I.T.As. Nos. 3264/LB, 3265/LB, 3392/LB, 3393/LB of 2004, decided on 24th July, 2006. VS I.T.As. Nos. 3264/LB, 3265/LB, 3392/LB, 3393/LB of 2004, decided on 24th July, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2722 (2006)

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

----S. 52---Liability of persons failing to deduct or pay tax---Assessee in default---Limitation---Issuance of notice after period of four years---Validity---Notice issued after the period of four years regarding the action taken under S.52 of the Income Tax Ordinance, 1979 was illegal---Appeals filed by the Department for the two years were dismissed as a single notice for all the four years had been sent by the Assessing Officer after the period of four years.

(2003) 87 Tax 89 (Trib.) rel.

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

----Ss. 52 & 86---S.R.O. No. 368(1)/94, dated 7-5-1994---Liability of persons failing to deduct or pay tax-4 -Assessee in default---First Appellate Authority cancelled order made under S.52 of the Income Tax Ordinance, 1979 for the two years by holding that the notice sent in this regard was out of time, but on the same out of time notice it upheld the order for the next two years while the paid-up capital of the company/assessee was also below Rs.1.5 million and the assessee/company was not liable to deduct tax under S.50(4) of the Income Tax Ordinance, 1979 on this score also---Validity---Capital of the assessee company was below Rs.1.5-million for the four years---Where the capital of the company was below Rs.1.5 million, the company would not be liable to deduct tax---Assessee company had erroneously been declared as assessee in default for both the years and order passed by the Taxation Officer was without lawful jurisdiction---Order of First Appellate Authority was vacated and orders passed under sections Ss.52/86 of the Income Tax Ordinance, 1979 by the Assessing Officer for all the four years were cancelled--Two appeals filed by the Department were dismissed, while the two appeals filed by the assessee were allowed.

I.T.As. Nos. 2666 to 2670, dated 10-3-2003 ref.

2002 PTD 1523 and 2001 PTD 1480 rel.

Sabiha Mujahid, D.R. for Appellant (in I.T.As. Nos. 3264/LB and 3265/LB of 2004).

Saleem Abid, ITP for Respondent (in I.T.As. Nos. 3264/LB and 3265/LB of 2004).

Saleem Abid, ITP for Appellant (in I.T.As. Nos. 3392/LB and 3393/LB of 2004).

Sabiha Mujahid, D.R. for Respondent (in I.T.As. Nos. 3392/LB and 3393/LB of 2004).

ORDER

The consolidated impugned order of the learned CIT(A), dated 5-5-2004 for the assessment years 1996-97 to 1999-2000 has been objected for the two years i.e. 1996-97 and 1997-98 by the Department on the ground that there was no justification to cancel the assessment made under section 52 of the repealed Income Tax Ordinance, 1979 being hit by limitation, while for the remaining two years i.e. 1998-99 and 1999-2000, the assessee has objected the confirmation of the order made under section 52 of the repealed Income Tax Ordinance, 1979.

We have heard the learned representatives from both the sides and have also perused the consolidated impugned order of the learned CIT(A) and the assessment order.

We have found that the learned CIT(A) has cancelled the orders passed under section 52, as show-cause notice for these two years were after more than period of four years. The learned CIT(A) in this respect has placed reliance on the decision of this Tribunal reported as (2003) 87 Tax 89 (Trib.) wherein it has been held that notice issued after the period of four years regarding action taken under section 52 of the repealed Income tax Ordinance, 1979 is illegal. In this case, single notice for all the four years have been sent by the Assessing Officer after the period of four years.

Both the appeals filed by the Department for the assessment years 1996-97 and 1997-98 are, therefore, dismissed.

Regarding the appeals for the assessment years 1998-99 and 1999-2000 filed by the assessee, Mr. Saleem Abid, ITP has appeared on behalf of the assessee and has contended that there was no justification to confirm the impugned action made under section 52 of the repealed Income Tax Ordinance, 1979 for these two years, as the proceedings in this case have been initiated on the strength of one single notice for the assessment years 1996-97 to 1999-2000 which are illegal, ab initio. He has contended that the learned CIT(A) has cancelled the order made under section 52 for the assessment years 1996-97 and 1997-98 holding that the notice sent in this regard was out of time, but on the same out of time notice, upheld the order for the two years i.e. 1998-99 and 1999-2000. The, learned counsel for the appellant has contended that notices as allegedly sent by the Assessing Officer were not properly served upon the assessee the contentions made on behalf of the assessee before the learned CIT(A) have not been considered in true letter and spirit. Regarding the facts of the case, he has submitted that payments in this case for the purchase of handicrafts and carpets were made from different parties on cash basis, which are not verifiable. Moreover, purchases made were less than Rs.25,000 in single transaction, therefore, there was no justification for treating the assessee in default. According to the learned counsel, the Taxation Officer has failed to justify his action under section 52, as no one is available to whom the credit of tax under section 50 could be assigned/allocated and the action in this regard is against the dictum laid down by this Tribunal vide order, dated 10-3-2001 in I.T.As. Nos. 2666 to 2670. The learned counsel is of the view that the default only is to be established when there is someone to take credit. of tax deduction, who must be verifiable. He has contended that clearing charges were made to various parties on cash basis and these parties are not verifiable and the amount in this regard was less than Rs.10,000 in a single transaction. Likewise, insurance was made in piecemeal on cash basis and payment in this regard was also less than Rs. 10,000 in a single transaction. He has contended that provisions of section 62 are not applicable in this case, as the payments were made on cash basis below the taxable limit. He has contended that additional tax charged under section 86 is not also in accordance with the existing provisions of law and the same has erroneously been charged. The learned counsel has further contended that the paid-up capital of the assessee-Company is below Rs.1.5 million and as per S.R.O. No. 368(I)/94, dated 7-5-1994, the present assessee is not liable to deduct tax under section 50(4) of the repealed Income Tax Ordinance, 1979. The learned counsel has contended that the person may be declared as assessee in default where tax demand created against recipient is not recovered by the Department exercising all the recovery measures in law, hence identifiability of persons as payer and recipient is a prerequisite of taking action under section 52 of the repealed Income Tax Ordinance, 1979 without identifying default individually, action under. section 52 cannot be taken, as has already been held by this Tribunal and the higher appellate forums on this issue. According to the learned counsel, combined show-cause notice for the assessment years 1996-97 to 1998-99 under section 52 was issued, which is not lawful, whereas assessment years 1996-97 and 1997-98 have already been held by the learned CIT(A) to be barred by time limit, hence proceedings based on such notice are illegal ab initio for all the four years under review i.e. 1996-97 to 1999-2000 warranting nullity in the eyes of law, but the learned CIT(A) has failed to consider these facts. The learned counsel in this respect has placed reliance on the decision of this Tribunal reported as 2002 PTD 1523 and has also placed before us the copy of company's Balance Sheet as on 30-6-1996, 30-6-1997, 30-6-1999 and 30-6-2001 to establish that the capital of the assessee-Company is below Rs.1.5 million for all the four years under review.

On the other hand, learned DR is supporting the impugned order of the learned CIT(A). She has contended that as the assessee has failed to rebut the findings of the Taxation Officer before the learned CIT(A) regarding lack of jurisdiction and other facts, therefore, the learned CIT(A) has rightly upheld the order passed under section 52 of the late Ordinance.

After considering the arguments from both the sides, we have found that the learned CIT(A) for the assessment years 1998-99 and 1999-2000 has not properly considered the facts of the case and the case law already decided by this Tribunal as well as by the superior Courts. On behalf of the assessee, Balance Sheets for all the four years under review have been placed before us, which show that the capital of the assessee-company is below Rs.1.5 million for the four years under review and as such, S.R.O. No.368(I)/94, dated 7-5-1994 is fully applicable, as has already been held that where the capital of the company is below Rs.1.5 million, the company will not be liable to deduct tax under section 50(4), as has been directed through S.R.O. No.368(I)/94, dated 7-5-1994 referred supra. Reference in this regard has been made on the decision of this Tribunal reported as 2002 PTD 1523 and 2001 PTD 1480.

In view of these facts and circumstances of the case, we are of the view that the assessee company in the present case has erroneously been declared as assessee in default for both the years under review and the order passed by the Taxation Officer for these two years was without lawful jurisdiction. The consolidated impugned order of the learned CIT(A) is, therefore, vacated and the order passed under sections 52/86 of the late Income Tax Ordinance, 1979 by the Assessing Officer for all the four years under review are cancelled.

The two appeals filed by the Department are dismissed, while the two appeals filed by the assessee for the two years i.e. 1998-99 and 1999-2000 are allowed for the reasons discussed supra.

C.M.A./154/Tax (Trib.)Order accordingly.