Messrs UNION COSMIC COMMUNICATIONS (PVT.) ,LIMITED, KARACHI through Authorized Director VS Messrs UNION COSMIC COMMUNICATIONS (PVT.) ,LIMITED, KARACHI, 2006 PTD-KARACHI-HIGH-COURT-SINDH 1678 (2006)

(a) Income Tax Ordinance (XLIX of 2001)---

----Ss.161 & 236(1)(b)(3)---Pakistan Telecommunication (Re-organization) Act (XVII of 1996), S.5---Constitution of Pakistan (1973), Art.199---Constitutional petition---Running of Public Call Offices (PCOs) under licence from Pakistan Telecommunication Company---Sale of prepaid cards by licensee to its PCOs---Demand of withholding tax on such sales---Denial of licensee to be involved in such business---Constitutional petition against such demand notice involving factual controversy was not maintainable.

ICI v. Federation of Pakistan (C.P. No.D-658 of 2005) ref.

(b) Income Tax Ordinance (XLIX of 2001)---

----Ss.161 & 236(1)(b)(3)---Constitution of Pakistan (1973), Art.199---Constitutional petition---Show-cause notice demanding withholding tax---Order passed by Assessing Officer during pendency of constitutional petition and dismissal of assessee's appeal by Appellate Authority---Assessee neither availed further remedy under Income Tax Ordinance, 2001 nor amended constitutional petition to challenge such .orders---Constitutional petition was not maintainable---Principles.

ICI v. Federation of Pakistan (C.P. No.D-658 of 2005);' 2004 PTD 3032; ICI Pakistan Limited v. Federation of Pakistan 2006 PTD 778, Roche Pakistan Limited v. DICT and others 2001 PTD 3090; Sitara Chemicals Industries Limited v. DCIT 2003 PTD 1285; Commissioner of Income Tax, Karachi and 2 others v. N.V. Philip's Gloeilampen -fabriaken, Karachi 1993 PTD 865 = PLD 1993 SC 434; Commissioner of Income Tax v. Hamdard Dawakhana (Waqt), Karachi PLD 1992 SC 847 and Pak Saudi Fertilizers v. Federation of Pakistan in C.P. No.283 of '1999 ref.

(c) Constitution of Pakistan (1973)---

----Art.199---Constitutional petition---Non-availing of alternate remedy under special statute providing complete mechanism to redress petitioner's grievance---Constitutional petition was not competent/ maintainable.

ICI v. Federation of Pakistan (C.P. No.D-658 of 2005); (2005) 91 Tax 1; ICI Pakistan Limited v. Federation of Pakistan 2006 PTD 778, Roche Pakistan Limited v. DCIT and others 2001 PTD 3090; Sitara Chemicals Industries Limited v. DCIT 2003 PTD 1285; Commissioner of Income Tax, Karachi and 2 others v. N.V. Philip's Gloeilampen fabriaken, Karachi (1993) 68 Tax 35 (SC Pak); Commissioner of Income Tax v. Hamdard Dawakhana (Wagf), Karachi PLD 1992 SC 847 and Pak Saudi Fertilizers v. Federation of Pakistan in C.P. No.283 of 1999 rel.

Ahmer Bilal Soofi for Petitioners.

Aqeel Ahmed Abbasi for Respondents Nos. 1 and 2.

Nemo from the Office of D.A.-G.

ORDER

ANWAR ZAHEER JAMALI, J.---The above numbered two constitutional petitions were heard together and dismissed in limine by our short order dated 19-1-2006. Reasons in support thereof, with concise relevant facts, are recorded as under:---

2. All the petitioners are private limited companies engaged in the business of Public Call Offices (hereinafter referred as "PCO"), which provide facility to the public for using phones available at their respective PCOs on payment of usual charges. They are aggrieved by the show-cause notices issued to them under section 161 of Income Tax Ordinance, 2001 by which the respondent No.2, after asserting that they have failed to withhold tax at 10% on sales of their prepaid cards under the provisions of subsection (1)(b) read with subsection 3 of section 236 of Income Tax Ordinance, 2001, has asked them to show cause why they may not be treated as assessee in default in respect of the amount of tax not withheld by them and the same may not be collected from them along with additional tax under section 205(3) of Income Tax Ordinance, 2001.

3. According to the petitioners Pakistan Telecommunication Authority (PTA) has granted them specific licenses in terms of section 5 of Pakistan Telecommunication (Re-Organization) Act, 1996, authorizing them to establish, maintain and operate payphone service in Pakistan. Such licenses in their favour have validity of 15 years and the business of the petitioners is regulated in terms of the licenses issued in their favour. In addition to license fee, for its renewal annual renewal fee is also payable by the petitioners to PTA and further in terms of clause 2.8(3) of the license it is the responsibility of the petitioners to install and operate specified minimum number of payphones/PCOs and look after its maintenance and equipments.

4. Further case of the petitioners is that for business convenience, corporate bills are issued by PTCL to the petitioners, which carry accumulated bills of the telephone lines acquired by the petitioners/ operators in a given region, and on payment of said bills advance income tax is also being regularly paid in terms of section 236(1)(a) of the Income Tax Ordinance, 2001. Despite this the petitioners have been issued show-cause notices under section 161 of the Income Tax Ordinance, 2001, with the object of causing harassment to them. In nutshell the claim of the petitioners is that demand of advance income tax by the respondent No.2 through show-cause notices is based on misinterpretation and misapplication of section 236(1)(b) of the Income Tax Ordinance, 2001 as the said provision of law refers to only prepaid card for telephones, while the petitioners, who are operating, not by way of issuing prepaid cards, but by use of electronic SIM cards, and in terms of their respective licenses are not covered by such provision of law. The petitioners have further asserted that the definition of prepaid calling cards is given in the official O&M Standard agreement between the PTCL and prepared card sellers, whereunder such prepaid calling card is a card in denominations of Pakistan Rupees 250, 500 and 1000 which is issued/ sold to the customers to enable them to utilize any PTMF telephone by using toll free 00800 number assigned by PTCL. Based on the above averments prayers made in the two petitions, which are substantially the same, read as under:---

"(i) That the Honourable Court may be pleased to declare that the petitioners/operators being pay phone operators do not fall in section 236(1)(b) of the Income Tax Ordinance.

(ii) That this Honourable Court may be further pleased to set, aside the show-cause notices issued to the petitioners/operators under sections 161 and 236 of the Income Tax Ordinance, 2001.

(iii) That the respondents may be ordered to issue instructions to all their subordinate officers in the country to restrain permanently from issuing the show-cause notices to the Pay Phone operators, which have a license similar to that of the petitioners/operators.

(iv) That any income-tax, if forced to be paid by the petitioners/operators under the impugned show-cause notices, be also ordered to be refunded.

(v) That the income tax already paid inadvertently by some of the petitioners/operators may be ordered to be refunded.

(vi) That it may further be declared that section 236 and the provisions (b) of Division V of Part IV of the First Schedule are unconstitutional and without lawful authority.

(vii) Any other relief deemed appropriate may also be awarded."

5. The. respondents in their parawise comments to these petitions have raised preliminary legal objections to the maintainability of these petitions on the grounds that it involve factual disputes which cannot be resolved in exercise of jurisdiction under Article 199 of the Constitution, and availability of alternate remedy under the special statute (Income Tax Ordinance, 2001), against the purported grievance of the petitioners. They have also denied the factual assertions of the petitioners that they are not engaged in the sale of prepaid cards, within the meaning of section 236(3)(b) of the Income Tax Ordinance, 2001 or that issuance of show-cause notices and demands raised against them is not warranted by law.

6. Mr. Ahmer Bilal Soofi, learned counsel for the petitioners has argued with vehemence that the officers of Income Tax Department, particularly respondent No.2, while issuing show-cause notices to the petitioners, failed to appreciate that the business of petitioners did not involve selling of prepaid calling cards, therefore, provisions of section 236(1)(b) of the Income Tax Ordinance, 2001 were not attracted in their cases. Dilating further about the factual aspects of the case, learned counsel reiterated the facts recorded in the petitions to demonstrate the view point of the petitioners that they are not engaged in any manner in the selling of prepaid cards to its customers or public within the meaning of section 236(l)(b) of Ordinance, 2001. In the same context, he also made reference to PTCL agreement called "O&M Agreement", which differentiate the case of the petitioners, who operate their PCOs through electronic SIMs instead of prepaid cards.

7. In reply, Mr. Aqeel Ahmed Abbasi learned counsel for the respondents contended that the mode of operation urged by the petitioners regarding operation of their PCOs is disputed by the respondents, therefore, such factual controversy involved in the matter could not be resolved by this Court in exercise of its jurisdiction under Article 199 of the Constitution. Further, filing of these petitions against the issuance of mere show-cause notices under section 161 of the . Ordinance, 2001, is premature action, thus on this account too these petitions are liable to be dismissed. During the course of his arguments, learned counsel also placed on record copy of several orders passed by the respondent No.2 D.C.I.T. in the cases of petitioners Nos.1 to 5 in Petition No.366/2005 to show that the present petitions were preferred on 3rd April, 2004, while in furtherance to the impugned show-cause notices issued to them their assessment cases were finalized by the Income Tax Department on 6-4-2004 and demands were also accordingly raised against them. In such circumstances, without challenging such orders passed by the Income Tax Authorities, these petitions are not maintainable in law. Learned counsel also made reference to the order of the Appellate Commissioner of Income Tax, Karachi in the case of Petitioner No.1, in C.P. No.D-611/2004, to show that after passing of earlier order by the Income Tax Department, when it was challenged before the Commissioner of Income Tax (Appeals), Karachi, the said officer also examined in detail all the contentions of the said appellant/petitioner raised in the present petition and with cogent reasons repelled the same in favour of Revenue. He, therefore, contended that non-availing of further remedy against the impugned order passed by the respondent No.2 (Income Tax Department) during the pendency of this petition, is fatal to the case of the present petitions inasmuch as the said assessment orders, not challenged by most of the petitioners have attained finality. Besides, making reference to the cases cited in the parawise comments filed on behalf of the respondent, with reference to the maintainability of these petitions, learned counsel also made reference to a recent judgment of, this Court in the case of ICI v. Federation of Pakistan (C.P. No.D-658 of 2005) dated 13-1-2006 to show that when the question of maintainability came up for consideration before the Division Bench with reference to challenging of mere show-cause notice issued by an officer of Income Tax Department having jurisdiction in the matter it was held that the appropriate remedy provided under the special statute should have been followed in the first instance by the aggrieved party before the concerned officer, and thereafter other remedy by way of appeal etc. and filing of constitutional petition without following such alternate remedies was premature and thus the petition was not maintainable in law. Mr. Abbasi also made reference to the detailed judgment of this Court in the case of Call Tell (Pvt.) Limited v. Federation of Pakistan (C.P. No.D-468 of 2003) to show that the dispute raised in the present petitions relating to the liability of the petitioners with reference to section 236(3) of the Ordinance of 2001 has been decided by this Court in favour of Revenue and the petition for Special Leave to Appeal preferred against such judgment has also been rejected by the Hon'ble Supreme Court of Pakistan [See: 2004 PTD 3032. In the end, learned counsel also made reference to the Auditors Report of petitioner No.1 in C.P. No.D-376 of 2004 to show that in their statement of accounts petitioners themselves have made clear mention of sale of such cards in the sum of Rs.11,611,079 during the relevant financial year, which proves the contention of the respondents that they are justified in raising demand against the petitioners in terms of section 236(1)(b)(3) of Ordinance, 2001.

8. We have carefully considered the arguments advanced by learned counsel for the parties and perused the material placed on record. In order to understand more comprehensively the case of the respondents on facts, for charging the petitioners with the liability of payment of advance tax in terms of section 236(1)(b)(3) of the Income Tax Ordinance, 2001, it will be useful to reproduce hereinafter the discussion made by the C.I.T. (Appeals) in his order dated 1-9-2004, which reads thus:---

"The appellant is admittedly a licensee pay phone card service provider. He is admittedly running number of PCOs at different locations using PTCL landlines. The machines provided by the appellant to PCOs at the location are operated by electronic keys which are called "Smart Card." As discussed this smart card when inserted into machines it identifies the authorized agent, activate, and make the machine ready for rendering PCO services. But the person operating the PCO is not able to operate this machine unless he has purchased certain units by making certain payment towards price of units in advance for securing pay phone cards services for their clients. It is of critical importance to note that mere activation of machines in the case of the appellant shall not enable the agent to provide telephone service to its client unless certain units are purchased in advance in the shape of pay phone cards available with the PCO operators. There is also no denial of the fact as contended by the appellant that the sim cards are activation cards and electric device to register and reconcile out going calls made from different PCOs with their head office and for final reconciliation of calls with the PTCL records for billing purposes. This electronic method of operation of PCOs or reconciliation of record is an essential part for conducting this kind of business but it does in any case not allow PCO operators to avail the units without advance payment or purchase of units.

It is thus clear from the above that the appellant is conducting his business by appointing agents to run PCOs and by selling units to them in advance in lieu of payments in advance. The scheme of law as discussed above thus makes him a person responsible to make collections on sale of such prepaid cards. I, therefore, safely hold that appellant is undoubtedly an assessee in default and no argument that the card used by the appellant is an activation card is valid nor it can change the character of selling the prepaid card to the agents for which he is responsible to discharge his liability under the provisions of section 236 of the I.T. Ordinance, 2001."

9. This bring us to another important aspect of the case as regards maintainability of this petition that, in case of disagreement about the exact nature of working of the petitioners business of PCOs as highlighted above, these petitions would involve factual controversies, which cannot be resolved by this Court without holding investigation into such disputed questions of fact, which exercise is normally not called for/resorted to under Article 199 of the Constitution.

10. The arguments of Mr. Aqeel Ahmed Abbasi challenging the maintainability of these petitions on the ground of availability of alternate adequate remedy to the petitioners under the hierarchy of Income Tax Ordinance, 2001 have also much force. In a recent judgment of this Court in the case of ICI Pakistan Limited v. Federation of Pakistan 2006 PTD 778, examining the similar issue of challenging the show-cause notice issued by the Income Tax Authorities through constitutional petition, relying upon the two earlier judgments, in the cases of Roche Pakistan Limited v. DCIT and others 2001 PTD 3090 and Sitara Chemicals Industries Limited v. DCIT 2003 PTD 1285, the Division Bench of this Court of which one of us i.e. Anwar Zaheer Jamali, J. was a member, observed as under:---

"21. Indeed availability of alternate remedy has not been considered as an absolute bar for this Court for exercising its constitutional jurisdiction under Article 199 of the Constitution in appropriate cases, despite non-availing such alternate remedy. Further, in fiscal matters the superior Courts have been more liberal in exercising their constitutional jurisdiction, keeping in mind financial constraints, which may be the compelling reason for the aggrieved party to bypass the alternate remedy, as due to such financial constraints the departmental remedy might loose its efficacy. However, in the present petition even the question of availability of alternate remedy by way of appeal and its efficacy or adequacy seems to be premature, as at this stage neither there is any adverse order against the petitioner nor the impugned notice has created any financial 'liability on the petitioner, but only some explanations have been sought and opportunity of hearing has been provided to them, which is in conformity to the spirit of proviso to subsection (1) of section 62 (ibid). In such circumstances, when instead of submitting their reply the petitioners have taken the course of filing this constitutional petition. Such practice cannot be approved.

22.Moreover, there is no denial of the fact that the Officer who has issued the impugned notice under section 62 of the Income Tax Ordinance, 1979 is seized of the assessment case of the petitioner for the year 2002-03 and thus in that context has jurisdiction to call upon the petitioner company to give reply to the queries made in the impugned notice. We are, therefore, in full agreement to the submission of departmental representative Dr. Masood Tariq that there is no valid justification for us to proceed readily with the presumption of mala fide against the respondent No.4, merely for the reason that he has issued the impugned notice dated 26-5-2005, calling upon the petitioner for their explanation/reply and affording them an opportunity of hearing in the matter.

23.It is also pertinent to mention here that queries made in the notice not only involve the question of law, mainly agitated in the present petition, but also number of other factual queries, which could be answered only after examination of the relevant record and submission of explanation by the petitioner before respondent No.4. In such circumstances, bypassing the stage of submission of reply to the impugned notice by the petitioner seems to be a device to avoid facing proceedings before the respondent No.4, who has jurisdiction for this purpose in terms of section 62 of the Income Tax Ordinance, 1979. After careful examination of the whole material placed on record by the petitioner, we feel that exercise of writ jurisdiction in the instant petition at this stage, will amount to usurpation of powers of the departmental authorities to adjudicate the assessment case of the petitioner at their level in accordance with law, in a more comprehensive manner after investigation of all factual and legal aspects of the case. The rule of propriety also demands that if question of jurisdiction is involved in a matter, in the first instance, such objection should be raised before the authority whose jurisdiction has been challenged and thereafter, if need be, further course available under the relevant provisions of law should be followed by the aggrieved party, instead of approaching this Court directly in its Constitutional jurisdiction on the pretext that the concerned authority/respondent No.4 has no jurisdiction to issue impugned notice or that available remedy is not adequate, efficacious or effective."

11. Reverting to the facts of present case it will be seen that on service of show-cause notices under section 161 of the Income Tax Ordinance, 2001 the petitioners instead of pursuing their remedy before the respondent No.2 have opted to prefer these petitions, which were presented in Court on 3-4-2004. Mr. Aqeel Abbasi learned counsel for the respondent has brought to our notice that in all the cases of petitioners the respondent No.2 has passed appropriate orders against the petitioners on 6-4-2004 (only three days after filing ,of these B petitions) and even in one case, appeal preferred by petitioner No.1 in C.P. No. D-611 of 2004, has also been dismissed vide order dated 1-9-2004, during the pendency of these petitions. But no steps have been taken by the petitioners to follow their further remedy under the Income Tax Ordinance, 2001, or even to amend these petitions to challenge such orders of respondent No.2 or the C .I.T.(Appeals), which hold the field. This factual position, not denied by Mr. Ahmer Bilal Soofi for the petitioners further makes the maintainability of these petitions very much doubtful.

12. The question of simultaneously pursuing the constitutional jurisdiction of this Court under Article 199 and the alternate remedies provided under other Statute was examined by the Hon'ble Supreme Court in the case of Commissioner of Income Tax, Karachi and 2 others v. N.V. Philip's Gloeilampenfabriaken, Karachi (1993) 68 Tax 35 (SC Pak). Relevant observations read as under:---

"In our view, once a party opts to invoke the remedies provided for under the relevant statute, he cannot at his sweet will witch over to constitutional jurisdiction of the High Court in the mid of the proceeding in the absence of any compelling and justifiable reason."

13. In another case of Commissioner of Income Tax v. Hamdard Dawakhana (Wagt), Karachi PLD 1992 SC 847 the Hon'ble apex Court, dealing with a similar situation, observed as follows:

"Before parting with the judgment we may observe that in cases where any party resorts to a statutory remedy against an order he cannot abandon or bypass it without any valid and reasonable cause and file constitutional petition challenging the same order. Such practice, in cases where statute provides alternate and efficacious remedy up to High Court cannot be approved or encouraged. In a recent judgment of this Court in C.A. No.79-K of 1991, one of us Ajmal Mian, J.), in similar situation observed as follows:---

"We may now revert to the question, whether the appellant was justified to file above constitutional petition against the order of the Tribunal instead of invoking section 136 of the Ordinance for making a reference to the High Court. According to Mr. Rehan Naqvi, a reference under the above provision would not have been adequate and efficacious remedy as it would have taken years before it could have been heard. The same could' true for a constitutional petition. The tendency to bypass the remedy provided under the relevant statute and to press service constitutional jurisdiction of the Court has developed lately, which is to be discouraged."

14. Again in its unreported judgment in the case of Pak Saudi Fertilizers v. Federation of Pakistan in C.P. No. 283 of 1999 dated 4-5-1999, relying on number of cases of Pakistan and Indian jurisdiction, this Court held that constitutional petition cannot be entertained if the taxpayer during the pendency of the C.P. opted to file appeal before the appellate hierarchy provided under the Ordinance. On the c basis of these judgments it is clear that the petition filed by the petitioner No.1 in C.P. No.D-611 of 2004 is not maintainable on this point also.

15. Visualizing the issue of availability of alternate remedy from another angle it will be seen that under the scheme of Income Tax Ordinance, 2001 not only provisions of appeal against the order of respondent No.2 is provided under section 127 of the Income Tax Ordinance before the Commissioner Appeals, but against the order of Commissioner of Appeals, further remedy of appeal is also provided before the Appellate Tribunal in terms of section 131 of the Income Tax Ordinance, 2001 and even thereafter further remedy, confined only to the question of law, is available by way of Reference Application. Thus, in a situation where a complete mechanism is provided under some special statute to redress/decide the grievance of the petitioners, in our view availing of constitutional jurisdiction under Article 199 of the Constitution, without availing of such remedy would make the petitions incompetent and not maintainable in law.

16. Since we have come to the conclusion that these petitions are not maintainable in law, for the foregoing reasons, we would refrain from commenting upon the merits of the case of the petitioners as regards their claims of disputing their liability for payment of advance income tax in terms of section 236(1)(b)(3) of the Income Tax Ordinance, 2001.

S.A.K./U-5/KPetitions dismissed.