Income Tax Ordinance (XXXI of 1979)---

----Ss. 52, 86, 50(4), 80-C & 143-B---S. R. O. 586(1)/91, dated 30-6-1991---S.R.O. 828(1)/91, dated 24-8-1991---S.R.O. 368(1)/94, dated 7-5-1994---C. G. R. Letter No. 3(7)SS(WHT)98-99, dated 10-6-1999---Liability of persons failing to deduct or pay tax ---Assessee in default---Execution of construction contracts---Statement under S.143-B of the Income Tax Ordinance, 1979 was filed ---Assessee was treated as "assessee in default" for non deduction of tax on purchases worked out by excluding the 15 % of the amount on account of profit and 15 % on account of direct labour cost from contractual receipts-- Validity---Assessing Officer failed to point out or specify the payments made by assessee company being a payer to person being a recipient which were liable to deduction of tax under S.50(4) of Income Tax Ordinance, 1979---Assessing Officer charged tax under S.52 of the Income Tax Ordinance, 1979 on the amount of purchases worked out on the basis of assumptions and guess work---Provision of S.52 of the Income Tax Ordinance, 1979 were different from the provisions of S.62 of the Income Tax Ordinance, 1979 under which the Assessing Officer was required to determine the income and to charge tax thereon-- Assessee being a `payer' had been made liable under S.52 of the Ordinance for deduction tax on behalf of the department not being his liability ---Assessee was required to perform the function of department as a withholding agent for which he was not rewarded or compensated in any manner ---Assessee as a `payer' had to perform extra work for (deduction of tax which was to be deposited in the treasury following with the submission of monthly as well as annual statements---Tax was to he deducted by a withholding agent at the time of making any payment on account of supply of goods, service rendered to or execution of contracts---Assessing Officer failed to point out any such payment liable to deduction of tax under S.50(4) of the Income Tax Ordinance, 1979-- Demand deleted by the First Appellate Authority was maintained and appeal of the department was rejected by the Appellate Tribunal.

I.T.A. No. 445 to 449/KB of 1998-99; 2001 PTD 1480; I.T.A. No. 1129/KB of 1996-97; I.T.A: No-671 to 673/KB of 1998-99; I.T.A. No. 643/KB of 1999-2000 and 2002 PTD (Trib.) 523 ref.

Muhammad Tahir Khan D.R. for Appellant.

Hafiz M. Idris and Aurangzaib for Respondent.

Date of hearing: 11th June, 2003.

ORDER

KHALID WAHEED, AHMED, (JUDICIAL MEMBER).---The above titled departmental appeals assailed the combined order, dated 18-6-2001 pertaining to assessment years 1996-97 to 2000-2001 of CIT(A), Zone-I, Islamabad on the following common ground for all the years under appeals.

"That the learned CIT(A) was not justified to delete the demand under sections 52/86 on the mere ground that the order is not maintainable in the eye of law as the tax under sections 52/86 for the assessment years 1996-97 to 1000-2001 was levied in accordance with the relevant provision of law. Further it was levied after affording a reasonable opportunity to the assessee."

2. Mr. Muhammad Tahir Khan, D. R. appeared on behalf of the Revenue/appellant and Hafiz Muhammad Idris, Advocate and Mr: Aurangzaib ITP appeared on behalf of the assessee-respondent.

3. The assessee-respondent is a private limited company, deriving income from execution of construction contracts. In the statement filed for assessment years 1996-97 to 2000-2001 under section 143B of the Income Tax Ordinance, 1979 (hereinafter called Ordinance) the contractual receipts of Rs.3,31,20,132. Rs.3,15,49,323, Rs.5,78,84,253, Rs.4,61,06,706 and Rs.2,39,85,401 were declared respectively. Through a notice issued, dated 10-2-2001 under section 144 of the Ordinance, the assessee was required to provide certain details regarding purchases of raw material such as names and addresses of the parties from whom the purchases were made, the amounts of payments made to each party and details of tax deducted thereon alongwith copies of ledger account of purchases. Through another show-cause notice issued for 24-2-2001, the assessee was confronted that why the balance amount of contractual receipts excluding the 15 % of the amounts on account of profit and 15 % on account of direct labour cost depreciation etc. should not be adopted as purchases on which tax under section 50(4) was not deducted. Through his reply, the adoption of 15 % profit and 15 % as direct cost were contested to be unjustified and also on lower side by the assessee. It was also contended that the stores consumed by the company carrying on the Government jobs were supplied by the Government organizations. As per reply of the assessee to the above said show-cause notice the cost of lubricants was claimed as exempt by virtue of Notification No.S.R.O. 586 (1)/61; dated 30th June, 1991 which alongwith the depreciation and other overheads were not being considered. Another contention of the assessee before the Assessing Officer was that the payments made to various parties under the head of material purchases were below the limit of Rs.25,000. It was further contended before the Assessing Officer that the paid ,up capital of the company was Rs.200 (sic) only which being less than the limit of Rs.1.5. million, the provisions of section 50(4) were not applicable in the case of the assessee company in view of C.B.R.'s Notification No. S.R.O. 828(1)/91, dated 24-8-1991. Another objection raised by the assessee before the Assessing Officer was that the assessments were framed under section 62/80C of the Ordinance and no findings regarding default of assessee under section 50(4) of the Ordinance were given at the time of such assessments, the provisions of sections 52/86 could not be invoked subsequently without taxing cognizance of the default at the time of finalization of income. The explanation offered by the assessee was not accepted by the Assessing Officer for the following reasons:--

"The reply of the assessee has been examined and found partly satisfactory: Assessee company has also provided salary and labour sheets of various projects alongwith store consumption register received from the said departments and also provided various vouchers of Oil and Lubricant purchases which were examined and returned. Assessee company also provided cash book, ledger and payment vouchers for three years. However, it is evident from the above that while making the payments to different parties during the periods 1996-97 to 2000-2001 on account of the purchases/supply of the material, as indicated above tax under section 50(4) -was not withheld therefrom in appropriate manner. The assessee's default for not withholding tax under section 50(4) stands established, hence they are being treated as assessee in default for all the five years under consideration under section 52 of the Income Tax Ordinance, 1979. The amount of tax under withheld and the additional tax under section 86 thereon is being calculated/charged as under."

The assessee was held to be an assessee in default under section 52 of the Ordinance tax and the additional tax under section 86 was also charged on the amounts worked out by the Assessing Officer by making certain further deductions from the amounts of receipts on account of cost of material supplied by the department, labour charges, depreciation and other overheads. Tax @ 3.5 % was charged on the balance amount so worked out and additional tax under section 86 was also charged by the Assessing Officer. Before the First Appellate Authority, the assessee reiterated the same arguments as set forth before the Assessing Officer. It was contended by the assessee before the First Appellate Authority that entire proceedings under sections 52/86 were initiated on presumption and guess work which according to him was illegal. Relying upon a decision of the ITAT vide ITA No. 445 to 449/KB of 1998-99, it was also contended that the order under sections 52/86 was barred by time. Another contention before the First Appellate Authority was that since the paid up capital was below Rs.1.5 million the assessee company exempt from the provisions of section 50(4) in view of S.R.O. No. 828(1)/91, dated 24-8-1991. In support of this contention a judgment of Tribunal reported as 2001 PTD 1480 was also relied upon by the assessee. Another contention of the assessee before the First Appellate Authority that there was no provisions under the Ordinance to pass separate and independent order either under section 52 or 86 and further that provisions -of this section could only be invoked when definite finding in respect of default under section 50(4) had been given during the course of assessment proceedings. The decision of ITAT in I.T.A. No. 1129/KB of 1996-97, 671 to 673/KB of 1998-99 and 6434KB of 1999-2000, dated 18-11-1999 was also relied upon by the assessee. It was the contention of the assessee that since the case had been processed under the presumptive tax regime and the assessments were finalized on the basis of statements filed under section 143B there was no indication anywhere with regard to the proceedings to be initiated under sections 52/86 of the Ordinance. The CIT(A) accepting the above contentions of learned AR of the assessee held that the order passed under sections 52/86 for the charge years 1996-97 to 2000-2001 was not maintained and the tax levied was deleted by him.

4. Learned D.R. in his arguments, supported the contentions of the Revenue on the same grounds as relied upon by the Assessing Officer in his order under sections 52/86 of the Ordinance. It was the contention of the learned DR that the impugned order of the CIT(A) to delete the tax charged under sections 52/86 of the Ordinance was unjustified. According to learned D.R. the huge amounts of receipts reflected that the assessee had made bulk purchases on which he was liable to deduct tax under section 50(4) of the Ordinance. According to him, the assessee was rightly held as an assessee in default under section 52 of the Ordinance for non deduction of tax under section 50(4) of the Ordinance.

5. Learned AR of the assessee, on the other hand in his arguments defended the impugned order. Learned AR stated that the paid up capital of the company was Rs.200 only. According to him, the amount of paid up capital being less than the limit of Rs.1.5 million, the assessee was exempt from deduction of tax in view of S.R.O. No 828(1)/91, dated 24-8-1991 and S.R.O. No. 368(1)/94, dated 7-5-1994. Learned AR also referred tothe clarification issued by the C.B.R. vide Letter No.3(7)SS(WHT)98-99, dated 10-6-1999 and contended that by virtue of the said clarification the provisions of S.R.O. No. 368 supra were still applicable. However, learned AR conceded that in the judgments delivered by the Tribunal in the cases reported as 2001 PTD (Trib.) 1480 and 2002 PTT) (Trib.) 523 the issue regarding exemption from deduction of tax under. section 50(4) of the Ordinance under the provisions of S.R.O. No. 368 (supra) had not been discussed in the light of the provisions of subsection (10) of section 50 of the Ordinance Learned AR of the assessee also principally agreed to the view point of the Tribunal expressed in the case reported as 2001 PTD (Trib.) 755 whereby it was held that the provisions of S.R.O. 368, dated 7-5-1994 and the clarification issued by the C.B.R. vide letter No. 3(7), dated 10-6-1999 were not applicable in the case of the assessee being a company as a payer in view of the proviso (ii) to subsection (4) of section 50 of the, Ordinance. However, he submitted that in view of the contradictory view points expressed by the Tribunal in the cases reported as 2001 PTD (Trib.) 1480 and 2002 PTD (Trib.) 523 the issue may be referred to the larger Bench. Another contention of the learned AR of the assessee was that no independent order under section 52 could be passed unless it was established during the course of assessment proceeding that the assessee defaulted in deducting the tax under section 50(4) of the Ordinance. Learned AR further contended that even on the facts of the case the Assessing Officer had no definite information regarding purchases made by the assessee liable to deduction of withholding tax According to learned AR, the details of the purchases made by assessee during the years under consideration alongwith the accounts books were produced before the Assessing Officer during the course of assessment proceedings. It is the contention of learned AR that the Assessing Officer failed to specify the amounts of purchases on which the assessee failed to deduct tax under section 50(4) of the Ordinance According to learned AR the Assessing Officer charged tax sections 52/86 of the Ordinance by adopting the estimated amounts purchases on the basis of assumptions and guess-work in which case provisions of section 50(4) were not attracted.

6. Arguments of leaned representatives of both the parties been heard and the orders of the authorities below as well as the case-tax cited by the learned AR of the assessee have also been perused. In the case before us as per assessment order, the books of accounts consisting of cash book, ledger and payments vouchers alongwith certain details as mentioned by the Assessing Officer in the paras reproduced in para. No.3 above were provided by the assessee. The Assessing Officer failed to specify the amounts of, purchase etc. on which the tax under section 50(4) was liable to be deducted under the provisions of (4) of section 50 of the Ordinance. For the sake of the relevant portion of section 50(4) is reproduced as under:----

"50(4) Notwithstanding anything contained in this Ordinance:--

(a)any person responsible for making any payment in full or in part (including a payment by-way of an advance) to any person being resident, (hereinafter referred to respectively as "payer" and "recipient", on account of the supply of goods or for service rendered to, or the execution of a contract with the Government, or a local authority, or a company, or a registered firm, or any foreign contractor or consultant or consortium shall, deduct advance tax at the time of ,making such payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the -recipient for the assessment year commencing on the first day of July next, following the said financial year,. or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, if any, in which the "said date", as referred to therein, falls, whichever is the later".

From the perusal of the above provisions of section 50(4), it is obvious the tax is liable to be deducted on payments being made by a " to a "recipient" on account of supply of goods or for service to or on the execution of a contract. In the case before us, the order reveal that the Assessing Officer failed to pint out or the payments made by the assessee company being a payer to being a recipient which were liable to deduction of tax under 50(4) of the Ordinance. The Assessing Officer charged tax section 52 on the amount of purchases worked out by him on the assumptions and. guess-work. It is important to point out here provisions of section 52 are different from the provisions or section 62 under which the Assessing Officer required to determine the income and to charge tax thereon. In the case of section 52, the assessee being a `payer' has been made liable for deduction of tax on behalf of the department not being his liability. He is required to perform the function of department as a withholding agent for which he is not rewarded or compensated in any manner. The assessee as a `payer' has to perform extra work for deduction of tax which is to be deposited in the treasury following with the submission of monthly as well as annul statement. As discussed above, the tax under section 50(4) tax is to be deducted by a withholding agent at the time of making any payment on account of supply of goods, service rendered to or execution of contracts. In the case before us, the Assessing Officer failed to point out any such payment liable to deduction of tax under section 50(4) of the Ordinance. Under the circumstances, we are not inclined to interfere on behalf or the Revenue. The order of the CIT(A) is maintained for the reasons as discussed above. Since the appeals of the Revenue have been decided on the above ground we do not feel any need to adjudicate upon the remaining grounds.

7. As a result, the appeals of the Revenue for all the years under consideration stand dismissed.

C.M.A./938/Tax (Trib.)Appeals dismissed.