated 18‑3‑1992. According to the IAC the appellant's receipts on account of dyeing and calendaring for others on which tax was deducted at source were on account of execution of contract in terms of section 50(4) of the Ordinance. She observed that though the value addition process undertaken by the appellant falls in the ambit of manufacturing but the receipts generated through this are not on account of supply of goods. Consequently the appellant was confronted with the above discrepancies through a show‑cause found satisfactory by the IAC. She, therefore, cancelled the already completed assessments for de novo consideration. This cancellation order has compelled the assessee to come up in appeal before us.

3. The learned counsel for the assessee has vehemently contended that the order of the IAC is ultra vires. It is against the spirit of section 66‑A because the proceedings were initiated on receipt of Inspection/Audit report from Director General Audit.

4. According to the learned AR, the IAC neither called for nor examined the assessment record on her accord to arrive at a conclusion that the orders passed by the Assessing Officer were erroneous and prejudicial to the interest of revenue.

5. She referred to provisions of law contained in section 66‑A of the Ordinance empowering the IAC to Revise the order of the Deputy Commissioner Income Tax which reads as under:‑‑‑

Section 66‑A.‑‑‑The IAC may call for and examine the record of any proceedings under this Ordinance and if he considers that any order passed therein by the Deputy Commissioner is erroneous in so far as it is prejudicial to the interest of revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made, such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment to be made.

6. The AR contended that section 66‑A has entrusted the powers to the IAC to call for and examine the assessment record and initiate action on his own accord if he finds the order of the Deputy Commissioner Income Tax erroneous and prejudicial to the interest of revenue and not on the findings of any other authority. He also pointed out the alleged lacunas as pointed out in the said Audit Report were incorporated in the Show‑Cause Notice. It was further submitted that it was clearly beyond any shadow of doubt that the IAC has not applied her mind and invoked section 66‑A of Income Tax Ordinance, 1979 on her own accord.

7. In order to substantiate his contention the AR has placed reliance on the case law reported as 2001 PTD (Trib.) 3810. it was also argued that action under section 66‑A of the Ordinance by the IAC was not tenable in law on the ground that for all the years under appeal the receipts on which tax was deducted were from exporters. The exporters had got those items manufactured from the assessee which were exported by them. No tax was deductible therefrom. The tax was wrongly deducted. He contended that wrong deduction of tax does not render a receipt under section 80(c) of the Ordinance. In order to substantiate his contention that exemption was available to exporters as withholding agents under section 50(4) reliance has been placed on S.R.O. 828(I)/91 clause (37‑A) Second Schedule Part IV to Income Tax Ordinance, 1979, S.R.O. 30(I)/99, dated 14‑1‑1999 and clarification issued by C.B.R: regarding Proviso to subsection (4) of section 50 and S.R.O. 368(I)/94 vide C.B.R's Letter No.3(7) SS (WHT)/98‑99, dated 10‑6‑1999. The AR also referred to section 80‑C of the Ordinance which reads as under:‑‑‑

Section 80(c)

(1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where any amount referred to in subsection (2) is received by or accrues or arises or is deemed to accrue or arise to any person, the whole of such amount shall be deemed to be income of the said person and tax thereon shall be charged at the rate specified in the First Schedule.

(2) The amount referred to in subsection (1) shall be the following, namely:‑‑‑

(a) where the person is a resident,

(i) the amount representing payments on which tax is deductible under subsection (4) of section 50, other than payments on account of services rendered;

(i‑a) the amount representing payments from which tax is deductible under subsection (4‑A) of section 50.

8. It has been contended that provisions of section 80(c) are only applicable on those payments on which tax is deductible under subsection (4) of section 50. In the instant case payments in all the years on which tax was deducted were received from exporters who were not liable to withhold tax and had wrongly/unlawfully deducted tax. Such like deduction of tax would not render those receipts liable under section 80(c) of the Ordinance.

9. The AR of the assessee has further argued that since the Assessing Officer has accepted the assessee to be a manufacturer who undertook the manufacturing process for the customers. The payments made by the customers in lieu thereof shall be nothing but on account of sale, and every sale which is made to the payers as laid 'down in section 50(4) (a) shall be treated as supply as has been given in the definition of supply of goods as‑ per Circular No. 11 of 1991, dated 30‑6‑1991 and later on the explanation added to section 50(4)(a) both the provisions read as under:‑‑

Circular 11 of 1991.

Supply of goods.‑‑‑This includes supply of goods whether through a contract or otherwise and on cash or credit basis. Explanation to section 50(4)(a):

For the purpose of clause (a) the expression "Supply of goods" includes both cash and credit purchases of goods by the payer, whether under a contract or not, on credit or in cash.

10. Obviously the provisions of section 50(4‑A) shall be applicable to every sale made to the agencies noted therein unless and until specifically exempted from deduction of tax. It has been vehemently contended that Circular No.7 of 1992 made basis for invoking action under section 66‑A of the Ordinance and ultimate cancellation of order by the IAC is a total contradiction of the nature of assessee's job.

11. C.B.R. has tried to circumvent and ascribe specific meanings to the assessee's category of work. The Board through this circular has made an interpretation of one of the three categories of business provided in section 50(4)(a) of the Ordinance. The Assessing Officer has while applying, the said Circular followed the dictates of the Board. He has not applied his mind to interpret the relevant provision. Had he been given free hand he would have definitely given the nature of business the same meanings which actually evolve as above. In support of his contention he has placed reliance on the following reported judgments.

Union Bank Limited v Federation of Pakistan 1998 PTD 2114; Ravi Spinning Limited v. ACIT/WT. 1998 PTD 3947: Central Insurance Co. and others v. C.B.R. 1993 PTD 766 = 1993 SCMR 1232 and C.B.R. and others v. Sh. Spinning Mills Ltd. 1999 SCMR 1442 = 1.999 PTD 2174.

12. The AR of the assessee has put up a final argument stating that there is disparity in the show‑cause notice and the order to the extent that in the show‑cause notice only objection taken by the IAC was that the assessee does not qualify as a manufacturer and no objection was confronted on the nature of transactions. Whereas in the order the Assessing Officer has cancelled the order on the assumption that the assessee did not receive Income on account of supply of goods, admitting him to be a manufacturer. Thereby no proper opportunity was accorded to defend/explain the case. On the other hand the Departmental Representative strongly supports the order of the IAC. She has stated that assessments already completed were in total ignorance of C.B.R.'s Circular issued to deal with assessee's nature of business. That part of assessee's receipts which were, to be assessed under section 80(C) of the Ordinance and the tax liability were erroneously assessed under normal law by the Assessing Officer. The assessee did not fall within the purview of clause (9) Part IV, of Second Schedule to Income‑tax Ordinance since it did not fulfil one of the requirements to be a supplier to avail it.

13. We have given careful thought to the arguments advanced by the oval representatives, perused the record and documents, furnished before us in support of their contentions. We have also gone through the legal provisions and the case law quoted. We feel convinced that the provisions of section 66‑A were not invoked properly. We are, therefore persuaded to hold that the IAC's order under section 66‑A of the Income Tax Ordinance was made without lawful jurisdiction and is hereby cancelled for all the years. Consequently the orders of the Assessing Officers stand restored for all the years under consideration.

C.M.A./594/Tax (Trib.)Appeal accepted.