COMMISSIONER OF INCOME/WEALTH TAX VS RAVI PLASTIC INDUSTRIES (PVT.) LTD., 2008 PTD-LAHORE-HIGH-COURT-LAHORE 1227 (2008)

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

----Ss.50 (4), 52 & 52-A---Deduction or payment of tax---Scope---Every person who is responsible for making a payment to another person on supply of goods or for services rendered, has to deduct tax from such payment at the rate specified in the First Schedule and deposit the same in government treasury---Parameter for such deduction being that there must be a relationship of payer and recipient among two persons; and that the relationship should be on account of supply of goods or for services rendered to, or on account of execution of a contract.

(b) Interpretation of statutes---

----Fiscal statute---Only the language of law, in its natural meaning is applicable.

"Cape Brandy Syndicate v. Inland Revenue Commissioner" 1921 K.B. 69 rel.

(c) Interpretation of statutes---

----Fiscal statute---In case of doubt, the controversy is to be resolved in favour of tax payer and not the revenue.

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

----Ss.50 (4), 52 & 136---Appeal---Purchases---Proof---Deduction at source---Terms "sale" and "supply"---Assessing officer found assessee liable for tax under S.52 of Income Tax Ordinance, 1979, on the ground that he had not fulfilled requirements of S.50 (4) of the Income Tax Ordinance, 1979 regarding deduction of tax at source on account. of purchases made by him during the course of business---Such order of assessing officer was set aside by Income Tax Appellate Tribunal---Validity---Provision of S.52 of Income Tax Ordinance, 1979, was not a charging provision and it had nothing to do with income or profit of a person, which was subject to charge under Income Tax Ordinance, 1979---Withholding agent was neither a beneficiary in any form in such exercise nor had been allowed incentive for performance of such duty on behalf of the tax functionaries---`Sale', in Income Tax law, was of a wider connotation and would include a window purchase and sale of each and every item in daily consumption and of use---Goods purchased by persons for daily consumption and used for household, cooking or otherwise were part of term "sale"---Such purchase could not be called as supply---Such was an ordinary transaction of sale or purchase of goods, which did not involve any step of supply of goods in any form whatsoever---Supply was an action of perpetual and regular relationship, in which an item was supplied on demand, which was with specification, description and in most of the cases quantified besides it involved relationship of demand and supply---High Court declined to interfere with the decision of Income Tax Appellate Tribunal---Appeal was dismissed in circumstances.

(e) Interpretation of statutes---

----Fiscal statute---Explanation given in a provision of statute---Scope---If any explanation increases application of the provision, the same to the extent of enhancement becomes redundant.

Shahid Jamil Khan for Appellant.

Siraj ud Din Khalid, Shahbaz Butt, Ijaz Ahmad Awan and M.M. Akram for Respondent.

Date of hearing: 14th February, 2008.

JUDGMENT

KH. FAROOQ SAEED, J.---This judgment will dispose of I.T.As. Nos.806 of 2000, 104 of 1999, 105 of 1999, 242 of 1999, 246 of 1999, 294 of 1999, 295 of 1999, 296 of 1999, 577 of 1999, 601 of 1999, 679 of 1999, 49 of 2000, 268 of 2000 and P.T.R. No.82 of 2002, as common question of law is involved in all these cases.

2. I.T.A. No.806 of 2000 on behalf of the petitioner-department is on the following questions of law:--

(1) Whether according to the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified to vacate the order of the Assessing Officer under section 52 of the Income Tax Ordinance, 1979, as the assessee has not fulfilled requirement of the section 50(4) regarding deduction of tax at source on account of purchases made by him during the course of business?

(b) Whether according to the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified to pass such order without application of mind?

3. Brief facts leading to the above questions are that while making estimated assessment, assessee's purchases in I.T.A No. 806 of 2000 were determined at Rs.80,00,000, on which it was presumed that the assessee has failed to charge tax, hence he was a defaulter. Consequently, he was asked to pay the tax, which he had failed to deduct. The tax, therefore, was accordingly calculated.

4. The assessee on his default in collection of the said revenue, succeeded in appeal. The first appellate authority found that the amount determined was hypothetical and that there was no identification of the seller. Therefore, after relying upon a judgment of the Income Tax Appellate Tribunal the addition was deleted. Before the Tribunal, the department again failed for the same reason. Now the department is before us on the basis of the questions framed as above.

5. Not much has been argued on behalf of the department in favour of the questions besides the documents furnished are also not complete. The assessment order, which was to be enclosed with the above petition, has not been submitted and an appeal effect order under section 132 has been furnished with the petition, which has no relevance to the issue under discussion. Moreover, the questions on one hand raise objection while on the other hand create a negative impression like "assessee has not fulfilled the requirement of the section 50(4)" which does not arise out of the order of the Tribunal. This can at best be an argument and not a question or part of a question. Even otherwise it is a statement of fact. This Court, therefore, could decline to answer the questions even for this reason but, however, for general guidance and the other identical and similar issues further dilation is hereby made.

6. The provisions of the relevant sections obtaining at the time of the aforementioned judgment in terms of sections 50(4)(a), 52 and 52-A, read as follows:--

"Section 50(4) Notwithstanding anything contained in this Ordinance:--

(a) any person responsible for making any payment in full or in part (including a payment by way of advance) to any person, (being resident), (hereinafter referred to respectively as "payer" and "recipient"), on account of the supply of, goods or for service rendered to, or the execution of a contract with the Government, or a local authority, or (a company) or a registered firm or any foreign contractor or consultant or consortium shall,, advance tax, at the time of making such payment, at the rate specified in the First Schedule and credit for the tax so deducted in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, if any, in which the "said date" is referred to therein, falls, whichever is the later".

"52 Liability of person failing to deduct or pay tax.---Where any person fails to deduct or collect, or having deducted or collected, as the case may be, failed to pay the tax as required by, or under section 50, he shall, without prejudice to any other liability which he may incur under, this Ordinance, be deemed to be an assessee in default in respect of such tax.

(Explanation.---For the purposes of this section, the Deputy Commissioner having jurisdiction under section 5 order the case of the assessee in default may initiate action.)

152. A Recovery from the person from whom tax was not deducted or collected.--Where any sum deductible or collectable by any person has not been deducted or collected as required by, or under section 50, the Deputy Commissioner having jurisdiction over the case of the person from whom tax was deductible or collectable, without prejudice to any liability which the person responsible for deduction or collection of tax under section 50 may incur under this Ordinance, may recover the sum not deducted or collected from the person from whom tax was to be deducted or collected and all provisions of this Ordinance relating to recovery of tax shall apply.]

6A. The accumulative reading of the above provisions give an impression that every person, who is responsible for making a payment to another person on supply of goods or for services rendered, shall deduct tax from such payment at the rate specified in the first Schedule and deposit the same in government treasury. The parameters fixed in the above language are:--

(i) there must be a relationship of payer and recipient among the two persons,

(ii) the relationship should be on account of supply of goods or for services rendered to, or on account of execution of a contract.

7. So far as the first requirement is concerned, in all the transactions, where people are involved in any dealing, the relationship of payer and the recipient develops. However, for the second main requirement, which is "on account of supply of goods, execution of contract or for services rendered" is specific and is not applicable in all situations. The provision of law is very particular, definite and only applies to the relationship, which involves supply of goods, services rendered or execution of a contract. In the present case, the department has failed to bring on record as to the exact form in which the purchases of the petitioner fall. Whether the relationship was one of the supply of goods or not has not been determined or produced before us besides the identification of the person on whose behalf so-called receipt was determined. It is settled law that in fiscal statutes it is only the language of law, which is applicable in its natural meaning. In this regard, one can refer the prime and the basic verse by Mr. J. Rowlet reported in the "Cape Brandy Syndicate v. Inland Revenue Commissioner" (1921 K.B. 69) in the following terms:-

"It simply means that in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used".

8. The above para has been followed in a number of cases with approval and in fact is now a settled principle of interpretation of fiscal statutes. The second important method is that in case of doubt, the controversy is to be resolved in favour of the taxpayer and not the revenue. Keeping the above interpretations in view, one would not need to go into a long discussion to say that in case where the department determines the 'purchase on hypothetical basis without identifying the items and the supplies, there is no question of holding the assessee in default of the payment for the other person. Even otherwise the nature of the provision to the extent of section 52 is not strictly mandatory. The last sentence, which ends at the phrase "be deemed to be an assessee in default of such tax" also is not very clear. It apparently gives an impression that non-deduction shall make him a defaulter of such tax but to make the provision, as strictly mandatory, certain more additions therein are required. For example, phrase could be completed by adding the words "and shall be liable to pay the said defaulted amount". The legislature in its wisdom has stopped here. It is obvious because the said defaulted amount, even after collection from withholding agent cannot be adjusted against any demand or claim. Moreover, .since the identity of the so-called supplier or the person, who has rendered the services and from whom tax was to be deducted, is not known, the tax withheld remains only deducted and cannot be adjusted against any demand, which obviously is unfair. In any case, the law having taken care of the situation otherwise in terms of section 52-A, mentioned above and section 86, which penalizes the withholding agent for his default, it will be unfair and rather unlawful to charge tax from the withholding agent in the presence of the language and provisions discussed above. Section 52 is not a charging provision. This has nothing to do with the income or profit of the person, which is subject to charge under the Income Tax Ordinance, 1979 (Repealed). Moreover, withholding agent is neither a beneficiary in any form in the said exercise nor has been allowed an incentive for the performance of such duty on behalf of the tax functionaries. Since in this case, even otherwise it is not known as to what is the exact nature of the receipt and the payment, the disapproval of the departmental claim that the tax has not been deducted, obviously requires no interference in the orders of two forums below us.

9. So far as the explanation is concerned, doubt in the mind of department needs to be removed. The explanation does not add anything new in law. It only interprets what is already available, hence, it applies retrospectively. This obviously means that the meanings of the language as explained were always the same as explained, hence its application for previous years remains intact. However, if any explanation increases the application of the provision, the same to the extent of enhancement becomes redundant. This is not an issue at the moment as the explanation only says that the Deputy Commissioner having jurisdiction under, section 5 on the case of assessee in default may initiate action.

10. Regarding the departmental claim of sales and supply, even the judgment in re: Prime Dairy v. CIT is of no help to the department. It is true that since there is already amendment in law and the cash supply has also been said to be as equal to credit supply but the main question for determination remains unchanged. Cash or credit would not make any difference if transaction in its form is not of a supply of goods etc., In Income Tax law, sale is a wider connotation and would include a window purchase and sale of each and every item in daily consumption and of use. The goods purchased by persons for daily consumption and used for household, cooking or otherwise are part of the term "sale". Could any one call it a supply? The answer to the question shall be an emphatic "No". It is an ordinary transaction of sale or purchase of goods, which does not involve any step of supply of goods in any form whatsoever. The supply is an action of perpetual and regular relationship, in which an item is supplied on demand. Needless to mention here that the demand is with specification, description and in most of the cases, quantified besides it involves a relationship of demand and supply.

11. In view of the above, we, hold that section 52 was not applicable on the facts of any of the cases before us.

12. Order accordingly.

M.H./C-5/LOrder accordingly.