I.T.A. No.264/KB of 2003, decided on 3rd April, 2004. VS I.T.A. No.264/KB of 2003, decided on 3rd April, 2004.
2004 P T D (Trib.) 2250
[Income‑tax Appellate Tribunal Pakistan]
Before S. Hasan Imam, Judicial Member and S. A. Minam Jafri, Accountant Member
I.T.A. No.264/KB of 2003, decided on /01/.
rd
April, 2004. (a) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss. 52/86, 50(7B) & 24C‑‑‑Liability of persons failing to deduct or pay tax‑‑‑Addition was confirmed by the First Appellate Authority on account of rental for non‑deduction of tax under S.50 (7B) of the Income Tax Ordinance, 1979‑‑‑Order treating the assessee in default under S.52 of the Income Tax Ordinance, 1979 and charge of consequential additional tax under S.86 of the Income Tax Ordinance, 1979 was also confirmed ‑‑‑Assessee contended that First Appellate Authority was not justified in holding that, tax should have been deducted under S.50(7B)of the Income Tax Ordinance, 1979 treating the payment made to Association of Persons without ascertaining the facts that same had been paid to few tenants and that payment did not exceed Rs.100,000‑‑ Validity‑‑‑Withholding tax under S.50(7B) of the Income Tax Ordinance, 1979 was deductible in cases where annual Pent of property exceeded Rs.100,000‑‑‑Argument that rent had been paid to 4 persons had no weight because it was the only rent of the property which attracts the provisions of the withholding tax under S.50(7B) of the Income Tax Ordinance, 1979‑‑‑On the contrary the rent had not been paid individually‑‑‑Rent was paid to Association of Persons which was an independent entity for which tax was liable to be deducted as separate entity‑‑‑Assessee was entitled to benefit allowed by S.21 of the Income Tax Ordinance, 1979‑‑‑Assessee was under legal obligation to deduct tax under S.50(7B) of the Income Tax Ordinance, 1979 as the said amount exceeded Rs.100,000 and as a result, the action under S.52 read with S. 86 of the Income Tax Ordinance, 1979 due to non‑deduction of tax was confirmed by the Appellate Tribunal.
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss. 21 & 19‑‑‑Liability in the case of co‑owners‑‑‑Section 21 of the Income Tax Ordinance, 1979 specifically provides that where any property to which S.19 of the Income Tax Ordinance, 1979 applies is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not, in respect of such property, be assessed as an Association of Persons, but the share of each person in the income from the property shall be included in his total income.
(c) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑S. 2(32)‑‑‑Definitions‑‑‑Person‑‑‑Definition of 'person' was inclusive and not exclusive‑‑ ‑Term "individual" did not mean only a human being but is wide enough to include a group of persons, firm, a unit‑‑‑Word individual could only mean a natural person and shall include a group of individuals‑‑‑Contrary to this the term Association of Persons has not been used in any technical sense, therefore, same should be constituted in its plain and ordinary meaning.
(d) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S. 21‑‑‑Liability in the case of co‑owners‑‑‑In case of Association of Persons the Assessing Officer had the option to assess the tax either on the Association itself as a unit of assessment or of the members of Association as individual in respect of their respective shares of the profits made by the Association‑‑‑In case shares of the owners are not definite and ascertainable they may be assessable as an Association of Persons.
(e) Word and phrases‑‑‑
‑‑‑‑Definite‑‑‑Term definite means fixed, exact and clear.
Nizamuddin, ITP for Appellant.
Gohar Ali, D.R. for Respondent.
Date of hearing: 2nd April, 2004.
ORDER
S. HASAN IMAM (JUDICIAL MEMBER).‑‑‑In this appeal objection has been taken by the assessee to the order, confirming the treatment declaring the assessee in default under section 52 and in charging consequential additional tax under section 86.
2. The appellant in this case is a private limited company continuously engaged in the business of sizing the processing of cloth within its business premises situated at F‑199, S.I.T.E. Manghopir Road, Karachi. The return of income for the assessment year was furnished on 31‑12‑2002 under Self‑Assessment Scheme declaring total income at Rs.102,568 and no inference was drawn on any account. Subsequently the instant return under para. 9(a)(1) of the Self‑Assessment Scheme, dated 18‑6‑2001 was picked up for detailed scrutiny under total audit as per information communicated by the CIT.
3. Notice under section 61 accompanied with intimation letter was served upon the assessee and in response thereof A.R. of the assessee furnished details required in this connection vide letter, dated 25‑4‑2002. Apart from other treatment in the head rental it appears that the assessee claimed total deduction at Rs.171,000 without deduction of tax under section 50(7B) of the Income Tax Ordinance, 1979 although the same was liable to tax under section 50(7B) of the Ordinance as the said amount exceeds Rs.100,000. The Assessing Officer disallowed the expenses claimed under this head being inadmissible under section 24C of the Income Tax Ordinance and added back into the net income of the assessee.
4. Against this treatment the assessee preferred appeal and also challenged the order treating the assessee in default under section 52 and in charging consequential additional tax under section 86C of the Income Tax Ordinance. The learned CIT(A) maintained the order observing hereunder:‑‑
"The perusal of record and the arguments of the appellant reveal that the rent was paid to an AOP on which tax should have been deducted. As a matter of fact AOP is an independent entity for which tax should have been deducted as separate entity. The Assessing Officer was justified in identifying this default. The action under sections 52/86 for non‑deduction of tax is justified and is upheld."
5. The assessee challenged the order, dated 6‑1‑2003 referred above to for confirming unjustified addition of Rs.171,000 on account ofrental for non‑deduction of tax under section 50(7B) and order confirming the assessee in default under section 52 and in charging consequential additional tax under section 86 of the Income Tax, Ordinance, 1979.
6. Before this bench the learned representative of the assessee argued that no justification appears in holding that tax should have been deducted under section 50(7B) treating the payment made to AOP without ascertaining the facts that same has been paid to few tenants and B that payment did not exceed Rs.100,000 to each recipient and in the case of AOP and therefore, no reason apparently appears to maintain action under sections 52/86. It is added that the treatment meted out by the two officers below in connection with non‑deduction of tax is in contravention of the provision of section 21 of the Income Tax Ordinance.
7. Section 50(7B) provides that any person responsible for malting any payment in full or in part, where the annual rent of the said property exceeds Rs.100,000, deduct advance tax at the time of making such payment at the duly prescribed rates. We are therefore, of the view that withholding tax under section 50(7B) is deductible in the cases where annual rent of the property exceeds Rs.100,000. In the circumstances the argument that rent has been paid to 4 persons has no weight because it is C the only rent of the property which attracts the provisions of the withholding tax under section 50(7B). On the contrary the rent has not been paid individually. It is paid to AOP which is an independent entity for which tax is liable to be deducted as separate entity.
8. So far as next argument regarding liability in the case of co owners is concerned, we find that section 21 specifically provides that where any property to which section 19 applies is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not, in respect of such property, be assessed as an association of persons, but the share of each such person in the income from the property shall be included in his total income. The term person is defined in the repealed Income Tax Ordinance, 1979 vide sub section (32) of section 2 is hereunder:‑‑‑
"person" includes an individual, a firm, an association of persons, a Hindu undivided family, a company, a local authority and every other artificial juridical person.
9. Person defined by this clause as includes of (i) individual, (ii) a firm, (iii) an Association of persons, (iv) Hindu undivided family, (v) a company, (vi) a local authority and every other artificial juridical persons. The definition is inclusive and not exclusive, at the same time the term individual, did not mean only a human being but is wide enough to include a group of persons, firm, a unit. However, the word individual could only mean a natural person either if a human being and shall include a group of individuals. Contrary to this the term Association of Persons has not been used in any technical sense, therefore, should be constituted in their plain and ordinary meaning. Income Tax Ordinance prescribes the method of computing the shares of the members in the income of association where the shares are determined and known and where it is undetermined, association in its own hands shall be taxed. In the case of Association of Persons the Assessing Officer has the option to assess the tax either on the Association itself as a unit of assessment or of the members of Association as individual in respect of their respective shares of the profits made by the Association. It is, therefore, held that in case shares of the owners are not definite and ascertainable they may be assessable as an Association of Persons.
10. In the present case the return has been preferred for assessment as a Association of Persons, hence there remain no question to assess each of them individually in respect of his share in the income from the property, hence we need not to go in detail to determine existence of Association and to decide the question whether there is Association of Persons.
11. In the circumstances supra, section 21 of the Income Tax Ordinance relied upon by the learned representatives of the assessee would be in‑effective because the respective shares are neither definite nor ascertainable. The term definite means fixed, exact and clear, hence all such conditions are necessary so as to attract the provisions of section 21. So far as ascertainability is concerned, we find from the record that nothing is ascertainable so far as this controversy is involved. The assessment is silent in this respect showing that no pains have been taken in this context by the assessee so as to make out a case that the individuals be separately assessed in respect of their share of income taxable under the head property income.
12. For the reasons recorded above, we are of the considered opinion that the assessee is not entitled for the benefits allowed by section 21 of the Income Tax Ordinance. As a result thereof the assessee was under legal obligation to deduct tax under section 50(7B) H of the Income Tax Ordinance as the said amount exceeds Rs.100,000 and as a result thereof the action under section 52 read with section 86 of the Income Tax Ordinance due to non‑deduction of tax is also confirmed.
C.M.A./153/Tax (Trib.)Order accordingly.