COMMISSIONER OF INCOME TAX, RAWALPINDI VS SETHI FLOUR MILLS, HASSANABDAL, 2015 PTD-LAHORE-HIGH-COURT-LAHORE 394 (2014)

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 53---Advance tax---Scope---Concept of advance tax is that it is collected before determining its payability through assessment for any assessment/tax year and is adjusted against payable tax---Advance tax, paid if found in excess of payable tax, the differential amount becomes refundable and if found short of tax payable, the differential amount is to be deposited by assessee/taxpayer---Payment of advance tax being a statutory obligation, therefore, on default it entails payment of additional tax for defaulted period.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 53, 86, 87, 129, 136 & 156---Advance tax---Additional tax, charging of---Payment in instalments---Assessee paid advance tax in instalments but defaulted in payment of instalments in time, therefore, authorities imposed additional tax on assessee---Validity---Provision of S. 86 of Income Tax Ordinance, 1979, was simply a charging section providing without giving any procedure for determining facts through an order---Such findings were supported by provisions of S. 129 of Income Tax Ordinance, 1979, whereunder appeals were filed before Commissioner (Appeals)---No appeal was provided against order under S. 87 of Income Tax Ordinance, 1979, as the same was not mentioned in S. 129 of Income Tax Ordinance, 1979, which had specified sections under which order passed could be assailed and it carried a mechanism for passing order under it---No order could have been passed under S. 86 of Income Tax Ordinance, 1979, independently---Income Tax Appellate Tribunal rightly treated the same to have been passed under S. 156 of Income Tax Ordinance, 1979, by implication---If the order under S. 87 of Income Tax Ordinance, 1979, was held nullity in the eye of law, the same would also be an order sustainable in the eye of law---Appeal was decided accordingly.

Messrs Pakistan Mobile Communication (Pvt.) Ltd. v. The Commissioner of Income Tax, Companies Zone, Islamabad (Civil Appeals No.1091-1092 of 2009) and Chairman, Central Board of Revenue, Islamabad and 3 others v. Messrs Pak-Saudi Fertilizer Ltd., and another 2001 SCMR 777 ref.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference to High Court---Question, framing of---Principles---In a question proposed for opinion of High Court, words like "to hold against statutory provision" should not be used---Only findings on a law point by Income Tax Appellate Tribunal should be proposed in a question, answer of which in 'Yes' or 'No' would suffice the purpose.

Muhammad Irshad Chaudhry along with Tahir Mehmood Bhatti, Inland Revenue Officer, Legal-1, Zone-1, Regional Tax Office, Rawalpindi for Appellant.

Nemo for Respondent.

Date of hearing: 19th August, 2014.

JUDGMENT

SHAHID JAMIL KHAN, J.---This appeal, under Section 136(1) of the Income Tax Ordinance, 1979 ("Repealed Ordinance"), is directed against order dated 26-10-1998 passed by the erstwhile Income Tax Appellate Tribunal ("Appellate Tribunal"). Following questions of law are proposed for opinion of this Court:-

(i)"Whether on facts and circumstances of the case, the learned ITAT was justified in law to hold against statutory provision that additional tax not charged under section 87 at the assessment stage, could be deemed to be a mistake apparent from record and could only be rectified under section 156?

(ii)Whether on facts and circumstances of the case, the learned ITAT was justified in holding that the assessing officer had to pass an order under section 156 in the presence of section 87 of the Income Tax Ordinance, 1979 without any time limitation?

(iii)Whether on facts and circumstances of the case, the ITAT was justified to decide that section 87, an independent section, is subservient to the provisions of section 156, for levying additional tax?"

2.Facts briefly are that an order, relating to assessment year 1985-86, was passed under section 87 of the Repealed Ordinance on 28-6-1995. This order was challenged, successfully, before First Appellate Authority. On second appeal, Appellate Tribunal upheld the order by Commissioner (Appeals), operative part is reproduced:--

"The issue in appeals is the charge of additional tax under section 87 for the years under appeal. The assessing officer passed orders under section 87 for these years for default of payment of Advance Tax under section 53. The department's view point is that there is no time limit specified under section 87, and, therefore, the learned CIT(A), was not justified to delete the Additional Tax on the ground that the orders under section 87 had been passed after more than four years from the date of assessment orders. The learned CIT(A) has relied on the provisions of section 156. It is, therefore, noted that the Assessing Officer has not invoked the provisions of section 156 but has in fact only passed order under section 87. The learned AR of the assessee states that it has already been held by this Tribunal in a case reported as 1996 PTD (Trib.) 65 that if Additional Tax under section 87 is not charged at the assessment stage, then it be deemed to be a mistake apparent from the record and such order can be rectified, subsequently, by the provisions contained in section 156. In the present case, no orders under section 156 were passed. Accordingly, the order of the learned CIT(A) is confirmed. The departmental appeal fails."

3.Learned counsel submits that assessee was bound to pay advance tax under section 53, in four equal installments, which admittedly was not paid in the relevant years. For this default, additional tax was rightly charged by invoking provisions of section 87 of the Repealed Ordinance. He argues that such independent order could not be construed to have passed section 156 by any stretch of interpretation. As limitation for charging additional tax is not provide in section 87, therefore, Appellate Tribunal could not supply any limitation for passing this order. He has relied on judgment by Apex Court in Messrs Pakistan Mobile Communication (Pvt.) Ltd. v. The Commissioner of Income Tax, Companies Zone, Islamabad (Civil Appeals Nos. 1091-1092/2009).

4.Heard learned counsel, at preliminary stage, record perused.

5.No cavil, that on default in payment of advance tax (under section 53) additional tax is chargeable under section 87. However, the question arose, whether provisions of section 87 could be invoked independently or are applicable as a consequence of any assessment? Appellate Tribunal opined that it can be charged as consequence only; if, it was not charged at the time of making assessment then it was a mistake floating on record. At best, assessing officer could invoke provisions of section 156, to rectify the mistake; the purported order under section 87, therefore, was treated to have been passed under section 156. This order was held barred by limitation, for having been passed beyond four year (period of limitation prescribed in section 156). For these reasons, charging of additional tax was annulled.

The concept of 'advance tax' is; that it is collected before determining its playability through an assessment, for any assessment/tax year and is adjusted against the payable tax. However, the advance tax paid, if found in excess of the payable tax, the differential amount becomes refundable and if found short of the tax payable, the differential amount is to be deposited by the assesse/taxpayer. Since payment of advance tax is a statutory obligation, therefore, on default it entails payment of additional tax, for the defaulted period.

6.Before embarking upon the proposition in this case, it would be advantageous to have look on a judgment by apex Court, under identical facts and circumstances, in Chairman, Central Board of Revenue, Islamabad and 3 others v. Messrs Pak-Saudi Fertilizer Ltd. and another (2001 SCMR 777).

An independent order under section 53(1) of the Repealed Ordinance, for recovery of installments of advance tax, was passed, before making any assessment. This order was set aside on being assailed before learned Sindh High Court in constitutional jurisdiction. The setting aside order was challenged before Hon'ble Supreme Court of Pakistan by Revenue and the appeal was accepted. The apex Court examined various provisions of Repealed Ordinance before giving the verdict. Relevant excerpts from the order are reproduced hereunder:--

"6. Section 53 of the Ordinance, 1979 lays down that advance income-tax is to be paid by the assessee and the amount so collected is to be adjusted against the final demand when regular assessment is made. There is nothing in section 53 of the Ordinance, 1979 whereunder the Assessing Officer/Deputy Commissioner of Income-tax has any authority to frame assessment under section 53 of the said Ordinance and to insist upon demand of advance income-tax in case advance income-tax is not paid by assessee on time, hence non-payment of it has been made liable to the imposition of additional tax under section 87 of the Ordinance, 1979, therefore, non-compliance of impugned order of demand of advance income-tax cannot be recovered under sections 92 and 93 of the Ordinance, 1979. No provision of law has been pointed out by the learned counsel for the petitioners that before the time of regular assessment, the Assessing Officer/Deputy Commissioner of Income-tax has any authority under section 53 of the Ordinance, 1979 to insist upon the demand of advance income - tax in case the same is not paid on time. Section 87 of Ordinance, 1979 reads as follows:---

"87. Charge of additional tax for failure to pay advance tax.---

(1)Where an assessee who was required to pay tax under sub-section (1) of section 53---

(a)fails to pay any instalment; or

(b)fails to pay any instalment on or before the specified date; or

(c)fails to pay the full amount payable by him,

he shall, without prejudice to any other liability which he may incur under this Ordinance, be liable to pay additional tax at the rate of twenty-four per cent per annum on the amount not paid, and such additional tax shall be calculated from the date on which such amount was payable to the date on which it paid or the thirtieth day of September of the financial year next following, whichever is the earlier.

(2)Where in respect of any year, any assessee fails to pay tax under subsection (4) of section 53 or the tax so paid is less than eighty per cent of the tax chargeable for the relevant assessment year, he shall be liable to pay additional tax at the rate of twenty-four 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 said eighty 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."

In view of the aforesaid reasoning and the provisions of law, the Assessing Officer/Deputy Commissioner Income-tax not being authorized by law cannot effect recovery of advance tax in case of failure to pay the same on time under section 53, consequently the impugned demand notice was rightly declared by the learned Division Bench of the High Court to be without jurisdiction and unlawful. In the circumstances, we find no substance in the contention of the learned counsel for the petitioners."

Ratio of the judgment is that no order to recover the advance tax could be passed under section 53 because of the language used in it. A fiscal legislation, like the Repealed Ordinance, is a compendium of different kinds of provisions, some of which are 'charging provision', like section 9 (for charging income tax), section 53 (for charging advance tax) and section 87 (for charging additional tax). Some are 'machinery provisions' like sections 62, 65 and 66A, which provide machinery for assessment or determination of the tax levied by charging sections. And last category is of 'recovery provisions' which provide mode of recovering the tax so determined.

7.The same analogy applies for charging the additional tax, as language of section 87 also does not suggest passing of an order under it. The reproduced provision of the section 87 of the Repealed Ordinance simply envisage levy of additional tax for failure to pay the installments of advance tax. An independent order under the section 86 of the Repealed Ordinance could only have been passed if any of the provision of the section 87 of Repealed Ordinance would provide issuance of notice or passing of an order. The default contemplated under this provision is to be ascertained while making an assessment under the sections 62, 63, 65 or 66A of the Repealed Ordinance. Only these provisions provide for issuance of show-cause notice and passing of order on the facts found on record and confronted to the assessee. In other words, section 86 of the Repealed Ordinance is simply a charging section providing without giving any procedure for determining the facts through an order. These findings are supported by the provisions of the section 129 of the Repealed Ordinance, where-under appeals are filed before Commissioner (Appeals). No appeal is provided against an order under the section 87 of the Repealed Ordinance, as the same is not mentioned in the section 129 of the Repealed Ordinance. Perusal of the section 129 of the Repealed Ordinance shows that it specifies sections under which an order passed can be assailed; like sections 59, 62, 63, 65 and so on. Provisions of the section 129 of the Repealed Ordinance carry a mechanism for passing order under it.

In our opinion, no order could have been passed under the section 86 of the Repealed Ordinance independently. The learned Tribunal rightly treated the same to have been passed under the section 156 of the Repealed Ordinance by implicating. Had the order, under the section 87 of the Repealed Ordinance, been held as nullity in the eye of law, the same would also be an order sustainable in the eye of law.

8.The judgment by Apex Court in Messrs Pakistan Mobile Communication (Pvt.) Ltd. case (supra) is not applicable to the facts of this case. In the appeals before the Hon'ble Supreme Court of Pakistan the order in question was under the section 52 of the Repealed Ordinance for holding a person 'assessee in default' for not deducting or collecting tax or for non-deposit of tax after deducting/collecting the same under the section 50 of the Repealed Ordinance. In one set of cases this Court held that provisions of the section 52 of the Repealed Ordinance could not have been invoked after expiry of four years period which was the limitation provided under the section 156 of the Repealed Ordinance. Whereas in another set of cases learned Islamabad High Court held that Tribunal had no power to provide limitation for invocation of provisions under the section 52 of the Repealed Ordinance when legislature had not done so. The Apex Court preferred the opinion of learned Islamabad High Court and decided the appeals in favour of department after reproducing the following paragraph from the judgment of the learned Islamabad High Court:--

"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."

9.Now we advert to answer the proposed questions under the facts and circumstances of this case and in light of the discussion made hereinabove. Language of question No.1 is not couched in proper words. In a question proposed for opinion of this Court, words like "to hold against statutory provision" should not be used. Only findings on a law point by the Tribunal should be proposed in a question, answer of which in "Yes" or "No" would suffice the purpose. Hence answer to question No.1 is declined; whereas questions Nos. 2 and 3 are entertained and are answered in affirmative. Resultantly, the appeal filed by the department is decided against it.

11.Office shall send a copy of this judgment under seal of the Court and signature of the Registrar to Appellate Tribunal Inland Revenue under section 136(6) of Repealed Income Tax Ordinance, 1979.

MH/C-17/LOrder accordingly.