Messrs SUBHAN CONSTRUCTION COMPANY VS GOVERNMENT OF PAKISTAN, CENTRAL BOARD OF REVENUE, ISLAMABAD, 2007 PTD-LAHORE-HIGH-COURT-LAHORE 796 (2006)

Income Tax Ordinance (XLIX of 2001)---

----S. 153 & First Sched., Division III---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Deduction of tax from gross amount payable on execution of contract---Rate of tax---Contracts arrived at between parties were executed---Differences between petitioner/construction company and respondent/Department had arisen with regard to rate of tax---Department was demanding payment of income tax at the rate of while cording to petitioner it was 5% of the gross amount payable---6% Validity---as Clause (c) of subsection (1) of S.153 of Income Tax Ordinance, 2001 had provided that time of payment was the crucial date when the tax had to be deducted---Sub-clause (3) of Division III of Part-III of First Schedule of Income Tax Ordinance, 2001, the words used had left no ambiguity that rate of tax to be deducted from a payment referred in clause (c) of subsection (1) of 5.153 of' Income Tax Ordinance, 2001 would be 6% of the gross amount payable---Execution of' contract was in fact the prerequisite for completion of a project, otherwise in government contracts, no work could be assigned/allotted/ executed, unless it was executed through a written contract---Five per cent of the gross amount was payable under unamended provision of law which was substituted through the enforcement of Finance Act, 2005 which had taken its birth from 1-7-2005, resultantly after said date rate of tax would be applied and deducted at the rate of 6% of the gross amount payable---In the present case last date of payment was 31-2-2006, demand and claim of department which was 6%, could not he held illegal and unlawful in circumstances.

Ijaz Ahmad Chaudhry for Petitioner.

Muhammad Akhtar Qureshi for Respondents.

Ch. Shafi Muhammad Tariq A.A.-G.

ORDER

SH. HAKIM ALI, J.---Messrs Subhan Construction Company has filed this writ petition challenging the levy of high rate of income tax than the prescribed one, which amount is being claimed and recovered by Public Health Engineering Department.

2. Facts leading to the filing of instant writ petition are that the writ petitioner, a registered firm was granted two projects of Urban Sewerage Scheme of Khanqah Sharif, Tehsil and District Bahawalpur, on' 27-4-2005 for 15.511, millions and 18.535 millions. According to the writ petitioner, both these contracts were completed within the prescribed time and payment of the amount was made for both these projects by Public Health Engineering Department on 21-2-2006. According to the learned counsel, the contracts were executed on 27-4-2005. Difference between the Department of Public Health Engineering and the writ petitioner now arisen is as to how much tax was to be deducted from writ petitioner whether at the rate of 5% or 6%. As per learned counsel. Public Health Engineering Department is demanding the payment of income tax at the rate of 6%, while according to the writ petition, it is 5% of the gross amount payable. Learned counsel has referred to section 153(1)(c) of the Income Tax Ordinance, 2001, which is in the following words:

"153 Payments for goods and services:--(1)

(1) -------------------------------------------------

(a) -------------------------------------------------

(b) -------------------------------------------------

(c) on the execution of a contract, other than a contract for the (sale) of goods or the rendering of (or providing of) services, shall, at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division III of Part III of the First Schedule."

He interprets its applicability by submitting that it is the date of execution of contract and not the date of making of payment, when the tax has to be deducted. He further argues that in Division III of Part III of the First Schedule of Income Tax Ordinance, 2001 payments- for goods or services "clause (3) the words are as follows:

"(3) The rate of tax to be deducted from a payment referred to in clause (c) of subsection (1) of section 153 shall be--

(s) in the case of a contract with a value exceeding thirty million rupees, 6% of the gross amount payable; or

(b) in any other case, 5% of the gross amount payable."

Elaborating his arguments, learned counsel states that sub-clause (b) of Division III referred to above it is provided that in a case of contract of less than 30 million rupees, 5% of the gross amount payable would be the criteria applicable. Therefore, the demand of 6% deduction on gross amount payable is illegal and unlawful.

3. On the other hand, learned counsel appearing on behalf of Department and learned A.A.-G. have controverted the contention of the learned counsel for the writ petition by stating that it is the date of payment when the deduction has to be made. Dates of execution and completion of contract are irrelevant and cannot be considered for the purpose of deduction of tax. It has also been submitted by both the learned counsel that sub-clause (3) of Division III of Part III of First Schedule of the above mentioned Ordinance, is an old law which has been referred to by the learned counsel for the writ petitioner: In the year 2005, on the enforcement of Finance Act, 2005, this sub-clause (3) was substituted in the following shape:

"(3) The rate of tax to be deducted from a payment referred to in clause (c) of subsection (1) of section 153 shall be 6% of the gross amount payable."

So, according to the learned counsel the admitted date of last payment was 21-2-2006 and at that time substituted para/clause was in picture and the amount of tax to be deducted according to hat clause was at the rate of 6% gross amount payable. Therefore, the department was correctly claiming the deduction of 6% on the gross amount payable.

4. Hearing of arguments and examination of law and record reveals that section 153 of the Income Tax Ordinance, 2001 is explicit in its enforcement. In clause (c) of subsection (1) of section 153 of the Income Tax Ordinance, 2001, the words containing relevant portion used are:--

"----at the time of making the payment deduct tax from the gross amount payable at the rate specified in Division III of Part III of the First Schedule."

This is a clear phraseology which has been employed by legislature to express its intention no exception can be taken to it that the time of payment is the crucial date when the tax has to be deducted. In the substituted sub-clause (3) of Division III of Part III of First Schedule of the Ordinance, the words used have left no ambiguity that rate of tax to be deducted from a payment referred to in clause (c) of subsection (1) of section 153 shall be 6% of the gross amount payable. The insistence in both these sections as well as in Division III of Part III of First Schedule of the Ordinance is upon the date of payment and not the date of execution of contract Execution of contract is in fact the prerequisite for completion of a project, otherwise it is a settled law that in Government contracts, no work can be assigned/ allotted/executed unless it is executed through a written contract. As regards the arguments of the learned counsel for the petitioner that it is 5% of the gross amount payable, it is an unamended provision of law which was substituted through the enforcement of Finance Act, 2005 which had taken its birth from 1-7-2005. After 1-7-2005, the rate of tax shall be applied and deducted at the rate of 6% of the gross amount payable. Admittedly, in the instant case, the last date of payment was 31-2-2006, which had occurred after 1-7-2005. Therefore, the demand and claim of the department cannot be held illegal and unlawful. So, the writ petition cannot be accepted and is dismissed with no order as to costs.

H.B.T.IS-11/LPetition dismissed.