2008 P T D (Trib.) 718
[Income-tax Appellate Tribunal Pakistan]
Before Javed Iqbal, Judicial Member and Liaqat Ali Khan, Accountant Member
I.T.As. Nos. 758/PB to 762/PB of 2004, decided on 21/02/2007.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.50(4)---Constitution of Pakistan (1973), Art.146(3)---Deduction of tax at source---Service charges---Retention of 5% service charges by the Provincial Government on deduction of tax at source---Validity---Issue of retaining of 5% of deducted amount as service charges was covered by Art.146 of the Constitution, was not for the forum of appellate Tribunal to decide as there was a mechanism for resolving of dispute between the Federal Government and the Provincial Government---Such was basically an issue between two governments i.e. Provincial and Federal Government and the same should have been taken up through the Central Board of Revenue with the Federal Government for resolving the problem as had been done by the Punjab Government.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.50(4)---Deduction of tax at source---Provincial Government---Finance Secretary---Accountant-General---Responsibility of deduction of tax---Finance Secretary though was the principal accounts officer of the Provincial Government as he was the custodian of all finances of the Province but he was not strictly responsible for withholding of taxes as he was not disbursing payments to various recipients under the provisions of S.50(4) of the Income Tax Ordinance, 1979---Responsibility for such disbursement was of the Accountant General to whom such amounts were transferred through budget documents after due sanctions by the Provincial Legislature who in turn had authorized various subordinate Account Officers for disbursement of such payments to various recipients and to contractors/service providers---Principal ,,accounts officer figured nowhere in this scheme of things as he was not the paying authority responsible to withhold taxes.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.50(4)---Deduction of tax at source---Notice issued on 25-2-2004 requiring to deposit the tax by 28-6-2004 was delivered through Fax and Circle Inspector but nowhere was mention of treating the Finance Secretary of Provincial Government as the person responsible for not depositing the amount retained as service charges---Whole exercise was to pressurize the appellant to pay, so that the yearly budgetary target fixed could be achieved---Not only the appellant had been treated as a person responsible by following the provisions of S.50(4) of the Income Tax Ordinance, 1979 but the appellant could not be treated as a defaulter since the obligation to deduct/deposit the tax had been made---Entire exercise had been misplaced and the appellant had been wrongly treated to be a person responsible for deduction of taxes under S.50(4) of the Income Tax Ordinance, 1979---Order of both the forums below were not maintainable and were annulled by the appellate Tribunal.
1969 SCMR 212; 2003 PTD (Trib.) '2287; 2003 PTD 1167; 2005 PTD (Trib.) 1303 and 1992 PTD 342 ref.
Nazir Ahmad for Appellant.
Yousaf Ghaffar, D.R. assisted by Malik Akhtar Hussain for Respondent.
ORDER
LIAQAT ALI KHAN (ACCOUNTANT MEMBER).---These five appeals filed at the behest of the appellant/assessee challenging the order of learned C.I.T. (A), dated 19-10-2003 on the following common grounds:---
I.T.A. No.758 of 2005
(a) That the L/C.I.T..(A) failed to appreciate the issues agitated in grounds of appeal and pass a speaking order, hence the impugned order is not maintainable.
(b) That as per Clause (3) of Article 146 of the 1973 Constitution of Islamic Republic of Pakistan the Provincial Government of N.-W.F.P. has retained 5% of the amounts deducted as withholding tax as service charges for collection of the said amounts, which is legal and justified.
(c) That action of assessing officer to treat the appellant as assessee in default is wrong and illegal and the appellant (Secretary Finance) is not responsible for collecting/deducting tax on behalf of the Government rather Accountant General is the person who collects and deposits the tax to Federal Government Account.
Thus the initiation of proceedings against appellant treating him as assessee' in default is illegal and unjust.
(d) That the assessing officer was in a hurry and has passed a summary order as the show-cause notice was served on 28-6-2004 and the order was passed on the same day i.e. on 28-6-2004 at 8-00 p.m. (as mentioned on the assessment order). As proper opportunity of being heard was not provided which renders the order as illegal.
(e) That the alleged amount of taxed as 5% service charges for the year under appeal is wrong, inaccurate, based on presumptions and guess work of the department which need verification.
(f) That the alleged amount can be ascertained through a proper audit as the Provincial Government collects/levies for various agencies and the alleged amount is yet to be verified.
(g) The order under section 52 for the assessment year under appeal is barred by time. The assessing officer cannot initiate proceedings beyond 4 years, the time limit fixed by the L/ITAT to take action under section 52 for the previous years.
(h) That the additional tax imposed/levied under section 205 is illegal and unjust as the terminal end of the time upto which the additional tax was payable is not available, as per section 205 the additional tax could only be imposed for the period from the due date upto the date of payment and not upto the date of order, hence the additional tax imposed is illegal and uncalled for, hence merit deletion.
2. Brief facts of the case are that assessee/appellant a Secretary to Government of N.-W.F.P., Finance Department, was treated a principal accounting officer, responsible for all financial decision of the Government of N.-W.F.P. He was, therefore, responsible to deduct taxes under section 50(4) of the repealed Income Tax Ordinance, 1979 at the rate specified in the 2nd Schedule to Ordinance from payments made to various contractors and service providers and to deposit the same in the Government treasury within the stipulated period of seven days of such deductions. The appellant while performing these functions, had retained 5% of the amounts deducted, which detailed below as service charges:--
| Financial Year | Amount |
| 1998-99 | Rs. 125,33,575 |
| 1999-2000 | Rs. 87,20,292 |
| 2000-2001 | Rs. 104,55,481 |
| 2001-2002 | Rs. 104,55,481 |
| 2002-2003 | Rs. 53,27,350 |
| Total | Rs. 474,92,179 |
3. The department on the other hand, considered this withholding of service charges of illegal. The Provincial Government through Additional Chief Secretary was requested to deposit these amounts but in response to this request the Finance Secretary replied that such service charges were covered under Article 146 of the Constitution of the Islamic Republic of Pakistan, 1973. After lengthy correspondence between the respondent/department and the Provincial Government, the matter was finally ended in treating the appellant/Finance Secretary as an assessee in default and the amount along with penalties were to be recovered from him. An order was passed under sections 161/205 of the 'income Tax Ordinance, 2001 read with section 52 of the repealed Income Tax Ordinance, 1979 to this effect.
4. In appeal before the learned C.I.T. (A) the issue was agitated on several grounds, which are incorporated in the impugned order. The learned C.I.T. (A) while disposing of the appeal, after lengthy discussion based on the submissions of the learned AR of the appellant rejected the appeal.
5. Both the parties have been heard. Mr. Nazir Ahmed, Advocate for the appellant and Mr. Yousaf Ghaffar, D.R. assisted by Malik Akhtar Hussain, Advocate.
6. The AR of appellant/assessee submitted the following arguments:---
(1) Application of Article 146(3) of Constitution.
Under Article 146(1) of the Constitution of Islamic Republic of Pakistan, the Federal Government may, with the consent of Government of a province entrust either conditionally or unconditionally the collection of the federal tax etc. In the instant case the Federal Government had not solicited the consent of the Provincial Government. Thus the act of Federal Government to proceed without consent is ultra Constitution and the 5% collection charges out of the withholding taxes collected by the Provincial Government, is covered under Article 146(3) of the Constitution.
(2) Assessee in default.
The assessing officer has treated the appellant (Secretary to Government of N.-W.F.P., Finance Department) as assessee in default, which is wrong and illegal. The Provincial Government as per section 80(2)(vii) is a company. As per section 160 the person responsible for the collection or deduction is responsible to pay the withholding tax to the Commissioner. The section is reproduced as under:---
S. 160 Payment of tax collected or deducted.
"Any tax that has been collected or purported to be collected under Division II of this part or deducted or purported to be deducted under Division III of this part for deducted or collected, or purported to be deducted or collected under Chapter XIII shall be paid to the Commissioner by the person making the collection or deduction within the time and in the manner as may be prescribed".
Moreover, in section 172 the representative has been appointed by the legislators subject to sections 2 and 3 of the Income Tax Ordinance, 2001 and as per section 172(d), which is read as:---
"Where the person is a Provincial Government, or local authority in Pakistan, any individual responsible for accounting for the receipt and payment of money or funds on behalf of the Provincial Government or local authority."
From the above it is clear that the person who collect or deduct the tax is responsible to pay the same to the Commissioner of Income Tax and the person responsible for accounting for the receipt and payment of money or funds on behalf of Provincial Government is a representative too. Here in this case all the payments are received/collected and disbursed by the Accountant General on behalf of the Provincial Government. He is responsible to make payment and to deduct withholding tax thereon, he made all the said payments to Commissioner of Income Tax and he is also a representative of the Provincial Government made by section 172 of the Income Tax Ordinance, 2001 on the contrary the Finance Secretary in no way responsible for payment/collection and deduction of tax nor he made payments to Commissioner of Income Tax and he is also not a representative in this respect. Thus the assessing officer has wrongly, incorrectly and illegality treated the appellant as assessee in default, the proceedings should have been initiated against Accountant General as a wrong person has been treated assessee in default thus the whole proceedings become illegal and null and void.
(3) Summary Trial.
The assessment order is passed in a hurry after a summary trial as the show-cause notice, dated 25-6-2004 (fixed for 28-6-2004) was served on the appellant office on 28-6-2004 at closing office hours which was practically impossible to reply on the same day and the assessing officer was in a hurry as he has passed the assessment order on the same day i.e. 28-6-2004 and that too after the office hours i.e. at 8-00 p.m. as mentioned on the face of the assessment order the proceedings are not at all judicious and fair proceedings and as per C.B.R. instructions a reasonable time (at least 7 days) should be given for reply. It will be worthwhile to mention here that this was the first and last notice issued to the appellant as all the previous correspondence was made to the Additional Chief Secretary Government of N.-W.F.P. as admitted in the assessment order at paras 3 and 6. In this type of summary trial the apex Court in a leading case reported as 1969 SCMR 212 citation (b) Supreme Court condemned the action as:---
"Principle of natural Justice.---Opportunity of hearing---Statutory authority passing final order without hearing person affected---Order declared to be without lawful authority."
Thus the action of the assessing officer is unjust and not warranted.
(4) The alleged amount is imaginary and not exact.
To initiate proceedings under section 52 of the Income Tax Ordinance, 1979/161 of the Income Tax Ordinance, 2001 exact amount of tax which ought to be withheld by the person is required and the action should not be initiated of the imaginary and guesswork, rather it should be definite and to be correct more than the definite information as required under section 65 of the Income Tax Ordinance, 1979 for reopening of an assessment, it should not be an estimate, gossip and surmise. But astonishingly in the instant case the proceedings are initiated on the information of Accountant General letter which do not provide the head-wise detail of withholding tax deducted by the Accountant General the taxes are deducted under many sections of Income Tax Act, like 149, 152(b)(c) under section 50(1)(2), (a)A, 6, 7(B) D of the Income Tax Ordinance, 1979 and the said amount also consist of CVT which is not covered under sections 52/161 of the Income Tax Ordinance, 2001 the amount communicated and treated as default are not definite. The most interesting thing is that the figure of assessment years 2000-2001 and 2001-2002 are the same i.e. Rs.1,04,55,381 which is unbelievable. This indicates that no serious effort was made to bring on record the head-wise amount of tax deducted and to arrive on a correct and definite amount of tax withheld by the Accountant General to even to separate the CVT. The whole drama was staged in a hurry without looking to the procedure and law. The honourable ITAT in a reported judgment 2003 PTD (Trib.) 2287 while adjudicating a reference application has held. The question referred was:---
"Whether on the facts and circumstances of the case the learned ITAT was justified to hold that the information for holding an assessee in default required even stronger evidence than for reopening of the case under section 65 of the Income Tax Ordinance, 1979 in terms of definite information?" and the reply of Tribunal which is on page 2291 para 7 is -
"We have in the judgment under discussion held that stronger proof is required for application' of the provisions of section 52. The Department objects to this observation. Not much arguments have been advanced in support of Department's contention, however, since we are firm in our view we would like to add certain more reasons to our observations. Section 52 has already been detailed in our order. For brevity we will mention again the relevant extracts of the said section:--
"Where any person fails to deduct or collect, he shall, be deemed to be an assessee in default in respect of such tax."
"The catch words in these sentence are "fails to deduct". The connotation is clear and it calls for strict determination that a person has failed to deduct tax which he was legally beyond under the provisions to section 50(4)(a). This is determination of a fact. This connotation can be equated with use of word "found" in section 13(1)(a), (aa), (b), (c) and (d). Word definite information in any case speaks of an information which should be definite and the words "fails to deduct" or "found" is obviously stronger than the same. Even if, for the discussion sake, we agree with the department that these words are equal in its strength still it would not be of any help to them. Section 52 even if we say should be invoked on the basis of definite information the result will be the same as has been held in our judgment under discussion. In our humble opinion such provisions, which are called as deemed provisions of Income Tax and those which has come as a penalty are not meant to strengthen the muscles of the Revenue Department. Particularly the provision under discussion is a machinery provision, which cannot be used as substitute of charging provisions of Income Tax Ordinance. Keeping this basic philosophy of the Income Tax law and also keeping in view the historical background we have given our finding."
The above verdict is also followed yet in another case by the L/ITAT reported as 2003 PTD 1167 note 1182. The above case law clearly shows that an assessee cannot be treated assessee in default unless and until very strong unrebuttable and more than definite evidence is on the record against him.
In another case reported as 2005 PTD (Trib.) 1303 note (b) the Honourable Tribunal has held that in case of any doubt the benefit has to be given to the taxpayer.
The appellant has also tried his best to verify the figures from the/A.G. Office vide letter No.264/2003, dated 16-9-2004 and in reply the figure, quoted by the A.G. Office vide their letter, dated 20-9-2004 for the period under appeal are quite different (copy of the same are attached) which shows that the amounts for which the appellant has treated as assessee in default for the assessment year under appeal are not correct.
(5) Limitation:
The appellant has been treated as assessee in default for the assessment year 1998-99 to Tax Year 2003 i.e. for 5 years.
In section 52 of the Income Tax Ordinance, 1979 no time limit is prescribed but no law can be left with unlimited application however, inference can be drawn from the scheme of law and other provisions of the Income Tax Ordinance. Moreover, the order under section 52/161 is not an order of rectification under sections 156/221 as there was no previous order, which is to be rectified. The L/ITAT in a decision reported as 2003 PTD 1167 has fixed the limitation as 4 years. At page 1180 of the said order the Honourable Tribunal explained the situation as:---
"Above discussion obviously concludes that limitation to issue a notice under section 52 cannot be extended beyond four assessment years. In this regard, the judgment referred by AR as well as L.A. are distinguishable, as we have come to this conclusion for entirely different reasons than given in the said judgments. In the D/B judgment the period of four years was mentioned by taking support from section 156 which obviously was not applicable as it was not basically a case of rectification of mistake. The issue of rectification comes into picture where an order has been finalized earlier. Obviously when proceedings under-section 52 are initiated they are in absence of an earlier order on the subject.
The said judgment is concluded with the following observation at page 1187.
"We, therefore, without any further hesitation or discussion feel that under section 52 firstly, the assessing officer has to proceed before the end of the financial year secondly, on inspection of books and on his failure he can proceed within three years prior to the income year for which he has issued a notice under section 61 for assessment."
From the above, it is obvious that proceedings under sections 52/61 can only be initiated for the past 4 years whereas in the instant case the appellant has been treated as assessee in default for the past 5 years which is hit by limitation, thus the proceedings for the assessment year 1998-99 are illegal and barred by time, which merits deletion.
(6) Imposition of Additional Tax.
As per section 205 for imposition of additional tax the payment of tax is necessary and until and unless the tax is paid i.e. the terminal end the time is not available the additional tax cannot be imposed and the said action of imposing additional tax is illegal and nullify in the eyes of the law:---
Section 205.
"Additional tax.---(1) A person who fails to pay ---
{(a) any tax, excluding the advance tax under section 147 and additional tax under this section;}
(b) any penalty; or
(c) any amount referred to in section 140 or 141, on or before the due date for payment shall be liable for additional tax at a rate equal to (twelve} percent per annum on the tax, penalty or other amount unpaid the period computed for commencing on the date on which the tax, penalty or other amount was due and ending on the date on which it was paid."
The said section has been explained by the Karachi High Court in a judgment reported as 1992 PTD 342.
"S. 45A.---Scope and application of S.45---Words "to the date of its payment"---Connotation---No tax due from him was paid by the assessee by the time the order levying additional tax was passed hence the terminal end of the time up to which the additional tax was passed was not available---Qualification of additional tax to be levied under S.45-A thus was not possible---Order of Income Tax Officer imposing additional tax, could not, therefore, be held to be proper, valid and legal order which was rightly annulled by the Tribunal."
In view of the above as the additional tax has been imposed before payment of tax, the order of imposing additional tax is illegal and void in eyes of law, which may please be declared as null and void by deleting the additional tax.
7. Whereas on the other hand the learned counsel, for the respondent/department submitted as under:
(1) The appellant in para No.1 of the arguments has once again tried to take shelter under Article 146 of the Constitution of the Islamic Republic of Pakistan, 1973. The appellant asserts that the Federal Government has not solicited consent of the Provincial Government for collection of Advance income tax. In this regard, it is submitted that Article 146 is self-explanatory. It clearly provides a mechanism where the Federal Government may entrust to the Provincial Government such functions in relation to any matter to which the executive authority of the Federal extends. In view of the same, the Federal Government had entrusted the collection of withholding taxes to the Provincial Government. The Article further provides that for such a conferral of duties, the Federation shall pay to the Province such a sum as may be agreed between the two parties, and where there is no agreement, the Chief Justice of Supreme Court of Pakistan shall act as the arbitrator.
In the present matter, the Government of the N.-W.F.P. through the appellant has, instead of following the Constitutional procedure, arbitrarily retained 5% collection charges without any justification whatsoever. This act of the appellant is extra-constitutional and on this score alone this appeal may be dismissed forthwith by this L/Tribunal. In addition it may of noted that the appellant was obligated by law to collect the aforesaid charges as per the Income Tax Ordinance, 1979 ("Ordinance"). The appellant had acquiesced to the duty imposed on it by the Ordinance by consistency collecting the taxes and transferring them to the Federal Government till tax year 1998-99 when even though the taxes were collected, they were not passed on. Had the appellant any objection to the said law, it should have knocked on the door of the relevant Courts. Had the appellant any objection to providing services without compensation, it should have knocked on the door of the relevant Courts. Had the appellant any objection to providing services without compensation, it should have reminded the Federal Government of its Constitutional duty. Neither was done, and one fine day the Appellant decided to shop forwarding the Federal Government's money, and arbitrarily retain the same as its self-proclaimed service charge.
(2) In para. 2 of the arguments of the appellant admits that the law applied in this respect is wrong and illegal for the reason that the collection of tax and other payments are the duties of the Accountant General who actually works as a representative of the Provincial Government and therefor, he was required to pay the amount as referred to in assessment order and the proceedings should have been initiated against him instead of the appellant. This stance of the appellant is completely different from the plea of earlier taken under Article 146. Under section 80(2) of the Ordinance the assessee has been treated as a company while section 2(44A) defines the principal officers of a body where the definition includes "secretary". The Accountant General N.-W.F.P. is the principal Audit Officer of the Province who is responsible to look into the affairs of accounts of the Province and keeps its record. Hence, the Accountant General cannot be treated as an officer or representative of the Provincial Government to deduct or collect advance taxes which in fact is the statutory duty of the appellant, as already admitted by him in his arguments.
(3) In para. 3 of the arguments, surprisingly, the appellant agitated the proceedings initiated under sections 161/205 of the Income Tax Ordinance, 1979 and objected that the show-cause notice was issued on 25-6-2004 whereas he received the same on 28-6-2004 at closing hours. This arguments of the appellant is baseless and without any substance. The matter was already under correspondence with the appellant and his other officials at a higher level and the show cause notice was served on the same date of its issuance through fax as well as Special Messenger. However, the appellant turned deaf ears towards all these proceedings and did not bother to reply the show-cause notice which was issued in due course of law.
(4) In para. 4, the appellant clearly admits that he has deducted numerous amounts under different sections of the Ordinance. This admission on part of the appellant holds him responsible for release of payments assessed during the assessment years under appeal and is sufficient to prove the mala fide and high handedness on part of appellant. The assessee is clearly in default and strong un-rebutted, definite evidence is available on the record in this respect. The appellant also acknowledges that the Accountant General had, on the appellant's request, provided figures which were quite different from the assessment order. In such a case, the appellant should have contested same but instead, the appellant categorically denied the assessment in total and refused to release the amount of advance income tax deducted on behalf of the Federation.
(5) In para 5 the appellant has argued that the assessment order is not within time though admitting the Ordinance does not limit a time period in this regard. It may be noted that the limitation of issuing order within 4 years, as argued by the appellants is not applicable to the instant case.
Such limitation applies to and is to be reckoned from the date of issuance of an earlier existing assessment order, whereas in the instant case no such order exists.
Para 6 regarding imposition of Additional Tax has also been objected to and the fee stance taken by the appellant is that in absence of any terminal end of time, no additional tax penalty can be imposed. However, the assessing officer has rightly imposed additional tax is charged from the date when the tax was due till the date of payment. However, where original tax is not paid, additional tax is charged from the date on which tax was due to date of passing order under section 205 of the Ordinance and cognizance of the taxpayer is accepted then additional tax will never be charged in cases where payment is not made.
8. We have considered the facts, orders of two forums below and the arguments of the learned AR of the appellant and are compelled to observe that the issue of retaining of 5% of the deducted amount as service charges is covered by Article 146 of the Constitution, is not for this forum to decide as there is a mechanism for resolving of dispute between the Federal Government and the Provincial Government and importing this whole discussion mars the real issue that was needed to be decided was:-‑
(1) Whether the appellant as a principal accounting officer responsible for deduction of taxes under section 50(4); and
(2) Whether the appellant was treated as responsible for deducting taxes under section 50(4) and treated as such under the provisions of law.
9. In so far as the first issue is concerned, the Finance Secretary is though the principal account officer of the Government of NWFP as he is the Custodian of all Finances of the Province but he is not strictly responsible for withholding of taxes as he is not disbursing payments to various recipients under the provisions of section 50(4). The responsibility for such disbursement is of the Accountant General to whom such amounts are transferred through budget document after due sanctions by the Provincial Legislature who in turn authorizes various subordinate Account Officers for disbursement of such payments to various recipient and to contractors/service providers, etc. The principal account officer figure nowhere in this scheme of things as he is not the paying authority responsible to withhold taxes.
10. The next question is whether the person i.e. the appellant on whom the entire responsibility to withhold taxes has been fixed by the assessing officer and confirmed by the learned C.I.T. (A) as within the legal parameters of law and all formalities to this end have been held him as responsible person to withholding taxes and then depositing in Government' Treasury as is the procedure under the provisions of section 50(4) of the repealed Income Tax Ordinance, 1979. From the assessment order, this fact is not evident except notices under section 205 issued on 25-2-2004 requiring him to deposit the tax by 28-6-2004 which was delivered through Fax and Circle Inspector but no where is mentioned of treating him as the person responsible for not depositing the amount retained as service charges. Thus the whole exercise was only to pressurize the appellant to pay, so that the yearly budgetary target fixed could be achieved. It is also pertinent to observe that not only that the appellant has been treated as a person responsible by following the provisions of section 50(4) but the appellant cannot be treated as a defaulter since the obligation to deduct/deposit the tax has been made. The only difference of opinion is with regard to the retaining of 5% of the amount as service charges, which is basically an issue between two governments i.e. Provincial and Federal Governments. The issue should have been taken up through the C.B.R. with the Federal Government for resolving this problem as has been done by the Punjab Government.
11. It is also note-worthy to observe and stated at the bar that all the taxes due have been paid.
12. We are, therefore, for the foregoing reasons are convinced that the entire exercise has been misplaced and the appellant has wrongly been treated to be a person responsible for deduction of taxes under section 50(4) and, therefore, the orders of both the forums below are not maintainable and hereby annulled.
C.M.A./7/Tax (Trib.)Appeal accepted.
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