COMMISSIONER OF INCOME/WEALTH TAX VS KHURSHID AHMED, 2008 PTD-LAHORE-HIGH-COURT-LAHORE 1243 (2008)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 50(4) & 80-C---Deduction at source---Contractual services---Categories---Tax imposed by assessing officer on assessee was set aside by Income Tax Appellate Tribunal on the ground that contractual receipts did not fall under the provision of S.80-C of Income Tax Ordinance, 1979---Validity---Three categories for deduction of tax under S.50 (4) of Income Tax Ordinance, 1979, were (a) on supply of goods, (b) services rendered or (c) execution of contract---All three categories were separate from each other and disjunction provided by law among each one of them was clear and beyond any doubt---Rendering of services had been provided exception under S.80-C of Income Tax Ordinance, 1979, even if the same were in execution of a contract---Various principles of interpretation of fiscal statute like application of law in its natural meaning and favour to taxpayer in case of doubt provided guidelines---Presumption of assessing officer against assessee was without any support of argument---All services, be that of any form, were held to be chargeable under general tax provision and not as full and final discharge---Such principle included professionals like doctors, engineers, lawyers, chartered accountants, architects, barbers, dry-cleaners, dhobi services, motor mechanics, tailoring shops etc.---High Court declined to interfere in the order passed by Income Tax Appellate Tribunal---Reference was dismissed in circumstances.

Khadim Hussain Zahid for Appellant.

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

Date of hearing: 14th February, 2008.

JUDGMENT

KH. FAROOQ SAEED, J.---This judgment will dispose of P.T.R. No.12 of 2004, 13 of 2004, 14 of 2004, 15 of 2004 and 16 of 2004 as the common question of law is involved in these petitions.

2. This P.T.R. has been filed by the Commissioner of Income/Wealth Tax, MTU, Lahore, by proposing following questions of law:

(i) Whether in the facts and circumstances of the case the learned I.T.A.T. is justified to classify the acts, work and jobs carried out by the assessee under the contract as services.

(ii) Whether under the facts and circumstances of the case the learned I.T.A.T. is justified to hold that the contractual receipts do not fall under the provision of section 80C of the repealed Ordinance.

(iii) Whether in the facts and circumstances of the case the learned I.T.A.T. is justified in vacating the order under section 66-A of the repealed Ordinance passed by the I.A.C.

3. The brief facts leading to the above questions of law are that the assessee National Cleaning Services is a registered contractor with the Capital Development Authority, Islamabad. It is engaged in rendering janitorial services under a contract with C.D.A. The assessee filed a return of income under section 55 of the Income Tax Ordinance (repealed) which was accepted by the Department. Later the assessment was cancelled under section 66-A for the reasons that the services rendered by it were considered as in continuation of a contract, hence liable to full and final discharge of tax under the provision of section 80C of the late Income Tax Ordinance, 1979.

4. On appeal, learned Income Tax Appellate Tribunal vide order, dated 14-2-2003 vacated the order passed by the Additional Commissioner under section 66-A of the said Ordinance and restored the original order of the Assessing Officer.

5. The department before us inter alia argues that the relevant provision of law i.e. 50(4) speaks of collection of withholding tax on supply of goods, services rendered and on execution of a contract. Section- 80C while considering the same as full and final discharge has , only provided exceptions to the services rendered, as a result tax deducted on supply of goods as well as. on execution of contract becomes a full and final discharge. Section 80C while holding the deduction under section 50(4) as a final discharge has excluded only services rendered. Since the language of law is very clear and leaves no doubt and the present assessee working on the basis of a contract with the C.D.A. is therefore liable to full and final discharge.

6. The departmental arguments are quite surprising. For all practical purposes a supply, rendering service or any other deal be that of any form is always as a result of a contract between two parties.

However, before we proceed further, it will be of help to go through the relevant provisions of law which read as follows:--

Section 80C

(1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where any amount referred to in subsection (2) is received by or accrues or arises or is deemed to accrue or arise to any person [xxx] the whole of such amount shall be deemed to be income of the said person and tax thereon, shall be charged at the rate specified in the First Schedule.

"(2) The amount, referred to in subsection (1) shall be the following, namely .

(a) Where the person is a resident,....

(i) the amount representing payments on which tax is deductible under subsection (4) of section 50, other than payments on account of services rendered. [xxx]"

Above provisions say that where tax is deductible under section 50(4) other than services shall be final discharge of the assessee. Section 50(4) reads 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, [xxx] 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", as referred to herein, falls, whichever is the later".

7. The above provisions of law are very clear in their application. Section 50(4) provides for withholding of tax from supply, services rendered and execution of a contract separately. On the other hand, section 80C while holding the deduction as final discharge, clearly excludes services rendered. There is no doubt or clog in any manner so as to say that the `services rendered' as a result of a contract between two parties is to be separated. As already commented by us above, all services are as a result of same sort of contract. Besides the exemption provided in section 80C(2)(a)(i) is very specific. It cannot be said that the legislature has mentioned this exception unadvisedly and not having in the mind the provisions of section 50(4).

8. The three categories for deduction of tax under section 50(4) are:--(1) on supply of goods, (b) services rendered or (c) execution of a contract. All three categories are separate from each other and disjunction provided by law among each one of them is clear and beyond any doubt. A plain reading of the provision, section 80C will not leave any doubt that rendering of services have been provided exception even if the same are in execution of a contract. The various principles of interpretation of fiscal statute like application of law in its natural meaning and favour to the taxpayer in case of doubt, provides guide line and following the same we hold that the department's presumption is without any support or argument. The effect of this order is that all the services be that of any form are held to be chargeable under general tax provision and not as full and final discharge. This principle obviously includes professionals like Doctors, Engineers, Lawyers, Chartered Accountants, Architects, Barbers, Dry-cleaners, Dhobi Services, motor mechanics, tailoring shop etc.

9. Dismissed.

M.H./C-4/LReference dismissed.