VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 361 (2008)

Income Tax Ordinance (XLIX of 2001)---

----Ss.21(c), 158, 122(5A), 122(9) & Chap. X, Part-V, Division III---Deductions not allowed---Advertisement payable expenses---Assessee contended that expenditure incurred had yet to be paid as the amount had been appearing as payable in the balance sheet and on payment of such amount tax would be deducted---Contention, of the assessee was turned down and proposed assessment was made by adding back the advertisement expenses in the declared income which was upheld by the First Appellate Authority---Validity---Clause (b) of S.158 of the Income Tax Ordinance, 2001 specifically expressed that tax deduction was to be made only when amount was actually paid-Section 158(b) being part of Division and Chapter relating to tax deduction, had to be, followed for determining the applicability of S.21(c) of the Income Tax Ordinance, 2001---Situation had arisen by simply following the provisions of S.21(c) of the Income Tax Ordinance, 2001, by ignoring its later part wherein it had been explained that the person was required to deduct the tax under Division-III of Part-V of Chapter-X i.e. inclusive of the provisions of S.158 of the Income Tax Ordinance, 2001---Tax deduction had to be made by following entirely what was given in Division-III of Part-V of Chapter-X and not by ignoring S.158 of the Income Tax Ordinance,2001 which was a part of it---Section.158 of the Income Tax Ordinance, 2001 being part of Chapter-X which had to govern the time of deductibility of tax i.e. only when the amount was actually paid that tax would be deducted---Proceedings had been undertaken by not taking into consideration the exactly applicable provisions of section 158 of the Income Tax Ordinance, 2001 which could not be held as legally proper--Whole of the Ordinance was to be taken into consideration and not the provisions in piecemeal---Law in its entirety was to be applied---In the Income Tax Ordinance, 2001 except the deduction under S. 151 of the Income Tax Ordinance, 2001, it. was only on the amount when actually paid that tax was to be deducted---Disallowance was illegal being against the express provision of law---Return treated to be assessment order as erroneous had lost the basis---Order passed under S.122(5A) of the Income Tax Ordinance, 2001 was cancelled by the Appellate Tribunal as there was nothing as erroneous and prejudicial to the interest of Revenue order accordingly.

Asif Hashmi and Mehmoob Rabbani, I.T.P. for Appellant.

Dr. Malik M. Awan, D.R. for Respondent.

ORDER

The title appeal is directed against the order dated 24-7-2008 upon, upholding the order passed under section 122(5A). Sections referred to in this order are of Income Tax Ordinance, 2001.

2. The facts in brief of this case are that the Income Tax return filed was treated to be an assessment order under section 120(1). Subsequently proceedings under section 122(5A) were initiated by issuing notice dated 17-3-2008 under section 122(9). By this notice the proposed amendments in the assessment were confronted. Solely it was confronted that expenses incurred at Rs.5,843,502 under the head advertisement have not been subjected to tax deduction at source, so under the provisions of section 21(c) the expense has become not allowable on failure to deduct the tax. The contention of assessee/appellant that the amount against the expenditure incurred has yet to be paid as the amount has been appearing as payable in the balance sheet at the closing of the year, so on payment of the amount tax would be deducted but such contention of the assessee was turned down and proposed amendment was made by adding back the advertisement expenses in the declared income. The learned first appellate authority upheld the disallowance, thus the order under section 122(5A) has maintained.

3. Before us the learned AR at the very outset has drawn our attention to the provision of section 158 by further elaborating that it is a part of Division-III and Part-V of Chapter-X of the Ordinance where the clause (b) of section 158 has specifically laid down that tax deduction shall be made at the time amount is actually paid. The learned AR read out before us the section 158. The learned AR further elaborated that provision of section 21(c) has no doubt laid down the expenses as inadmissible where tax has not been deducted under Division-III of Part-V of Chapter-X, but has been omitted to be noticed that section 158 is the part Division-III of Chapter-V of Chapter-X. With these submissions it was concluded by the learned AR that only when actually amount would be paid that tax was required to be deducted as given under section 158. The learned AR has further submitted that provisions regarding tax deduction on the basis of accounting system as were in the repealed Ordinance are not the same in the present Ordinance and secondly the reported order of the Tribunal relied upon is in reference to provisions of repealed Ordinance which do not find place in the present Ordinance, 2001. The learned AR has further submitted that word "raid" was duly explained by the "Explanation-B" to section 23 of the Repealed Income Tax Ordinance, 1979, whereas the present Ordinance, 2001 do not contain any such explanation to the section, thus has been argued that by the language of new Ordinance it has been made compulsory that tax is to be only deducted when amount is actually paid.

4. In response the learned DR has supported as proper and legal the order passed which was maintained by the learned first appellate authority. The learned DR has explained that even when amount has been shown as payable the appellant/assessee was required to deduct the tax.

5. We have heard both sides and have also gone through the available record. Undisputedly, amounts against the expenditure under the head advertisement is payable at the end of the year which has duly been reflected in the balance sheet as payable. As far as tax deduction in such situation is concerned the governing provisions of section 158 have been referred before us. For convenience and ready reference the provisions of section 158 are being reproduced as under:--

"158. Time of deduction of tax:--A person required to deduct tax from an amount paid by the person shall deduct tax-

(a) in the case of deduction under section 151, at the time the amount is [paid or] credited to the account or recipient [whichever is earlier]; and

(b) in other cases, at the time the amount is actually paid."

The relevant clause (b) supra which has been underlined for making it conspicuous has specifically expressed that tax deduction is to be made only when amount is actually paid. This section being part of the Division and Chapter relating to tax deduction so has to be followed for determining the applicability of section 21(c). The situation has arisen by simply following the provisions of section 21(c), by ignoring its later part wherein it has been explained that the person is required to deduct the tax under Div-III of Part-V of Chapter-X i.e. inclusive of the provisions of section 158. The tax deduction had to be made by following entirely what is given in Division-III, Part-V of Chapter-X and not by ignoring the section 158 which is part of it. The section 158 being part of Chapter-X which has to govern the time of deductibility of tax i.e. only when the amount is actually paid that tax would be deducted whereas in the instant case before us the proceedings have been undertaken by not taking into consideration the exactly applicable provisions of section 158 which could not be held as legally proper. It is the whole of this Ordinance which is to be taken into consideration and not the provisions in piecemeal, further by applying only a portion of section 21(c) for making disallowance. The law in entirety is to be applied. In the present ordinance except the deduction under section 151, it is only on the amount when actually paid that tax is to be deducted has to be followed. So we do not approve the making of disallowance. Such disallowance is illegal being against the express provisions of law'. Thus the basis of holding the earlier return treated to be assessment order as erroneous has lost the basis, accordingly we cancel the order passed under section 122(5A) as there is nothing as erroneous and prejudicial to the interest of revenue. By this the return, treated is to be assessment by order is restored to its original position.

6. The assessee's appeal succeeds.

C.M.A./130/Tax(Trib.)Appeal accepted.