2010 P T D (Trib.) 930
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Abdul Rauf, Accountant Member
I.T.As. Nos.871/LB to 874/LB of 2008, decided on 16/10/2009.
Income Tax Ordinance (XLIX of 2001)---
----Ss. 21(c), 153, 162, 156, 233(2) & 122(5A)---Income Tax Ordinance (XXXI of 1979), Ss. 23 & 50(4)---Deductions not allowed---Amendment of assessment---Customers of the assessee, Gas supply company, discharge their monthly liability for gas supplied by depositing amounts with collecting banks/financial institutions designated by the assessee---Bank/financial institutions after, deducting their charges, known as `collection charges' remit such amounts to the assessee---Such charges were recorded in the financial statements as `gas bill collection charges'---Assessment was amended on the ground that assessee failed to deduct withholding tax under S.153 of the Income Tax Ordinance, 2001 in respect of `gas bill collecting charges' incurred in connection with services rendered by various institutions/banks in collecting the gas bills and such charges did not qualify to be allowable deductions under S.21(c) of the Income Tax Ordinance, 2001---Assessee contended that no tax was deductible on the amount as the assessee company itself did not pay any amount to the banks rather being collecting agents, the banks were remitting the net amounts to the assessee company and the provisions of S.153 of the Income Tax Ordinance, 2001 were not attracted---Validity---No provision in S.153 of the Income Tax Ordinance, 2001 existed which was parallel to S.233(2) of the Income Tax Ordinance, 2001 and no withholding was required under law---Provisions of 5.162(2) of the Income Tax Ordinance, 2001 could not be invoked to lend credence to departmental action invoking S.21(c) of the Income Tax Ordinance, 2001 in the admitted circumstances that department did not invoke provisions of S.162(1) of the Income Tax Ordinance, 2001 on banks/financial institutions and that these institutions had already discharged their tax liability---Assessee Company was legally correct in not withholding the tax as alleged by the department---Order of First Appellate Authority was upheld by the Appellate Tribunal and departmental appeals were dismissed.
1955 SCC 1; 1990 PTD 248; 1998 PTD 291 and 2000 PTD 1328 distinguished.
Reference Applications Nos.690 to 692/LB of 2003 ref.
M. Asif, D.R. for Appellant.
Asim Zulifqar Ali FCA for Respondent.
ORDER
Through these four appeals the department has objected against the consolidated impugned order of the learned CIT(A) dated 27-2-2008 for tax years 2003 to 2006 on the following common ground:---
"That the learned CIT(Appeals) was not justified in deleting the addition on the issue of Profit and Loss expenses made under section 21(c) of the Income Tax Ordinance, 2001 on the account of non-deduction of tax under section 153(1)(b) of the Income 'Tax Ordinance, 2001 without any cogent reason."
2. Brief facts as per proceedings of the case are that the respondent is a public limited company engaged in the business of purchase, transmission and distribution of natural gas in the case of which jurisdiction lies with Large Taxpayers Unit, Lahore ('LTU'). For all the years in appeal, the assessments were deemed to have been finalized under section 120 of the Income Tax Ordinance, 2001 in respect of which the Taxation Officer/Additional Commissioner of Income Tax, Audit-A, LTU, (`AC') assumed jurisdiction under section 122(5A) and amended the assessments through consolidated amendment order dated 22-10-2007. Sole reason for carrying out such amendments was that the respondent company allegedly failed to deduct withholding tax under section 153 of the Ordinance in respect of gas bill collection charges incurred in connection with services rendered by various institutions/banks in collecting the gas bills and hence under provisions of section 21(c) of the Ordinance, such charges did not qualify to be allowable deductions.
The transactional facts as explained by the learned counsel for the Taxpayer behind the issue are that respondent-company's customers discharge their monthly liability representing consideration for gas supplied by depositing such amounts with collecting banks/financial institutions designated by company for such purposes. Banks/financial institutions after, deducting their charges, known as `collection charges' remit such amounts to company. These charges are recorded in the financial statements as `gas bill collection charges' regarding which the Additional Commissioner/Taxation Officer issued notice to the respondent company that alleged failure to deduct withholding tax in respect of these service charges warranted action under section 21(c) of the Ordinance. There is, however, no dispute between the parties about the modus operandi of the transaction explained above. In the context of the objection raised by the Taxation Officer vide show-cause notice, the respondent company defended its position on following basis:
(i) No tax was deductible on the amount as the respondent itself did not pay any amount to the banks rather being collecting agents, the banks were remitting the net amounts to the respondent company and hence provisions of section 153 of the Ordinance were not attracted. In this respect, the main thrust of the respondent remained on the nature of the transaction i.e. it involved three parties and in such cases, withholding cannot be implied instead the responsibility has to be expressed explicitly as is in the case of withholding provisions contained in section 233 of the Ordinance.
(ii)' The matter as to whether such transaction falls within the purview of withholding regime has already been decided by this Tribunal in the context of pari materia provisions of S.50(4) of the repealed Income Tax Ordinance, 1979 (`repealed Ordinance') in the respondent-company's own case for certain previous assessment years and that said decision has already attained finality; and
(iii) In any case, since banks/collecting agents who rendered the services had already discharged their tax liability on their entire income including the subject service charges, therefore, no disallowance could be made in view of position already settled by appellate authorities in this respect.
The aforesaid rebuttals put forth by the respondent-company did not find any favour with the Taxation Officer and he proceeded on to amend the assessment to the extent indicated supra. The respondent company then approached the first appellate authority who has reproduced in the appellate order the entire chain of arguments then raised before it and has accepted the appeal relying upon the decision of this Tribunal delivered earlier in the context of pari materia provisions of the repealed Ordinance. The department has now come up in appeal before this Tribunal.
3. Before us the learned DR, who happens to be the author of the consolidated amendment order too, vehemently challenged the findings of the First Appellate Authority and stated that the order being patently illegal and void ab initio may kindly be annulled. The learned DR reiterated the departmental stance on all the three arguments taken by respondent company as summarily discussed above. On the applicability of the withholding provisions of section 153 of the Ordinance, the learned DR primarily laid stress on the following relevant provisions:
"153. Payments for goods and services:---(1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person---
(a) for the sale of goods;
(b) for the rendering of or providing of services;
(c) on the execution of a contract, other than a contract for the sale of goods or the rendering of or providing of services,
shall, at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division III of Part III of the First Schedule.
By reference to the aforesaid provisions of law, the learned DR argued that according to these provisions, the incidence of withholding arises where a `payment' is made on account of either of the transactions referred to therein. In this respect, the contention of the learned DR remained that according to dictionary meanings a payment would be said to have been made when a liability to settle consideration is discharged regardless of any specific or complicated modus operandi. With reference to the facts of the case, learned DR emphasized that in this case since liability, representing consideration payable against services rendered by banks/financial institutions, stands settled, therefore, amount would be taken to have been paid to attract the incidence of withholding prescribed in above reproduced provisions of law. According to learned DR it does not matter for these withholding provisions that whether the amount is directly paid or otherwise. In this regard, the learned DR drew further strength from judgments reported as 1955 SCC 1, 1990 PTD 248, 1998 PTD 291 and 2000 PTD 1328. The learned DR argued that the ratio of these decisions is that firstly an amount would be taken to have been paid when it is so recorded in financial statements and secondly settlement of inter-corporate accounts also constitutes payment. On the strength of these decisions it has been contended by the learned DR that for all intent and purposes, in this case, the amounts would be taken to have been paid for these to fall within the ambit of aforesaid withholding provisions.
With reference to decision of this Tribunal by the learned CIT(A) in the impugned order, on the matter, the primary argument of the learned DR remained that the same does not remain a valid precedent for two reasons, firstly, there is a difference between provisions of section 50(4) of the repealed Ordinance, 1979 (in the context of which the earlier decision was given by this Tribunal) and section 153 of the new Ordinance, 2001 and secondly the department never accepted such verdict given by Tribunal, as is evident from the fact that it was further challenged in a reference application, and as such the earlier treatment of the department could still be adopted. On the basis of these arguments it was argued that the same decision may not be considered for the purposes of the present appeals.
Regarding the stance of the respondent company as to discharge of liability by the recipient thus not warranting disallowance of expense to respondent company, the learned DR supported the action yet again on the basis of change in scheme in the two legislations viz, repealed 1979 Ordinance and 2001 Ordinance. In this respect, the learned DR relied upon the following provisions of section 162 of the Ordinance, 2001 on the basis of which it was argued that discharge of liability by recipient does not absolve payer from penal actions under other provisions of Ordinance i.e. disallowance of underlying expense.---
162. Recovery of tax from the person from whom tax was not collected or deducted.---(1) Where a person fails to collect tax as required under Division II of this Part or Chapter XII or deduct tax from a payment as required under Division III of this Part [or Chapter XII, the Commissioner may pass an order to that effect and recover the amount not collected or deducted from the person from whom the tax should have been collected or to whom the payment was made.
(2) The recovery of tax under subsection (I) does not absolve the person who failed to deduct tax as required under Division III of this Part or Chapter XII from any other legal action in relation to the failure, or from a charge of additional tax or the disallowance of a deduction for the expense to which the failure relates, as provided for under this Ordinance.
4. The learned counsel of the Tax Payer supporting the impugned order of the learned CIT(A) on his turn, reiterated the facts and submitted that he does not dispute or disagree with the ratio of the decisions cited by learned DR, however, it was argued that these do not apply to the facts and circumstances involved in the case of respondent. It was submitted that in all the aforesaid decisions the expressions `paid' and `payment' have been deliberated in different circumstances. In none of the cases these words were dilated upon with reference to withholding provisions. The word `paid'/'payment' has to be understood and applied differently for withholding provisions as compared to any other provision of law. In this respect, the learned AR drew our attention to `Explanation' contained in section 23 of the repealed Ordinance whereby the scope of word `paid' was clarified for certain provisions which did not ab initio include withholding provisions. On these bases, it was submitted that legislature was clear from day one that for the purposes of withholding provisions, such expression would carry different meaning and scope as compared to other provisions of law. All these decisions, the learned AR added, related to interpretation of expressions `paid' and `payment' with reference to allowability of expenditure and not with reference to applicability of withholding provisions. The latter, according to AR, carry altogether different framework.
He has argued that if the analogy suggested by learned DR is accepted then why the legislature has used different phraseologies and has conceived different situations in certain other withholding provisions. The benchmark of settling of liability, as referred to by DR, therefore, does not require use of word `collection' in other provisions of law because in such like cases, the payment effectively would be taken to have been made to attract the incidence of withholding. In this respect, the learned DR referred to following provisions of section 156 of the Ordinance:--
"156. Prizes and winnings.---(1) Every person paying prize on a prize bond, or winnings from a raffle, lottery, prize on winning a quiz, prize offered by companies for promotion of sale, or cross-word puzzle shall deduct tax from the gross amount paid at the rate specified in Division VI of Part-III of the First Schedule.
(2) Where a prize, referred to in sub-section (1), is not in cash, the person while giving the prize shall collect tax on the fair market value of the prize.
(3) The tax deducted under subsection (1) or collected under subsection (2) shall be final tax on the income from prizes or winnings referred to in the said subsections."
By reference to the aforesaid provisions of law, the learned counsel submitted that if the expression "paying" applied to all possible eventualities (in terms of line of argument taken by DR) then there was no need for legislature to introduce subsection (2) thereby introducing an altogether different form of withholding mechanism. On this basis, it was reiterated that scope and meaning of expression `payment' as interpreted for any other provision of law, like those referred to by DR, does not apply ipso facto on withholding provisions. These operate independently and cannot be equated with other legal provisions providing for criterion for admissibility of expenses etc. Continuing with the above line of argument, the learned AR then referred to following provisions of section 233 of the Ordinance:---
"233. Brokerage and commission.---(1) Where any payment on account of brokerage or commission is made by the Federal Government, a Provincial Government, a Local Government], a company or an association of persons constituted by, or under any law (hereinafter called the "principal") to person (other than travel agents and insurance agents) (hereinafter called the "agent"), the principal shall deduct advance tax at the rate specified in Part IV of the First Schedule from such payment.
(2) If the agent retains Commission or brokerage from any amount remitted by him to the principal, he shall be deemed to have been paid the commission or brokerage by the principal and the principal shall collect advance tax from the agent.
(3) Where any payment on account of brokerage or commission is made by the Principal to a travel agent or an insurance agent the principal shall deduct advance tax at the rate specified in Part IV of the First Schedule from such payment.
(4) Where any tax is collected from a person under subsection (1) the tax so collected shall be the final tax on the income of such person."
On the basis of above reproduced provisions of section 233 of the Ordinance, learned AR contended that in this case also the provisions of subsection (1) employ the expression `payment' then why there was a need to introduce subsection (2) to explicitly prescribe withholding responsibility. In this respect, it was argued that subsection (2) covers a situation where a transaction essentially include three different parties i.e. the principal, the agent and the person with whom agent deals on behalf of the principal. For such tripartite arrangement, he has argued, that since there could not be direct payment by the principal to the agent (instead the payment routes from agent to principal), therefore, there was a need to specifically identify the person responsible for effecting the withholding. Taking cue from these contentions, the learned AR added that in the subject situation, it is a tripartite arrangement i.e. the respondent company, the bank and the customer (from whom the bank collects the amount of the bill). This being a tripartite arrangement, regarding the concept of which the legislature is not alien, could only be said to have been within the scope of withholding provisions of section 153 of the Ordinance, had legislature specifically incorporated a provision pari materia to section 233(3) of the ordinance therein. This being not there obviously implies that for tripartite arrangements, covering provision of services, withholding provisions would not apply.
Commenting on the certain examples embodied in the amended order and also quoted before us by the learned DR, the learned counsel of the Tax Payer emphatically argued that these were not relevant. None of these examples involved a tripartite arrangement rather these were related to circumstances demonstrating possible circumvention of withholding provisions which was not the position in respondent company's case. In the present case, the transaction triggered only because of involvement of all the three parties as had there not been either of respondent company, bank or customer, the provision of services would not have occurred. He has submitted that equating the subject transaction with the examples quoted by DR was not plausible and withholding provisions could not be attracted on the subject transaction by implication. There being no provision in section 153 of the Ordinance parallel to section 233(2) of the Ordinance, clearly establishes that legislature did not desire a withholding in such like transactions.
Regarding the arguments of the learned DR vis-a-vis the earlier judgment of this Tribunal in respondent company's own case, learned counsel of the Tax Payer pointed out that the two provisions i.e. section 50(4) of the repealed Ordinance and section 153 of the new Ordinance, are pari materia and are exactly the same. Likewise, the provisions of section 50(4A) of the repealed and section 233(2) of the new Ordinance are also pari materia. In this respect, main thrust of the learned AR remained on the fact that mere exclusion of "abbreviations" (contained in the section 50(4) in the form of brackets), does not change the gist, nature and character of legal provisions. So far as the gist is concerned, it remained specific transactions which are intact in the new law. On the departmental dissatisfaction of the earlier decision, the learned counsel expressed surprise over such argument taken by learned DR. It was submitted that if department had not felt satisfied, it could have challenged that order before higher authorities that not being the case, the matter has attained finality in terms of well settled norms of justice.
Regarding learned DR's reliance on provisions of section 162(2) of the Ordinance, providing shelter to penal action prescribed for deduction authorities despite payment/collection of tax, learned counsel of the taxpayer has contended that such provisions were applicable only where department, invoking the provisions of section 162(1) of the Ordinance, recovers the withholding tax directly from the recipient and that these provisions do not apply in all the circumstances. Accordingly, since in the instant case, no action under section 162(1) of the Ordinance was initiated by the department against the banks/financial institutions, penal action cannot be taken against respondent company under section 162(2) of the Ordinance. He has, on the basis of above arguments, rebutted the departmental contentions and termed learned DR's reliance on provisions of section 162(2) of the Ordinance completely irrelevant and out of context. In this respect, he has further argued that in the instant case, the payment of tax by the recipients is the one which has been conceived in section 161(IB) of the Ordinance and the provisions of section 162(2) were not relevant ab initio
5. We have heard the learned representatives of both the sides, perused the impugned order of the learned CIT(A), the amended orders passed by the Taxation Officer, the case law referred and other relevant record of the case. We find ourselves in agreement with the earlier decision given by this Tribunal on the instant issue and consider it to be squarely applicable under the scheme of law prescribed in new legislation i.e. 2001 Ordinance. The learned representative of the taxpayer is right in stating that the two provisions are pari materia and the decision, earlier given remains valid having attained finality. The relevant paras of the order of this Tribunal in the case of present taxpayer while rejecting the Reference Applications Nos.690 to 692/LB/2003 (assessment years 1994-95 to 1996-97) vide order dated 11-2-2004 is reproduced hereunder:---
"The brief facts leading to these departmental applications are that Sui Gas Department appointed Allied Bank as its agent for collection of bills on its behalf. The bank for providing this service was allowed 2% collection charges from the bill amount, which have been held to be as liable to deduction under section 50(4) by the Income Tax Department. The department's claim is that the deduction of service charges from the bill recovered on behalf of Sui Gas Department comes within the definition of payment. In the opinion of the Assessing Officer Sui Gas department is payer and the bank is recipient of the services charges notwithstanding the fact that in actual arrangement it is the bank which receives payment from clients of the Sui Gas department and deduct their share from the same. The department, therefore, claims that having itself made this arrangement the Sui Gas department was under legal obligation to deduct tax on 2% services charges paid to the bank which it failed. In this way he becomes an assessee in default liable to charge under section 52."
The arguments of the learned counsel for the taxpayer vis-a-vis the applicability of withholding provisions in a tripartite transaction with reference to expressed provisions of section 233 of the Ordinance carry a lot of force. In such-like cases, where there is no difference of opinion on the modus operandi of the transaction, we cannot endorse the departmental stance that the withholding provisions were attracted by implication. If we subscribe to this view that would mean that we are assigning redundancy to the provisions of section 233(2) of the Ordinance which is strictly impermissible according to settled principles of statute interpretation. In other words, there was no need for provisions of section 233(2) of the Ordinance to be on the statute book if expression `payment' is interpreted to mean what has been argued by learned DR. The legal position being clear that there is no provision in section 153 of the Ordinance, parallel to section 233(2) of the Ordinance, no withholding was required under the law.
We also agree with the learned AR that the ratio of decisions cited at bar by learned DR were given in a different context and as such withholding provisions operate in their own framework and with reference to what is expressly provided. Likewise, regarding the scope of section 162(2) of the Ordinance we are of the view that these provisions could not be invoked to lend credence to departmental action of invoking section 21(c) of the Ordinance in the admitted circumstances that department did not invoke provisions of section 162(1) of the Ordinance on banks/financial institutions and that these institutions had already discharged their tax liability.
After considering all these facts, circumstances and legal position we are of the view that the respondent was legally correct in not withholding the tax as alleged by the department. No infirmity has been observed in the impugned order. Therefore we find no warrant for interference in the impugned order of the learned CIT(A), which is upheld and all the appeals filed by the department for the tax year 2003 to 2006 are dismissed.
C.M.A/12/Tax (Trib.)Appeals dismissed.