2009 P T D (Trib.) 1117
[Income-tax Appellate Tribunal Pakistan]
Before Jawad Masood Tahir Bhatti, Judicial Member and Anwar Ahmed, Accountant Member
M.A. (Cond.) No.1/LB of 2009 and I.T.A. No.1028/LB of 2008, decided on 20/01/2009.
(a) Income-tax---
----Condonation of delay----Assessee was out of country for a month and due to his absence in the country there had been delay in filing the appeal---Affidavit had also been filed---Sufficient cause had been shown for late filing of appeal--Delay in filing the appeal was condoned by the Appellate Tribunal and appeal filed by the assessee was treated to be filed in time.
(b) Income Tax Ordinance (XLIX of 2001)---
----Ss. 122(4), 115(4) & Second Sched., Part-IV, Cl.41---Income Tax Ordinance (XXXI of 1979), S. 143B & Second Sched., Part-IV, Cl. (40)---Finance Act (VII of 2005), Preamble---C.B.R. Circular No. I of 2005, dated 6-7-2005---S.R.O. 1130(I)/2005, dated 14-11-2005---Amendment of assessment---Tax year, 2005---Assessee was individual and filed statement under 5.143-B of the Income Tax Ordinance, 1979 for the tax years, 2003 and 2004 in routine, being a manufacturer, under Cl. (40) Part-IV of Second Schedule to the Income Tax Ordinance, 2001-Return filed for the tax year, 2005 was treated under `Presumptive Tax Regime' on the ground that appellant was under legal obligation to file statement under S.115(4) of the Income Tax Ordinance, 2001 for the subsequent three years since he had himself opted for `Presumptive Tax Regime'---Validity---For the period 1-7-2005 to 13-11-2005 there was no option available with the manufacturers so they had to file returns and returns so filed were not only valid but this was the requirement of law at that time---Appellant had rightly filed return of income under S.114 of the Income Tax Ordinance, 2001 because the statement filed under S.115(4) of the Income Tax Ordinance, 2001 for previous year did not constitute option to be assessed under `Presumptive Tax Regime' and for the reasons that the law at the time of filing of return did not provide any option to the manufacturer for being assessed under `Presumptive Tax Regime'---Taxpayer had rightly filed return and there was no justification for invoking S.122 of the Income Tax Ordinance, 2001---Order of First Appellate Authority was vacated by, the Appellate Tribunal and order passed by the Taxation Officer under S. 122(4) of the Income Tax Ordinance, 2001 was cancelled.
2005 PTD (Trib.) 2029 rel.
(c) Income Tax Ordinance (XLIX of 2001)---
----S. 115(4) & Second Sched., Part-IV, Cl. 41---Income Tax Ordinance (XXXI of 1979), S.143B & Second Sched. Part-IV, Cl. (40)--Finance Act (VII of 2005), Preamble---C.B.R. Circular No.1 of 2005, dated 6-7-2005--S.R.O. 1130(I)/2005, dated 14-11-2005.
Persons not required to furnish a return of income---Tax year, 2005---Manufacturers---Summary of legal position emerges from provisions of law.
(d) Income-tax---
----`Presumptive tax Regime'---Any statement filed in earlier years did not mean filing of option because option for `Presumptive Tax Regime' was to be filed in writing and that too within three months of the commencement of the tax year whereas statement was filed after the closure of tax year.
2005 PTD (Trib.) 2029 rel.
M. Atta-ur-Rehman, ITP for Appellant.
Mrs. Sabiha Mujahid, D.R. Respondent.
ORDER
The appellant through this appeal has objected to the impugned order of the learned CIT(A), dated 27-3-2008 on the following grounds:--
(1) "Our assessee was engaged in Manufacturing of Printing and Packaging Material, our status is therefore clearly manufacturing.
(2) That the learned department arbitrarily and unjustifiably passed the assessment order under Presumptive Tax Regime without consulting the law and also unjustifiably rejected the declared version of assessee under Normal Law.
(3) The Return filed by the assessee under normal law as per amendment made by Finance Act, 2005 on due date 30th September, 2005, but the department rejected our normal return vide circular number, S.R.O. 1130(I)/2005, dated 14-11-2005. The said circular/amendments cannot be applied in back date which is against the order of the Honourable Supreme Court as well as law of the land.
(4) In Finance Act, 2005 a new subsection 6(A) was inserted under which the option available to the manufacturer to file the statement under section 115(4) stands withdrawn retrospectively which makes our stand stronger.
(5) Further C.B.R.'s Circular No.1, dated 6/7 July, 2005 makes our stance strong by clause 40 to withdraw manufacturer from presumptive Tax Regime.
(6) We re-confirm that we are manufacturer in 2005, and therefore, our tax deduction cannot be treated as final discharge of tax liability of the Income Tax Ordinance, 2001, as ordered by the Taxation Officer, and adjustment of the refund of the assessee in the said year is not justified.
(7) It is prayed that the illegal assessment order made by the department kindly be deleted and relief as deemed appropriate in law may please be allowed by accepting the declared version of the assessee keeping in view the law in real facts".
Along with this appeal, an application for condonation of delay in filing the appeal has also been filed on the following ground:--
"It is submitted that appeal in the above mentioned case was filed by us on 20-10-2008 on the prescribed format along with all necessary documentation and government fees.
It has come to our knowledge on 9-1-2009 at the date of hearing through your kind office that the appeal has been barred by time by 02-days. It has also been intimated by your kind office that notice for time barred of this appeal has also been issued to you though normal post earlier.
We are pleased to inform you that the assessee was out of country for a month and came in Pakistan on 18th of October, 2008 after office timing and on 19th October, 2008, there was Sunday and on 20th day of October, 2008 the appeal was submitted in your office. Please also note that we have neither received any notice of time barred of the appeal and nor in our knowledge before this date.
The delay in these peculiar circumstances is therefore requested to be kindly condoned as the same was due to unavoidable situation beyond the control of the assessee."
The affidavit in this respect has also been filed.
We have heard the learned representatives from both the sides and have also perused the impugned order of the learned CIT(A), the assessment order and other relevant facts of the case.
Regarding the condonation of delay in filing the above said application it has been submitted by the learned counsel that the assessee in this case was out of country for a month and due to his absence in the country there has been delay in filing the appeal. An affidavit has also been filed. We are therefore, of the view that sufficient cause has been shown for late filing of appeal, therefore, the delay in filing the appeal is condoned and the appeal filed by the assessee is treated to be filed it time.
Regarding the main appeal we have found that the assessee in this case is an individual and had filed statement under section 143-B of the late Ordinance, 1979 for the tax years, 2003 and 2004 in routine, being a manufacturer, under clause (40) Part-IV of the 2nd Schedule to the Income Tax Ordinance, 2001. It has been contended on behalf of they appellant that subsection (6-A) was inserted under section 153 of the Ordinance, 2001 through Finance Act, 2005 which reads as under:--
"(6A) the provision of subsection (6), in so far as they relate to payment on account of supply of goods from which tax is deductible, shall not apply in respect of any person, being a manufacturer of such goods. The provision of this subsection shall be deemed always to have been so enacted and shall have had effect accordingly."
He has contended that clause (40) of Part-IV of the 2nd Schedule to the Income Tax Ordinance, 2001 was also omitted, and was deemed always to have been so omitted vide the same Finance Act, 2005 which clearly shows that the intention of the legislatures withdrawing the options to the manufacturers. The learned counsel has referred para graph 22 of the C.B.R.'s Circular No.1 of 2005, dated July, 2005 which explains the withdrawal of option to the manufacturers. The extract from the circular is reproduced hereunder:--
"Accordingly clause (40) has been omitted with retrospective effect. At the same time a new subsection (6A) has been inserted in section 153, also with retrospective effect, so that the option available to manufacturers stands withdrawn retrospectively. It has also been provided that any past decision/judgments of a Court or a tribunal or an income tax authority shall not have any effect what-so-ever," = = = "The option filed by the tax payers shall stand automatically rescinded."
The learned counsel has contended that due to the above legal position the appellant did not have any option other than to file a regular tax return. It has been contended that the assessee did not revoke statements under section 115(4) for 2003 and 2004, because the Honourable Supreme Court has held that no law in Pakistan can be made with retrospective effect to the disadvantage. It has been contended that the Taxation Officer has wrongly observed in the assessment order that the implication of clause (41A) Part-IV to the 2nd Schedule of Income Tax Ordinance, 2001 has not been properly appreciated by the officers below. Explaining the position, the learned counsel has contended that infact clause (41A) was inserted vide S.R.O. No.1130(I)/2005 on November, 14, 2005, when the returns of individuals were already filed on September, 30, 2005. The limited companies could act on this S.R.O. because this returns were to be filed in December but it was not possible in individual cases who had already filed their returns in September. The learned counsel has submitted that the doctrine of Promissory Estoppels has also been quoted wrongly. The law under section 153 was changed and the appellant had to abide by the law, as it is not optional but the duty of assessee to abide by the law. If the assessee does not abide by law, the law will still prevail, and an unlawful act cannot be insisted by the tax department to be acted upon. According to the learned counsel of the appellant, clause (41A) was inserted in statute on November, 14, 2005 when the tax returns for the tax year, 2005 have already been filed in September, 2005 but the Taxation Officer in his order has not mentioned the date of the late insertion of the above referred clause. The learned counsel in support of his arguments has also referred the decisions of the Honourable Superior Courts holding that change in law cannot justify re-opening of a past and closed transactions and that the discretionary power under the statute has to be reasonably exercised. The notification which are detrimental or prejudicial to the interest of a person, cannot operate retrospectively. Out of two interpretations of statutes, one favourable to the taxpayer should have been to be adopted and that the Judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing in-justice, and is expected to do so. The learned counsel in this regard has placed before us the decision of this Tribunal reported as 2005 PTD (Trib.) 2029 wherein it has been held that:--
"It has been held time and again that provisions of law are to be interpreted in substance and not in form, the fact that the assessee filed statement under section 143-B of the Ordinance and income is not chargeable under section 80C of the Ordinance, it cannot be considered that the assessee has opted for presumptive tax regime in respect of supplies which is a requirement under clause (9) of Part-IV of Second Schedule to the Ordinance, because it is an established proposition that unless that assessee opts for presumptive tax regime specifically by mentioning that the fact in the return, mere filing of statement under section 143-B would be of no importance hence it could not considered to be erroneous."
Learned counsel has contended that the statement filed under section 115(4) for the previous year does not constitute option to be assessed under PTR and the law at the time of filing of return did not provide any option to the manufacturer for being assessed under PTR. The learned counsel has also referred a parallel case of Messrs Hafiz Engineering Works wherein the learned CIT(A) in the similar circumstances in its order, dated 29-5-2008 for the tax year, 2005 wherein the returns filed under section 114 were held to he rightly filed for the reasons that the statement filed under section 115(4) for previous year does not constitute option to be assessed under PTR and the law at the time of filing of return did not provide any option to the manufacturer for being assessed under PTR.
In view of the above said findings the learned counsel has requested that the returns filed by the assessee may please be directed to be accepted.
On the other hand, the learned D.R. is supporting the impugned orders of the officers below. She has contended that in accordance with the provision of clause (40) Part-VI of the 2nd Schedule to the Income Tax Ordinance, 2001 the appellant was under legal obligation to tile statement under section 115(4) for the subsequent three years since he had himself opted for Presumptive Tax Regime. Resultantly, the claim of the appellant was not liable to be entertainable and the return filed was lawfully treated under the Presumptive Tax Regime resulting in discharge of final tax liability. She has contended that as the impugned order as well as the impugned order of the learned CIT(A) have been passed in a legal manner based on solid reasoning, therefore, no interference in the matter is required.
After considering the rival arguments and the legal position we are of the view that the contentions raised by the learned counsel for the appellant have enough force. We have found that new subsection (6A) was inserted in section 153 of the Ordinance, 2001 through Finance Act, 2005 when clause (40) Part-VI of the 2nd Schedule to the Income Tax Ordinance, 2001 was also omitted by the same Finance Act withdrawing the option to manufacturers. We have further noted that the C.B.R. through paragraph 22 of its Circular No. 1 of 2005, dated 5 July, 2005 has explained the withdrawal of option to the manufacturers with the observations that Clause (40) has been omitted with retrospective effect. It has further been explained that at the same time a new subsection (6A) was inserted in section 153 with retrospective effect so that the option available to manufacturers stands withdrawn retrospectively. It has further been mentioned that in that Circular that any past decision/judgments of a Court or a tribunal or an income tax authority shall not have any effect whatsoever and that the options filed by the tax payers shall stand automatically rescinded. After considering the contents of this circular we are of the view that the appellant did not have any other course in the above said legal position except to file regular tax returns. It will be appropriate if the relevant provisions of law regulating the Presumptive Tax Regime (PTR) are perused. Section 153(1) of the Ordinance, 2001 provides for deductions of tax by the prescribed person at the time of making payments for the sale of goods and the same is reproduced as under:--
"153. Payments for goods and services.--(1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person---
(a) for the sale of goods;
(b) .
(c) ."
Subsection (6) of section 153 provides that tax deducted under the provisions of subsection (1) of section 153 shall be final on the income of a resident person arising from transaction referred in subsection (1). The said subsection (6) is reproduced hereunder:--
"(6) The tax deducted under this section shall he a final tax on the income of a resident person arising from transactions referred to in subsection (1) or (1A):
Provided that subsection (6) shall not apply to companies in respect of transactions referred to in clause (b) of subsection (1):
Provided further that this subsection shall not apply to payments received on account of----
(i) Advertisement services, by owners of newspapers and magazines.
(ii) Sale of goods and execution of contracts by a public company listed on a registered stock exchange in Pakistan."
In view of provision contained in section 153(1)(6) of Ordinance, tax deducted on sale of goods is final discharge of tax liability.
Clause (40) of Part-IV of the Second Schedule, however, provides that tax deducted as referred above will not be final discharge of tax liability in the cases of manufacturers unless they opt for PTR. It is further provided that such option has to be exercised in writing within three months of the commencement of the tax year and once option is exercised same will be valid and irrevocable for three years.
Clause (40) of Part IV to the 2nd Schedule of the Ordinance is reproduced hereunder for ready reference:--
"(40) The provisions of subsection (6) of section 153 in so far as they relate to payments on account of supply of goods from which tax is deductible under the said section shall not apply in respect of any person being a manufacturer of such goods, unless he opts for the presumptive tax regime:
Provided that a declaration of option is furnished in writing within three months of the commencement of the tax year and such declaration shall be irrevocable and shall remain in force for three years:
Provided further nothing contained in this clause shall apply to any manufacturer of goods for which special rates of deduction of tax are specified under the repealed Ordinance."
Now reading of above provisions of law can he summarized in a manner that a manufacturer of goods can opt for PTR and such option is to he furnished in writing within three months of the commencement of the tax year and if such option is furnished then same will he available/binding on the taxpayer for the three years. Clause (40) as referred above was deleted by the Finance Act, 2005. So at the time of filing of return of income, there was no provision/option available for manufacturers to be assessed under PTR. In addition to omission of above clause (40), through Finance Act, 2005, a new subsection (6A) to section 153 to the Ordinance was inserted bringing out the manufacturers from PTR. Subsection (6A) of section 153 of the Ordinance is reproduced as under:--
"The provisions of subsection (6) in so far as they relate to payments on account of supply of goods from which tax is deductible under this section shall not apply in respect of any person being a manufacturer of such goods. The provision of this subsection shall be deemed always to have been so enacted and shall have had effect accordingly."
Legal position which emerges out from the above referred provisions of law can be summarized as below:--
(a) Manufacturer could opt for PTR.
(b) Option had to be furnished.
(i) in writing.
(ii) within three months of the commencement of tax year.
(iii) option will be irrevocable for three years.
(c) By deletion of clause (40) of Part IV of the 2nd Schedule and insertion of subsection (6A) of section 153 of the Ordinance vide F.O. 2005 option available to manufacturers for being assessed under PTR stood withdrawn w.e.f. 1-7-2005.
(d) Manufacturer has to file return instead of statements under section 115(4) of the Ordinance.
(e) Vide S.R.O. 130(1)/2005, dated 14-11-2005, option was again D given to manufacturer for PTR for only one year i.e. tax year 2005 only.
(f) For the period 1-7-2005 to 13-11-2005 (which covers the period for filing of return) Tax payers were obliged to file returns even if they had furnished option for PTR.
The perusal of above position will indicate that as for the period 1-7-2005 to 13-11-2005 there was no option available with the manufacturers so they had to file return and returns so filed are not only valid but this was the requirement of law at that time. Although law did not allow during this period for filing of statement under section 115(4), however, for the sake of academic discussion it is clarified that any such statement filed in earlier years does not mean filing of option because option for PTR is to be filed in writing and that too within three months of the commencement of the tax year whereas statement is filed after the closure of tax year. In this regard the decision of this Tribunal reported as 2005 PTD (Trib.) 2029 has also been referred wherein it has been held as follows:--
"It has been held time and again that provisions of law are to be interpreted in substance and not in form, the fact that the assessee filed statement under section 143-B of the Ordinance and income is not chargeable under section 80C of the Ordinance, it cannot be considered that the assessee has opted for presumptive tax regime in respect of supplies which is a requirement under clause (9) of Part-IV of Second Schedule to the Schedule to the Ordinance, because it is an established proposition that unless that assessee opts for presumptive tax regime specifically by mentioning that the fact in the return, mere filing of statement under section 143-B would be of no importance hence it could not be considered to be erroneous."
In view of the above said discussion it is established that the appellant in the present case has rightly filed return of income under section 114 of the Ordinance, 2001 because the statement filed under section 115(4) for previous year does not constitute option to be assessed under PTR and for the reasons that the law at the time of filing of return did not provide any option to the manufacturer for being assessed under PTR. In view of these facts and circumstances of the case and the legal position we are of the view that the tax payer in the present case has rightly filed return and there was no justification for invoking section 122 of the Ordinance, 2001. The impugned order of the learned CIT(A) in these circumstances is therefore vacated and the order passed by the Taxation Officer under section 122(4) of the Ordinance, 2001 is cancelled. The appeal filed by the assessee is allowed.
The application and the appeal filed by the assessee are allowed in the manner referred supra.
C.M.A./57/Tax (Trib.)Appeal accepte