2009 P T D 1767

[Islamabad High Court]

Before, Muhammad Munir Peracha and Syed Qalb-i-Hassan, JJ

COMMISSIONER OF INCOME TAX COMPANIES ZONE, ISLAMABAD

Versus

Messrs PAKISTAN MOBILE COMMUNICATION (PVT.) LTD., ISLAMABAD

I.T.Rs. Nos. 44 and 45 of 2007, decided on 26/05/2009.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 50, 52 & 156(4)---Non-deduction of tax under S.50 of Income Tax Ordinance, 1979 regarding payments made by a person---Limitation for declaring such person to be assessee in default in respect of such tax---Scope---Legislature had not provided any period of limitation for passing an order declaring a person to be assessee in default---Period of limitation prescribed under S.156(4) of Income Tax Ordinance, 1979 would not be read in S.52 thereof---Person having deducted such tax could not be permitted to pocket same on the ground that he had not been declared in default within four years from end of assessment year in which payments liable to deductions were made---Section 156(4) of Income Tax Ordinance, 1979 would come into play, if there was an order already in existence requiring rectification by an authority having passed same, but not otherwise---No time limit fixed for action under S.52 of Income Tax Ordinance, 1979.

T.R. No.345 of 2003; Commissioner of Income Tax Zone C, Karachi v. Messrs Agha's Super Market, Karachi 2003 PTD 1571 and Commissioner of Income Tax v. Kamran Model Factory 2002 PTD 14 distinguished.

Shahid Iqbal for Petitioner.

Naveed A. Andrabi and Khalid Gill, Inspector for Respondent.

Date of hearing: 21st May, 2009.

JUDGMENT

MUHAMMAD MUNIR PERACHA, J.---This order shall dispose of Income Tax References Nos.44 and 45 of 2007.

2. The Assessing Officer vide order, dated 31-12-2002 found the respondent company to be assessee in default in terms of section 52 of the Income Tax Ordinance, 1979 on the ground that it failed to deduct the tax under section 50 of the Income Tax Ordinance regarding payments made, advances paid and the Commission paid. For the present reference, the abovementioned payments made in. the assessment years 1997-98 and 1998-99 would be relevant. The plea of the petitioner that the order cannot be made against it with regard to the above mentioned two assessment years, period of limitation having expired, was rejected by the Assessing Officer. The respondent challenged the said order of the Assessing Officer through an appeal filed before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) recorded a finding that the order passed by the Assessing Officer is barred by time regarding the payment made during the assessment years 1997-98, 1998-99 as the said order could have been made within four years of the end of the assessment year in view of section 156 of the Income Tax Ordinance, 1979. The appeal filed by the Commissioner Income Tax before the Income Tax Appellate Tribunal challenging the order of the Commissioner Appeals was rejected by the Tribunal. Paragraphs 5 and 6 of the order passed by the Tribunal, is reproduced:--

"At the time of hearing it was stated by learned DR that there is no limitation of time provided in the Income Tax Ordinance in respect of action under section 52. He stated that the learned CIT(A) was therefore, not justified to annul order under section 52. Learned AR stated that it has been held by the Tribunal that limitation to issue a notice under section 52 cannot be extended beyond a period of four years whereas in this case the impugned action was taken after the period of four years and it is not, therefore, maintainable.

We have given due consideration to arguments of both the parties and we are inclined to agree with learned AR that the impugned order under section 52 was not passed within limitation as fixed by the higher appellate authorities. Learned CIT(A) was therefore, fully justified to annul the said order. In the light of facts and circumstances of the case hereby uphold the order of learned CIT(A) and rejected the departmental appeal being without any merit."

3. Commissioner Income Tax (Appeals) has approached this Court through the present references. The Commissioner of Income Tax (Appeals) submits that the following questions of law arise from the judgment of the Income Tax Tribunal:--

(a) Whether on the facts and in the circumstances of the case, the learned ITAT was legally justified to prescribe time limit for action under section 52 of repealed Ordinance, whereas the law does not provide any such limitation for such action as it is more akin to recovery of outstanding taxes for which no limitation is prescribed?

(b) Whether under the facts and in the circumstances of the case, the prescription of limitation by the learned ITAT amounts to legislation, which is beyond the jurisdiction and power of the learned ITAT?

4. The references were admitted to a regular hearing and the notices were issued to the respondent. In response to the notice issued, Mr. Naveed A. Andrabi appeared for the respondent. Mr. Shahid Iqbal Advocate represented the Commissioner of Income Tax.

5. We have heard both the learned counsel and have examined the relevant provisions. Section 52 of the Ordinance read as under:--

"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 other liability which he may incur under this Ordinance, be deemed to be an assessee in default in respect of such tax."

Section 86 of the Ordinance provides that where any person fails to deduct or having deducted fails to pay any tax required under section 50, such person shall without prejudice to any other liability, which he may incur, be liable to pay additional tax at the rate of 18% per annum on the amount not paid for the period commencing from the date on which he was required to pay such tax to the date of the payment thereof. Section 93(1) casts a duty on the Deputy Commissioner concerned that where any assessee is in default in making payment, he may forward to the tax recovery Officer a certificate in the prescribed form specifying the amount of tax due from the assessee. Section 156 empowers the Income Tax authorities and the appellate tribunal to amend any order passed by it to rectify any mistake apparent on the record, on its own motion or such mistake being brought to its notice by any other Income Taxauthority or by the assessee. Subsection (4) of section 156 is relevant for the present purpose and is reproduced:--

"No order under subsection (1) shall be made after the expiration of four years from the date of the order sought to be amended."

Section 156(1) of the Ordinance comes into play only if there is an order already in existence, which requires rectification- of the authority, which passed the said order. There was no order in existence which was to be rectified by the Assessing Officer through the order, dated 31-12-2002.

We failed to understand as to how section 156 can be taken into consideration to hold that period of four years is provided for declaring a person to be assessee in default. Even subsection (4) of section 156 provides a period of four years for rectifying an earlier order from the date of the order sought to be amended. We are unable to understand, wherefrom, it has been taken that four years are to be counted from the end of the assessment year in which the payments liable to deductions were made.

6. Let us now examine the case-law cited. The judgment of the Division Bench of the Lahore High Court in case "T.R. No.345 of 2003" definitely supports the respondent. However, the judgment itself is based on an earlier judgment of the Karachi High Court reported as "Commissioner of Income Tax Zone C, Karachi v. Messrs Agha's Super Market, Karachi (2003 PTD 1571)". In this judgment there is no discussion on the subject in question and it simply is based on an earlier judgment of the High Court of Sindh, Karachi reported as "Commissioner of Income Tax v. Kamran Model Factory (2002 PTD 14)".

The said judgment (2002 PTD 14) is altogether on a different subject. In the said case, the matter involved was workers' welfare fund. Subsection (4) of section 4 of the Workers' Welfare Fund Ordinance, 1971 reads as under:--

"Section 4(4).---At the time .of making an assessment under the Ordinance or as soon thereafter as may be, the Income-tax Officer shall by order in writing, determine the amount due from Industrial Establishment under subsection (1), if any on the basis of the income so assessed after taking into account the amount paid by the Industrial Establishment under subsection (3) in respect of the year and the Industrial Establishment shall pay the amount so determined on or before the date specified in Order."

The said case is inapplicable while examining the provision of section 52 of the Income Tax Ordinance, 1979, because in case of Workers' Welfare Fund Ordinance, 1971, the Income Tax Officer making the assessment of Industrial Establishment was to make an order at the time of making an assessment under the Income Tax Ordinance, requiring the Industrial Establishment to pay the Workers' Welfare Fund. If the said order is not made at the time of making the assessment under the Income Tax Ordinance, the Income Tax Officer was to make such an order soon thereafter. It was in that case that Sindh High Court came to the conclusion that such an order must be passed within 30 days. It was held that the failure to pass such an order can be a mistake apparent on the face of the record rectificable under section 156 of the Income Tax Ordinance, 1979. In the present case, there was no legal obligation on the Assessing Officer to pass an order declaring the respondent to be an assessee, in default, while assessing the Income of the assessee itself. It, therefore, cannot be said that there was an error in the order passed while assessing the income of the assessee requiring rectification.

7. The matter can be examined from another angle. Section 52 not only deals with the cases of failure to deduct but it also deals with the case of failure to deposit, deduction having been made. Should the person, who had deducted the tax while making payment be permitted to pocket the amount so deducted on the ground that he has not been declared assessee in default within four years from the end of the assessment year in which the payments liable to deductions were made. The legislature has chosen not to provide any period of limitation for passing an order declaring a person to be assessee in default. The income tax authorities or for that matter the Income Tax Tribunal has no power to read the period of limitation prescribed under section 156 of the Ordinance in section 52.

8. For what has been said above, we are of the opinion that there is no time limit for action under section 52 of the repealed Ordinance. We, therefore, answer question (a) in the negative and question (b) in the positive.

9. Since the Tribunal decided the case on the legal question without examining the merits, both the cases are remanded to the Tribunal to decide on merit in the light of the findings recorded by us.

S.A.K./C-15/Isl.Case remanded.