KARACHI PORT TRUST, KARACHI VS COMMISSIONER INLAND REVENUE, KARACHI, 2011 PTD-KARACHI-HIGH-COURT-SINDH 1996 (2011)

Income Tax Ordinance (XLIX of 2001)---

----S.147---Estimate of NIL advance tax filed by taxpayer---Powers of Taxation Officer to reject such estimate for being Wrong---Scope---Conditions to file an estimate under S.147(6) of Income Tax Ordinance, 2001 would be the applicability of subsection (1) thereof, if taxpayer estimated that tax payable by him was likely to be less than amount payable by him under subsection (1) thereof---Once such two conditions were fulfilled, then estimate could be filed---No provision existed in S. 147(6) of Income Tax Ordinance, 2001 prohibiting that an estimate could not be filed under which no tax was payable---Section 147(6) of Income Tax Ordinance, 2001 required that tax would become payable on basis of estimate filed, and if no tax was payable, then such estimate could not be filed-After filing such estimate whether right or wrong, no provision existed to provide authority to Taxation Officer to discard same and ask taxpayer to continue paying tax in accordance with provision of S. 147(1)(4) of the Ordinance---Once an estimate was filed, only option available to Taxation Officer would be to levy default surcharge under S. 205(IB) of the Ordinance after completing assessment, if such default surcharge was leviable on basis of assessment---Provision of S. 147(7) of the Ordinance provided an authority to Taxation Officer to recover advance tax not paid as if same was a tax due under assessment order, but such provisions did not provide them authority and jurisdiction to pass any order for recovery of such tax---Principles.

Pak Saudi Fertilizer v. Commissioner of Income Tax 1999 PTD 4061'; Chairman C.B.R. v. Pak Saudi Fertilizer 2000 PTD 3748; J.K. Synthetics Ltd. v. Income Tax Officer Central Circle-XVIII and others 174 (1988) ITR 167; Punjab Tractors Ltd. and another v. Assistant Commissioner of Income Tax and another 267 (2004) ITR 229; Commissioner (Legal) Inland Revenue v. E.N.I. Pakistan (M) Ltd. 2011 PTD 476 and Commissioner of Income Tax v. Anweraly Haji Noor Muhammad 1992 PTD 347 ref.

Makhdoom Ali Khan and Ali Almani for Applicant.

Syed Riazuddin for Respondent.

Dates of hearing: 17th, 19th, 24th and 27th May, 2011.

ORDER

MUHAMMAD ATHAR SAEED, J.---This Income Tax Reference Application has been filed against the order of the Tribunal dated 10-5-2011 in I.T.A. No.340/KB/2010 for Tax Year 2011 whereby the following questions, said to be arising from the order of the Tribunal, have been proposed for the opinion of this Court:--

(a)Whether an Officer of Inland Revenue has the power to reject an estimate filed by a tax payer under subsection (6) of section 147, of the Income Tax Ordinance, 2001?

(b)Whether an Officer of Inland Revenue can frame an assessment order for payment of advance tax under subsection (6A) or subsection (7) of section 147 of the Income Tax Ordinance, 2001?

2. On the last date pf hearing we had put both the learned counsel on notice that since a short point is involved, therefore, we intend to dispose of this Reference Application finally at the Katcha Peshi stage and both of them `should be prepared to argue the case for final disposal of the matter on the next date of hearing. Today, both Mr. Makhdoom Ali Khan assisted by Mr. Ali Almani, learned counsel for the applicant, and Mr. Syed Riazuddin, learned counsel for the respondent, have confirmed that they are prepared to argue the case for final disposal, therefore, we admitted the above Reference Application to regular hearing and heard all the learned counsel for final disposal of the case.

3. Brief facts of the case are that the applicant company who was required to pay advance tax under section 147(1) of the Income Tax Ordinance, 2001, filed an estimate of tax under section 147(6) of the Ordinance declaring NIL income and stating that they are not required to pay any tax under section 147(1) for the assessment year in question on the basis of the estimate filed. The Taxation Officer did not accept the estimate and after issuing a notice dated 24-1-2011 asking the applicant to pay first and second installment of advance tax amounting to Rs.1,020,521,463 for each installment and after rejecting the reply received from the taxpayer passed an order under section 147(7) of the Income Tax Ordinance, 2001, read with Clause (5) of section 2 further read with section 137(2) of the Income Tax Ordinance, 2001, and also Order under section 205 of the Income Tax Ordinance, 2001, levying default' surcharge and created a liability of Rs.2,116,952,947 against the present applicant.

4. Being aggrieved by the order passed by Taxation Officer the applicant filed an appeal before the Commissioner Inland Revenue (Appeals) who vide his Order No.84 dated 25-3-2011 upheld the order passed by the Taxation Officer and dismissed the appeal. Being further aggrieved from the order of the Commissioner Inland Revenue (Appeals), the applicant filed an appeal before the Appellate Tribunal, Inland Revenue Karachi, who vide the impugned order rejected the appeal and upheld the orders of the two forums below. Hence this Reference Application.

5. Mr. Makhdoom Ali Khan, learned counsel for the applicant, before reading the provisions of the relevant sections submitted that the Tribunal has mainly rejected his appeal for the three main reasons detailed below:--

(1)That the Tribunal held that an estimate of NIL tax cannot be filed under subsection (6) of section 147 and is therefore an invalid estimate.

(2)The Tribunal held that the estimate cannot be bald and has to be backed and substantiated by cogent reasons.

(3)That if it is held that no reasons are required to be given for filing an estimate under subsection (6) of section 147 then chaos will be created and every person will file an estimate to avoid paying advance tax.

6. He strongly rebutted the three reasons given by the Tribunal and initiated his arguments by reading out the provisions of subsection (1) of section 147 and subsection (6) of section 147. The learned counsel pointed out that the taxpayer, who is a Company and an Association of persons, and whose income had been charged to tax for the latest tax year is required to pay advance tax in four equal installments. He conceded that his income for the earlier year had been charged to tax against which Reference Application and Constitutional Petition are pending before this Court but upto the level of the Tribunal he has been unsuccessful in getting the order of the Taxation Officer set aside. He further admitted and conceded that he was required to pay advance tax under subsection (6) as computed under subsection (4) of section 147 but before the first installment was due, on 25-9-2010, he had on 23-9-2010 already filed an estimate declaring that NIL tax was payable by him and according to the learned counsel once he has filed such estimate then his liability under subsection (1) is restricted to the tax payable on the basis of estimate filed by him under subsection (6). He submitted that when the Taxation Officer issued him a show-cause notice for non-payment of first and second installment of the advance tax, he filed a detailed reply vide his letter dated 31-1-2011 in which his contention was that it is his prerogative to file an estimate under subsection (6) and once he has filed such estimate, advance tax has to paid on the basis of such estimate, however, his such explanation was not accepted by the Taxation Officer and he passed the order under section 147(7). The arguments of the learned counsel are twofold. After reading the provisions of sections 147(6) and 147(7) the learned counsel argued that once he has filed an estimate under subsection (6) of section 147, his liability to pay advance tax is restricted on the basis of the estimate tiled under subsection (6) and he is not required to state any reason for filing such estimate and there is no provision in law or anything is provided in subsection (6) to authorize the Taxation Officer to reject his estimate under subsection (7) of section 147. He relied on the judgment of this Court in the case of Pak Saudi Fertilizer v. Commissioner of Income Tax reported in 1999 PTD 4061 which was upheld by the Hon'ble Supreme Court in the case of Chairman C.B.R. v. Pak Saudi Fertilizer reported in 2000 PTD 3748 in which it was held that Taxation Officer cannot pass an order under the provisions of section 53 which was the parameteria section to section 147 of the Ordinance, 2001. He argued that by promulgating subsection (7) in section 147 the Legislature has removed the defect that if there is a default in payment of advance tax under section 147(1) it can be recovered as tax due under an assessment order under section 147 but still subsection (7) does not authorize the Taxation Officer to pass an order under section 147(7), therefore, the order passed by the Taxation Officer is without any authority and jurisdiction. The learned counsel then filed a comparative chart of the provisions relating to the payment of advance tax under Income Tax Ordinance, 2001, Income Tax Ordinance, 1979, and Indian Income Tax, 1961, and after pointing out that it has been held in the case of Pak Saudi Fertilizer, quoted supra, that the provisions of subsection 210 of the Indian Income Tax, 1961, are not completely analogous with the provisions of section 53 of the Income Tax Ordinance, 1979, but the tiling of an estimate is also there and in this connection he relied on two judgments from the Indian jurisdiction, first one is of Delhi High Court in the case of J.K. Synthetics Ltd. v. Income Tax Officer, Central Circle-XVIII, and others, reported in 174 (1988) ITR 167 and the another of Punjab and Haryana High Court in the case of-Punjab Tractors Ltd. and another v. Assistant Commissioner of Income Tax and another, reported in 267 (2004) ITR 229 and pointed out that in both these cases it has been held that the Taxation Authorities are not authorized to examine and reject the estimate filed by the taxpayer. In J.K. Synthetics Ltd. case, quoted supra, he also pointed out that in that case also the taxpayer had filed an estimate of NIL income but the learned Delhi High Court had held that such estimate could not be challenged before finalization of the assessment and the taxpayer was entitled to pay advance tax in accordance with the estimate filed by him. The learned counsel then went on to attack the Tribunal's contention that if it is held that the NIL estimate can be filed under subsection (6) of section 147 then there will be chaos. He submitted that at the time of assessment, after assessing the income and tax of the applicant, the Taxation Officer would have the jurisdiction to levy default surcharge under subsection (1B) of section 205 which will be at the rate of KIBOR plus 3% per quarter which is a very heavy penalty and will act as a deterrent to the persons paying tax on the basis of tiling wrong estimate. He prayed that since his estimate could not be challenged and that there was no provision in law for passing an order under section 147(7), therefore, the orders of the lower forums may be set aside and the questions of law proposed may be answered in his favour.

7. The arguments of the learned counsel for applicant were strongly opposed by the learned counsel for the respondent Mr. Syed Riazuddin who read out various extracts from the order of the Tribunal and supported such extracts as according to hint since it was the first installment which was due on 25-9-2010 and estimate NIL tax could not be filed as the applicant was liable to pay at least minimum tax under section 113. He also submitted that subsection (6) provides a concession and it is a settled law that concession and exemption should be strictly construed and the Tribunal has rightly held that subsection (6) does not prescribe filing of a bald estimate of advance tax payable and such estimate has to be backed by the substantial reasons and the reasons which have been given by the applicant before the Taxation Officer in the explanation letter and during their arguments before the . Commissioner Inland Revenue (Appeals) and the Tribunal were based on the assumptions that they will succeed before this Court in their Reference Application and the Constitutional Petition filed and it will be held that their income is exempt from tax and estimate could not be based on such a presumption and the Tribunal has rightly, while upholding the order of the Taxation Officer, rejected these reasons. He further read out the provisions of subsection (6) and said that subsection (6) provides that tax should be paid on the basis of such estimate and NIL tax means that no tax is being paid and therefore the estimate filed by the applicant does not fall under subsection (6) of section .147. He relied on the judgment of this Court in the case of -Commissioner (Legal) Inland Revenue v. E.N.I. Pakistan (M) Ltd. reported in 2001 PTD 476 wherein this Court had held that even limited company has the right to file estimate under subsection (6). However, he relied on the extract from the judgment of this Court where this Court had held that subsection (7) of section 147 and section 205 of this Ordinance provide deterrents to the taxpayers for filing a wrong estimate under subsection (6) as subsection (7) of section 147 provides that if there is any shortfall the same may be recovered from the taxpayer as if it was a tax due under an assessment order and in this connection the learned counsel submitted that there is a shortfall of tax payable -under subsection (1). He further argued that subsection (6) has to be read in consonance with subsection (1) of section 147 and will only apply if subsection (1) applies. In support of his contention that the order was required to be passed for collecting the tax due the learned counsel relied on the judgment of the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Amenity Haji Noor Muhammad reported in 1992 PTD 347 where the Court had held that to recover the penal interest leviable under subsection (8).of section 18 of the Income Tax Act, 1922, an order has to be passed. He, therefore, prayed that the Tribunal has passed a well reasoned order based on correct interpretation of the various subsections of section 147 and arrived at the conclusion that the estimate of NIL income and tax if filed under section 147(6) if is not backed by any reason then it is an invalid estimate and can be rejected by the Taxation Officer. He also tried to convince us that in case no tax is payable under the estimate filed then the provisions of subsection (1B) of section 205 will not apply and the applicant will go scot-free.

8. Mr. Makhdoom Ali Khan exercising his right of reply submitted that without prejudice to his contention that it can only be determined at the time. of passing an assessment order whether he is liable to pay minimum tax under section 113 or not even if it is assumed that he has filed an estimate of NIL tax by ignoring the provisions of section 113, the Taxation Officer did not have the authority to challenge it and could only have levied default surcharge on him after, passing the assessment order under the provisions of sections 120, 121 and 122 of the Income Tax Ordinance as the case may be. He also argued that the reliance of the learned counsel for the respondent on the judgments in the case of E.N.I. Pakistan (M) Ltd., quoted supra, and Anweraly Haji Noor Muhammad, quoted supra, are ill founded and those judgments are actually in his favour.

9. We have examined the case in the light of the arguments of the learned counsel and have perused the records of the case including impugned order, relevant laws and the judgments relied upon.

10. Before we proceed further it will be relevant to reproduce subsection (1), subsection (6) and subsection (7) of section 147 and subsection (1B) of section 205 of the Income Tax Ordinance, 2001:--

147. Advance tax paid by the taxpayer.---(1) Subject to subsection (2), every taxpayer 1 [whose income was charged to tax for the latest tax year under this Ordinance or latest assessment year under the repealed Ordinance' other than,

[(a)**]

(b) income chargeable to tax under sections 5, 6 and 7;

[(ba) income chargeable to tax under section 15,]

(c) income subject to deduction of tax at source under section 149; (and)

[(ca) ***]

(d) income from which tax has been collected under Division-II or deducted under Division III and for which no tax credit is allowed as a result of subsection (3) of section 168,

shall be liable to pay advance tax for the year in accordance with this section.

147(6): If any taxpayer who is required to make payment of advance tax under subsection (1) estimates at any time before the last installment is due, that the tax payable by him for the relevant tax year is likely to be less than the amount he is required to pay under subsection (1), the taxpayer may furnish to the Commissioner an estimate of the amount of the tax payable by him, and thereafter pay such estimated amount, as reduced by the amount, if' any, already paid under sub-section (1), in equal installments on such dates as have not expired.]

147(7): The provisions of this Ordinance hall apply to any advance tax due under this section as if the amount due were tax due under an assessment order.

205(1B): Where, in respect of any tax year, any taxpayer fails to pay tax under subsection 4[(4A), or] (6) of section 147 or the tax so paid is less than 5[ninety] per cent of the tax chargeable for the relevant tax year, he shall be liable to pay additional tax at the rate of twelve per cent per annum on the amount of tax so chargeable or the amount by which the tax paid by him falls short of the 6[ninety] per cent, as the case may be; and such additional tax shall be calculated from the first day of April in that year to the date on which assessment is made or the thirtieth day of June of the financial year next following, whichever is the earlier.]

11. A bare reading of subsection (6) of section 147 leads to the conclusion that a taxpayer who is required to make payment of advance tax under subsection (1), if he estimates that the tax due for the relevant tax year is likely to be less than the amount he is required to pay under subsection (1), he may file an estimate of the amount of tax payable by him and thereafter pay such estimated amount. From a perusal of this subsection it is clear that this subsection is only applicable to a person who is required to pay tax under subsection (1) and the applicant before us fulfills that condition. We have been unable to understand the logic of the argument of the learned counsel for the responder that subsection (6) has to be read with subsection (1) and since subsection (1) does not apply to the applicant's case, therefore, subsection (6) will not apply and he cannot file an estimate. We are clear in our minds that the only condition to file an estimate under subsection (6) is that subsection (1) should apply and the taxpayer estimates that the tax Payable by him is likely to be less than the amount payable by him under subsection (1), and once these two conditions are fulfilled then estimate can be filed and they apply in the applicant's case, so the estimate has been rightly filed.

12. Now we come to the contention of the learned counsel for the respondent and the decision given by the Tribunal that the NIL estimate cannot be tiled under subsection (6). From a perusal of the order of the Tribunal it is seen that the reasons given by the Tribunal are that subsection (6) of section 147 does not envisage filing of a NIL estimate because it clearly provides that the taxpayer may furnish to the Commissioner an estimate of the amount of the tax payable by him and thereafter pay such estimated amount, as reduced by the amount, if any, already paid under subsection (1), in equal installments, therefore, estimate has to be in respect of reduced amount of tax payable by the taxpayer and not NIL amount of tax because according to the learned Tribunal this section does not envisage a situation where a taxpayer estimates that no advance tax is likely to be payable; therefore, according to the Tribunal, the estimate of NIL advance tax payment filed by the applicant was not in consonance with the provision of subsection (6) of section 147 and hence cannot be termed as a valid estimate within the meaning of section 147(6). We fail to see any logic in this contention because what subsection (6) requires is that the tax will become payable on the basis of the estimate filed and if no tax is payable then it will not mean that such estimate cannot be filed as there is no provision in subsection (6) prohibiting that an estimate cannot be filed under which notax is payable. We will substantiate this point by drawing an analogy that if it was not the first installment due but the third installment and the tax had already beep paid under the first and second installment which was enough to cater to the entire four tax installments in accordance with the estimate the taxpayer would not be required to pay any further tax but that does not mean that he cannot file such estimate. This contention of the learned counsel and the Tribunal is not backed by any statutory provision and is hereby rejected. Our view is also supported by the judgment of Delhi High Court in the case of J.K. Synthetics Ltd., quoted supra.

13. Now we will examine if a wrong estimate is filed then what are the options available to the Taxation Authorities to take action for filing such wrong estimate. A perusal of 'section 147 leads to the conclusion that once such estimate is filed whether right or wrong, there is no provision which provides any authority to the Taxation Officer to discard this estimate and ask the taxpayer to continue paying the tax in accordance with the provision of subsection (1) of section 147 read with subsection (4) of section 147. The learned counsel for the respondent has also not been able to point out any provision of law which provides such authority and therefore we are of the considered opinion that once an estimate is filed the only option available to the Taxation Authority is to levy default surcharge under subsection (1B) of section 205 after completing the assessment, if such default surcharge is leviable on the basis of the assessment. The language of subsection (7) of section 147 is also clear which provides an authority to the Taxation Authorities to recover advance tax not paid as if it was a tax due under an assessment order so that provisions of section 137(2) are not violated. However, we are inclined to agree with the learned counsel for the applicant that it does not provide them an authority and jurisdiction to pass any order for the recovery of such tax and therefore we are of the considered opinion that the order passed by the Taxation Officer is without proper jurisdiction and authority and cannot be sustained.

14. We have noted that the Tribunal instead of dilating on the main issue as whether the Taxation Officer could pass an order under section 147(7) of the Income Tax Ordinance, 2001, and collect the advance tax liability created on the basis of such order and whether he had any powers and authority to reject the estimate filed has only considered the reasons detailed by the present applicant for filing the estimate and rejected them without pointing out any provision of law that the reasons have to be given for filing the estimate. This conclusion of the Tribunal has been reached without considering the real issues involved in the appeal and therefore cannot be sustained.

15. In view of the above discussion we answer the question Nos.(a) and (b) referred to us in negative in favour of the applicant and against the respondent.

16. This Income Tax Reference Application is disposed off in the above manner. However, we would like to compliment both the learned counsel, specially Mr. Syed Riazuddin, learned counsel for the respondent, for providing invaluable assistance to this Court.

17. A copy of this order under the seal and signature of the Registrar of this Court be sent to the Appellate Tribunal, Inland Revenue Karachi, for passing of orders inconsonance with this judgment.

S.A.K./K-15/KAnswer in negative.