2008 P T D (Trib.) 787
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Khalid Siddiqui, Accountant Member
I.T.As. Nos. 5924/LB to 5928/LB, 1582/LB to 1587/LB of 2005 and 6979/LB of 2004, decided on 17/01/2008.
(a) Income Tax Ordinance (XLIX of 2001)---
---Ss. 161 & 205---S.R.O. 586(I)/91, dated 30-6-1991---Failure to pay tax collected or deducted---Various additions out of profit and loss account---Default had been determined by the Taxation Officer on the basis of presumption and stock phrase and not a single instance of payment had been specifically pointed out---Order vacated by the First Appellate Authority was upheld by the Appellate Tribunal in circumstances after considering the details submitted by the assessee.
2004 PTD 1293; 2004 PTD 1096; Vol. 10 No.7 Tax Forum 34 and 2001 PTD (Trib.) 1816 rel.
(b) Income Tax Ordinance (XLIX of 2001)---
----Ss. 161, 129 & 205---Failure to pay tax collected or deducted---Limitation---Second round of appeal---Assessee pleaded that order passed by the Taxation Officer was time barred and was hit by time limitation---Order was upheld by the First Appellate Authority with the remarks that since limitation issue was not highlighted by the taxpayer in the first round, the same could not be invoked in the second round of appeal--Validity-Issue of limitation being the legal issue could be raised at any stage of the proceedings---Order of First Appellate Authority was vacated and order passed by the Taxation Officer under Ss.161/129/205 of the Income Tax Ordinance, 2001 was cancelled by the Appellate Tribunal.
2003 PTD (Trib.) 1167; 2003 PTD (Trib.) 1167; I.T.As. Nos. 3056/LB of 2003; 5187/LB of 2002; 3057/LB of 2003; I.T.A. No.5670/LB of 2002 and 3530/LB of 2003 rel.
(c) Income Tax Ordinance (XLIX of 2001)---
----Ss. 161 & 153(1)(c)---C.B.R. Circular No. 12 of 1996, dated 28-8-1996---Failure to pay tax collected or deducted---Jurisdiction---Assessee contended that order of Taxation Officer was without jurisdiction as the jurisdiction lay with Officer holding jurisdiction over the assessee in default while the taxpayers jurisdiction lay with the Large Tax Payers Unit at `L'---Validity---Taxation Officer at place `K' had no jurisdiction to pass the order without any justification---Order of First Appellate Authority was vacated and order passed by the Taxation Officer was cancelled by the Appellate Tribunal being without jurisdiction.
Ghazanfar Hussain, DR for Appellants (in I.T.As. Nos.5924/LB to 5928/LB of 2005).
Asim Zulifqar Ali, ACA and Humayun Hayat, ACA for Respondents (in I.T.As. Nos.5924/LB to 5928/LB of 2005).
Asim Zulifqar Ali, ACA and Humayun Hayat, ACA for Appellants (in I.T.As. Nos.1682/LB to 1587/LB of 2004 and 6979.LB of 2004).
Ghazanfar Hussain, DR for Respondents (in I.T. As. Nos.1682/LB to 1587/LB of 2004 and 6979.LB of 2004).
ORDER
Out of these twelve appeals, ten are the cross appeals for the assessment years 2000-2001 to 2002-2003, Tax Years, 2003 and 2004 against the consolidated impugned order of the learned CIT(A), dated 22-6-2005 for five years, while the remaining two appeals have been filed by the assessee against two separate impugned orders of the learned CIT(A), dated 24-1-2005 for the assessment year 1999-2000 and order, dated 21-10-2004 for the Tax Year, 2003.
Regarding the cross appeals, we have found that the Department in all the five appeals has objected the vacation of the order passed under sections 161/205 of the Income Tax Ordinance, 2001.
Brief facts leading to the above cross appeals are that the assessee, in this case, has filed appeals against order passed by the Taxation Officer under sections 161/205 of the Income Tax Ordinance, 2001, which has been decided by the learned CIT(A) vide order, dated 24-1-2005 upholding the order passed by the Taxation Officer. However, assessment order was set aside regarding charging of additional tax under section 205. The assessee, against that order, filed rectification applications under section 221 of the Income Tax Ordinance, 2001 and has also filed appeals before this Tribunal for all the five years under review. While deciding the rectification applications, the learned CIT(A) has vacated the orders passed by the Taxation Officer under sections 161/205 with the following observations:--
"I have gone through the submissions of the AR of the appellant and also perused the relevant assessment orders/records. I find that the contentions of the AR are forceful as the following payments are in fact not liable to tax deduction at source for the following reasons:--
Payments on account of re-imbursement of expenses.
The reimbursement of expenses by the assessee 'to the distributors of the expenses on which tax is deductible was deducted by the respective distributor at the time of payment to third parties and further deduction of tax from the payments to such distributor would result in double taxation of the same amount. The ITAT judgment reported as 2001 PTD (Trib.) 1816 also supports the contention of the assessee. Moreover, the AR's contention that if the recipient has paid tax on their income the payer could not be held liable under section 52 or 161 of Income Tax Ordinance, 1979 and 2001 respectively. In these circumstances, the liability under sections 52 and 161 is deleted.
Payments below taxable limit/imprest payments.
The majority of the payments relates to the milk collection process. The rent of the premises in the villages and small cities did not exceed the minimum limit prescribed under law for withholding provisions. Similarly the cost of temporary labour and conveyance charges relating to the collection centers are below taxable limit therefore not subject to withholding provisions. Other payment were made from the imprest account and were well below the taxable limits, therefore no withholding tax is required.
Payments not chargeable/exempt from tax under this Ordinance.
The payments to the non-resident persons were made on account of the expenses incurred by them, outside Pakistan in connection with the conferences or seminars. These reimbursements of expenses which are incurred and paid by such non-resident persons to third parties outside Pakistan does not come under the ambit of income, accruing or arising in Pakistan. Therefore no withholding of tax was required on such payments. Ongoing and product sampling expenses represents discount offered to large departmental stores and cost of samples provided to laboratories for testing do not call for any deduction of tax. The other payments such as imports, fuel, telephone bills etc., are not liable to withholding of tax. Haulage cost represents cost of milk purchased which is exempt from tax under the provisions of S.R.O. 586(I)/91, dated June, 30, 1991. Therefore, no withholding was required.
The AR also very strongly argued that complete reconciliation along with supporting documents were submitted in compliance with the notices under section 161 of Income Tax Ordinance, 2001. All the queries raised by the Assessing Officer were duly addressed and filed through our letter T 773, dated December 23, 2003. The record of the entire proceedings supports the fact that the payments which are allegedly held to be liable for deduction of tax in the orders have never been doubted or objected by the Assessing Officer. Therefore the action of the Assessing Officer is to be quashed accordingly.
In view of entire scenario and discussions made above, I am of the considered opinion that the assessee has discharged its liability by filing all the requisite details and supporting and addressed the queries raised in this respect. The Assessing Officer did not raise any objection on the alleged payments during the proceedings therefore the orders under section 161 of Income Tax Ordinance, 2001 are vacated".
Through the above said five appeals, the Department has agitated the above observations of the learned CIT(A) for the five years under review.
As the assessee has no grievance for the five years, the appeals filed by the assessee have become infructuous.
Regarding the, appeals filed by the Department, we have found that the default has been determined by the Taxation Officer on the basis of presumption and stock phrase and not a single instance of payment has been specifically pointed out. The learned counsel representing the assessee in this respect has placed before us the following reported decisions in his support:--
(a) 2004 PTD 1293; (b) 2004 PTD 1096 and (c) Vol. 10 No.7 Tax Forum 34
Regarding the reimbursement of expenses, the learned counsel has referred the decision reported as 2001 PTD 1816. He has contended that these reimbursements of expenses are regarding product handling charges/freight and these expenditures were initially incurred and paid by the distributors on the distribution of goods to sub-distributors, which are then reimbursed to them by the assessee. Tax was deducted and paid by the distributor at the time of making payment to third parties. He has contended that this position is not disputed in the assessment order: So deduction tax again on the disbursements made to such distributors will lead to double taxation which is neither permissible nor justified.
Regarding the below taxable limit/imprest payments, the learned counsel has contended that these payments are regarding:--
(a) To foreign visitors and represent petty payments incurred and paid by the foreign visitors against the meal expenses, local travelling and fare expenses, which were subsequently reimbursed by the company.
(b) Medical consultancy and medicine expenses which were initially incurred by the employees and then reimbursed by the company.
(c) Rent (MCAS). According to the learned counsel, the company has 2,300 milk collection centres throughout the province of Punjab and the rental charges of such premises acquired in the different villages do not exceed the prescribed limit of Rs.100,000.
(d) Vehicle running and maintenance expenses are relating to petrol and maintenance charges incurred and paid by the employees at the milk collection centers. These are the petty payments and remain well below the taxable limit.
(e) Cost of engaging staff represents cost of temporary labour hired at the milk collection centre, where no withholding tax is required.
(f) Office supplies and stationery represents payments made by the employees through imprest accounts for purchase of office supplies, which are below taxable limit.
(g) Freight on material supplies are also made through imprest account are below taxable limit.
(h) Consultancy Fee is also below taxable limit.
(i) Maintenance Material are related to maintenance of small premises hired in villages and are below taxable limit.
(j) Sugar Grinding are also petty amounts and are below taxable limit.
The learned counsel has contended that payments made not chargeable to tax are the payments to non-resident/services rendered outside Pakistan/ foreign payment/Software support fee/Boca development expenses and these payments are made by the foreign companies outside Pakistan on account of training of employees of Nestle. He has contended that since these expenses' were incurred outside Pakistan, therefore, were not chargeable to tax. He has submitted that ongoing expenses are not the payments and are just the discounts offered to the departmental stores on bulk purchases. Likewise, product analysis and sampling expenses is also a non-cash expense in respect of free samples given to laboratories for testing.
Regarding the exempt payments, the' learned counsel has submitted that rent has been paid to ADBP, which is Government Institution. Likewise, no withholding of tax is required on imports of raw material and tax consultancy fee is exempt from tax. On the telecom lines, no tax is deductible. Haulage cost is the cost of milk purchased, which is exempt under S.R.O. 586(I)/91, dated June 30, 1991 and the fuel for generators is exempt from tax under S.R.O. 586(I)/91, dated June 30, 1991.
After considering the above said details submitted by the learned counsel for the assessee, we find no warrant for interference in the impugned order of the learned CIT(A), as he has rightly vacated the orders passed under sections 1611205 of the Income Tax Ordinance, 2001 for all the five years under review.
All the five appeals filed by the Department for the assessment years 2000-2001 to 2002-2003 and Tax Years 2003 and 2004 are, therefore, dismissed.
Regarding the appeal for the assessment year 1999-2000 filed by the assessee, the impugned order of the learned CIT(A); dated 24-1-2005 has been objected by the assessee on the following grounds:--
(2) The learned CIT(A) has erred in holding that the order of T.O. was not illegal in the light of the judgment reported as 2003 PTD (Trib.) 1167.
(3) The learned CIT(A) has erred in not giving his findings on the issue of passing order under section 161 of the Income Tax Ordinance, 2001, without giving sufficient opportunity to the assessee.
(4) The learned CIT(A)has erred in setting aside the issue of charging tax under sections 161/205 of the Ordinance on trade rebate.
We have found that the Taxation Officer for this year has initiated proceedings under section 52 of the repealed Ordinance, 1979 through show cause notice, dated 9-5-2003 and a default of Rs.3,45,35,148 was determined against taxable through order, dated 24-5-2003. The assessee filed writ petition before the Hon'ble Lahore High Court, Lahore for the annulment of notices issued. However, as in the meanwhile, the assessment order, dated 24-5-2003 under section 52 was already passed and the assessee has also filed appeal before the learned CIT(A), therefore, the Hon'ble Lahore High Court directed the Commissioner of Appeals to decide the appeal of the assessee within 45-days. The learned CIT(A) in compliance to the directions of the Hon'ble Lahore High Court remanded the case to the Taxation Officer to pass fresh order giving opportunity of being heard to the assessee. The Taxation Officer has passed order on 29-12-2003 against which the assessee again filed appeal before the learned CIT(A) contending therein that the order passed by the Taxation Officer is time barred and is hit by time limitation, but the learned CIT(A) has upheld the order on legal grounds with the remarks that since limitation issue was not highlighted by the taxpayer in the first round, the same cannot be invoked in the second round. The learned CIT(A) has, however, set aside the proceedings in respect of determination of default on the expenses of trade rebate and computation of additional tax.
On behalf of the appellant/assessee, it has been contended that it is not the disputed position that the order passed by the Taxation Officer was barred by time in view of the judgment of the Hon'ble Tribunal reported as 2003 PTD (Trib.) 1167, wherein it has been categorically held that limitation to issue a notice under section 52 cannot be extended beyond four assessment years. The learned counsel has contended that the observations of the learned CIT(A) that time limitation cannot be entertained is not correct, as legal issues can be raised at any stage of the proceedings. He has, in this respect, placed reliance on the decision of this Tribunal, dated 23-7-2004 in the case of Messrs Emco Industries in I.T.As. Nos. 3056/LB of 2003 (Assessment year 1995-96), 5187/LB of 2002 (Assessment year 1996-97) and 3057/LB of 2003 (Assessment year 1997-98) filed by the assessee and I.T.A. No.5670/LB of 2002 (Assessment year 1996-97) and 3530/LB of 2003 (Assessment year 1997-98) filed by the Department, wherein it has been held that "Limitation for finalization of assessment as is contained in section 61 read with section 64 of the repealed Income Tax Ordinance, 1979 applies to proceedings under section 52 of the repealed Ordinance". It has been further held in this order that "Regarding the order passed by the Assessing Officer under sections 62/86 for the assessment year 1995-96, we have found that this Tribunal has already held that the Assessing Officer under section 52 can proceed before the end of the financial year or in other case on inspection of books or 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. We find force in the arguments raised by the learned counsel for the assessee that in this case, the Assessing Officer can only go back under section 52 up to the assessment year 1996-97 and cannot proceed in the assessment year 1995-96".
On the other hand, learned DR is supporting the orders of the Officers below.
After considering the contentions raised from both the sides, we are, however, of the view that contentions raised by the learned counsel for the appellant have enough force and issue of limitation being the legal issue can be raised at any stage of the proceedings and therefore, D the impugned order of the learned CIT(A) is vacated and the order passed by the Taxation Officer under sections 161/129/205 of the Income Tax Ordinance, 2001 is cancelled.
The appeal filed by the assessee for the assessment yearly 1999-2000 is allowed.
For the Tax Year, 2003, the appellant/assessee has objected the impugned order of the learned CIT(A) on the following grounds:--
(1) The order, dated October 21, 2004 issued by the learned Commissioner of Income Tax/Wealth Tax (Appeals) confirming the order of the Taxation Officer is arbitrary and against the facts of the case.
(2) The learned CIT(A) was not justified to uphold the order of the Taxation Officer, who acted unlawfully and without jurisdiction.
(3) The learned CIT(A) was not 'justified to treat the three independent contracts as a single contract.
(4) The Taxation Officer TO as well as CIT(A), both were unable to differentiate the contracts of varied amounts.
Brief background of the case is that the assessee company in relation to its manufacturing facility at Kabirwala, hired Messrs Farid and Company (Pvt.) Ltd. for supervising the construction activities and concluded three separate agreements for rendering of such services aggregating Rs.66,492,367. The assessee company under the provisions of section 153(1)(b) has deducted tax from gross payments @ 5% as has been contended by the learned counsel for the appellant. The Special Officer of Income/Wealth Tax, Circle-07, Khanewal has assumed jurisdiction under section 161 of the Ordinance, 2001 through notice, dated December 4, 2003 and has held through order, dated 30-4-2004 that subject payments were subjected to tax deductions @ 6% since these are in the nature of "contract" under the provisions of section 153(1)(c) and all the three contracts were in fact a composite contract which exceeded the amount of Rs.30 million and determined a default of Rs.664,924.
In this regard, on behalf of the appellant, it has been contended that the order of the Taxation Officer is without jurisdiction in view of C.B.R's. Circular No.12 of 1996, wherein, it has been clarified that jurisdiction for initiating action under section 52 of the repealed Ordinance, 1979 (provisions pari materia to provisions of section 161 of the Income Tax Ordinance, 2001) lies with Officer holding jurisdiction over the assessee in default. It has been contended that taxpayers jurisdiction lies with Large Tax Payers Unit, Lahore. The learned counsel has contended that jurisdiction in the case of Messrs Farid and Company also lies with Regional Tax Officer, Lahore, which fact is evident from the order of the Taxation Officer. The learned counsel has further contended that contracts executed with Messrs Farid and Company were contract for services and were subject to provisions of section 153(1)(b) of the Income Tax Ordinance, 2001. He has further contended that the Taxation Officer has rightly treated the three separate contracts as a single composite contract. In support of contention, he has placed before us the Circular No.12 of 1996, wherein it has been specifically mentioned in para. (III), sub-para. (ii) and (iii) as follows:
(ii) "Withholding Agents Liable to Tax. Unless otherwise specified by the Board or the respective Regional Commissioner, monitoring in respect of tax withholding under income tax and CVT by agents, who are liable to income tax, shall be made by the respective Assessing Officers of the said agents.
(iii) Where a withholding tax agent being assessed at one station has a business place in the jurisdiction of another office, the Assessing Officer having jurisdiction over the place of business (other than the place of assessment) will have concurrent jurisdiction to monitor withholding tax deductions/collection in respect of recipients falling under his jurisdiction unless otherwise provided. However, action under section 52 of the Income Tax Ordinance and section 13C of the Wealth Tax Act in these cases shall be taken only by the Assessing Officer of the withholding tax agent.
On the other hand, learned DR is supporting the orders of the Officers below, but is unable to rebut the above contentions made by the learned counsel for the appellant.
After considering all the facts and circumstances of the case, we are of the view that the Taxation Officer at Kabirawala had no jurisdiction to pass the order in the present case, which has been upheld by the learned CIT(A) without any justification. The impugned order of the learned CIT(A) in this regard is, therefore, vacated and the order passed by the Taxation Officer being passed without jurisdiction is, therefore, cancelled.
The appeal for the Tax year, 2003 filed by the assessee is also allowed.
. Appeals filed by the assessee for the assessment year 1999-2000 and tax year 2003 are allowed, while the appeals filed by the Department for the assessment years 2000-2001 to 2002-2003 and Tax Years, 2003 and 2004 and are dismissed, while the cross appeals filed by the assessee for all the five years are dismissed being having become infructuous.
C.M.A./26/Tax (Trib.)Order accordingly.