VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1910 (2007)

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

----Ss.156(3) & 62---Convention for Avoidance of Double Taxation between Islamic Republic of Pakistan and Romania, Art.3---Rectification of mistake---Rate of tax---Discriminatory treatment---Limitation---Rectification application on the ground that in the parallel cases, the less rates of tax had been applied; assessment order passed may be rectified by applying less rate of tax as applied in the parallel cases instead of rate of tax applied in the case of assessee---Finance Division informed that "the Government had implemented in letter and spirit the aviation policy which inter alia provides equal treatment between national carrier and the private airlines for taxation purposes given suggestions relating to tax issues could be considered at the time of next budget and matter could be taken up with taxation authorities at an appropriate time"---Assessee pleaded that since no action was taken on the applications filed for rectification under the provisions of S.156(3) of the Income-Tax Ordinance, 1979, the assessment orders would be deemed to have been rectified, therefore assessee was entitled for credit of excess tax paid and refund in this respect be issued---Validity---Assessee had approached the Taxation Officer by filing rectification applications within a statutory period of time but Taxation Officer had not taken up those applications for decision within the limitation period provided under the law---Mistake of facts as well as law could be rectified under S.156 of the Income-Tax Ordinance 1979---Incorrect treatment accorded to the assessee, in the presence of direction/clarification of Finance Division, was a mistake being a discriminatory treatment accorded, the assessee which, at a later stage, came to the knowledge of the assessee---Such mistake should have been rectified by the Taxation Officer within a statutory time available under the law---Taxation Officer had neither refused nor rejected the said applications that remained pending for four years---Mistake which was apparent from the record now shall be deemed to have been rectified.

1998 PTD (Trib.) 3866; 1998 PTD (Trib.) 3488; 1971 PTD 411; 1983 PTD 246; 1988 PTD (Trib.) 3748 and 1983 PTD 221 rel.

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

----S.156---Rectification of mistake---Obligatory upon the Taxation Officer either to accept the application or reject the same.

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

----S.156---Rectification of mistake---Non-rejection of rectification application within mandatory period---Effect---Due to lapse on the part of Taxation Officer, the provisions of subsection (3) read with subsection (1) of S.156 of the Income-Tax Ordinance, 1979 had become applicable and the mistakes pointed out in the assessment order shall be deemed to have been rectified---Since applications were not rejected within the mandatory period, the order shall be deemed to be rectified for the reason that when the law requires something to be done in a particular manner and within a statutory period, it had to be done in that particular manner and within statutory period--Taxation Officer had failed to act in accordance with law and had violated the provisions of subsection (3) read with subsection (1) of S.156 of the Income-Tax Ordinance, 1979---First Appellate Authority had rightly held that assessments shall be deemed to have rectified under the provisions of law and had rightly annulled the order of Taxation Officer---Order of First Appellate Authority was not interfered with by the Appellate Tribunal and all the appeals of the Department were dismissed.

Fahimul Haq, D.R. for Appellant.

Salman Pasha and Nadeem Dawoodi for Respondent.

ORDER

JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).-The Department through these appeals has objected to the consolidated impugned order of learned C.I.T. (A) dated 2-1.'--2006 for the assessment years 1993-94, 1996-97, 1997-98 and 1998-99 on the following common ground:

"That the learned C.I.T. (Appeals) was not justified in holding that assessment is deemed to have been rectified under the provisions of subsection (3) read with subsection (1) of section 156 of the Repealed Income-Tax Ordinance, 1979, as there was no mistake apparent from record."

2. Mr. Fahimul Haq, learned DR, representing the appellant department, has contended that the taxpayer in this case is a non-resident Romania based company deriving income from wet-lease of aircraft given to Messrs Aero Asia International (Pvt.) Ltd. a resident company.

3. The assessments for the years under review were completed under section 62 of the Repealed Income-Tax Ordinance, 1979 subjecting the lease rental receipts to tax @ 4%. According to learned DR, against that assessment the assessee filed appeals before the learned C.I.T. (A) and subsequently before this Tribunal and the assessments were confirmed vide order dated 13-1-1998 and 28-4-2004 holding therein that the assessee was maintaining a permanent establishment in Pakistan as defined under Article 3 of the Tax Treaty between Pakistan and Romania, therefore, the income of the assessee is taxable.

4. The orders of this Tribunal have been subsequently challenged by the assessee before the Honourable High Court through appeals/reference applications. The learned DR has submitted that meanwhile the assessee on 9-4-2001 filed rectification applications under section 156 of the Repealed Income-Tax Ordinance, 1979 for the year under review on the ground that as in the parallel cases of P.I.A.'s non-resident lessor, the less rates of tax i.e. for assessment year 1996-97, 2.76% and for assessment years 1997-98 and 1998-99 the tax @ 2.58% has been applied. It was, therefore, requested' on behalf of the assessee that the assessment orders already passed may please be rectified by applying the above tax rates instead of rate 4% as applied in the case of assessee. In this regard, reliance was also placed on a letter dated 28-9-2000 issued by the Finance Division (External Finance Wing) of the Government of Pakistan under the subject "relief of tax to private airlines" wherein in response to the letter of the assessee dated May 9, 2000,addressed to the then Minister for Finance Mr. Shaukat Aziz, it was informed that "the Government has implemented in letter and spirit the aviation policy which inter alia provides equal treatment between national carrier and the private airlines for taxation purposes. Some of your suggestions relating to tax issues could be considered at the time of next budget. You may kindly take up the issues with taxation authorities at an appropriate time". Thereafter, the taxpayer vide letter dated 27-4-2005, stated that since no action was taken on the applications filed for rectifications, therefore, under the provisions of section 156 (3) of the repealed Income-Tax Ordinance, 1979, the assessment orders stand deemed to have been rectified, therefore, the taxpayer is entitled for credit of excess tax paid, hence refund in this respect be issued.

5. The learned DR has contended that the above referred letter dated 28-9-2005 issued by the Ministry of Finance was only a general letter inviting proposals and suggestions from the taxpayers for consideration at the time of budget and cannot be construed for applying reduced rate of tax as requested by the taxpayer in the applications for rectification. According to learned DR, the letter on which the assessee has placed reliance in the rectification applications is irrelevant. He has contended that since the rate of tax of non-resident aircraft lessor was assessed in case of P.I.A., the same was agreed between P.I.A. and the C.B.R. as per minutes of meeting held on 2-5-1981, on the other hand, no such agreement has been executed between the taxpayer and the C.B.R., therefore, the contention of the taxpayer to apply the same rates as applied in the cases of lessors of P.I.A. is without a standing and cannot be termed to be a mistake apparent from the record attracting rectification under the provisions of section 156 of the repealed Income-Tax Ordinance, 1979 as the mistake is not floating on the surface of the record. He has contended that in parallel cases of non-resident lessor assessed by the department, the rate of tax has been applied at 4% which is similar in the case of the taxpayer.

6. The learned representative for the Department has argued that the rate of tax applied in the case of the taxpayer was made consciously as is apparent from body of the assessment order. He has in this regard referred the last para of the assessment order passed under section 62 for the assessment years 1998-99 wherein it has been specifically observed by the Taxation Officer that "in the absence of any details and documents in support of declared version, the treatment meted out in previous years and also upheld by the Tribunal in the instant case is adopted for the year under assessment and also looking to the rate of tax fixed under section 80-A at 3% of the receipts and also 6% income on receipts in the case of leasing an aircraft by the national carrier company. The assessee has claimed that due to heavy losses on global basis and increase in expenses due to inflation, the rate of profit should be reduced from the rate applied last year to obtain 4% tax rate. In the absence of annual rate, the global accounts and other documents to substantiate the explanation, the basis adopted earlier is considered to be most reasonable and adopted for the year under assessments also." According to learned DR, the Taxation Officer, in the circumstances, considering it proper to determine income so as to arrive at gross rate of tax at 4% inclusive of tax on tax as the assessee has to pay tax on behalf of the lessor under the lease agreement has rightly made the assessment.

7. The learned DR has contended that as the legality of the assessment orders was decided by this Tribunal against which the taxpayer has filed reference applications, filing of the applications for rectification under section 156 was misconceived rather superfluous. He has contended that the applications were rightly not considered by the Taxation Officer and as there was no refund due in the case and also that there was no reasonable cause to create any refund as such, the Taxation Officer has rightly rejected the application in this regard which has, without any justification, been allowed by the learned C.I.T.(A).

8. On the other hand, Mr. Saleem Pasha, Advocate along with Mr. Nadeem Dawoodi, Advocate, has appeared and supported the impugned order of the learned C.I.T.(A).

9. The learned counsel for the assessee has contended that Messrs Aero Asia International (Pvt.) Ltd. was incorporated on 17th December, 1992 for operating a commercial airline in private sector as a parallel entity and in competition with national carrier of Pakistan i.e. P.I.A. Messrs Aero Asia International (Pvt.) Ltd. had obtained aircraft on wet-lease from non-resident lessor Messrs R.A. Romavia (Romania). It was agreed that the tax liability by non-resident lessor will be borne by Messrs Aero Asia International (Pvt.) Ltd. Accordingly, Income-Tax returns of non-resident lessor were filed for the assessment years under review and the assessments were completed under section 62 by levying tax @ 4%. It has been contended that the Taxation Officer has assessed tax liability by adopting fixed rate of tax applied at 4% of lease charges whereas in the case of the national airline i.e. P.I.A. in the case of aircraft obtained on wet-lease, tax liability was assessed between 2.76% to 2.58%(sic). Due to this discrimination and treatment, which according to learned counsel, were not only disproportionate but harsher treatment, the assessee approached the Finance Minister and after the discussion, it was decided that the ratio of assessments in respect of wet-lease agreement shall be at par with the treatment accorded to national carrier i.e. P.I.A. and in this regard, the letter dated 28-9-2000 was also issued.

10. The learned counsel for the assessee has contended that the assessee through Messrs Aero Asia International (Pvt.) Ltd. approached the D.C.I.T. and also filed separate rectification applications under section 156 for all the years under review on April 9, 2001 which were duly entered in the Inward Register of the D.C.I.T. at Serial No.1621 to 1627 in the case of Messrs R.A. Romavia (Romania) and Messrs Tarom S.A. (Romania). The learned counsel has contended that Messrs Aero Asia International (Pvt.) Ltd. on behalf of the above two companies, out of which one is the present assessee, approached the D.C.I.T. on various occasions but the matter remained pending in spite of regular discussions. He has contended that as the Taxation Officer was neither rectifying the order nor had rejected the applications dated 9-4-2001 which were pending, Messrs Aero Asia International (Pvt.) Ltd. as an agent and a representative of Messrs R.A. Romavia (Romania) and Messrs S.A. (Romania), through their letter No. AA/GFA/17-2005 and No.AA/GFA/18 of 2005, both dated 27-4-2005, finally approached the Commissioner of Income-Tax. The factual position was explained with a request to direct the Taxation Officer to issue refund vouchers for the year under review, but neither the Commissioner nor the Taxation Officer had acted judicially nor had shown any intention to follow the instructions and resolving the, disputed issue. However, without appreciating the factual and legal aspects, the Taxation Officer has refused to rectify the order and to issue refund vouchers for the years under review. The assessee, therefore, filed appeals before the learned C.I.T. (A) who has allowed the appeals and has cancelled the order passed by the Taxation Officer dated 10-6-2005 as the Taxation Officer has failed to pass any order within the period specified under the law.

The learned counsel for the assessee, in this regard, has referred the following decisions:

(i) 1998 PTD (Trib) 3866, (ii) 1998 PTD 3488 (Trib.), (iii) 1971 PTD 411 (Allahabad H.C.), (iv) 1983 PTD 246, (v) 1988 PTD 3748 (Trib.) and (vi) 1983 PTD 221.

In the above decisions, principle has been settled that a mistake of fact as well as law can be rectified to resolve the disputed issue provided the rectification sought is within the period of four years.

11. I have heard the learned representatives of both the sides and have also perused the order of learned C.I.T. (A), assessment order, the case law referred from both the sides and other relevant record of the case.

12. It is now being a trite principle that while adjudicating the legal issues, matter of law is to be decided first and then the facts are.to be considered. I have found that in the present case, the assessee has approached the Taxation Officer by filing rectification applications dated 9-4-2001 within a statutory period of time but the Taxation Officer has not taken up those applications for decision within the limitation period provided under the law. I find force in the contentions raised by the learned counsel for the assessee that mistake of facts as well as law can be rectified under section 156 of the Repealed Income-Tax Ordinance, 1979 as has already been held in the above referred cases. The issue in respect of incorrect treatment accorded in the case of the assessee in thepresence of the direction/clarification of the Finance Division, Government of Pakistan through letter dated 28-9-2000, is a mistake being a discriminatory treatment accorded, the assessee which, at a later stage, came to the knowledge of the assessee and, therefore, this mistake should have been rectified by the Taxation Officer within a statutory time available under the law.

I have further noted that the Taxation Officer in this case had neither refused nor rejected the said applications that remained pending for four years, hence the mistake which was apparent from the record now shall be deemed to have been rectified.

In respect of jurisdiction to rectify the mistake of facts as well as law on behalf of the assessee, various decisions have been referred which are squarely applicable in the present case.

13. I am of the view that the applications filed by the assessee for the years under review were within time and the mistake pointed out by the assessee was apparent from the record, hence the provisions of section 156 of the Repealed Income-Tax Ordinance, 1979 are applicable in the case but the Taxation Officer has not only violated he principle of natural justice and equity but it was also obligatory upon the Taxation C Officer to either accept the applications or reject the same. By keeping the same pending the Taxation Officer could only get the time limitation expired as there is no dispute to the effect that the assessee has filed applications on 9-4-2001 and the same remained pending till the passing of the impugned order dated 10-6-2005 which was also on the applications filed by the assessee claiming refund after the expiry of the period for rectification of the order. Due to lapse on part of the Taxation Officer, the provisions of subsection (3) read with subsection (1) of section 156 of the Repealed Income-Tax Ordinance, 1979 have become applicable and the mistakes pointed out in the assessment orders for the years under review shall be deemed to have been rectified as on 1-7-2002. As such, since the applications were not rejected by the Taxation Officer within the mandatory period, the order shall be deemed to be rectified for the reason that when the law requires something to be done in a particular manner and within a statutory period, it has to be done in that particular manner and within the particular period. But the Taxation Officer has failed to act in accordance with law and has violated the provisions of subsection (3) read with subsection (1) of the section 156 of the Repealed Income-Tax Ordinance, 1979, therefore, the learned C.I.T. (A) has rightly upheld that the assessments for all the years under review shall be deemed to have been rectified under the above provisions of law and has therefore, rightly annulled the order of the Taxation Officer. I find no warrant for interference in the impugned order of learned C.I.T. (A) which is upheld and all the appeals of the Department are dismissed.

C.M.A./95/Tax(Trib.)Appeals dismissed.