I.T.A. No.1374/LB of 2000, decided on 28th August, 2004 VS I.T.A. No.1374/LB of 2000, decided on 28th August, 2004
2005 P T D (Trib.) 974
[Income-tax Appellate Tribunal Pakistan]
Before Rasheed Ahmad Sheikh, Jawaid Masood Tahir Bhatti, Judicial Members and Muhammad Munir Qureshi, Accountant Member
I.T.A. No.1374/LB of 2000, decided on /01/.
28th August, 2004 Per Rasheed Ahmad Sheikh Judicial Member; Jawaid Masood Tahir Bhatti Judicial Member, agreeing--
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 50(4), 80C & Second Sched., Cl. (188-D)---Deduction of tax at source---Supply of goods---Sale of land, building along with machinery--Deduction of tax on such transaction was constituted full and final discharge of tax liability under S.80C of the Income Tax Ordinance, 1979---Validity---Provisions of S.50(4) of the Income Tax Ordinance, 1979 were not attracted to the transaction evidencing sale of land, building and the fixed plant and machinery sold as part of the factory---Provision of withholding tax was applicable only on supply of goods which at best could be the machinery which was not part of the factory but extension of the word supply to sale of immovable property was totally illegal---Provision of S.50(4) of the Income Tax Ordinance, 1979 were illegally invoked on the transaction of sale of machinery under the misconception that such transaction fell within the definition of supply of goods and sale of machinery could not be subjected to tax by the Assessing Officer as a separate block of income underS.80C of the Income Tax Ordinance, 1979.
1999 PTD 4028rel.
PLD 1990 SC 68; Trust Ceramic Industries v. Deputy Collector CE & LC 1991 CLC 1923; 1999 SCMR 138 and PLD 1972 Kar. 210 ref.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.50(4)---Deduction of tax at source---Goods---Term goods as used in S.50(4) of the Income Tax Ordinance, 1979 has nowhere been defined in the Income Tax Ordinance, 1979; in such situation ordinary dictionary meaning of the word goods shall be adopted.
(c) Words and phrases---
----Goods---Meaning--- Goods means the movable property, merchandise, wares.
(d) Interpretation of statutes---
----In absence of definition of any term or phrase or word contained in the statute, its literal meaning shall be assigned and construed according to plain dictionary meaning.
PLD 1990 SC 68 rel.
(e) Interpretation of statutes---
----Fiscal statutes---Language of law should be construed strictly and in case any ambiguity arises therein that is to be resolved in favour of the subject.
PLD 1972 Karachi 210 rel.
(f) Income Tax Ordinance (XXXI of 1979)---
----Ss. 50(4) & 27---Deduction of tax at source---Sale of land, building along with machinery---Transaction executed was a sale of factory, land, building and machinery installed therein and the provisions of S.50(4) of the Income Tax Ordinance, 1979 were not attracted because sale of immovable and movable property itself was not liable to any tax even under the head capital gain.
(g) Income Tax Ordinance (XXXI of 1979)---
----Ss. 27 & 50(4)---Capital gain---Deduction of tax at source---Sale of land, building along with machinery---Sale of machinery was not liable to incidence of taxation even under the head capital gain as imposition of tax on the capital gain arising from the transfer of immovable property was beyond the taxation powers of the Federal Government.
Per Muhammad Munir Qureshi, Accountant Member---[Minority view]
Muhammad Iqbal Hashmi and Masood Ishaqfor Appellant.
Muhammad Asif, D.R. for Respondent.
Date of hearing: 24th August, 2004.
ORDER
By way of this appeal the assessee/appellant has called in question the order passed by CIT(A) Zone-I, Faisalabad, dated 4-1-2002 in respect of assessment year 1996-97.
2.The precise question which came up for our consideration was as to whether sale of machinery by a private limited company falls within the definition of supply of goods the term used in section 50(4) of Repealed Income Tax Ordinance and tax the deducted thereon shall constitute full and final discharge of its tax liability under section 80C of the Income Tax Ordinance, 1979 (since repealed).
3.Facts forming background of the present appeal are that the assessee/appellant, being a private limited company, was operating a weaving unit at Faisalabad. As per the assessment order, net loss was returned by the appellant at Rs.6,79,221. Exemption from tax on profit and gains derived by the appellantcompany from this industrial unit was claimed under clause 118-D of the Second Schedule to the Income Tax Ordinance, 1979 which was granted by the Assessing Officer. However, on examination of balance sheet, it transpired that capital loss of Rs.50,50,757 was disclosed by the assessee. It was also noted that land, and building along withmachinery was sold in the month of January, 1996 to a business concern namely: Bismillah Textile Private Limited Faisalabad. Out of the composite transaction machinery was sold for Rs.25,00,000. Advance tax under section 50(4) was also deducted by the purchaser on sale of machinery (the Bismillah Textile Private Limited) for the reason that such transaction falls within the definition of supply of goods the term used in section 50(4) of the Repealed Income Tax Ordinance and also in the explanation added subsequently in this section. Accordingly, transaction of sale of machinery was subjected to tax by the Assessing Officer as a separate block of income under section 80C of the Income Tax Ordinance, 1979. Felt aggrieved the assessee assailed the assessment order in first appeal and the First Appellate Authority upheld the treatment accorded by the Assessing Officer as he was justified in treating sale of machinery to be a supply and his action to tax such transaction as a separateblock of income under section 80C of the Income Tax Ordinance, 1979 was in accordance with law.
4.Both the learned representatives appearing at the bar have been heard on this issue. As regards the contention raised by the learned counsel for the assessee that provisions of section 50(4) of the Ordinance are not attracted to the transaction evidencing sale of land, building and the fixed plant and machinery sold as a part of the factory, we fully subscribe to this point of view. In fact, the provision of withholding tax is applicable only on supply of goods which in this case at best could be the machinery which was not a part of the factory but extension of the word supply to sale of immovable property wastotally illegal. The term as used goods in section 50(4) has nowhere been defined in the Repealed Income Tax Ordinance. In such situation ordinary dictionary meaning of the word goods shall be adopted. The word goods according to Concise Oxford Dictionary means the movable property, merchandise, wares. It is also settled law that in absence of definition of any term or phrase or word contained in the statute, its literal meaning shall be assigned and construed according to plain dictionary meaning. This principlehas been enunciated in the reported judgments PLD 1990 SC 68 in re: Government of Pakistan v. Hashwani Hotel, and in the case of Trust Ceramic Industries v. Deputy Collector CE & LC cited as 1991 CLC 1923. Reference can also be made to two more case-laws, the one reported as 1999 SCMR 138 in re: Collector of Customs v. S.M. Ahmad and Co., and others PLD 1972 Karachi 210 in the case of Star Vacuum Bottle Manufacturing Company v. Collector Customs whereby it has been held categorically that in fiscal statutes language of law should be construed strictly and in case any ambiguity arises therein that is to be resolved in favour of the subject.
5.From bare reading of section 50(4) of the Repealed Ordinance, it is abundantly clear that the payer is required to deduct advance tax at the time ofmaking payment on account of supply of goods or for services rendered or execution of a contract with various categories of persons mentioned in the clause. Perusal of the facts reveals that the Assessing Officer has assumed that the provisions of section 50(4)of the Repealed Income Tax Ordinance, 1979 are attracted to the transaction (sale of machinery) being falls within the definition of supply of goods . To our mind the transaction so executed was simply a sale of factory, land, building and machinery installed therein and the provision of 50(4) are not attracted because sale of immovable and movableproperty itself was not liable to any tax even under the head capital gain. When viewed in this context the question of deduction of advance tax did notarise atall.Infacttransactioninquestionasforbuildingandfixed machinery was concerned that could be brought to tax only under section 23 read with clause (7) of the third schedule to the Ordinance to retrieve depreciation allowance. We, therefore, hold that sale of machinery was not liable to incidence of taxation even under the head capital gain as imposition of tax on the capital gain arising from the transfer of immovable property was beyond the taxation powers of the Federal Government. In fact, the Assessing Officer has confined himself to the definition of the word goods and by referring to the provision of presumptive tax regime in order to bring home sale of machinery to be a supply of goods and therefore the provisions of deduction of tax at source of advance tax were applicable. It was pure and simple transfer of capital assets including the immovable property. Strength in this regard has been derived from a case law reported as 1999 PTD 4028 (Lah. High Court).The relevant portion thereof is reproduced hereunder:--
For what has been stated above, it is concluded that the provisions of section 50(4) of the Ordinance were not attracted to the transaction evidencing the sale of land, building and the fixed plant and machinery sold as part of the factory. There was neither a supply nor its subject-matter was goods . The transaction of sale otherwisebeing not liable to any incidence of income-tax under any of the heads given in section 15 of the Ordinance the question of deduction of advance tax did not arise at all. Accordingly the order of the Assessing Officer,dated19-6-1999 holding the petitioner as an assessee in default under section 52 was totally beyond jurisdiction. The creation of demand under section 86 was also illegal. The assessment order so framed and the additional tax imposed for theaforesaid reason is declared to be void ab initio and ineffective against the rights of the petitioner.
6.In view of foregoing discussion it is held that no provisions of section50(4) of the Ordinance were illegally invoked on the transaction of sale of machinery under the misconception that such transaction fell within thedefinition of supply of goods . Further held that sale of machinery amounting to Rs.25,00,000 could not be subjected to tax by the Assessing Officer as a separate block of income under section 80C of the Repealed Income Tax Ordinance, 1979. Resultantly, the assessee s appeal succeeds.
(Rasheed Ahmed Shaikh)
Judicial Member
(Muhammad Munir Qureshi)
Accountant Member
If the various machinery items purchased have been used to augment the installed capacity of the purchasing unit then such acquisition of the different machinery items would most certainly constitute supply of goods . Plant and machinery is a fixed asset only so long as it is an integral part of a manufacturing unit. However, if the individual units are dismantled and installed afresh in the purchasing unit then the individual machinery items lose their fixed asset identity and become movable assets. This aspect is, in my considered judgment, crucial to determining the purchaser s liability under section 50(4) and as the material on record throws no light on this aspect, it is necessary to remand matter back to the Assessing Officer to conduct necessary enquiry and record firm finding thereon. I will therefore disagree with my learned brother who has held the purchaser to be not liable under section 50(4) and vacate the order of the CIT(A) and remand matter back to the Assessing Officer for de novo appraisal on the lines indicated.
(Muhammad Munir Qureshi)
Accountant Member
As a difference of opinion has arisen, reference is made to the learned Chairman for appointment of Third Member to resolve the following question.
Whether in the facts and circumstances of the case it is necessary, in the context of determining the purchaser s liability under section 50(4), to ascertain the actual use of the machinery purchased i.e. whether or not the machinery has been used to augment the installed capacity of the purchasing unit?
(Muhammad Munir Qureshi
Account Member
7-9-2004
(Rasheed Ahmed Sheikh)
Judicial Member
Muhammad Iqbal Hashmi for Appellant.
Anwar Ali Shah, D.R. for Respondent.
Date of hearing: 21st December, 2004
Date of Order: 21st December, 2004.
8.The above titled appeal has been referred to me for adjudication by the Honourable Chairman to act as a referee, because of difference of opinion cropped up between my learned Brothers Mr. Rasheed Ahmad Sheikh, Judicial Member and Mr. Muhammad Munir Qureshi, Accountant Member. The following question has been framed to resolve the difference:--
Whether in the facts and circumstances of the case, it is necessary in the context of determining the purchaser s liability under section 50(4), to ascertain the actual use ofthe machinery purchased i.e. whether or not the machinery has been used to augment the installed capacity of the purchasing unit?
9.In this case, the issue involved is whether sale of machinery by a private limited company fall within the definition of supply of goods, the term used in section 50(4) of the Repealed Income Tax Ordinance and tax deducted thereon shall constitute full and final discharge of its tax liability under section 80C of the Income TaxOrdinance, 1979. Fact forming background of the appeal are that assessee being a private limited company was operating a weaving unit at Faisalabad. Net loss was declared by the assessee at Rs.679,221 and exemption from tax on profit and gains deriving from this unit was claimed under clause 118-D of the Second Schedule to the Income Tax Ordinance, 1979 which was granted by the Assessing Officer. However, on examination of the balance sheet, the Assessing Officer foundthat capital loss of Rs.5,050,757 was disclosed by the assessee. It was also noted by the Assessing Officer that land and building along with machinery was sold in the month of January, 1996 to a business concern namely Bismillah Textile Private Limited Faisalabad. Out of composite transaction, machinery was sold for Rs.2,500,000 on which advance tax under section 50(4) was deducted by the purchaser on sale of machinery for the reason that such transaction falls within the definition of supply of goods which term used in section 50(4) of the Repealed Income Tax Ordinance and also in the explanation added in this section. Accordingly transaction of sale of machinery was subjected to tax by the Assessing Officer as a separate block of income under section 80C of the Income Tax Ordinance, 1979 against which the assessee filed first appeal before the learned CIT(A) which was dismissed and the assessee is now before this Tribunal.
10.My learned brother Mr. Rasheed Ahmad Sheikh, Judicial Member has held that provision of section 50(4) of the Ordinance were illegally invoked on the transaction of sale of machinery under the misconception that such transaction falls within definition of supply of goods. He has further held that sale of machinery amounting to Rs.2,500,000 could not be subjected to tax by the Assessing Officerat a separate block of income under section 80C of the Repealed Income Tax Ordinance, 1979. He has done soon the strength of decision of the Honourable Lahore High Court reported as 1999 PTD 4028 (Lah. High Court). On the other hand, my learned brother Accountant Member has differed with the findings of my learned brother the Judicial Member for the reason that if various machinery items purchased have been used to augment the installed capacity of the purchasing unit then such acquisition of different machinery items would most certainly constitute supply of goods.
11.I have heard the learned representatives from both the sides and have also perused the views taken by my both the learned brothers, the impugned order of the learned CIT(A) and the assessment order.
12.I have found that my learned brother, Accountant Member has raised an imaginary point regarding items purchased used to augment the installed capacity of purchasing unit but neither the Assessing Officer nor the learned CIT(A) in the assessment order or in the impugned order during the course of first appeal has pointed out any such machinery purchased. It is a undisputed fact that land and building was sold by the appellant to Messrs Bismillah Textile Private Limited, along with machinery and no other machinery has been referred in the assessment order or in the impugned order of the learned CIT(A). Likewise, in none of the impugned orders of the officers below, it has been mentioned that unit under consideration has been dismantled or installed afresh. I am, therefore, of the view that during the course of appeal, it is not appreciateable to go beyond the facts which are not relevant in this case. I, therefore, fully endorse the conclusion as given by my learned brother the Judicial Member which is placing reliance on the decision of the Honourable Lahore High Court reported as 1999 PTD 4028 (Lah. High Court). Consequently the appeal filed by the assessee is allowed and the question as referred is decided in the manner as indicated above.
C.M.A./360/Tax (Trib.)Appeal allowed.