2008 P T D (Trib.) 752
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Mazhar Farooq Shirazi, Accountant Member
I.T.As. Nos. 5637/LB and 5638/LB of 2005, decided on 07/08/2007.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 143-B, 80C, 50(4)(4A), 56, 62 & 63---Statement regarding certain assessees---Assessee filed statements declaring commission---Tax was not deducted at source on commission and the assessee itself paid the amount of tax---Assessment was framed under normal law by the Assessing Officer---Validity---Although no tax under S.50(4) of the Income Tax Ordinance, 1979 was deducted, which was deductible under S.50(4A) of the Income Tax Ordinance, 1979, but non-deduction by withholding agent could not deprive the assessee of facility being covered under the proviso to S.80C(4) of the Income Tax Ordinance, 1979, as the law would follow the course as provided under the Income Tax Ordinance, 1979 for such default, but it would not be a tourney to punish/penalize the recipient for the default of the taxpayer---Provisions of S.80-C of the Income Tax Ordinance, 1979 were applicable and by filing statement under S.143-B of the Income Tax Ordinance, 1979, the assessee had not taken any illegal benefit of presumptive tax regime, as the provisions of Ss.55, 56, 62 or 63 of the Income Tax Ordinance, 1979 were not applicable---Assessee had rightly not filed regular return on IT-11---Order of First Appellate Authority was vacated and the assessments were cancelled by the Appellate Tribunal in circumstances.
1998 PTD (Trib.) 1201 and 2005 PTD (Trib.) 986 ref. I.T.As. Nos. 1682-1684/LB of 1997 rel.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss. 80C(2)(1) & 143-B---Tax on income of certain contractors and importers---Services---Exclusion of services from presumptive tax regime had been made applicable for the period relevant to assessment year 2002-2003 and as per provisions of law i.e. S.80-C(2)(1) of the Income Tax Ordinance, 1979 up to assessment year 2000-2001 only the doctors, lawyers, accountants etc. were excluded from presumptive tax regime---Other services were excluded for the assessment year 2002-2003 by virtue of proviso added to S.80-C of the Income Tax Ordinance, 1979.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.62---Assessment on production of books of accounts, etc.---Opportunity of being heard---Assessing Officer, who had passed the assessment order was not the Officer, who had heard the case of the assessee on various dates and also on the last date of hearing---Assessment order passed in the circumstances was without giving a personal hearing to the assessee, which was not only violative of the principles of natural justice, but also of the statutory requirements of S.62 of the Income Tax Ordinance, 1979.
1999 PTD. 1358 rel.
(2006) 93 Tax 279 (H.C. Ind.) ref.
Rehan Bashir, ITP and Irfan Ahmed Pasha for Appellant.
Ashraf Ahmed Ali and Mrs. Sabiha Mujahid, DRs for Respondent.
ORDER
Through these two appeals, the appellant has objected against the consolidated impugned order of the learned CIT (A), dated 15-7-2005 for the assessment years under review i.e. 2000-2001 and 2001-2002 on the following common grounds:--
(1) That the order of the learned CIT(A) is bad in law and facts and circumstances of the case.
(2) That the learned CIT(A) is not justified in confirming the execution of the assessee's case from the ambit of presumptive tax regime which otherwise fully qualified for assessment under section 80C.
(3) That the learned CIT(A) has erred in upholding the initiation of the proceeding under section 56 and consequential proceedings on the basis of the same.
(4) That finalization of assessment under section 63 by the Assessing Officer and its confirmation by the CIT(A) is against the law and facts of the case.
(5) That the order passed by the succeeding Assessing Officer is without jurisdiction for want of notice and its confirmation by the CIT(A) is equally unjustified.
(6) That the learned CIT(A) was not justified to confirm the estimate of entire receipts in the hands of the assessee-taxpayer whereas the assessee only earned commission income by rendering services to its principal-company.
(7) That without prejudice to above grounds, the learned CIT(A) was not justified to maintain Assessing Officer's estimate of daily receipts at Rs.1,96,800 in total disregard to the bald estimate of total contracts traded daily and commission accrued per contract.
(8) That the estimate of receipts by the Assessing Officer at Rs.7,08,48,000 as against declared at Rs.42,51,746 and modification of the same by the learned CIT(A) to Rs.4,92,00,000 for the assessee year 2000-2001 and at Rs.7,79,32,800 as against declared at Rs.46,76,918 for the assessment year 2001-2002 and modification of the same by the learned CIT(A) to Rs.5,41,20,000 is still arbitrary, harsh and highly excessive.
(9) That the learned CIT(A) has totally ignored that the concept of allowance of expenses @ 50% of the total receipts is alien to the law of income tax and facts borne on record in this case.
(10) That the appellant reserves his right to alter, add or amend any grounds of appeal before the disposal of present appeals.
The facts of the case as mentioned in the impugned orders of the Officers below are that the appellant in this case is an URF deriving income from brokerage/commission and dealing in foreign exchange. As per the assessment order, the appellant filed statements under section 143-B of the repealed Ordinance, 1979 declaring commission at Rs.42,51,746 and at Rs.46,76,918 for the two assessment years under review i.e. 2000-2001 and 2001-2002 respectively. Tax was not deducted at source on commission under section 50(4) of the repealed Ordinance, 1979 and the appellant itself paid an amount of Rs.2,12,600 and at Rs.1,80,000 for the two years respectively. The Assessing Officer did not accept the contention of the appellant and framed the assessment under normal law. Notices issued under section 56 of the repealed Ordinance, 1979 remained un-complied with. The appellant has been dealing in US Dollars along with other major currencies. Most of the forex transactions are performed electronically. Trades are executed in standard contract sizes by depositing a fraction of the contract value US. Dollars 80 are charged per contract as commission irrespective of any profit or loss accruing to the investor. Enquiries were conducted and as per assessment order, trading house registers were quietly perused and some vital information also gathered from inside the business premises as per the assessment order. Notice under section 62 of the repealed Ordinance, 1979 was issued and reply received was considered while framing the assessment. The Assessing Officer treated 41-investors capable of trading and considered the same number of contracts offered/ traded daily. Total commission for the assessment year 2000-2001 was estimated by taking commission US Dollars 80 per contract and number of working days being 360. Dollars' conversion rate to Pak Rupees was taken at Rs.60. Total receipts were estimated for the assessment year 2000-2001 at Rs.7,08,48,000 and for the assessment year 2001-2002 at Rs.7,79,32,800 by increasing 10% of the receipts estimated in the assessment year 2000-2001. Expenses were allowed being 1/3rd of gross receipts at Rs.2,36,16,000 and at R.2,59,77,600 and net income worked out at Rs.4,72,32,000 and at Rs.5,19,55,200 for the two years under review respectively.
The appellant filed appeal before the learned CIT(A), who has upheld the action of the Assessing Officer framing the assessment under normal law with the following observations:--
"Perusal of details of certificates furnished by the appellant has revealed that the appellant could not produce, both at assessment and appeal stage, any evidence regarding receipt of commission on its name from the Principal, Messrs Harvest Topworth (Macau) Limited on the basis of which statements under section 143-B of the Income Tax Ordinance, 1979 were filed. It becomes obvious that the appellant is an independent Forex broker who is soliciting, contracting, advising and assisting the clients of its own behalf and is supposed to pay tax on the income earned from its operations in Pakistan. Moreover, under section 80C(I) read with section 80C(2)(ia) and section 80C(4) of the Income Tax Ordinance, 1979, the amount representing payments from which tax is deductible under section 50(4A) is deemed to be the income of the recipient and the tax deducted under section 50(4A) is deemed to be the final discharge of this tax liability. The appellant has not been able to produce any supporting evidence in respect of its claim that the "indenting commission" was received on its name from Topworth Investment (Macau), Limited which could justify the filing of statements under section 143B of the Income Tax Ordinance, 1979. The Assessing Officer has rightly rejected the contention of the appellant and he was also justified to frame the assessment under normal law".
Likewise, the action of the Assessing Officer framing the assessment under section 63 of the repealed Ordinance, 1979 has been upheld with the following observations:--
"Statutory notices under sections 56 and 62 were issued and properly served upon the appellant. Reply furnished by the appellant in response to notice under section 62 was examined and considered by the Assessing Officer while framing the assessment. During the course of assessment proceedings, a number of opportunities of being heard were provided which also availed by the appellant. The successor Assessing Officer was not legally required to issue such notices again as sent by his predecessor during the course of assessment proceedings. As the legal requirements of giving an opportunity of being heard has been fulfilled by the Assessing Officer, therefore, the contention of the appellant on his account is not justified. The appellant failed to furnish returns of income in response to notice issued under section 56 of the Income Tax Ordinance, 1979, therefore, the assessment framed under section 63 is justified and action of the Assessing Officer is, therefore, upheld".
However, relief has been allowed while reducing the working days in the following manner:--
"The Assessing Officer rejected the contention of the appellant regarding filing of statements under section 143B, therefore, he was justified to frame the assessment under normal law. Daily receipts have been estimated after considering the contention of the appellant and examination of documents furnished at the time of assessment proceedings. The appellant could not produce sufficient evidence in support of its receipts and the Assessing Officer has rightly estimated daily receipts at Rs.196,800 for the assessment year 2000-2001. The estimation of daily receipts are, therefore, found justified and upheld. However, the contention of the AR of the appellant regarding excessive number of working days adopted by the Assessing Officer is correct. In the written arguments the AR of the appellant has worked out the number of working days being 250. In the comments on written arguments, the Assessing Officer (Legal), MTU, Lahore has also accepted that number of working days being 250 are reasonable. Accordingly, receipts are to be estimated by taking number of working days being 250 relevant to the assessment year 2000-2001. Receipts for the assessment year 2001-2002 are to be worked out by increasing 10% of the receipts, as worked out above for the assessment year 2000-2001".
The learned CIT(A) has also directed to allow P&L expenses to the extent of 50% of the receipts observing as under:--
"The perusal of record indicates that the appellant only provided details of expenses incurred under the head rent and utilities on the basis of which the Assessing Officer allowed expenses for both the assessment years. Details of total expenses incurred by the appellant were not provided during the assessment proceedings, whereas the Assessing Officer accorded proper opportunity to the appellant to provide details of actual expenses incurred during the course of business. In the written arguments the AR of the appellant has mentioned that "the department has full knowledge of the detail of expenses". On the one hand the AR of the appellant failed to furnish any evidence in support of actual expenses and on the other hand the Assessing Officer allowed expenses without any grounds. It is common knowledge that substantial expenses are incurred in this line of business which would have been allowed while calculating net income. The Assessing Officer is, therefore, directed to allow P&L expenses to the extent of 50% of the receipts worked out in consequence of this appeal order".
Now, the appellant is before this Tribunal on the above mentioned grounds of appeal.
Mr. Rehan Bashir, ITP along with Mr. Irfan Ahmed Pasha, Advocate have appeared on behalf of the appellant and have contended that the assessee is an AOP, deriving income from indenting commission. The nature of business of the assessee is explained for proper understanding. The FOREX (Foreign Exchange) market is the largest and most transparent financial market of the human history. There are systems and procedures to participate/trade in this massive market which is through Inter Bank 'Forex Market (IBFX) and financial intermediaries' broker. Topworth Investments (Macau) Ltd. is one such financial intermediary broker. To bring it down the lane, upto the reach of common public, these big financial brokers appoint further lower level representatives/brokers/agents and thus chain continues and works. Therefore, Topworth Investment (Macau) Ltd., in the same practice of the system, appointed Harvest Topworth International, Head Office, Lahore as their lower level representative/brokerage/agent in Pakistan against commission consideration. The assessee, an AOP, was appointed as indenter/representative in Pakistan under letter/agreement, dated 3-1-1994 by Messrs Topworth Investment (Macau) Limited. The assignments to the assessee by the principal were as under:-
(i) to identify investment projects for Messrs Topworth Investments (Macau) Limited, Hong Kong.
(ii) to prepare feasibility on acquiring share in projects to be privatized by Govt. of Pakistan.
(iii) to solicit customers for trading division of Messrs Topworth Investments (Macau) Limited, Hong Kong to deal in foreign exchange.
(iv) to project the name of Messrs Topworth Investments (Macau) Limited, Hong Kong in Pakistan.
(v) to establish relations for Messrs Topworth Investments (Macau) Limited, Hong Kong with business community in Pakistan.
As per Clause 4 (iii) of Agreement with Harvest Topworth Investment (Macau), Messrs Harvest Topworth International is responsible to solicit customers for trading with Messrs Topworth Investments (Macau) Limited.
Learned counsel in this regard has referred the agreement, dated 3-1-1994. According to clause 6 of the said agreement, Messrs Topworth Investments (Macau) Limited, is responsible for reimbursement of the following expenses:--
(i) Rent of business premises/offices and its maintenance (Net).
(ii) Electricity expenses (Net) (excluding Federal Taxes).
(iii) Telephone expenses (Net)/Communication (excluding Federal Taxes).
(iv) Sui gas expenses (Net) (excluding Federal Taxes).
(v) Advertisement (Net).
(vi) Salaries and Allowances of Business Executives.
(vii) Any other expenses mutually agreed.
The above expenses are paid by the assessee for and on behalf of the principal and are passed on to them.. Therefore, the assessee is not claiming such expenses against the indenting commission/brokerage received from the principal. However, in term of Agreement, the taxes paid on utilities etc. are responsibility of the assessee. Hence claimed for adjustment against assessee's tax liability. The assessee during the assessment years 2000-2001 and 2001-2002 received following commission from the principal:--
| 2000-2001 | Rs.42,51,746 |
| 2001-2002 | Rs.46,76,918 |
According to the learned counsel, the above commission received fall under section 50(4A) and as such the assessee filed statements under section 143-B for both the years under consideration as a new sub-section 2 (ia) and proviso 2 of subsection (4) of section 80C were inserted w.e.f. 1-7-1999 through Finance Ordinance, 1999. He has contended that the statements filed under section 143-B are full and final settlement of tax liability and are required to be accepted as such. According to the learned counsel, the Assessing Officer excluded the statements from the ambit of presumptive. tax regime by giving the following reasons:--
"Important fact that full tax on the commission shown was not deducted under section 50(4) at source. Resultantly, the assessee paid Rs.21,26,00 on 26-10-2000 before filing the statement under section 143B for the assessment year 2000-2001 and Rs.180,000 on 26 September, 2001 before filing the statement for the assessment year 2001-2002. Perusal of the statement reveals that those were invalid".
He has argued that the Assessing Officer issued a notice under section 56 for filing of returns. The assessee at the very outset challenged the assumption of jurisdiction under section 56 and agitated the issuance of notice under section 56 by filing written reply to the notices. The Assessing Officer apparently accepted the contentions and case was kept aside accordingly. He has contended that it was to the surprise of the assessee, months after an ex parte order reached assessee. The assessment was framed by an Assessing Officer who had neither issued a notice nor had informed of his acquiring jurisdiction over the case. The learned counsel has contended that the Assessing Officer has unjustifiably and illegally excluded the assessee-taxpayer from the ambit of presumptive tax regime. The statements filed under section 143-B fully qualified for acceptance under section 80-C for both the years, due to the amendments made through Finance Ordinance, 1999. According to the learned counsel, the Assessing Officer has observed in his assessment order that the assessee's principal has not deducted tax on commission paid to the assessee and the tax was deposited by the assessee to pay his tax liability while filing the statement under section 143-B. In this regard, it is submitted that it is correct that the principal has not deducted tax but it is also a fact that due tax liability has been duly paid while filing the statements under section 143-B. The assessee having received commission, tax was deductible under section 50(4A). Default of the agent of the principal company cannot deprive the assessee of his facility, being covered under the proviso of section 80C(4). He is of the view that the learned CIT(A) has ignored this aspect of the matter and specific provision of law and even he has not bothered to comment upon it. Learned counsel has vehemently contended that no tax under section 50(4) was deducted, as it was deductible' under section. 50(4A). Non-deduction by withholding agent cannot deprive the assessee of his facility being covered under the proviso of section 80-C(4). He has argued that the law can follow the course as provided under the Ordinance for such default but it would not be a tourney to punish/ penalize the recipient for default of the payer. He has contended that the exclusion of the services from presumptive tax regime has been made applicable for the period relevant to assessment year 2002-2003. It has been contended that if we go through the provisions of law i.e. section 80-C(2)(1), we will see that up to assessment year 2000-2001, only the doctors, lawyers, accountants etc., were excluded from presumptive tax regime. Other services were excluded for the assessment year 2002-2003 by virtue of proviso added after section 80-C with the following words:--
"Provided that nothing in this section shall apply to amounts referred to in clauses (ia), (iia) and (iii) of subsection (2) in respect of any assessment year commencing on, or after, the first day of July, 2002".
He is of the view that the learned CIT(A) misconceived the provisions of section 80-C, whereas the above provisos clearly indicate that the services were excluded from the purview of section 80-C on, or after, the first day of July, 2002 (of assessment year), hence the provisions of section 80C are also fully applicable on the assessee in the assessment year 2001-2002. He has contended that the receipts of the appellant constitute "indenting commission" and by filing statements under section 143-B the assessee has not taken illegal benefit of presumptive tax regime. Since the provisions of sections 55, 56, 62 or 63 are not applicable in the case of presumptive tax regime, the assessee is not obliged to submit the regular return on IT-11 and has rightly filed statement under section 143B. He has in this respect referred following reported decisions of the Tribunal:--
1998 PTD (Trio.) 1201 and 2005 PTD (Trib.) 986.
Learned counsel has also placed before the Bench the decision given by this Tribunal in the cases of Messrs Harvest International Pvt. Limited vide I.T.As. Nos. 1682-1684/LB of 1997 (Assessment years 1993-94 to 1995-96), dated 2-3-1998. Learned counsel for the appellant has contended that the proceedings uptill 27-6-2003 were carried out by the assessing authority i.e. IAC, Range-III, Zone-B, Lahore. After 27-6-2003, no notice has been received from the said officer and proceedings remained pending at his end. The assessee was surprised to receive the assessment order, dated 23-6-2004 which was passed by the DCIT, MTU, Lahore. He has contended that no intimation regarding acquisition of jurisdiction has been communicated to the assessee, not a single notice which is mandatory under the law was ever issued by the DCIT, MTU, Lahore, to show his intention regarding finalization of assessment, hence the assessee was deprived of an opportunity of being heard which is against the principles of natural justice as well. The assessment order passed under section 63 by the succeeding officer without issuance/service of mandatory notice is hence void ab initio illegal on the face of it being violative of the principle Audi Alteram Partem, (no one shall be condemned unheard). In this regard, reliance has been placed on the following decisions of the Hon'ble High Courts:--
1999 PTD 1358 and (2006) 93 Tax 279 (H.C. Ind.)
Learned counsel has argued that the learned CIT(A) has brushed aside the above principle set by the Hon'ble Karachi High Court/Delhi High Court, India, and unjustifiably and illegally confirmed the very assumption of jurisdiction by a succeeding assessing authority, who completed an illegal ex parte assessment under section 63, without issuing a single notice in this regard. The learned counsel of the appellant has submitted that without prejudice to the above arguments, be that a commission/service charges or any other receipt, the assessee is receiving following amounts from his principal:--
| 2000-2001 | Rs.42,51,746 |
| 2001-2002 | Rs.46,76,918 |
It is certified amount from which assessee is entitled to P&L expenses incurred by him. He has submitted that Assessing Officer has illegally and unjustifiably estimated entire receipts in the hands of the assessee and learned CIT(A) has illegally confirmed the same, whereas the assessee only earned commission income by rendering services to the principal company based in Macau. The Assessing Officer unjustifiably estimated receipts at Rs.7,08,48,000 for 2000-2001 and Rs.7,79,32,800 against declared certified receipts Rs.42,51,746 and Rs.46,76,918 respectively. Both the authorities below have simply brushed aside the certificate produced from the principal company without any valid reasons. He has, therefore, prayed for accepting statement filed under section 143-B, under section 80-C. Alternatively, the learned counsel has submitted that if for any reason, above request is considered as not acceptable, total receipts of Rs.42,51,746 and Rs.46,76,918 may be accepted as declared. He has repeatedly requested that our alternative requests are without prejudice to our claim that we are only receiving commission and the same is covered under the presumptive tax regime.
On the other hand, representing the Department Mr. Ashraf Ahmed Ali and Mrs. Sabiha Mujahid have contended that the amounts received from Topworth Investment (Macau) Limited as mentioned in certificates do not fulfil the criteria of commission in any sense. He has argued that for proper comprehension the term "Commission" definitions of the Dictionary should be followed. He has in this respect referred:-
(1)Black's Law Dictionary (Eighth Edition) Page-286 wherein commission has been defined as:--
(2) "A fee paid to an agent or an employee for a particular transaction, usually a percentage of money received from the transaction" and
(2) Collins Cobuild English Language Dictionary Page-277, wherein it has been defined as:--
"Commission is' a sum of money paid to a salesman for every sale that he or she makes".
"If you are on commission or paid by commission, you are paid by a system in which the amount that you receive depends on how much you sell".
According to the learned DR, it is beyond comprehension that the certificates neither mention any principal amount upon which commission was paid nor percentage of commission. So these amounts are not commission but any other transaction best known to Messrs Harvest Topworth International, the appellant in this case. He is, therefore, of the view that the learned CIT(A) was justified to confirm estimates of receipts in the hands of taxpayer as according to him, the so-called commission has no relevance with the receipts of taxpayer and in such circumstances, filing of statement under section 143E is against the provisions of law. Learned DR has argued that the Assessing Officer who finalized the assessment was different from the one who conducted the proceedings and therefore the contention of the assessee that the learned CIT(A) should have given a fresh opportunity of being heard to the appellant, is misconceived. He has contended that the Assessing Officer should not be seen as an individual but as an authority functioning under the law. According to learned DR, during the course of assessment proceedings, a number of opportunities being heard were provided to, and were availed by, the appellant, while finalizing the assessment, the officer considered, and rebutted, the arguments of the appellant on all the issues and the legal requirement of giving opportunity of being heard to the complainant was thus fulfilled. He has submitted that the learned CIT(A) has already awarded relief in term of receipts by reducing the same from Rs.7,08,48,000 to Rs.4,92,00,000 which is not hard, but accommodates the taxpayer to the great, extent. According to the learned DR; the order of the learned CIT(A) is in accordance with the facts and circumstances of the case. The learned CIT(A) is justified in confirming the exclusion of the case from the provisions of section 143B of the repealed Ordinance, 1979, as the case of the appellant does not qualify for assessment under section 80-C of the repealed Income Tax Ordinance, 1979. According to the learned DR, the assessee has filed statement under section 143B, which is irrelevant in the instant case. The assessee claims that only commission was received from so-called principal Topworth Investment (Macau) Limited. But the factual position is diametrically opposite to the claim of assessee. He is of the view that actually the amounts received from Topworth Investment (Macau) Limited as mentioned in fabricated tin-Dated certificates do not fulfil the criteria of commission in any sense. Learned DR has contended that in the present case, it is beyond comprehension that the certificates neither mention any principal amount upon which commission was paid nor percentage of commission. So these amounts are not commission but any other transaction best known to Messrs Harvest Topworth International. He has argued that the learned CIT(A) is justified in 'upholding the initiation of proceedings under section 65 of the repealed Ordinance, 1979 in accordance with the provisions of, law. He is of the view that finalization of assessment under section 63 of the repealed Ordinance, 1979 is justified, as the assessee has failed to furnish the return of income. In such circumstances, the Assessing Officer has no alternative but to act in accordance with the legal provisions. He has contended that the order passed by the succeeding Assessing Officer is justified and fulfils all the legal requirements. The Assessing Officer who finalized the assessment was different from the one who conducted the proceedings and should have given a fresh opportunity of being heard to the appellant, is misconceived. The Assessing Officer should not be seen as an individual but as an authority functioning under the law. During the course of assessment proceedings, a number of opportunities of being heard were provided to, and were availed by, the appellant. While finalizing the assessment, the officer considered and rebutted the arguments of the appellant on all the issues. The legal requirements of giving opportunity of being heard to the complainant was thus fulfilled. He has contended that the learned CIT(A) was justified to confirm estimates of receipts in the hands of taxpayer, as the so-called commission has no relevance with the receipts of taxpayer. He is of the view that the learned CIT(A) has awarded relief to the assessee by reducing receipts. This relief is excessive and assessee's view point in this regard carry no weight, as awarded relief is not harsh but accommodates the taxpayer to great extent. He has submitted that the learned CIT(A) has allowed expense allowance @ 50% of total receipts to accommodate the taxpayer to a great extent. Of course, this too much allowance is alien not only to the assessee as has been contended by the learned AR, but also to the income tax law, therefore, it is prayed that the saane allowance should be reduced to @ 30% of receipts.
We have heard the learned representatives from both the sides and have also perused the consolidated impugned order of the learned CIT(A), the consolidated assessment order passed under section 63, the case laws referred by the parties, the provisions of law and the documents placed before this Bench by the learned representatives of the appellant.
Before adjudicating the legal as well as factual aspect of the case, we deem it appropriate to bring on record the documents placed before us by the learned representatives of the appellant, which according to learned representatives of the. appellant have already been furnished before the learned CIT(A) as well as before the Assessing Officer, as they have also discussed the same in their respective orders, but as contended by the learned DR, the Officers below have rightly not accepted the same, as these certificates are fabricated. The first document in this regard is an "Appointment as Representative in Pakistan" issued by Topworth Investments (Macau) Ltd., dated 3rd January, 1994 in the name of Mr. Muhammad Gulraze Mir, 35-Lodge Road, Lahore with the following contents:--
"Please refer to your meeting with our representative held on 30th September, 1993 at Peshawar to discuss feasibility of establishing our business in Pakistan.
We feel pleasure to appoint you as our Agent/Broker is Pakistan to do the followings:--
(1) That a firm, under any name but having with it the words "Topworth" in that shall be constituted and established in Pakistan.
(2) That in the Firm so established our Company would be one of the investor partners with 49% shares in profits and losses and the remaining 51% shares of yours and your associates.
(3) That the offices would be established as and when need be anywhere in Pakistan.
(4) That the objectives of the Firm would be:-
(i) to identify investment projects for our Company.
(ii) to prepare feasibility on acquiring share in projects to be privatized by Govt. of Pakistan.
(iii) to solicit customers for our trading division in Macau (Hong Kong) to deal in foreign exchange.
(iv) to project our corporate name in Pakistan.
(v) to establish relations for our Company with business community in-Pakistan.
(5) That as a consideration of your services to achieve the above objectives and other allied matters, you will be paid brokerage of Rs.200,000 (Rupees Two hundred Thousand only) per month till 30th June, 1994 and thereafter an increase of 10% from every 1st July of the year.
(6) That besides, the above brokerage, we would reimburse the following expenses incurred in connection with the business of your Firm: --
(i) Rent of business premises/offices and its maintenance (Net).
(ii) Electricity Expenses (Net).
(iii) Telephone Expenses (Net)/Commission.
(iv) Sui gas expenses (Net).
(v) Advertisement (Net).
(vi) Salaries and Allowances of Business Executives.
(vii) Any other expenses mutually agreed.
It is clarified that the above expenses would not include federal taxes, if any. All such taxes would be borne/claimed by your firm only.
(7) That we would provide you with Reuters Services 24-hours for display of Forex rates. The service charge would be paid/reimbursed by our company. All bills for the said service will, if issued in the name of your firm, will be endorsed/forwarded to us for its payment.
(8) That you will maintain information office with necessary lower staff at your own expense, including local and provincial Federal Tax/cess, vehicles, electric appliances, furniture, fixture and other accessories.
(9) That this agreement will not be terminated before 30th June, 2003 and may be renewed on the basis of mutual understanding.
The learned counsel has also placed before this Bench the two certificates to the fact that Messrs Topworth Investment (Macau) Limited have paid in Pak currency Rs.42,51,746 and Rs.46,76,918 as indenting commission to their representatives in Pakistan Messrs Topworth Investment, the present appellant/assessee during the periods from July, 1999 to June, 2000 and July, 2000 to June, 2001. It has been contended by the representative of the appellant that the assessee in this case has been filing return under the normal law up to assessment years 1999-2000 and even for the assessment year 2002-2003 upward, but only due to the provisions of law applicable in two years under review has filed statement under section 143-B of the repealed Ordinance, 1979. It has been contended that the appellant cannot be deprived of the benefit provided under the law in the two years under review.
We have further noted that through Finance Ordinance, 1999, clause (IA) was inserted in subsection (2) of section 80C of the repealed Ordinance, 1979 according to which "the amount representing from which tax is deductible under subsection (4A) of section 50" and due to insertion of this clause on 1-7-1999, the case of the present appellant for the two years under review comes under the provisions of section 80-C, as the assessee having received commission, tax was deductible under section 50(4A) of the repealed Ordinance, 1979. The default of the agent of the principal company cannot deprive the assessee of this facility being covered under the provisions of section 80C(4) of the repealed Ordinance, 1979. The said subsection (4) of section 80C is reproduced hereunder:
"80-C(4) Provided further that where the tax deducted or collected under any subsection of section 50 specified in clause (a) of subsection (2) is, for any reason, not collected or deducted in accordance with the said subsection or the tax so deducted is less than the amount deductible or collectable, the assessee shall be required to pay the said amount".
We are, therefore, of the view that although no tax under section 50(4) was deducted, which was deductible under section 50(4A) of the repealed Ordinance, 1979, but non-deduction by withholding agent cannot deprive the assessee of this facility being covered under the proviso of section 80C(4), as the law can follow the course as provided under the Ordinance for such default, but it would not be a tourney to punish/ penalize the recipient for the default of the taxpayer. We further find force in the contention of the learned counsel for the assessee that the exclusion of the services from presumptive tax regime has been made applicable for the period relevant to assessment year 2002-2003 and as per the provisions of law i.e. section 80-C(2)(1) up to assessment year 2000-2001, only the doctors, lawyers, accountants etc, were excluded from presumptive tax regime. Other services were excluded for the assessment year 2002-2003,by virtue of proviso added after section 80-C which says:--
"Provided that nothing in this section shall apply to amounts referred to in clauses (ia), (iia) and (iii) of subsection (2) in respect of any assessment year commencing on, or after, the first day of July, 2002".
We are, therefore, of the view considering the above proviso that the provisions of section 80-C arc also applicable in the present case in the assessment year 2001-2002 and by filing statement under section 143-B, the appellant/assessee has not taken any illegal benefit of presumptive tax regime by filing statement under section 143-B, as the provisions of sections 55, 56, 62 or 63 of the repealed Ordinance, 1979 are not applicable, therefore, he has rightly not filed regular return on IT-11. Learned representative of the appellant has also placed before this Bench the order of this Tribunal, dated 2-3-1998 in I.T.As. Nos. 1682 to 1684/LB of 1997 (Assessment years 1993-94 to 1995-96) in the case of Messrs Harvest Investment Pvt. Ltd. Lahore v. IAC, wherein it has been held as under:--
"The Assessing Officer has failed to bring on record any reliable evidence/material to show that the assessee had also earned receipts from other parties as well. Under these circumstances, the declared receipts are ordered to be accepted".
It has been contended that the same is the position in this case. We have further noted that in the present case, the Assessing Officer, who has passed the assessment order for the two years under review was not the Officer, who had heard the case of the assessee on various dates and also on the last date of hearing. We are, therefore, of the view that the assessment orders have been passed without giving a personal hearing to the assessee, which is not only a violation of the principles of natural justice, but also of the statutory requirements of section 62 of the repealed Ordinance, 1979. Placing reliance on the decision of Hon'ble High Court reported as 1999 PTD 1358, it has been held that the assessment orders for the two years under review are without jurisdiction and of no legal effect.
Considering all these facts and legal position, the combined impugned order of the learned CIT(A) is vacated and the assessments for the two years under review i.e. 2000-2001 and 2001-2002 are cancelled.
Both the appeals filed by the assessee are allowed.
C.M.A./17/Tax(Trib.)Appeals accepted.