VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 153 (2006)

Income Tax Ordinance (XXXI of 1979)---

----Ss.52, 50(4), 86 & 144---S.R.O. No.368(I)/94 dated 30-6-1994---Liability of persons failing to deduct or pay tax---Deduction of tax at source---Capital less than 1.5 million---Issuance of notice under S.144 of the Income Tax Ordinance, 1979 instead of notice under S.52 of the Income Tax Ordinance, 1979 --Validity---First Appellate Authority instead of giving finding of legal issue as to whether issuance of notice under S. 144, of the Income Tax Ordinance, 1979 instead of notice under S. 52 of the Income Tax Ordinance, 1979, was legally tenable proceeded to set aside the case for de novo consideration---Setting aside of the case implicitly amounted to providing an opportunity to the Assessing Officer to make up his deficiencies which was not permissible in the eyes of law---First Appellate Authority erred in law while setting aside the case instead of annulling the same---Admittedly the capital of the assessee was less than 1.5 million for all the years under appeal, the assessee was not liable to deduct tax under S.50(4) of the Income Tax Ordinance, 1979 under the S.R.O. No.368(I)/94 dated 30-6-1994---Even otherwise, liability under S.52 of the Income Tax Ordinance, 1979 could not be levied without issuance of notice under S.52 of the Income Tax Ordinance, 1979---Assessing Officer was obliged to comply with such a pre-requisite, and failing to do so would render all proceedings conducted subsequent thereto null and void---Order of First Appellate Authority was vacated and assessments framed under Ss. 52/86 of the Income Tax Ordinance, 1979 were annulled by the Appellate Tribunal in circumstances.

2001 PTD (Trib.) 1480; 2002 PTD (Trib.) 1523 and 2000 PTD (Trib.) 2664 rel.

Shahbaz Butt for Appellant.

Ghazanfar Hussain, D.R. for Respondent.

ORDER

SYED NADEEM SAQLAIN, (JUDICIAL MEMBER)---Through the titled cross appeals both the assessee as well the revenue have challenged the combined impugned order dated 4-6-2003 passed by the learned C.I.T.(A) Zone, Faisalabad. Setting aside of the case by the learned C.I.T.(A) has been contested by both the parties.

2. Briefly stated the facts of the case are that the assessee is a private limited company deriving income from execution of contracts. The assessee was required to furnish details of purchases made during the period relevant to the years under consideration and the tax deducted under section 50(4) of the repealed Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance.) The assessee failed to furnish such details, hence the Assessing Officer while passing an ex parte order held the assessee company as assessee in default under section 52 of the repealed Ordinance for non deduction of tax under section 50(4) at the time of making payment on account of purchases. Accordingly demand was created under section 52 at Rs.1,05,71-4, Rs.2,74,525 Rs.3,17,202 Rs.2,88,470 and Rs.2,20,140 respectively for the years under appeal. Additional tax was also charged under section 86 of the repealed Ordinance. Being aggrieved the assessee preferred appeal before the learned C.I.T.(A) who set aside the case for de novo consideration, hence the instant appeals.

3. Both the parties have been heard and relevant orders perused. The learned A.R. of the assessee reiterated the same arguments as put forth before the learned C.I.T.(A) and contended that the ex parte proceedings for default of notice under section 144 are illegal, hence order passed under sections 52/86 is not sustainable in the eyes of law. It was argued that capital of the company was below Rs.1.5(m), hence it was not liable to deduct tax under section 50(4) of the, repealed Ordinance. Reference was made to reported judgments of the Tribunal cited as 2001 PTD (Trib.) 1480 and 2002 PTD (Trib.) 1523. It was the contention of the assessee that the Assessing Officer failed to identify beneficiary of deduction and just adopted 40% of the purchase for charging of tax which is illegal and unjustified. In this regard reference was made to reported judgment of the Tribunal cited as 2000 PTD (Trib.) 2664. Besides, it was contended that for the assessment years 1997-98 proceedings cannot be initiated under sections 52/86 since it is hit by limitation. The learned A.R. of the assessee contended that the learned C.I.T.(A) was not justified to set aside the case rather the same should have been annulled since the issue involved in the instant case 'already stands settled through the ratio pronounced in the supra cited judgments.

4. The learned A.R. also assailed the impugned order by asserting that no notice under section 52 of the repealed Ordinance was issued by the Assessing Officer which was a sine qua non for imposing liability under section 52. It was submitted by the learned AR that it was incumbent upon the Assessing Officer to issue notice under section 52 of the repealed Ordinance since that was the relevant provision of law where an assessee is held liable in case of his failure to deduct tax under section 50(4) of the repealed Ordinance. The learned A.R. further pointed out that by issuing notice under section 144 of the repealed Ordinance the Assessing Officer erred in law, because the said provision of law has extremely different domain which relates to the power of assessing authority to call for information in cases mentioned therein. To view the true picture and comparative position of the two sections, we would like to reproduce the same which are as under:--

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

Section 144:--"Powerto call for information:-

The Deputy Commissioner, the Inspecting Additional Commissioner, the Commissioner or any other officer authorized in this behalf by the Commissioner or the Central Board of Revenue, may, by notice in writing require:--

(a) any assessee to furnish within such time. as may be specified in such notice a statement showing the names and addresses of all persons to whom he has paid in any income year rent, interest, commission, fee, royalty or brokerage, or any annuity amounting to not less than four hundred rupees together with particulars of all such payments or remuneration in the nature of valuable consideration under whatever nomenclature;

(b) any dealer, broker or agent or any person concerned in the management of stock or Commodity Exchange to furnish, within such time as may be specified in such notice, a statement showing the names and addresses of all persons to or from whom he, or the Exchange, has paid or received in any income year any sum amounting to not less than five thousand rupees in the aggregate, in connection with the transfer of assets, together with particulars of all such payments and receipts;

(c) any person, including a banking company, to furnish such information or such statement or accounts as may be specified in such notice:

Provided that no such notice shall be issued to any banking company as respects any client, except with the prior approval of the Commissioner in the case of Deputy Commissioner, or the Central Board of Revenue or any other income tax authority authorized by it in this behalf in the case of the other officer."

5. The learned D.R. on the other hand opposed the arguments advanced by the learned A.R. and submitted that assessment were framed in accordance with law, for which a number of opportunities were provided to the assessee but he failed to do the needful. It was argued that the learned C.I.T.(A) also erred in law to set aside the case for de novo proceedings. He prayed for restoration of the additional assessments.

6. We have heard both the parties and have gone through the relevant orders. Perusal of the impugned order shows that the learned C.I.T.(A) instead of giving finding on the legal issue that whether issuance of notice under section 144 instead of notice under section 52 ibid, was legally .tenable, proceeded to set aside the case for de novo consideration. In a number of judgments we have observed that setting aside of the case implicitly amounts to providing an opportunity to the Assessing Officer to make up his deficiencies which is not permissible in the eyes of law. In the supra cited judgment i.e. (2002) PTD (Trib.) 1523 the Tribunal held the action under sections 52/86 of the assessing officer without lawful justification in view of the fact that capital employed by the company was less than 1.5 million. The relevant extract from the judgment cited supra is reproduced for sake of convenience as under: --

"The contention of the assessee that the capital of the company is below 1.5 million and as such was not liable to deduction tax under section 50(4) as per S.R.O. No. 368(I)/94, dated 30-6-1994. The copies of the company's balance-sheet as on, 30-6-1998 and 30-6-1999 have been furnished which show that the capital of the company is below 1.5 million and as such the S.R.O. No.368(I)/94 is fully applicable in this case. The assessee has referred to the case decided by the ITAT 2001 PTD (Trib.) 1480 in support of his contention. Thus we are convinced that the assessee has been erroneously declared as assesse in default in both the years under appeal and the order passed by the Assessing Officer under section 52 for both the years under appeal was without lawful jurisdiction."

7. As regards considering the assessee in default under section 50(4) for non deduction of tax, the learned A.R. of the assessee referred to a reported judgment of the Tribunal cited 2000 PTD (Trib.) 2664 the relevant extracts are as under:--

"Sections 52 and 50(4)---Deduction of tax at source---Liability of persons failing to deduct or pay tax---Unidentified recipient responsibility of the payer in respect of such recipient Tax was the responsibility of the recipient which could not be shifted to the payer who was not receiving but was parting with money unless it could be shown that the payer of amount failed to deduct tax from a particular payment to a specified person. Whole of the tax burden will be shifted to the payer unless those persons were specified. Section 50(8)(b) of the Income Tax Ordinance, 1979 provides that the sum deducted shall be treated as payment of tax on behalf of the assessee. Unless the assessee was identified the provision of section 50(8)(b) of the Income Tax Ordinance, 1979 will become vague, inoperative and redundant."

8. After giving due consideration to the facts of the case and going through the relevant case law cited supra, we are of the considered view that the learned C.I.T.(A) erred in law while setting aside the case instead of annulling the same. Admittedly the capital of the assessee is less than 1.5 million for all the years under appeal, hence under the C.B.R. Circular S.R.O. No.368(I)/94, dated 30-6-1994 the assessee was not 'liable to deduct tax under section 50(4). Even otherwise, liability under section 52 could not be levied without issuance of notice under section 52 ibid. It was obligatory for the Assessing Officer to comply with such a pre-requisite, and failing to do would render all proceedings conducted subsequent thereto null and void. In this view of the matter, the order of learned C.I.T.(A) is vacated and assessments framed under sections 52/86 are annulled.

9. It is ordered accordingly.

C.M.A./107/Tax (Trib.)Order accordingly