VS, 2010 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1099 (2006)

Income Tax Ordinance (XXXI of 1979)---

----S.52-Notification No. NA-9(7)80, dated 3-4-1999---Letter No. NA-9 (7)/80 dated 3-3-1981---Assessee in default---Returns were filed by showing losses from operation in the areas other than Northern Areas and did not disclose receipts earned from Northern Areas---Statutory notices were issued---Accounts were submitted by the assessee whereby receipts from Northern Areas were disclosed by stating that since the territories of Northern Areas were not part of Pakistan, the same were kept undisclosed---Assessing officer taxed whole income of the assessee accruing/arising from Northern Areas as well as territories of Pakistan by concluding that territories of Northern Areas were part of Pakistan--Action of Assessing Officer was confirmed by the First Appellate Authority---Assessee contended that people of territory of Northern Areas were liable to pay taxes and other levies, which were competently imposed and not liable to pay any tax or levy, which were not competently imposed, since the Income Tax Ordinance, 1979 was not applicable to the people of Northern Areas, even so far after it's withdrawal, the income earned from the territory of Northern Areas was not taxable but same had been determined by the tax authorities illegally and unjustifiably---Validity---People of Northern Areas had been made liable to pay only those taxes or other levies which were `competently imposed'---Words `competently imposed' connoted that only those taxes or levies would be payable by the people of Northern Areas which were imposed by express notification and legislation measures---Such aspects were regulated by the Ministry of Kashmir Affairs and Northern Areas whereby the applicability of Income Tax Ordinance, 1979 had been withdrawn---Orders of both the authorities below were set aside by the Appellate Tribunal whereby income accrued from the Northern Areas was made taxable illegally and unjustifiably---Case was remanded with the direction to finalize the assessments for all the years under appeal afresh after issuing the statutory notices to the assessee to assess the income earned only from areas other than the territories of Northern Areas---However, in the declared version of the assessee, income on the part of Northern Areas had been shown, whereas losses, with regard to other part of the country, had been shown which seemed to be illogical---Assessing officer was further directed to examine the accounts and other relevant documents, carefully to ascertain as to whether the causes of losses were genuine and were proved with solid documentary evidences and proceed strictly in accordance with law keeping in view the ground realities.

1999 SCMR 1379 ref.

Zahid Hussain, ACMA for Appellant.

Muhammad Tahir Khan, D.R. for Respondent.

ORDER

These seven appeals pertaining to the assessment years 1998-99 to 2001-02 have been instituted at the behest of the assessee/appellant against the consolidated impugned order dated 29-9-2005 recorded by the learned CIT/WT (A), Zone-II, Karachi. The identical ground of the assessee for all the assessment years, under appeal, is that the assessing officer was not justified to tax the income accruing/arising in northern areas of Pakistan and learned CIT(A) was also erred in law to confirm the said action.

2. Learned counsel for both the parties have been heard.

3. Facts succinctly relevant to the disposal of instant appeals are that the assessee company, wholly owned by the Federal Government of Pakistan, is engaged in providing transportation facilities in Northern Areas and Rawalpindi. Returns were filed by showing losses from operation in the areas other than Northern Areas and did not disclose receipts earned from Northern Areas. In order to finalize the assessments for the charge years under consideration statutory notices were issued and in response thereto, the assessee submitted detailed accounts of the company, whereby receipts earned from Northern Areas were also disclosed by stating that since the territories of Northern Areas were not part of Pakistan, hence receipts were previously kept undisclosed. While finalizing the assessments for all the years under reference, the assessing officer while relying upon a judgment of the august Supreme Court of, Pakistan reported as 1999 SCMR 1379 has taxed the whole income of the assessee company accruing/arising from Northern Areas as well as territories of Pakistan by concluding that the Territories of Northern Areas are part of Pakistan. Being aggrieved, the assesse went in appeal before the learned CIT(A) who confirmed the action of the assessing officer, keeping in view the said reported judgment. Hence, these are second appeals before the Tribunal by the assessee.

4. After hearing the learned counsel for both the parties as well as going through the facts, narrated in the assessment as well as appellate orders carefully, it is transpired that both the officers below have relied upon the said judgments i.e. 1999 SCMR 1379 in support of their respective action wherein their Lordships have held as under:

"Since most of the Pakistani Statutes have been made applicable to Northern Areas including Citizenship Act as stated above, we are of the view that the people of Northern Areas are citizens of Pakistan, for all intents and purposes. The above distinction between the two categories of the above fundamental rights of the Constitution is not material. They as the citizens of Pakistan, like any other citizen have the right to invoke any of the above fundamental rights, but they are also liable to pay taxes and other levies competently imposed."

5. Both of the officers were of the view that the august Supreme Court has upheld that the people of the Northern Areas are citizens of Pakistan and as such they enjoy all the fundamental rights like any other citizen of Pakistan, hence they are also liable to taxes prevailing in the entire country. As such in view of the above judgment of the superior Court, there is no hindrance or any legal bar in application of Income Tax Ordinance. Under this impression, the income of the assessee company, earned from Northern Areas as well as other parts of the country was made taxable under the provisions of the Income Tax Ordinance.

6. Before the Tribunal the learned AR of the assessee has contended that though the officers of the Tax Department have rightly inferred that the people of the Northern Areas like any other citizens of Pakistan are liable to pay taxes and other levies, but have ignored the fact the people of Northern Areas are liable to pay only those taxes and levies which are competently imposed. He emphasized that the applicability of Income Tax Ordinance in the Northern Areas was withdrawn vide Notification No.NA9(7)80 dated 3-4-1999 and since then, there is no valid piece of legislation/notification in existence regarding applicability of the Income Tax Ordinance to the Northern Areas of Pakistan after its withdrawal. As no amendment has been made in the said Notification, therefore, the Income Tax Ordinance is not applicable to the people of the Northern Areas. He has contended that however, the people of said territory are liable to pay taxes and other levies, which are competently imposed and not liable to pay any tax or levy, which are not competently imposed, as is laid down in the aforesaid judgment of the august Supreme Court of Pakistan. He has strenuously argued that since the Income Tax Ordinance is not applicable to the people of Northern Areas, even so far after its withdrawal the income earned from the territory of Northern Areas is not taxable, but same has been determined by the tax authorities illegally and unjustifiably, ignoring the said judgment. In support of his contention, he referred to a case of Messrs Habib Bank Limited in which department has imposed tax under section 52 of the Ordinance for Rs.24,11,603 on default of deduction of tax under section 50(2b) in branches situated at territories of Northern Areas i.e. Skardu, Gamba, Jutyal and Alibadan. Subsequently, the Messrs Habib Bank Limited moved an application to the Regional Commissioner, Islamabad seeking refund in the light of aforementioned judgment of the Supreme Court i.e. 1999 SCMR 1379 as well as said Notification No.NA 9(7)/80 dated 3-4-2006. He continues that the office of the Regional Commissioner of Income Tax has allowed the refund vide letter No.So-1-18(41)/02-03/8261 dated 28-1-2003 and produced copy of the same. While summing up his argument he states that the people of Northern Areas have been made liable to pay only those taxes or other levies, which are competently imposed and pleaded for acceptance of his appeals at the level of the Tribunal. On the other hand the learned DR reiterated the view points of the officers below and prayed for maintenance of the appellate order.

7. After going through the facts of the case aforesaid reported judgments of the august Supreme Court of Pakistan as well as referred Notification No.NA-9(7)/80 dated 3-1-1999 and Office Memorandum No.ALA-2(4)/2001 dated 7th May 2002, issued by the Government of Pakistan, Home S & GAD and Law Department, Northern Areas, whereby it was pointed out that Income Tax Ordinance, 1979 (XXXI of 1979) extended to Northern Areas vide letter No. NA-9(7)/80 dated 3-3-1981 has been withdrawn vide Order No. No.NA-9(7)/80 dated 3-4-1999, we observe that the arguments tendered by the learned AR of the assessee carry force. Both of the officers of the Department have misconceived the judgment of the august Supreme Court of Pakistan, being under impression that it had held that the people of Northern Areas are liable to taxes and there is no hindrance or any legal bar in applica tion of Income Tax Ordinance. Whereas the perusal of aforesaid reported Judgment of the august Court reveals that people of Northern Areas have been made liable to pay only those taxes or other levies which are `competently imposed'. The words `competently imposed' connotes that only those taxes or levies would be payable by the people of Northern Areas which are imposed by express notification and legislative measures. It is not out of place to mention here that the Ministry of Kashmir Affairs and Northern Areas regulates these aspects. Appli cability of Income Tax Ordinance, 1979 has already been withdrawn.

8. In this view of the matter, both the orders of the authorities below are set aside whereby the income accrued from the Northern Areas was made taxable illegally and unjustifiable misconceiving the aforesaid judgment of the august Supreme Court of Pakistan. We remand the case back to the assessing officer with the direction to finalize the assessments for all the years under appeal afresh after issuing the statutory notice to the assessee company to assess the income earned only from areas other than the territories of Northern Areas. It is strange to note that in the declared version of the assessee company income on the part of Northern Areas has been shown, whereas losses, with regard to other part of the country have been shown which seems to be illogical, keeping in view the business of the assessee company. Therefore, the assessing officer is further directed to examine the accounts and other relevant documents, carefully to ascertain as to whether the causes of losses are genuine and are proved with solid documentary evidences and proceed strictly in accordance with law keeping in view ground realities.

9. Assessee's appeals stands disposed of to the extent and in the manner, as indicated above.

C.M.A/172/Tax(Trib.)Order accordingly.