INCOME TAX ORDINANCE, 2001 (XLIX OF 2001)

Sections: 153(1). 161 205 - SRO: 586(I)/91, dated 30.06.1991 failure to pay tax collected or deducted - Default surcharge - Appellant is engaged in goods transport business - Payment for goods services and contracts - Charge of tax - The plea of the appellant is that OIR has already passed order u/s 161/205 and is thus not justified to pass fresh and duplicate order - Dismissal of appeal by CIR(A) - Validity - Claim of appellant under head other expenses - Non-deduction of withholding tax - Scope -

FACTS

Uriel facts leading to tiling of this appeal are that the appellant is engaged in goods transport business. The impugned order has been passed by the DOR u/s 161/205 of the Income l ax Ordinance. 2001.

I he taxpayer feeling aggrieved by the impugned order of the DOR tiled appeal before the learned CIR(A) who vide his impugned order dated 25-04-2018 has dismissed the appeal of the taxpayer, therefore taxpayer has tiled present appeal before this Tribunal.

ARGUMENTS

MR. Vishno Raja and Syed Riazuddin Advocates/ARs attended on behalf of the appellant whereas the respondent Department was represented by Mr Naib Ali Pathan DR.

At the outset it has been contended by the learned ARs that in this case an order u s 161/205 was already passed by the then DCIR Unit 03 WHT Zone. RTO-II, Karachi vide DC No 132/11 on 30-06-2014. Copy of the said order of the DCIR Unit 03, WHT Zone, RTO-II Karachi has been produced by the ARs and has been taken on record. It was explained by the learned ARs that due to oversight the then AR could not bring the factum of the existence of an order u/s 161/2015 dated 30- 06-2014 in the knowledge of the DOR/author of the impugned order u s 161/205 under appeal. According to the ARs in the presence of an order already finalized u/s 161/205 the succeeding offer/author of the impugned order u/s 161 205 under appeal was not justified in finalizing the impugned order u/s 161 205. According to them the impugned order u/s 161 205 constitutes a duplicate order for which there is no room in the law. It has been contended that the learned CIR(A) was not justified in dismissing the contention and submissions of the AR of the appellant in a summary manner The learned ARs have further contended that notwithstanding the order dated 10-06-2014 of the predecessor, the DOR was not justified in subjecting the entire profit loss account expenses of Rs. 317,173,800 to a uniform rate of 6% tax.

I he learned DR has supported the orders of two authorities below.

Based upon examination of the above documents and details, showing that in the return of total income and break-up of expenses, taxpayer has claimed expenses under the head of other expenses. As such, the AR, of the taxpayer was specifically requested to furnish the break-up of expenses as claimed and evidences of tax deduction duly supported by documentary evidences. In response thereof, the AR, of the taxpayer stated that taxpayer providing transport of goods services by road nationwide and its offices are located at different cities, therefore, mainly expenses relate to the staff salaries and office maintenance/ operation expenses. The A.R. of the taxpayer further stated that taxpayer has deducted/collected withholding taxes wherever warranted, While, where no deduction made, the A.R. of the taxpayer submitted that these payments were made either threshold to the taxable limit of petty cash in nature. It is also submitted that payments made against purchase of fuel/diesel/petroleum and allied products, no withholding tax was required to be deducted because exemption facility was available in the standing law. The contention of the A.R. of the taxpayer was examined in the light of documents and details so provided and relevant provision of law.

The counsel of the taxpayer was asked to explain the position of payments made to the drivers and related staff, who in response stated that payments made to the drivers while they took freight from city to city for the purchase of fuel and for the purpose of routine expenses.

DECISION

(A.) Passing of impugned order by ACIR in complete disregard of principles laid down by Supreme Court and failure to establish transactional faults - The impugned order has been passed by the ACIR in complete disregard of the above principle laid down by the Honable Supreme Court which is binding. It has also been found that the author of the impugned order has further failed to establish transactional faults which was mandatory.

(B.) Order already passed and tax charged u/s 161 and default surcharge u/s 205 on transactions - Justification for passing fresh order - Scope - The above decision is squarely applicable to the facts and circumstances of the present ease as the predecessor of the author of the impugned order has already thoroughly examined the case for the purposes of section 161/205 in his order dated 30-06-2014 on the basis of each and every payment and has charged tax under section 161 and default surcharge u/s 205 on the transactions on which the taxpayer failed to deduct tax. Accordingly there was no justification for passing order u/s 161/205 on June 24, 2018 which has been impugned before us in this appeal. Accordingly the impugned order is annulled and appeal succeeds. However, department may proceed u/s 221 of the I.T. Ord. 2001, if there is calculation error or apparent mistake (if any) to be rectified strictly in accordance with law after giving lull and fair opportunity to the taxpayer.

Cases Referred to:

(2016) 113 TAX 138): CIR, Zone-1. RTO-Hyderabad v. M/s Medimakers Pharmaceuticals (AOP), Hyderabad 2018 PTD 1533 and 2003 PTD 1 167.

THIS ORDER PASSED BY: MUHAMMAD JAVED ZAKARIA, JUDICIAL MEMBER:---.---

This income lax appeal has been filed by the appellant taxpayer against the order of learned Commissioner Inland Revenue (Appeals-IV) Karachi, dated 25-04-2018 u/s 161/205 of the Income Tax Ordinance, 2001 for the tax year 2013.

2. Brief facts leading to filing of this appeal are that the appellant is engaged in goods transport business. The impugned order has been passed by the DCIR u/s 161/205 of the Income Tax Ordinance. 2001. The taxpayer feeling aggrieved by the impugned order of the DCIR filed appeal before the learned CIR(A) who vide his impugned order dated 25-04-2018 has dismissed the appeal of the taxpayer, therefore taxpayer has tiled present appeal before this Tribunal.

3. Following grounds have been taken by the taxpayer.

1. That the order of the Commissioner Inland Revenue, (Appeals-IV), Karachi, passed on 25-04-2018 under section 161/205 is wrong on facts and had in law being finalized on incorrect appreciation of the facts of the case and legal position on the subject, hence, without lawful authority and not maintainable in the eyes of law.

2. That the Commissioner Inland Revenue. (Appeals IV) was not justified in upholding the impugned order of Depute Commissioner Inland Revenue without appreciating facts of the case and legal position on the subject.

3. That the Commissioner Inland Revenue, (Appeals-IV) has erred in rejecting the plea of the AR of the appellant that an order u/s 161/205 was already passed in the appellants case therefore the Officer Inland Revenue was not justified in passing afresh and duplicate order under the same provisions of law.

4. That the Commissioner Inland Revenue, (Appeals-IV) has erred in holding that the order dated 30-06-2014 passed earlier u/s 161/205 of the Ordinance in the appellants case was unreliable. The Commissioner Inland Revenue, (Appeals-IV) should have subjected the said order to verification.

5. The Commissioner Inland Revenue, (Appeals - IV) was further not justified in holding that the said order dated 30-06-2014 was an afterthought.

6. That the Commissioner Inland Revenue, (Appeals - IV) was not justified in confirming the order u/s 161/205 of the DCIR that has been passed in disregard of the provisions of section 161/205 and 153(1) of the Ordinances by applying a uniform rate of tax on gross amounts declared in the accounts.


4. Mr. Vishno Raja and Syed Riazuddin Advocates /ARs attended on behalf of the appellant whereas the respondent Department was represent by Mr. Naib Ali Pathan DR.

5. At the outset it has been contended by the learned ARs that in this case an order u/s 161/205 was already passed by the then DCIR Unit 03 WHT Zone. RTO-II, Karachi vide DC No 132/11 on 30-06-2014. Copy of the said order of the DCIR Unit 03, WHT Zone. RTO-II Karachi has been produced by the ARs and has been taken on record, it was explained by the learned ARs that due to oversight the then AR could not bring the factum of the existence of an order u/s 161/2015 dated 30- 06-2014 in the knowledge of the DCIR /author of the impugned order u/s 161/205 under appeal. According to the ARs in the presence of an order already finalized u/s 161/205 the succeeding offer/author of the impugned order u/s 161/205 under appeal was not justified in finalizing the impugned order u/s 161/205. According to them the impugned order u/s 161/205 constitutes a duplicate order for which there is no room in the law. It has been contended that the learned CIR(A) was not justified in dismissing the contention and submissions of the AR of the appellant in a summary manner. The learned ARs have further contended that notwithstanding the order dated 30-06-2014 of the predecessor, the DCIR was not justified in subjecting the entire profit loss account expenses of Rs 317,173,800/- to a uniform rate of 6% tax.

6. The learned DR has supported the orders of two authorities below.

7. The submissions made by the learned representatives have been considered. The learned DR has not denied the framing of an order u/s 161/205 in this case earlier on 30-06-2014 by the predecessor of the succeeding incumbent and author of the impugned order under section 161/205 being contested in appeal before us. Thus framing of a duplicate order u/s 161/205 for the same tax year has not been denied by the DR. Perusal of the earlier order dated 30-06-2014 (DC No. 132/11) reveals following details and particulars of proceedings carried out by the DCIR:-

In the instant case a notice u/s 176 of the Income Tax Ordinance. 2001 was issued requesting for submission of certain details and documents including reconciliation of payments on the format as prescribed under rule 44(4) of the Income Tax Rules, 2002 during the tax period from duly 2012 to June 2013 In response thereof the authorized representative of the taxpayer Mr. NASIMUDDIN from Ms NASIM QAMAR COMPANY (Tax Advisors / Consultants) on behalf of the taxpayer attended the hearing and initially he requested for adjournment After having availed sufficient opportunity, the A R of the taxpayer filed relevant documents and details as under:

Copies of tax paid challans/evidences.

Copy of Payroll Salary Register along with copies of CNIC

Statement of accounts expenses

Based upon examination of the above documents and details, showing that in the return of total income and break of expenses, taxpayer has claimed expenses under the head of other expenses. As such, the AR. of the taxpayer was specifically requested to furnish the break-up of expenses as claimed and evidences of tax deduction duly supported by documentary evidences. In response thereof the AR of the taxpayer slated that taxpayer providing transport of goods services by road nationwide and its offices are located at different cities, therefore, mainly expenses relate to the staff salaries and office maintenance / operation expenses. The A.R of the taxpayer further slated that taxpayer has deducted / collected withholding taxes wherever warranted. While, where no deduction made, the A.R, of the taxpayer submitted that these payments were made either threshold to the taxable limit of petty cash in nature. It is also submitted that payments made against purchase of fuel/diesel/petroleum and allied products, no withholding tax was required to be deducted because exemption facility available in the standing law. The contention of the A.R of the taxpayer was examined in the light of documents and details so provided and relevant provision of law.

The counsel of the taxpayer was asked to explain the position of payments made to the drivers and related staff who in response stated that payments made to the drivers while they taking freight city to city for the purchases fuel and for the purposes to acquire routine expenses. The breakup of payments provided by the taxpayer showing position as under:-

 

FREIGHT EXPENSES Rs. 313,841.372/-

The A.R. of the taxpayer was

The A.R. of the taxpayer was asked to explain the position of freight expenses, who in response stated that out of the, freight expenses, mainly diesel and petroleum products including lubricating oils and tyre tube of the vehicle as well as vehicles hired are major part of the payments, upon which withholding taxes u/s 153 do not required to be made.

OTHER EXPENSES

The A R of the taxpayer filed explanation regarding payments made against expenses showing position as under:-
 

The A.R. of the taxpayer was pin pointed regarding non-deduction of withholding taxes on payments claimed under profit and loss expenses as under:-

 

Since the companys representative could support above payments by documentary evidences even summary of these payments also not provided. As such, recovery of withholding taxes charged as provided under section 161 together with default surcharge under section 205 of the Income Tax Ordinance, 2001, as under:
 

As indicated above, the taxpayer is held taxpayer in default and the tax due are levied accordingly. However, any default of non-deduction of tax is discovered on payments/transaction shall be taken up accordingly as per law and merit of the case. Assessed as above and issue demand notice challan accordingly.

8. From the perusal of the above order that was passed by the predecessor of the author of the impugned order u/s 161/205 dated 30- 06-2014, it is evident that major expenses of Rs 313,841,372/- claimed by the taxpayer were in respect of freight comprising mainly of payments on account purchase of diesel and other petroleum products upon which no tax deduction u/s 153 was required in terms of SRO 586(I)/91 dated 30-06-1991. The author of the order u/s 161/205 dated 30-06-2014 accepted that tax u/s 153 was not required to be deducted therefore no action u/s 161/205 on the amount of Rs 313,841,372/- was warranted. After accepting this position the DC1R charged tax u/s 161/205 order dated 30-06-2014 under the heads printing stationary, repair maintenance and Misc expenses as per the order u/s 161/205 dated 30-06-2014. From the perusal of the order u/s 161/205 dated 30- 06-2014 it is evident that the predecessor of the author of the impugned order examined all payments made by the taxpayer threadbare and then came to the conclusion that tax has not been deducted by the taxpayer on payments under the heads printing stationary, repair maintenance and Misc expenses and he went on to charge the tax u/s 161/205 at Rs 26,382/- as per his order u/s 161/205 dated 30-06- 2014.He accordingly charged tax u/s 161 and default surcharge on payments under the said heads and did not charge tax on the payments other than those. In view of such an elaborate order there was no justification on part of the author of the impugned order u/s 161/205 dated 24-01-2018 to pass another order. Even otherwise it is now settled that in the proceedings u/s 161 default has to be specific and definitive. Determining a tax default by subjecting the gross amount to tax u/s 161 is not at all desirable in the proceedings u/s 161 as these proceedings are of the punitive nature and the authority entrusted with the task of determining such default must be definitive and precise in his findings with regard to the nature, quantum, name of party, period of default, rate of tax etc. It is more so important as clause (a) of sub section (1) 161 clearly states that the person (who fails to collect / deduct of having collected or deducted fails to deposit) shall be personally liable to pay the amount of tax to the Commissioner. Section 161(1)(a) further authorizes the Commissioner to pass an order to recover the amount in default as his personal liability, therefore extreme care has to be taken and the officer entrusted with the responsibility on behalf the Commissioner to pass an order against a person in default as personally liable must demonstrate extreme care and should avoid guesswork, assumptions, conjectures and estimates. He should not proceed on whims, guesswork, assumptions and estimates. It was in this context and to discourage situations like this that the Honorable Supreme Court of Pakistan has been pleased to hold as under in its judgment reported as (2016)1 13 Tax 138 ~ 2016 PTD 564.

The cardinal principles of interpretation of a fiscal statute seem to be that all charges upon the subject are to be imposed by clear and unambiguous words. There is no room for any intendment nor there is any equity of presumption as to a tax. A fiscal provision of a statute is to be construed liberally in favour of the tax-payer and in case of any substantial doubt the same is to be resolved in favour of the citizen.

9. The impugned order has been passed by the ACIR in complete disregard of the above principle laid down by the Honorable Supreme Court which is binding. It has also been found that the author of the impugned order has further failed to establish the transactional failure which was mandatory. Reliance in this regard may be favorably placed on the ratio of a recent decision of this Tribunal reported as 2018 PTD 1533 [CIR, Zone-1, RTO-I Hyderabad Vs M/s Medimakers Pharmaceuticals (AGP). Hyderabad. The learned Tribunal has been pleased to hold as under:

We may further observe that sub- section (1) of section 161 can only be invoked when a failure to collect or deduct tux is established. Since the responsibility to collect or deduct tax is in respect of a transaction of payment, each transactional failure has to be determined which in our view is a condition precedent for initiation and conclusion of the proceedings under section 161. Any order which lacks determination of a transactional failure of collection or deduction of tax as required by law, shall not be sustainable in law.

We may highlight another aspect that existence of failure is of paramount importance. As observed above, non-withholding of tax or collection of tax in some cases if in the assessment of income nature of certain transaction has not been ascertained, in the proceeding under section 161 the nature of transaction cannot be adjudication for the reason that provision of section 161 are recovery in nature and exercised to recover the tax only arises when there is an obligation to deduct and collect tax. The act of failure would not be attracted when there is difference of opinion on the interpretation of certain statutory provisions and nature of transaction nature of transaction has to be ascertained and determined in the assessment. At this stage reference can be made to the decision of this Tribunal reported as 2013 PTD 1167 where it has been held that provisions section 161 are not charging provisions. Reference is also made to the judgment of Honorable High Court of Sindh in the case of Al-Haji Industries Vs Collector of Customs where it has been held that collection of tax and assessment are not one and the same.

We further hold that in order to invoke the provision of section If) I it is mandatory to establish through material and substance transactional failure of non-holding of tax as mentioned in section 161 itself as the nature of provision of section 161 are of recovery in nature, and nature of transaction cannot be determined unless nature of such transaction has already been determined in an assessment under the provision of law. After having decided and resolved the issue, we find that in the present case, the ACIR has not highlighted each transactional failure from the evidence produced by the taxpayer respondent.

10. The above decision is squarely applicable to the facts and circumstances of the present case as the predecessor of the author of the impugned order has already thoroughly examined the case for the purposes of section 161/205 in his order dated 30-06-2014 on the basis of each and every payment and has charged tax under section 161 and default surcharge u/s 205 on the transactions on which the taxpayer failed to deduct tax. Accordingly there was no justification for passing order u/s 161/205 on June 24, 2018 which has been impugned before us in this appeal. Accordingly the impugned order is annulled and appeal succeeds. However, department may proceed u/s 221 of the I.T. Ord., 2001, if there is calculation error or apparent mistake (if any) to be rectified strictly in accordance with law after giving full and fair opportunity to the taxpayer.

11. Order accordingly.