2010 P T D (Trib.) 1081
[Income-tax Appellate Tribunal Pakistan]
Before Munsif Khan Minhas, Judicial Member and Istataat Ali, Accountant Member
I.T.A. No.474/lB of 2008, decided on 02/09/2009.
Income Tax Ordinance (XLIX of 2001)---
----S.205---Additional tax---Penalty and additional tax---Distinction----Last deposit of tax deducted/collected---Levy of additional tax rejecting the stance of the company that delay was due to internal controls and administrative procedures---Assessee contended that there was no mala fide intention on the part of the company causing delay in deposit in government treasury of tax deducted, as the company voluntarily deposited the tax so deducted, with the government exchequer soon after completion of administrative procedures---Validity---Additional tax could not be equated with penalty---Penalty and additional tax are distinct ones---Penalty was meant to penalize the assessee for not doing an act within stipulated timeframe while additional tax was levied because assessee used the government money and took its benefit or the government was deprived of its utility/profits---Tax was admittedly due and not paid on due date, it amounted to utilization of public exchequer and compulsion of payment of additional tax was quite in accordance with equity and principles of natural justice---Assessee could not be absolved from payment of additional tax qua late payment of admitted liability of tax on the plea of not being wilful---Appeal was dismissed by Appellate Tribunal.
Taimur Shah v. CIT (1976) 34 Tax 151 (H.C. Kar.) = PLD 1976 Kar. 1030 Irrelevant.
Ghulam Muhammad Lundkor v. Safdar Ali PLD 1967 SC 530 ref.
Faisal M. Banday, FCA for Applicant.
M. Asif, D.R. and M. Zaheer Qureshi, D.R. for Respondent.
ORDER
The assessee-appellant has filed this appeal against the combined order dated 7-7-2008 passed by the learned Commissioner of Income Tax (Appeals), Islamabad on the following grounds:
(i) That the learned Commissioner (Appeals) was not justified in upholding the action of the Taxation Officer, Income Tax Enforcement-I, Companies Zone, Islamabad under section 205 of the Ordinance without appreciating or even considering the appellant's stance.
(ii) That the learned Commissioner (Appeals) failed to appreciate that the mere use of word `shall' in a provision of the Ordinance does not necessitate a mandatory action unless warranted by the fact and circumstances of the case, as settled by the apex courts.
(iii) That the learned Commissioner (Appeals) erred in confirming the action of Taxation Officer without appreciating the authoritative judgments of higher courts holding that the term `default' implies a wilful act and does not include an act carried out due to circumstances beyond taxpayer's control.
(iv) That there was no element of wilful default on part of the appellant company in deposit of tax and the action of the Taxation Officer as well as order of the learned Commissioner (Appeals) for imposition of additional tax are highly unjust in the circumstances.
(v) That the authorities below failed to appreciate that additional tax in terms of section 205(3) of the Income Tax Ordinance, 2001 is chargeable where tax collected or deducted remains `unpaid' till the time proceedings for levy of additional tax are initiated and not where tax collected or deducted has voluntarily been deposited prior to action of a tax authority.
2. Brief facts leading to the appeals are that the assessee, a private limited company perusal of statement of tax deduction for the month of June, 2007 revealed that the taxpayer was required to deposit tax deducted within seven days of the end of fortnight i.e. 7th July, 2007 whereas the tax deducted was deposited on 9-8-2007 which was late by 32 days, as such the taxpayer was liable for additional tax @12%. The taxpayer was accordingly confronted with the issue through show cause notice under section 205 of the Income Tax Ordinance, 2001. Explanation furnished by the AR was considered unsatisfactory. Proceedings under section 205 of the Income Tax Ordinance, 2001 were initiated against Huawei Technologies Pakistan (Private) Limited by confronting additional tax levy of Rs.3,72,835 for default of 32 days in remittance to Government treasury, the tax deducted/collected aggregating to Rs.3,54,38,700 by the Company. The Taxation Officer subsequently levied the additional tax contending that the stance of the Company agitating delay due to internal controls and administrative procedures lacked plausible reasoning and rejected being unsatisfactory. Th.; appeal filed by the Company was rejected by the learned CIT(A) stating that the Taxation Officer took a lenient view in computation of the default and directed to re-compute the additional tax on the basis of tax deducted in each fortnight.
The learned AR has argued before us that:
(i) The Taxation Officer while charging additional tax under section 205(3) of the Income Tax Ordinance, 2001, observed that the Company did not deposit in the government treasury the tax deducted within the time prescribed under Rule, 43(b) of the Income Tax Rules, 2002 that is within seven days from the end of each fortnight and proceeded to charge additional tax at the rate of twelve percent (12%) on the amount unpaid.
(ii) The Company is a foreign-controlled resident company subject to strict internal controls and extensive standard operating procedures. As a part applicable internal controls, the designated staffs of the Company prepare and compile the data of tax collected or deducted from different parties, at each fortnight. As there are numerous payments involved related to several parties, the initial process takes four to five working days. After the necessary approval from the Local Director, payment application is sent to the Share Service Centre (SSC) of the Huawei Group located in Malaysia. The SSC verifies workings and process the amount for the necessary payment to the Treasury Department, also in Malaysia, for onward payment instructions to local Bank in Pakistan. The entire process used to take two to three weeks time during the relevant period. In any case, there was no loss of revenue to the exchequer calling for imposition of additional tax for the reason that the tax due for deduction or collection by the Company as a withholding agent was duly remitted by it in the government treasury.
(iii) The charge of additional tax as stipulated under section 205(3) of the Ordinance is created for an amount of tax collected or deducted which remains `unpaid' in the government treasury and not for tax collected or deducted which stood `paid' with the exchequer at the time the proceedings to levy additional tax are initiated. The comparison of section 205(3) of the Ordinance with corresponding section 86 of the repealed 1979 Ordinance supports the contention that additional tax charge under the section 205(3) of the Ordinance is created with reference to failure to collect or withhold tax in contrast to charge under the repealed 1979 Ordinance with reference to failure to pay tax. For ease of reference the corresponding provisions are compared below with emphasis added by us to demonstrate the apparent change in legislative intent:
| Section 86 of the Income Tax Ordinance, 1979 | Section 205(3) of the Income Tax Ordinance, 2001. |
| Where any person fails to deduct, or having deducted, fails to pay any tax as required by 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 twenty four per cent 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. | A person who fails to collect tax, as required under Division II of Part V of this Chapter or Chapter XII or deduct tax as required under Division III of Part V of this Chapter or Chapter XII or fails to pay an amount of tax collected or deducted as required under section 160 on or before the due date for payment shall be liable for additional tax at a rate equal to twelve per cent per annum on the amount unpaid computed for the period commencing on the date of amount was required to be collected or deducted and ending on the date of which it was paid to the Commissioner. |
(iv) Bare perusal of the corresponding provisions reveals that while under the repealed Ordinance charge of additional tax was created for tax deducted and not paid in treasury within the prescribed time, additional tax can be levied under the existing law only where failure to deduct tax is established; where tax is properly deducted/collected and paid by the withholding agent in treasury prior to an action by the enforcing authority, additional tax is not leviable in terms of section 205(3) of the Ordinance. In order to charge additional tax for non-payment of tax deducted/collected, the concerned Taxation Officer is primarily required to establish default in terms of section 161(1)(b) of the Ordinance and only then can proceed for consequential levy.
(v) That additional tax is a consequential levy and operative only where default is established. Please note that default in terms of section 205(3) can only be recognized once failure to pay tax collected or deducted is established under section 161(1) of the Ordinance. Where no default is or could be established in terms of section 161(1) of the Ordinance, action under section 205(3) is baseless and misplaced.
(vi) The change in legislative intent from earlier position under the repealed Ordinance, identified above, appears in line with the judicially recognized principle that additional tax is in the nature of penalty. If it is in the nature of penalty then the rule of wilful and deliberate default shall apply. The following case law supports this view:
Additional Tax is in the nature of "penalty"-Taimur Shah v. CIT [(1976) 34 Tax 151 (H.C. Kar.)] = PLD 1976 Kar. 1030.
(vii) It is pertinent to consider here that what constitutes `wilful' and `deliberate' default on part of taxpayer that makes him liable to additional tax. In the words of the apex Court (Ghulam Muhammad Lundkor v. Safder Ali PLD 1967 SC 530), the word `default' in legal terminology necessarily imports an element of negligence or fault and means something more than mere non-compliance. To establish default one must show that the non-compliance has been due to some avoidable cause, for a person who ought not to be made liable for a failure due to some reason for which he is, in no way, responsible or which was beyond his control. It should not be presumed that the law intends to cause injustice or hardship. On the basis of this principle, the expression `default' should mean an act deliberately done and wilfully in breach of a duty or in disregard of an order or direction with mala fide intention.
(viii) In tax jurisprudence, the words `wilful' and `deliberate' have special significance. The apex Courts have held in number of cases that no penal action is to be taken against a taxpayer unless the revenue discharges its onus of proving through some incontrovertible evidence that the `default' was committed wilfully and deliberately.
(ix) It is abundantly clear from the foregoing that `default' in legal terminology necessarily imports an element of wilful and deliberate act. The word `default' wherever appears in the income tax laws, should mean an act done in breach of a legal obligation, a duty or a disregard of an order or direction with mala fide intention and ulterior motive. You would appreciate that there was no mala fide intention on part of the Company causing delay in deposit in Government treasury of tax deducted, as the Company voluntarily deposited the tax so deducted with the Government exchequer soon after completion of administrative procedures.
3. In view of the facts and legal position explained above, it is prayed that the Order passed by the lower authorities may please be annulled being unlawful. The learned DR has supported the order passed by the learned First Appellate Authority.
4. After hearing respective contentions of the parties we feel no hesitation to say that Additional Tax cannot be equated with penalty. The concepts behind the penalty and Additional Tax are distinct ones. Penalty is meant to penalize the assessee for not doing an act within stipulated timeframe while additional tax is levied because assessee uses the Government money and takes its benefit or the Government is deprived of its utility/profits. If the tax is admittedly due and not paid on due date, it amounts to utilization of public exchequer and compulsion of payment of additional tax is quite in accordance with equity and natural principle of justice. The referred citation PLD 1976 Kar. 1930 relates to section 45A of Income Tax Act, 1922 which had been repealed long long ago. Hence not relevant. Assessee cannot be absolved this payment of additional tax qua late payment of admitted liability of tax on the plea of not being wilful.
5. As a result, the assessee's appeal hereby stands dismissed.
C.M.A/178/Tax(Trib.)Appeal rejected.