COMMISSIONER OF INCOME TAX, ZONE-C, LAHORE VS MARGALLA TEXTILE MILLS LTD., LAHORE
2008 P T D 1982
[Lahore High Court]
Before Syed Hamid Ali Shah and Ali Akbar Qureshi, JJ
COMMISSIONER OF INCOME TAX, ZONE-C, LAHORE
Versus
Messrs MARGALLA TEXTILE MILLS LTD., LAHORE
P.T.R. No.416 of 2007, heard 27th March, 2008.
(a) Income Tax Ordinance (XXXI of 1979)--- ----Ss. 50 & 52---Liability of person failing to deduct or pay tax---Deduction of tax at source---Scope and application of Ss.50 & 52, Income Tax Ordinance, 1979.
Plain language of section 50(4) of the Income Tax Ordinance, 1979 reflects that the advance tax, at the time of making of payment at a specified rate, is liable to deduction, by a person responsible for making payment to another, on account of supply of goods, services rendered or execution of the contract. His failure to deduct or collect or failure to pay tax so collected or short collection of tax entail penal consequence of declaring him, deemed assessee. Reading sections 50 and 52, together it appears that withholding tax agent, has not been authorized to take upon him the responsibility to ascertain that recipient is tax payer and in that capacity, might have paid the tax. It is for the authorities of the income tax department to examine the case of such assessee and satisfy themselves as to whether the recipient subjected to advance tax has already paid the tax liable to collection under section 50(4). This exercise can be done, by obtaining necessary orders from the concerned Commissioner, who, on his satisfaction that advance tax stands already paid, can give appropriate directions under section 50(4)(b). The person responsible for payment, till such time such order/direction is accorded, will not make payment without deducting advance tax. Withholding agent, is neither vested with any power to ascertain that tax by recipient has been paid, nor absolved of his responsibility of deducting or collecting advance tax. Collection/deduction cannot be avoided on assumptions.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss. 50, 52, 86 & 156---Deduction of tax at source---Liability of person failing to deduct or pay tax---Scope---Assessee in default---Determination---Principles---Where the recipient had discharged his liability, after inclusion of the payment from the assessee in default in the total income and such amount had already suffered the incidence of tax, the payer could not be held to be an `assessee in default' and the department could not demand further tax from the payer by recourse to the provisions contained in S.52, Income Tax Ordinance, 1979---Additional tax under S.86 of the Ordinance would however, remain chargeable from the payer for his failure to deduct tax, while making payment as had been provided in S.52, Income Tax Ordinance, 1979---If, however, a liability under S.52 had been created against the assessee in default and it was proved by him with evidence that certain payments made by him had already suffered the incidence of tax in the hands of the recipient, he may approach the assessing officer for rectification as stipulated under S. 156, Income Tax Ordinance, 1979---Principles.
2001 PTD (Trib.) 2605; Continental Chemicals (Private) Ltd. v. Pakistan and others 2001 PTD 570; (1982) 137 ITR 230; (1983) 140 ITR 818, 832 and (1989) 176 ITR 282 ref.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss. 50, 52 & 76---Deduction of tax at source---Liability of person failing to deduct or pay tax at source---Scope---Assessee in default---Determination---Assessee/payer cannot be held an assessee in default, for non-deduction from a tax payer, before whom an exemption certificate is produced or an order of an authority in hierarchy of Income Tax department is produced---Recipient, who has not produced the certificate, his payment shall be amenable to deduction of advance tax---Recipient, who has himself paid the taxes, the withholding against cannot be held as defaulter to the extent of non-deduction, however, he is subject to penalty under S.86, Income Tax Ordinance, 1979.
2001 PTD (Trib.) 2605; Continental Chemicals (Private) Ltd. v. Pakistan and others 2001 PTD 570; (1982) 137 ITR 230; (1983) 140 ITR 818, 832 and (1989) 176 ITR 282 ref.
Khadim Hussain Zaidi for Appellant.
Nemo of Respondent.
Date of hearing: 27th March, 2008.
JUDGMENT
SYED HAMID ALI SHAH, J.---This single judgment shall deal with and decide PTRs Nos.416, 514 and 680 of 2007 having common questions for decision by this Court.
2. Respondent/assessee, a limited company derives income from manufacture and sale of yarn. It was treated as assessee in default, on account of non-deduction of tax under section 50 (4) of the late Ordinance, 1979. Respondent preferred an appeal against order of Assessing Officer before C.I.T. (Appeals), who found that names of suppliers find mentiont in assessment order, who had also discharged their liabilities of income tax, therefore, the assessee cannot be declared as assessee in default. The second appeal by the revenue, before learned Tribunal met the fate of dismissal. Hence this reference, proposing the following question for our determination:
"Whether under the facts and in the circumstances of the case, the learned I.T.A.T. was justified to uphold the order of the learned C.I.T. (Appeals) in which it is held that where seller himself is paying taxes as a tax payer and withholding agent has not deducted tax from his supplies, he could not be held an assessee in default for non-deduction from such tax payer?"
3. Heard learned counsel for the petitioner/revenue and also Mr. Muhammad Iqbal Khawaja, Advocate, learned counsel for the respondent assessee and the record perused.
4. Plain language of section 50(4) of the Ordinance, reflects that the advance tax, at the time of making of payment at a specified rate, is liable to deduction, by a person responsible for making payment to another, on account of supply of goods, services rendered or execution of the contract. His failure to deduct or collect or failure to pay tax so collected or short collection of tax entail penal consequence of declaring him, deemed assessee. Reading sections 50 and 52, together it appears that withholding tax agent, has not been authorized to take upon him the responsibility to ascertain that recipient is tax payer and in that capacity, might have paid the tax. It is for the authorities of the income tax department to examine the case of such assessee and satisfy themselves as to whether the recipient subjected to advance tax has already paid the tax liable to collection under section 50(4). This exercise can be done, by obtaining necessary orders from the concerned Commissioner, who, on his satisfaction that advance tax stands already paid, can give appropriate directions under section 50(4)(b). The person responsible for payment, till such time such order/direction is accorded, will not make payment without deducting advance tax. Withholding agent, is neither vested with any power to ascertain that tax by recipient has been paid, nor absolved of his responsibility of deducting or collecting advance tax. It is well settled that collection/deduction cannot be avoided on assumptions.
5. It has been observed in the impugned order that names of the suppliers, which have been mentioned, are all existing assessees of Income Tax Department, who had also discharged their liabilities under the Ordinance by paying tax. The action of the Assessing Officer in holding the appellant (respondents herein) as assessee in default, was held as illegal and uncalled for.
6. Learned ITAT and the Commissioner, while passing- the order/judgment, have decided the appeals, on the basis of judgment reported as 2001 PTD (Trib) 2605. We have failed to find any judgment on the subject as mentioned, in the judgment. However, case of "Continental Chemicals (Private) Ltd. v. Pakistan and others" 2001 PTD 570 (H.C. Karachi)] is available in the same book. This judgment is relevant to the instant preposition, where the questions raised herein were discussed and relevant provisions were interpreted. The question, which came up for consideration before the Full Bench was that failing to deduct the advance tax at source under section 50 (4) justify an action under sec tion 52 in declaring the payer as assessee in default and imposition of additional tax, when recipient had already paid his tax liability.
7. According to the minority view, the payee/deductee when pays his full tax, and any short fall or failure to deduct income tax at source by the payer/deductor, would not make him an assessee in default. There was disagreement by the other two learned Judges, who found that judgments from the Indian jurisdiction, have no application, as under the Indian Income Tax Act, 1961, the presumptive tax regime has been made applicable to the limited number of items. Its was observed that the deduction made at source, has been made liable for adjustment against tax demand, created on regular assessment. Their lordships found that proper course, in view of the provisions of section 50 (4) (b), is to obtain a necessary order from the concerned Commissioner, or other evidence from recipient of payment that has paid tax thereon. The deduction at source can be avoided when withholding agent is satisfied that recipient has succeeded in getting appropriate order from Commissioner or an exemption certificate. If no certificate/order of Commissioner qua the exemption, is produced to the effect that recipient has already paid tax, then withholding agent is liable to deduct tax.
8. However, a question may arise whether recourse can be made to the provisions contained in section 52, the payer can be treated as assessee in default and any recovery can be made from the payer, where the amount in the hands of the recipient has suffered the incident of tax? In such eventuality, it is imperative to classify the concepts from the two aspects. Firstly, the nature of the provisions contained in Chapter-VI of the repealed Income Tax Ordinance, 1979, which comprises of sections 52 to 54 and the provisions contained in Chapter IX consisting of sections 85 to 95. Secondly, the ultimate destination of the tax deducted at source and the incidence of the liability of the recipient and the assessee in default. We would like to observe that all the provisions contained in Chapter VI and Chapter IX of the repealed Income Tax Ordinance, 1979, are in the nature of recovery proceedings. Therefore, the provisions contained in Chapter VI, comprising of Sections 50 to 54 B deal with recovery of tax before assessment while Chapter IX comprising of sections 85 to 95 contains the provisions for recovery of tax after the assessment and various measures for the purpose of recovery of tax. Thus, none of the provisions contained in both the said Chapters are in the nature of charging provisions resulting into creating any tax liability. It is specially provided under subsection (8) (b) of section 50, that any sum deducted or collected under section 50 shall be treated as payment of tax on behalf of the assessee. It means that every deduction or collection made under section 50, except in cases falling under the presumptive tax regime is required to be adjusted towards the tax liability of" an assessee (the recipient), when the final tax liability is assessed on completion of assessment order. The logical conclusion is that no tax liability is created against assessee in default. The original and alternate liability to pay tax is of the recipient and the responsibility of the deducting or collecting the advance tax under section 50 is saddled on the payer. We find support in this regard from the decision rendered by Indian jurisdiction in the case reported as (1982) 137 ITR 230. In this case the Income Tax Officer found that the tax deducted under the Income Tax Act was not properly deducted by the employer in respect of 23 employees. It was held by the Indian Income Tax Appellate Tribunal that where the assessment of an employee was completed by the competent I.T.O. and the tax stood fully recovered on his assessed income, no action against the employer under section 201 (corresponding to section 52) of the Act can be taken. The High Court held that the Tribunal was right in taking the view that where assessment of an employee had been completed and the amount of the tax is fully paid by him, the ITO had no jurisdiction under section 201 to demand further tax from the employer in respect of tax short deducted relating to such employees. This judgment was subsequently followed in other cases reported as (1983) 140 ITR 818, 832 and (1989) 176 ITR 282.
9. It emanates from the above discussion that where the recipient has discharged his liability, after inclusion of the payment from the assessee in default in the total income and such amount has already suffered the incidence of tax, the payer cannot be held to be an assessee in default and the Department cannot demand further tax from the payer by recourse to the provisions contained in section 52 of the Income Tax Ordinance, 1979. However, additional tax under section 86 of the Ordinance will remain chargeable from the payer for his failure to deduct tax, while making payment as it has been provided in section 52.
10. In case, a liability under section 52 has been created against the assessee in default and it is proved by him with evidence that certain payments made by him have already suffered the incidence of tax in the hands of the recipient, he may approach the Assessing Officer for rectification as stipulated under section 156 of the repealed Income Tax Ordinance, 1979.
11. Upshot of the above discussion is that the question as framed in this reference application, is general and is thus answered in two parts. An assessee/payer cannot be held an assessee in default, for non-deduction from a tax payer, before whom an exemption certificate is produced or an order of an authority in hierarchy of Income Tax Department is produced. So far as the case of recipient; who has not produced the certificate, his payment shall be amenable to deduction of advance tax. The recipient, who has himself paid the taxes, the withholding agent cannot be held as defaulter to the extent of non-deduction. However, he is subject to penalty under section 86 of late Income Tax Ordinance, 1979.
M.B.A. /C-19/LOrder accordingly.