SUI NORTHERN GAS PIPELINES LIMITED (SNGPL) VS FEDERATION OF PAKISTAN, 2017 PTD-LAHORE-HIGH-COURT-LAHORE 1774 (2017)

(a) Income Tax Ordinance (XLIX of 2001)---

----Ss. 147, 120 & 122---Advance tax under S.147 of the Income Tax Ordinance, 2001--- Nature and concept---Advance tax as estimate to be made by taxpayer---Scope---Amount paid as advance tax was not the property of the Federal Government but remained vested in an assessee and was merely an amount which was paid in advance in respect of tax before it became due---Tax became due only after regular assessment and in case an amount was found to have been paid more than what was due, a refund to the assessee was in order---By such token, therefore, advance tax was an estimated amount of income tax to be paid by the taxpayer in four quarterly installments and concept underlying entire regime of advance tax was that estimate was to be made by the taxpayer and it was not for the tax authorities to question or object till the close of the tax year and it was then that the law empowered taxation officers to verify advance tax paid and to impose any liability in case it was found that an additional tax was due from the taxpayer---If more amount had been paid as advance tax, taxpayer was entitled to refund of excess amount---Per S. 147(4A) of the Income Tax Ordinance, 2001 it was clear that entire concept of advance tax was based on estimate of the tax payable for the relevant taxpayer and such estimate had to be made by the taxpayer which was the theme that ran through the entire length and breadth of S. 147 of the Income Tax Ordinance, 2001---Estimate had to be made by the taxpayer and on basis of such estimate, taxpayer made payment of advance tax in accordance with S.147(4) of the Income Tax Ordinance, 2001----Same concept permeated S.147(6) of the Income Tax Ordinance, 2001 where the taxpayer was required to make the payment of advance tax under S.147(1) of the Income Tax Ordinance, 2001 and where taxpayer estimated at any time before the last installment was due that tax payable by him for the relevant tax year was likely to be less than the amount he was required to pay, then under S.147(1) of the Income Tax Ordinance, 2001 taxpayer may furnish to the Commissioner Inland Revenue 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---Nowhere in S.147 of the Income Tax Ordinance, 2001 any discretion or authority been vested in an officer of the Income Tax to dispute or challenge the estimate made by the taxpayer during the course of the remittances made by the taxpayer for each quarter of a tax year.

Call Tell and another v. Federation of Pakistan and others 2005 PTD 833; Lone Cold Storage, Lahore v. Revenue Officers, Lahore Electronic Power Co. and others 2010 PTD 2502 and Commissioner of Income Tax v. Abestos Cement Industries Ltd., and others 1993 PTD 343 rel.

(b) Income Tax Ordinance (XLIX of 2001)---

----Ss. 147, 176 120 & 122---Constitution of Pakistan, Art. 199---Constitutional petition---Interpretation of S.147 of the Income Tax Ordinance, 2001---Concept, nature and scope of Advance Tax under the Income Tax Ordinance, 2001---Demand of advance tax as tax due from taxpayer after return of income for that tax year had been filed by taxpayer---Powers of Inland Revenue to raise demand for payment of Advance Tax---Scope---Petitioners / taxpayers impugned show-cause notices issued under S.147(7) of the Income Tax Ordinance, 2001 which raised demand for payment of Advance Tax---Contention of the petitioners inter alia was that the petitioners had already filed Return of Income and as such, payment of Advance Tax could not be demanded by the Department---Validity---Provisions of S.147(7) of the Income Tax Ordinance, 2001 did not confer power on the Deputy Commissioner who had issued the impugned notices to do so and per S.120(1) of the Income Tax Ordinance, 2001 where a taxpayer had furnished a complete return of income for a tax year, the same shall be taken as an assessment order of taxable income for that tax year---Section 147(7) of the Income Tax Ordinance, 2001 did not convey an impression or intent that the said provision was to be used for the purpose of issuance of a show-cause notice of the nature which had been issued in the present case for payment of advance tax and unless further processes were set into motion, a taxpayer could not be saddled with a liability in respect of a tax due which crystallized upon the return of income having been furnished---Spirit of S.147 of the Income Tax Ordinance, 2001 was in an estimate to be made by the taxpayer and on the basis thereof advance tax to be paid and it would be a contradiction in terms if such basic theme of said section were to be nullified by conferring jurisdiction on an officer of the Income Tax to dispute each estimate made by the taxpayer and to issue show-cause notices of the nature which were issued to petitioners and such a construction of S.147 would tantamount to nullifying the intent of the Legislature---Purpose of S.147(7) was none other than to lay down that in case the advance tax was found to be under-assessed or assessed in contravention of the formula given in S.147, the amount due would be taken as tax due under an assessment order and key words were assessment order which stage arrived only after the return of income had been filed by a taxpayer---Amendment in assessment order was a prerequisite for an amount to become tax due which could only be done under S.122 of the Income Tax Ordinance, 2001 by the Commissioner---High Court observed that the impugned notices were unilateral and an ex-parte determination of an alleged advance tax due from the tax payer which was not the mandate of S. 147(7) of the Income Tax Ordinance, 2001---Impugned notices were set aside, and Constitutional petition was allowed, accordingly.

Khurram Shehbaz Butt for Petitioner.

Sarfraz Ahmad Cheema and Shahid Usman along with Dr. Ishtiaq Ahmad, Director Law, FBR for Respondents.

Date of hearing: 18th April, 2017.

JUDGMENT

SHAHID KARIM, J.---This petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, lays a challenge to the notices dated 25.03.2015 issued under Section 176 of the Income Tax Ordinance, 2001 ( the Ordinance, 2001 ) calling for information for advance tax liability for third quarter of tax year 2015. This was followed by a show-cause notice under Section 147(7) of the Ordinance, 2001 on 28.03.2015 by which it was stated that the demand for advance tax was payable on 25.03.2015 for which the company had failed to comply with its statutory obligation and thus the impugned notice was being issued. It is pertinent to mention that the impugned notices are not, in fact, show-cause notices and require the compliance of a demand for the payment of Rs.316,564,953/- by 31.03.2015.

2.Writ Petition No.12481 of 2015, Writ Petition No. 10462 of 2015 and Writ Petition No. 19883 of 2015 have been filed under similar circumstances and lay a challenge to similar notices. In Writ Petition No.12481 of 2015, the show-cause notice was issued under section 147(7) of the Ordinance for the alleged non-payment of advance tax for September quarter of tax year 2015. Once again, by the impugned notices, the amount of Rs.57.302 Million was required to be deposited by 21.4.2015. Writ Petition No.10462 of 2015 calls in question the show-cause notice under section 147(7) of the Ordinance for non-payment of advance tax for third quarter 2015 and similarly Writ Petition No.19883 of 2015 impugns the show-cause notice dated 3.4.2015 for the alleged non-payment of advance tax for second quarter, 2015.

3.On the threshold, the learned counsel for the petitioner states that in respect of tax year 2015 the return has been filed on 19.3.2016 and by which refundable income tax has been claimed by the petitioner. Therefore, the advance tax which was required to be paid for each quarter has now culminated in the filing of the return by the petitioner and the matter, therefore, according to the learned counsel for the petitioner, has become academic and no liability can be fixed on the petitioner in pursuance of the show-cause notice as firstly the return of income tax has been filed and secondly a substantial amount is due to the petitioner-company as refund from the department.

4.It would be appropriate to refer to the exposition on the nature of advance tax by the superior courts before proceeding further. In Call Tell and another v. Federation of Pakistan and others (2005 PTD 833), the Supreme Court of Pakistan explicated the concept in the following words:--

The collection of advance tax does not amount to levy of tax. Advance tax is payment made merely on account to the adjusted against the charge of income tax as finally ascertained. It is not a tax but merely a provisional payment on an amount towards tax due. The said amount does not become the property of the Central Government but remains vested in the assessee.

5.In Lone Cold Storage, Lahore v. Revenue Officers, Lahore Electronic Power Co. and others (2010 PTD 2502), the concept was further elaborated upon in the following terms:--

28. Advance Tax is, therefore, an estimated amount of proposed income tax to be paid by the taxpayer at the close of the Tax Year. After the said estimation the law requires the taxpayer to pay the said estimated amount during the currency of the Tax year in four quarters. The estimate is to be made by the taxpayer and is not for the tax authorities to question or object till the close of the Tax Year when the law authorizes the tax authorities to verify the advance tax paid and impose additional tax if the advance tax paid has been less than 90% of the total income tax liability of the taxpayer (section 205 of the Ordinance).

29. While the tax payer pays the estimated amount of tax, section 235 provides for collection of transitional advance tax at the rates specified in Part-IV of the First Schedule in the manner electricity consumption charges are charged. Section 235 of the Ordinance further facilitates the payment/collection of advance tax by monthly deduction of the same in the electricity bills of the taxpayer. The said payment gets adjusted as component D in the formula, mentioned above, in section 147(4) of the Ordinance. All the calculations, assessment and adjustments of advance tax are made under Section 147 of the Ordinance, even the payment made under Section 235 is adjusted under section 147 read with section 168 of the Ordinance.

6.The nature of advance tax was further dilated upon by the Supreme Court of Pakistan in Commissioner of Income Tax v. Asbestos Cement Industries Ltd. and others (1993 PTD 343) and it was said that:-

The said amount does not become the property of the Central Government but remains vested in the assessee company. Undoubtedly, it is an amount which must be paid in advance in respect of tax before it becomes due. But it (the tax) becomes due only after regular assessment and if on regular assessment nothing or a lesser amount is found due and payable, the Government in that even shall have to return the amount paid of the sum Paid in excess with interest from the date of payment to the date of such assessment.

7.From a reading of the portions of the precedents, reproduced above, it is clear that the amount paid as advance tax is not the property of the Federal Government but remains vested in the assessee company. It is merely an amount which is paid in advance in respect of tax before it becomes due. Quite evidently, the tax becomes due only after regular assessment and in case the amount is found to have been paid more than what was due, a refund is in order to the assessee. By this token, therefore, advance tax is an estimated amount of income tax to be paid by the taxpayer in four quarterly installments. The concept underlying the entire regime of advance tax is that estimate is to be made by the taxpayer and it is not for the tax authorities to question or object till the close of the tax year and it is then that the law empowers the taxation officers to verify the advance tax paid and to impose any liability in case it is found that an additional tax is due from the taxpayer. Conversely, if more amount has been paid as advance tax, the taxpayer is entitled to a refund of the excess amount. It is in this backdrop that the present controversy has to be analyzed and determined. It is not in dispute that the final return has been filed by the petitioner-company and refundable income tax has been shown in that return. Quite clearly, the assessing officer may proceed under the relevant provisions of law and the rules to scrutinize the return furnished by the petitioner-company and to see if more tax was due from the petitioner than what has been paid during the four quarters of the tax year 2015. This position is not denied by the learned counsel for the petitioner and the law will take its own course. For the present purposes we are concerned with the fate of the show-cause notices issued under section 147(7) of the Ordinance, 2001 by which the petitioner has been called upon to make over and deposit default amounts which were paid as advance tax during each quarter of the tax year 2015. Section 147 reads as under:--

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) ***]

(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 or deducted or collected under Chapter XII 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.

(2) This section does not apply to an individual [***] where the individual s [***] latest assessed taxable income excluding income referred to in clauses (a), (b), [(ba),] (c) and (d) of subsection (1) is less than [five] hundred thousand] rupees.

[(3)*** ]

(4) where the taxpayer is an association of person or a company, the amount of advance tax due for a quarter shall be computed according to the following formula, namely:-

(A x B/C) - D

Where

A is the taxpayer s turnover for the quarter;

B is the tax assessed to the taxpayer for the latest year;

C is the taxpayer s turnover for the latest tax year; and

D is the tax paid in the quarter for which a tax credit is allowed under Section 168 [****}

[(4A) Any taxpayer who is required to make payment of advance tax in accordance with subsection (4), shall estimate the tax payable for the relevant tax year, at any time before the second installment is due. In case the tax payable is likely to be more than the amount he is required to pay under subsection (4), the taxpayer shall furnish to the Commissioner on or before the due date of the second quarter an estimate of the amount of tax payable by the taxpayer and thereafter pay fifty per cent of such amount by the due date of the second quarter of the tax year after making adjustment for the amount, if any, already paid in terms of subsection (4). The remaining fifty per cent of the estimate shall be paid after the second quarter in two equal installments payable by the due date of the third and fourth quarter of the tax year].

[(4AA) ***]

(4AA) Tax liability under section 113 shall also be taken into account while working out payment of advance tax liability under this section.

[4B]) Where the taxpayer is an individual [***] having latest assessed income of five hundred thousand rupees or more as determined under subsection (2), the amount of advance tax due for a quarter shall be computed according to the following formula, namely: -

(A/4) B

Where

A is the tax assessed to the taxpayer for the latest tax year or latest assessment year under the repealed Ordinance; and

B is the tax paid in the quarter for which a tax credit is allowed under section 168, other than tax deducted under section 149 ***]

(5) Advance tax is payable by [an individual [***]]to the Commissioner

(a) in respect of the September quarter, on or [before] the [15th day of September];

(b) in respect of the December quarter, on or before the [15th day of December];

(c) in respect of the March quarter, on or before the [15th day of March]; and

(d) in respect of the June quarter, on or before the [15th day of June].

(5A) Advance tax shall be payable by an association of persons or a company to the Commissioner- -

(a) In respect of the September quarter, on or before the 25th day of September;

(b) In respect of the December quarter, on or before the 25th day of December;

(c) In respect of the March quarter, on or before the 25th day of March; and

(d) in respect of the June quarter, on or before the 15th day of June.

2 [(5B) Adjustable advance tax on capital gain from sale of securities shall be chargeable as under, namely:

TABLE

Provided that such advance tax shall be payable to the Commissioner within a period of twenty-one days after the close of each quarter:

Provided further that the provisions of this subsection shall not be applicable to individual investors.

(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 subsection (1), in equal installments on such dates as have not expired.

(6A) Notwithstanding anything contained in this section, where the taxpayer is a company or an association of persons, advance tax shall be payable by it in the absence of last assessed income or declared turnover also. The taxpayer shall estimate the amount of advance tax payable on the basis of quarterly turnover of the company or an association of persons, as the case may be, and thereafter pay such amount after,

(a) taking into account tax payable under section 113 as provided in subsection (4AA); and

(b) making adjustment for the amount (if any) already paid.

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

(8) A taxpayer who has paid advance tax under this section for a tax year shall be allowed a tax credit for that tax in computing the tax due by the taxpayer on the taxable income of the taxpayer for that year.

(9) A tax credit allowed for advance tax paid under this section shall be applied in accordance with subsection (3) of section 4.

(10) A tax credit or part of a tax credit allowed under this section for a tax year that is not able to be credited under subsection (3) of section 4 for the year shall be refunded to the taxpayer in accordance with section 170.

8.Section 147, as reproduced above, comprises the regime of advance tax to be paid by a taxpayer. However, taxpayer is liable to pay advance tax for the year in accordance with the provisions of this section. The formulae for the payment of advance tax has been given in subsection (4) where the taxpayer is association of persons or a company the advance tax has to be computed under the formulae given in subsection (4) and for individuals and certain other category of taxpayer the formulae has been delineated in subsection (4)(B). A reading of subsection (4A) of section 147 would bring forth ineluctably that the entire concept is based on estimate of the tax payable for the relevant taxpayer and that estimate has to be made by the taxpayer. This is the theme which runs through the entire length and breadth of section 147 of the Ordinance. There is an estimate which has to be made by the taxpayer and on the basis of that estimate shall the taxpayer make the payment of advance tax in accordance with subsection (4). Once again the same concept permeates subsection (6) of section 147 where the taxpayer is required to make the payment of advance tax under subsection (1) estimates at any time before the last installment is due that 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 subsection (1). One aspect which comes forth starkly from the entire reading of section 147 is that nowhere has discretion or authority been vested in an officer of the Income Tax to dispute or challenge the estimate made by the taxpayer during the course of the remittances made by the taxpayer for each quarter of a tax year.

9.Subsection (7) of section 147 is at the heart of the controversy as the impugned notices have been issued under this provision of law so as to entitle the officer issuing the notices to require the petitioner-company to make the payment of a substantial amount of tax, purportedly due from the petitioner-company on account of the allegation that short payment was made of the advance tax which was actually due from the petitioner-company. For facility, subsection (7) is reproduced hereunder once again:--

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

10.Quite clearly, the provisions of subsection (7), reproduced above, do not confer a power on the Deputy Commissioner who has issued the impugned notices. In my opinion, the provenance of the show-cause notices cannot be traced to subsection (7) relied upon in this regard. What was enacted in subsection (7) is simply that the provisions of the Ordinance shall apply to any advance tax due under this section as if the amount due were tax due under an assessment order. The assessment orders are made inter alia under Section 120 of the Ordinance, 2001 and any amendments are to be made under Section 122. In terms of subsection (1) of section 120 where a taxpayer has furnished a complete return of income for a tax year, the Commissioner shall be taken to have made an assessment of taxable income for that tax year and the tax due thereon. Further, the return shall be taken for all purposes of the Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished. The provisions of subsection (7) do not, by any stretch of imagination, convey an impression or intent that the said provisions is to be used for the purpose of issuance of a show-cause notice of the nature which has been issued in the instant petitions for the payment of advance tax which, according to the officer issuing the notices, were due from the petitioner-company. It can be seen that once the return of income has been filed, it shall be taken as an assessment order and the Commissioner shall be taken to have made all assessment for taxable amount and the tax due from it. Therefore, unless further processes are set into motion, a taxpayer cannot be saddled with a liability in respect of a tax due which crystallizes upon the return of income having been furnished and which shall be deemed to be an assessment order. Any determination, if at all, shall be made by the officer of Income Tax and the process entails an elaborate inquiry and an opportunity to the taxpayer to put forth its point of view and to controvert the stance taken by the officer of the Income Tax. As adumbrated, the spirit of section 147 is in an estimate to be made by the taxpayer and on the basis thereof the advance tax to be paid. It would a contradiction in terms if the basic theme of section 147 were to be nullified by conferring jurisdiction of an officer of the Income Tax to dispute each estimate made by the taxpayer and to issue show-cause notices of the nature which have been issued in the instant matters. Such a construction of section 147 and in particular subsection (7) will be a contradiction in terms and will be tantamount to nullifying the intent of the legislature. The purpose of subsection (7) is none other than to lay down that in case the advance tax is found to be under-assessed or assessed in contravention of the formula given in Section 147, the amount due will be taken as tax due under an assessment order. The key words are assessment order which stage arrives only after the return of income has been filed by a taxpayer. More importantly, an amendment in assessment order is a prerequisite for an amount to become tax due. That can only be done under Section 122 and that too by the Commissioner. A closer look at the impugned notices would clearly bring forth that the notices are, in fact, unilateral and an ex-parte determination of an alleged advance tax due from the petitioner-company. This is not the mandate of subsection (7) and by the said provision, which is merely by way of legislating by reference, powers cannot be conferred on the officer of Income Tax to dispute at each stage of the payment of advance tax by a taxpayer.

11.In view of the above, these petitions are allowed. Impugned show-cause notices are set aside.

KMZ/S-59/L Petitions allowed.