I.T.As. Nos. 1536/KB and 1537/KB of 2005, decided on 31st January, 2007. VS I.T.As. Nos. 1536/KB and 1537/KB of 2005, decided on 31st January, 2007., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1680 (2007)

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

----S. 170---Income Tax Ordinance (XXXI of 1979), Ss. 59(4), 50(5), 80-C & 64---Sales Tax Act (VII of 1990), S.2(16)---Refund---Assessment years 1997-98 and 1999-2000---Rejection of created refund available as a result of being assessment under S.59(4) of the Income Tax Ordinance, 1979 on the ground that taxpayer did not provide any proof in respect of being an industrial undertaking and created refund; proceedings. in question were not meant for the assessment of income of the taxpayer but for ascertaining the legality of refund claimed and Limitation Law would not make an illegal claim a legal one and there was no bar on the examination of genuineness and legality of refund claimed---Validity---Taxation officer was not empowered to reject the refund claimed, as the matter was hit by time limitation as prescribed in S.64 of the Income Tax Ordinance, 1979, as law did not permit Department to deprive any taxpayer from his genuine claim of refund after a period of six years and four years respectively from the date of filing of returns, specifically when the assessments for both the years were deemed to have been completed under the provisions of Ss.59(4) and 59(1) of the Income Tax Ordinance, 1979 and Taxation Officer was not empowered at this stage to modify/amend/reopen/rectify the originally completed assessments---Case of the assessee could not be excluded from the ambit of Self-Assessment Scheme and to be re -completed under S.80-C of the Income Tax Ordinance, 1979 on mere assumption basis, on conjectures and surmises that the taxpayer was a commercial importer---Taxation Officer had only come across the fact that the assessee was a commercial importer, when the taxpayer requested for the issuance of refund vouchers for the determined refund---Department had never asked the taxpayer whether he was a manufacturer or commercial importer---Taxation Officer was not empowered to reject the claim of refund after the lapse of four to six years when the assessments for both the years had been completed and was not empowered to modify/amend/reopen/rectify the originally completed assessments---First Appellate Authority rightly vacated the order passed under S.170 of the Income Tax Ordinance, 1979 by the Taxation Officer.

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

----S. 50(5)---Deduction of tax at source---Manufacturer---Import of semi-finished goods---Adjustment of tax deducted at source---Assessing Officer rejected the claim of refund on the allegation that tax under S.50(5) of the Income Tax Ordinance, 1979 was deducted on import of finished goods, and not on raw material---Validity---Observations of Taxation Officer were not correct, as it was not compulsory that every manufacturer should import only raw material, as he could import a semi-finished items, which could be finished/completed after the import with the usage of spare parts etc.

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

----First Sched., Part-IV, para. B---Industrial undertaking---Manufac turer---Not necessary that every manufacturer should fall within the criteria of an industrial undertaking---Even a small moulder could be termed as "manufacturer" as he reforms the articles.

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

---S. 50(5)---Deduction of tax at source---Manufacturer---Commercial importer---Import of machines not in working order---Assessee was treated as commercial importer---Validity---Wording "all the above machines are not in working order and sold as seen" on the invoices showed that imported items were not finished items and the taxpayer could not be treated as a commercial importer merely on conjectures and surmises---Taxpayer had rebuilt the machine and brought them into working condition and then sold in the open market---Certain involvement of value addition existed and this may bring the taxpayer into the ambit of manufacturer, as the expression manufacturer had in ordinary acceptation a wide connotation which meant making of articles, or material commercially different from the basic component by physical labour or mechanical process.

Fahim ul Haq, D.R. for Appellant.

Saleem-ud-Din Qureshi for Respondent.

Date of hearing: 13-1-2007.

ORDER

Through these two appeals, the consolidated impugned order of the learned CIT(A), dated 31-8-2005 for the assessment years 1997-98 and 1999-2000 has been objected by the Department on the following common goods of appeal for both the years under review:--

2. That the CIT(A) is not justified in vacating the order passed under section 170 of the Income Tax Ordinance, 2001.

(3) That the CIT(A) was not justified in not considering the fact that no evidence was furnished himself as an Industrial Undertaking engaged in the process of manufacturing and importing raw material for his own consumption.

(4) That learned CIT(A) was not justified to ignore the facts of the case that the taxpayer did not have:--

(a) Any machinery installed in his business premises.

(b) Any power meter.

(c) Proof of purchase of spares and stores.

(d) Record of EOBI or SESSI registration/payment.

(e) Any registered trademark

(f) Any sales tax registration as manufacturer.

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 consolidated order passed by the Taxation Officer under section 170 of-the Income Tax Ordinance, 2001 for both the years under review.

As per that order, taxpayer filed returns of income for the two years under review claiming refund of Rs.1,02,236 and Rs.60,693 respectively. Tax payer claimed tax deduction under section 50(5) of the repealed Ordinance, 1979, as adjustable in the capacity of being manufacturer. It has been observed in the order that available record in the Circle does not have original returns for the years under consideration. However, photocopies of the record are present and refund claimed of the taxpayer was processed" on the basis of these photocopies of returns. It has further been mentioned in the order that request of the taxpayer regarding refund claimed was rejected vide order, dated 11-10-2004 against which, taxpayer filed complaint with Federal 'Tax Ombudsman and in pursuance to the Hon'ble Federal Tax Ombudsman, dated 17-5-2005 rejecting the order was withdrawn vide order, dated 1-6-2005. We have further noted that Taxation Officer has rejected the claim of refund with the following observations:--

"Whereas the taxpayer has claimed the tax deduction under section 50(5) of the Income Tax Ordinance, 1979 as adjustable in the capacity of being a manufacturer. The tax deducted under section 50(5) is final discharge of tax liability as provided for under section 80C of the income Tax Ordinance, 1979 except in cases of industrial undertakings importing raw materials for there own use. Moreover, tax definition of industrial undertaking has been provided for in sub-para-1 of Para-B of Part-IV of 1st Schedule to the Income Tax Ordinance, 1979. The taxpayer was requested to prove himself to be an industrial undertaking and manufacturer importing raw material for its own consumption vide this office letter No.TO/B-16/R-III/ZB/2004-05/271, dated 1-6-2005 which was properly served upon the taxpayer. The A.R. of the taxpayer Messrs Saleem Law Associates replied the referred letter vide Letter No. SLA/ M-13033/ITAX/2004-2005, dated 7-6-2005. The main thrust of the arguments of the taxpayer was that taxpayer may be treated as manufacturer and as the assessments for the year under consideration have become deemed assessment under section 59(4) of the Income Tax Ordinance, 1979, therefore, these issues cannot be examined at this stage. The A.R. of the tax payer declared the issue of being an industrial undertaking as irrelevant and illogical.

Whereas taxpayer was given another opportunity vide this office letter No.TO/B-16/R-III/ZB/2004-05/303, dated 15-6-2005. This letter was properly served upon the taxpayer. Taxpayer was informed that no assessment proceedings are underway and the only issue involved is the genuinity and legality of refund claim by the taxpayer. The taxpayer was confronted of the fact that tax deducted under section 50(5) of Income Tax Ordinance, 1979 is full and final discharge of tax liability as provided under section 80C of the Income Tax Ordinance, 1979. The taxpayer- was requested to provide certain proofs in respect of being an industrial undertaking and manufacturer. The .A.R of the taxpayer replied vide letter, dated 17-6-2005 which was received in this Office on 20-6-2005. The A.R. of the taxpayer again claimed that his returns of income has been deemed assessments. Moreover, the A.R. of the taxpayer also contested that he has created refund available as a result of being assessment under section 59(4) of the Income Tax Ordinance, 1979. However, the taxpayer did not provide any proof in respect of being an industrial undertaking and created refund.

In the light of foregoing facts, it became clear that these proceedings are not meant for the assessment of income of the taxpayer but for ascertaining the legality of refund claimed. No limitation law makes an illegal claim a legal one. It just puts bar on to its proceedings. Therefore, there is no bar on the examination of genunity and legality of refund claimed. It becomes more clear from the facts that the taxpayer requested for the issuance of refund and participated to prove himself to be a manufacturer. It may be mentioned that tax collected under section 50(5) of the Income Tax Ordinance, 1979 is adjustable only in case of industrial undertaking as laid down in sub-clause (ii) of clause (a) of subsection 2 of section 80-C of the Income Tax Ordinance, 1979. It is important to note that the said provision of law, instead of making tax collected under section 50(5) adjustable in case of every manufacturer has restricted its application to industrial undertakings engaged in the processing of manufacturing importing raw material-for its own consumption only. The facts abundantly clarify that taxpayer has failed to establish himself as an industrial undertaking engaged in the process of manufacturing importing raw materials for its own consumption. The taxpayer has not any installed machinery, no power (electricity) meter, no proof of purchase of spares and stores, no record of EOBI or SESSI, no registered trademark and no sales tax registration as manufacturer. Therefore, the tax deducted under section 50(5) cannot be treated as adjustable. Hence, the refund claim of the taxpayer is rejected".

Against the above order of the Taxation Officer, the appeal was filed before the learned CIT(A), who has vacated the above referred order passed under section 170 for both the years under review with the following observations:--

"The arguments have been heard and the record perused. The claim for the two years were initially rejected vide letter, dated 11-10-2004. None of the officials of the Department bothered to initiate the proceedings under section 66A of the R.O. 1979 which was available at that time. From 1997-98 till 30-6-2002 there was sufficient time for the taxation officer for exclusion of case from SAS or to refer the case to for action under section 66A. Since this has not been done aid the law do not provide to make the assessment under section 170 as such both the impugned orders are not maintainable which are hereby vacated".

Mr. Saleem-ud-Din Qureshi, has appeared on behalf of the taxpayer and has contended that returns for both the years under review were filed under Self Assessment Scheme and assessments for both the years were deemed to have been completed a long ago on the respective dates and the refund was claimed in the returns of income being determined. He has, in this respect, referred subsection (4) of section 59, which says that "No order under subsection (1) shall be made in any case after the 30th day of June of the financial year next following the income year in respect of which, a return of total income has been furnished under section 55 provided that if such an order is not passed by such date, the order under subsection (1) shall be deemed to have been passed on such date". It has been contended that from the plain reading of the above proviso, it is clear that once the assessment deemed to have been completed under section 59(4), the refund so claimed also become determined. Regarding the adjudication of the Department that taxpayer in this case is not a manufacturer, it has been contended that taxpayer in this case after rebuilt the secondhand imported compressor sold out in the local market without giving his own trademark or brand name.

We have noted that in this case, the Taxation Officer was not empowered to reject the refund claimed by the taxpayer, as the matter was hit by time limitation as prescribed in section 64 of the repealed Ordinance, 1979, as law does not permit Department to deprive of any taxpayer from his genuine claim of refund after a period of six years and four years respectively from the date of filing of returns for the two years under review i.e. 1997-98 and 1999-2000, specifically when the assessments for both the years were deemed to have been completed under the provisions of section 59(4) and 59 (1) of the repealed Ordinance, 1979 and the Taxation Officer is not empowered at this stage to modify/amend/ reopen/rectify the originally completed assessments. The case of the assessee cannot be excluded from the ambit of Self-Assessment Scheme and to be re-completed under section 80-C on mere assumption basis, on conjectures and surmises that the taxpayer in this case is a commercial importer. We have further found that the Taxation Officer has only come across to the fact that the present assessee is a commercial importer, when the taxpayer requested for the issuance of refund vouchers for the determined refund. Before this, the Department has never asked the taxpayer whether he is a manufacturer or commercial importer. We have further noted that Taxation Officer has rejected the claim on the allegation that tax under section 50(5) of the repealed Ordinance, 1979 was deducted on import of finished goods, and not on raw material. We are of the view that these observations of the Taxation Officer are not correct, as it is not compulsory that every manufacturer should import only raw material, as he can import a semi-finished items, which can be finished/completed after the import with the usage of spare parts etc. The Taxation Officer has also referred the definition of an industrial undertaking in order to strengthen his opinion that the instant taxpayer is not a manufacturer. We are of the view that issue of undertaking in this case is totally irrelevant and illogical, as it is not necessary that every manufacturer should fall within the criteria of an industrial undertaking, as has been laid down in Para.B of Part-IV of 1st Schedule to the repealed Ordinance, 1979. We are of the view that even a small moulder can be termed as "manufacturer" as he reforms the article. There can be so many other examples in this regard. Taxpayer in this case has imported second hand old diesel air compressor, which were not in working order as contended by the taxpayer. Copies of invoices of the exports have also been furnished before the Taxation Officer, which clearly bear the wording that "all the above machines are not in working order and sold as seen". The above wording show that imported items were not finished items and therefore taxpayer in this case cannot be treated as a commercial importer merely on conjectures and surmises. The taxpayer has rebuilt the machine and brought them into working condition, thereafter sold in the open market. It shows that there is a certain involvement of value addition and this may bring the taxpayer into the ambit of manufacturer, as the expression manufacturer has in ordinary acceptation a wide connotation. It means making of articles, or material commercially different from the basic components by physical labour or mechanical process. We are further of the view that repealed Income Tax Ordinance, 1979 has not defined manufacture or manufacturer, but the Sales Tax Act, 1990 has elucidated its meaning in subsection (16) of section 2 as under:

'(manufacturer' or `produce') includes

(a) any process in which an article singly or in combination with other articles, materials, components, is either converted into another distinct article or product or is so changed, transformed or reshaped that it becomes capable of being put to use differently or distinctly and includes any process incidental or axillary to the completion of a manufactured product;

(b) process of printing, publishing lithography and engraving; and

(c) process and operations of assembling, mixing, cutting, diluting, bottling, packaging re-packaging or preparation of goods in any other manner;

('manufacturer' or `producer' means a person who engaged, whether exclusively or not, in the production or manufacture of goods whether or not the raw material of which the goods are produced or manufactured are owned by him; and shall include.

(a) a person who by any process or operation assembles, mixes, cuts, dilutes, bottles, packages, re-packages or prepares goods by any other manner;

(b) an assignee or trustee in bankruptcy, liquidator, executor or curator, or any manufacturer, or producer and any person who disposes of his assets in any fiduciary capacity; and

(c) any person, firm or company which owns, holds, claims or uses any patents, proprietary, or other right to goods being manufactured, whether in his or its name, or on his or its behalf, as the case may be whether or not such person, firm or company sells, distributes, consigns, or otherwise disposes of goods)".

In view of this discussion, we are of the view that Taxation Officer in this case was not empowered to reject the claim of refund after the lapse of four to six years, when the assessments for both the years under review have been completed and is not empowered to modify/ amend/reopen/rectify the originally completed assessments. The learned CIT(A) has, therefore, rightly vacated the order passed by the Taxation Officer under section 170 of the Income Tax Ordinance, 2001.

Both the appeals filed by the Department are, therefore, dismissed.

C.M.A./35/Tax (Trib.)Appeals dismissed.