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Petitioner: M/S. Continental Chemical Co. (Pvt.) Ltd VS Respondent: Pakistan And Other
Court Name: Sindh High Court Judge(s): Ata-ur-Rehman, Sayed Saeed Ashhad, Ghous Muhammad Title: M/S. Continental Chemical Co. (Pvt.) Ltd vs Pakistan And Other Case No.: Constitutional Petition No. D-707 of 1999 Date of Judgment:2000-03-30 Reported As: PTCL 2001 CL. 454 Result: Petition dismissed
JUDGMENT
JUDGMENT DR. GHOUS MUHAMMAD, J.--(1). The main controversy in the instant petition is whether the Assistant Commissioner of Income-tax, Circle A-04, Companies III, the Respondent No. 3, held the lawful jurisdiction under the provisions of the Income Tax Ordinance, 1979 (hereafter: "the 1979 Ordinance") in taking the petitioner in default under section 52 of the 1979 Ordinance for the assessm ent years 1996-97 and 1997-98 for failing to deduct advance tax at source under section 50(4) and also in imposing additional tax under section 86 of the 1979 Ordinance. Other demands raised subsequently in consequence are also challenged. By consent of parties we have proceeded to decide the main case at Katcha Peshi stage, as done in so many other cases by the various learned Benches of this Court. 2. The facts giving rise to the case are discussed hereafter. The respondent No. 3 issued show- cause notices dated 3-6-1998 and 1-6-1998 (Annexures A-l and A-2) threatening to treat the petitioner as an assessee-in default under section 52 for the latter's failure to deduct tax at source under section 50(4) in relation to purchases made by it; additional tax under section 86 was also sought to be imposed. In response the petitioner through reply (Annexure A-3) challenged the jurisdiction of the respondent No. 3 and otherwise denied his liability to deduct tax under section 50(4) on the purchases made by it. The respondent No. 3 framed the assessment orders under section 52 and also imposed additional tax under section 86 of the 1979 Ordinance as under (Annexures B-I to C-2):- Assessment YearDemand under section 52Demand under section 86 1986- 87 13,92,853 6,80,096
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1987- 88 12,27,200 3,05,1 18 In consequence the petitioner filed revision petitions with the Commissioner of Income-tax, Companies III, the respondent No. 2, under section 138 of the 1979 Ordinance who rejected the same vide order, dated 28-11-1998 (Annexure D). 3. The respondent No. 3 thereafter further proceeded to impose the following further demands under the 1979 Ordinance. The learned counsel for the petitioner has contended that these demands were raised without a show-cause notice, without a hearing and so much so even the copies of these orders were also not furnished despite requests. The details of demands are as under:- Nature of tax DemandAssessment Year 1996-97Assessment Year 1997-98 Under section 156 1,76,664 -- Under section 88 7,331 -- Under section 89 4,376 13,423 Under section 89 14,396 -- The petitioner has also impugned the above orders and demands. 4. Aggrieved by the above treatment, the petitioner has filed this petition under Article 199 of the Constitution. In the meantime the respondents succeeded in collecting Rs. 9,00,000 against the demand by adopting certain coercive measures for which a refund is also claimed. 5. Mr. Muhammad Nadeem, the learned counsel for the petitioner, has furnished copies of the following jurisdictional orders and extracts from the Karachi Income Tax Guide 1996-97:- (i) Jurisdictional order of all Commissioner of Income-tax Southern Region, Karachi as notified by the C.B.R, vide C. No. 3681-S(DTA/93), dated 22nd August, 1994 including jurisdiction of:- (a) Commissioner of Income-tax, Zone-A, Karachi appearing on pages 1-2 of the order (b) Commissioner of Income-tax, Zone-E, Karachi appearing on pages 5-6 of the order (ii) Jurisdictional order notified for all Commissioners of Income-tax, Cooperate Region by the C.B.R, vide No. 2(I)DTA-ll/94, dated 24-9-1995; the jurisdiction of Commissioner of Income-tax, Companies Zone-Ill, Karachi appears on pages 5 and 6 of the order. (iii) Jurisdictional Order No. 2(10)R&C/97, dated 24-11-1997 passed by C.B.R, specifying the jurisdiction of Commissioner of Income-tax, Companies Zone-Ill, Karachi, appearing on pages 4 and 5 of the order. (iv) Karachi Income Tax Guide 1996-97 by Azhar Chaudhari showing the jurisdictions of the respective Deputy Commissioners:- On pages (a) Jurisdiction of Circle A-4 Companies III 31 (b) Jurisdiction of Circle 02, Companies IV 37 (c) Jurisdiction of Circle A-7, Zone A 50 (d) Jurisdiction of Circle E-10/E-02 Zone E 93 (e) Jurisdiction of Circle E-4, Zone-E 94 (f) Jurisdiction of Circle E-6/E-7, Zone-E 95 (g) Jurisdiction of Circle E-8, Zone-E 96 6. Accordingly, on the basis of the above jurisdictional orders, the petitioner has identified the jurisdictions of the respective Commissioners and Deputy Commissioners of Income-tax who were authorised and entitled to deal with the liability under the provisions of the 1979 Ordinance in respect of the eleven parties from whom purchases were made by the petitioner, during the assessm ent years 1996-97 and 1997-98. These parties with their addresses and the concerned
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Deputy Commissioners and Commissioners are highlighted in a chart appearing on pages 243 of the petition and is reproduced as below:-- s. No.Name and Address of the partiesSales in assessment year 1997-98Sales in assessment year 1996- 97'Commissioner Holding jurisdiction'Assessing Of ficer holding jurisdiction 1. M/s. Akasa (Pvt.) 1. TD-14, 6th Roor Sea Breeze Medical Complex M.A. Jinnah Road. Karachi1,47.31,096 1.87.73,071 Companies IV Circle 02, Cos. IV 2. M/s. Yahya Aftab & Co. 907, 9th Roor , Uniplaza. I.I. Chundari Road. Karachi.44,54,522 67.90.987 Zone ' E' Circle 06 Zone-E 3. M/s. Horizon International G-3. Super Mahal Hasrat Mohani Road. Karachi.64.92, 317 72.22.608 Zone ' E' Circle 01, Zone E 4. M/s. Pharma Drug, 305. Chapa 1 Plaza llasrat Mohani Road. Karachi.6.04,572 Nil Zone ' E' Circle 01 Zone-E 5. M/s. Zareen International B-9. 2nd Roor Mehra Sons State. Talpur Road. Karachi.32.75,000 32,20.837 Zone 'E' Circle 02. Zone-E 6. M/s. Dow Pharma, Plot No. 4/K. C-l Area. Liaquatabad. Karachi.17.9.221 10,60.230 Zone 'A' Circle 07. Zone-A 7. M/s. Emmar Traders. Room No. 6. 2nd Floor Shalimar Centre Tariq Road. Karachi.37.06,123 28.23,249 Zone ' E' Circle 04, Zone-E 8. M/s. Allied General Trading Co.. 3-F , 19/13, Nazimabad. Karachi.Nil 71,88,903 Zone 'A' Circle 06 Zone-A 9. M/s Commerce International 2/6. Fatima Zohra Building. Abdullah Square. Altar Hussain Road. Karachi.Nil 21.91.442 Zone ' E' Circle 02 Zone-E 10. M/s. Continental Chemical Shalimar Centre. Tariq Road, Karachi.Nil 58.51,760 Zone ' E' Circle 04 Zone-E
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11. M/s. Llilal Paper Corporation Saifi Market. Shahrah-e l. Iaquai. Karachi.Nil 5.90.717 Zone 'E' Circle 08 Zone-E Total purchases 3,50,62.851 5,57,13.804 7. The learned counsel for the petitioner has further raised the following pleas:--- (i) That the impugned orders under sections 52, 86, 88, 89 and 156 are all without jurisdiction. The Assessing Officer i.e. The respondent No. 3 who passed these orders had no jurisdiction to deal with the tax matters or liability of the sellers from whom the petitioner had made the purchases. The jurisdiction to deal with them under the provisions of the 1979 Ordinance vested with the respective officers and respective Commissioners of the said sellers and not with respondents Nos. 2 and 3. And accordingly when there was a complete lack of jurisdiction for the substantive and regular assessm ent of tax, any jurisdiction under section 50(4) (which was only an advance and provisional tax) and in consequence under sections 52, 86, 88, 89 or 156 could not have been assumed by the said respondent No. 3. (ii) The persons to whom purchases were made were not liable to any further income-tax since they had already suffered income-tax at import stage in advance under section 80C of the 1979 Ordinance and their total liability had been discharged and extinguished in terms of subsection (4) of section 80C itself. Thus, when there was no tax liability whatsoever under the 1979 Ordinance on these purchases (i.e. The same having been fully paid by the sellers under section 80C), the question of any advance income-tax or default in regard thereto, in relation to those purchases was absolutely out of question. (iii) That the Assessing Officer had acted beyond jurisdiction for yet one more reason in that he violated the orders of the Central Board of Revenue contained in Circular No. 19 of 1991 dated 8-7- 1991 (Annexure H) since the persons from whom purchases were made having discharged their full income-tax liability were also declared to be not liable for any further deduction of income-tax at source under section 50(4) of the 1979 Ordinance. The Assessing Officer had thus, violated the orders of the Central Board of Revenue (violating section 8 of the 1979 Ordinance), which orders were only in keeping with section 80C of the 1979 Ordinance which starts with a non-obstante clause and is to be given an overriding effect. (iv) That section 50(4) has been looked upon and treated erroneously as a provision of regular tax, although it is only an advance tax, since the benefit/credit of tax so deducted or imposed has not been imparted to the deducted, nor it was capable of being passed on. The respondent No. 3 could not invoke and implement section 50(4) half way. It is settled law that where the final liability to tax cannot be imposed, no advance tax can be deducted. (v) The liability under section 50(4) having been characterised as one under section 53 of the 1979 Ordinance, and being merely an advance tax, the jurisdiction to collect advance tax terminated on 30-6-1996 and 30-6-1997 for the two years under consideration. The proceedings to collect this advance tax, however, only commenced vide letter, dated 3rd June, 1998 after the lapse of one and two years, respectively. In this manner, the , very assumption of jurisdiction was ipso facto incompetent, invalid, without jurisdiction, barred by limitation and beyond the scope of sections 50 and 53. (vi) That the sellers/deducted, having paid their full and complete tax liability already, under the 1979 Ordinance, the imposition of tax under the garb of sections 50(4) or 52 etc. Was, in fact, an exercise of double taxation not contemplated by the provisions of law. (vii) That the petitioner had made purchases from the market on competitive rates and accordingly these purchases did not constitute "supplies" within the meaning of section 50(4) of the 1979 Ordinance.* (viii) That no additional tax under sections 86, 88 and 89 could have been
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imposed since all these additional taxes were imposed without a show-cause notice. The additional taxes are in fact penal taxes which could not have been imposed- without construing deliberate default in any manner. (ix) Section 86 of the 1979 Ordinance had been invoked while the terminal date of payment had not yet arrived. (x) It is also pointed out that the additional tax could not have been imposed from the back date i.e. From the date when the demand had not existed. It was unreal and unreasonable. (xi) With regard to the demand under section 156 it is pointed out that the same has been imposed without a show-cause notice and without a hearing. 8. In support of his contention that there was no jurisdiction on the part of the respondent No. 3 to frame orders under sections 52 and 86 and other orders under sections 88, 89 and 156 of the 1979 Ordinance, the learned counsel for the petitioner has cited recent judgment of the Division Bench of this Court in C.P. Nos. 1335/98 and 1336/98 and a decision of the Income-tax Appellate Tribunal (hereafter: "ITAT") in I.T.As. Nos. 1034 to 1037/KB of 1998-99 dated 10-6-1998. With regard to the imposition of additional tax the learned counsel for the petitioner has cited the following decisions in addition: (a) Many Beverages v. Nadeem PTCL 1995 CL. 1; and (b) Kamran Industries v. Collector of Customs PTCL 1996 CL. 1. 9. The learned counsel for the respondents, Mr. Shaikh Haider, has vehemently contested the petition since according to him: - (i) the respondent No. 3 while passing the orders under section 52 was not dealing with the cases of sellers/suppliers but with the case of the petitioner for which he had held the lawful jurisdiction. The petitioner was liable to deduct the income-tax in terms of section 50(4), while making payment of consideration to the sellers/suppliers from which there was no escape except to ask for exemption certificates so as to show that the sellers were not liable to income-tax. (ii) That the orders of the Division Bench relied upon by the petitioner and contained in C.P. Nos. 1335/98 and 1336/98 related to non-residents and had no application in the present case, which is a case of a resident. (iii) That the purchases were covered within the term "supplies" as provided clearly in the Explanation added to section 50(4) of the 1979 Ordinance by the amendment of 1998. Reliance in this regard is placed on C.B.R's. Circular No. 11 of 1998, dated 25-7-1998 and the definition of the term "supplies" appearing in some Law Lexicon (source not specifically stated). 10. In order to examine and appreciate the merits of the respective contentions it appears necessary to examine various relevant provisions of the 1979 Ordinance and the text of the C.B.Rs. Circular cited. The relevant extracts thereof are reproduced as under:- (a) On jurisdiction: (i) Subsection (2) of section 3 -of the 1979 Ordinance (dealing with Income-tax Authorities) reads as under.- "Inspecting Additional Commissioner, Income-tax Panel, Deputy Commissioner of Income-tax shall be subordinate to the Commissioner of Income-tax within whose jurisdiction they perform their functions." (ii) Subsection (l)(b) and (l)(c) of section 5 of the 1979 Ordinance reads as under:-- "(b) The Commissioner and the Appellate Additional Commissioner shall perform their functions in respect of such persons and such areas as the Central Board of Revenue may direct " (c) The Inspecting Additional Commissioner and the Deputy Commissioner shall perform their functions in respect of such persons or such areas as the Commissioner to whom they are subordinate may direct...................... " (iii) Section 8 of the 1979 Ordinance reads as under:--
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"All Officers to follow the orders of the Central Board of Revenue.-All officers and persons, employed in execution of this Ordinance shall observe and follow the orders, instructions and directions of the Central Board of Revenue." (iv) Subsections 4(a) and 4(b) of section 50 of the 1979 Ordinance read as under:- "(4) Notwithstanding anything contained in this' Ordinance:- (a) any person responsible for making any payment in full or in part (including a payment by way of an advance to any person, being resident, (hereinafter referred to respectively as 'payer and 'recipient'), on account of the supply of goods or for service rendered to, or the execution of a contract with the Government, or a local authority, or a company, or a registered firm, or any foreign consultant or consortium shall, deduct advance tax, at the time of making such payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the recipient for the assessm ent year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, if any, in which the 'said debt' as referred to therein, falls whichever is the later. Provided that the provisions of this clause shall mutatis mutandis apply to any payment made on or after the first day of July, 1992 to any non-resident person as they apply to any payment made to a resident recipient on account of execution of a contract for construction, assembly or like project in Pakistan:] (b) the Commissioner may, on an application made by any such recipient and after making such enquiry as he thinks fit, allow, by an order in writing, any person responsible for making such payment not to deduct any tax from any payment or payments made to such recipient in any financial year; and where such order is made, the person responsible for making any payment shall thereafter, and until such order is cancelled, make such payment without deduction of tax under clause (a) [and] (v) Section 52 of the 1979 Ordinance. 1979 reads as under:- "52. Liability of persons failing to deduct or pay tax.-Where any person fails to deduct or collect, or having deducted or collected as the case may be fails to pay the tax as required by or under section 50 he shall, without, prejudice to any other liability which he may incur under this Ordinance, be deemed to be an assessee in default in respect of such tax." (vi) Section 53 of the 1979 Ordinance reads as under " 53. Advance payment of tax.--(1) An assessee- (a) other than a company or a registered firm, whose total income (excluding income to which section 27, section 80B, section 80C, section 80CC of subsections (1) and (2) of section 50 applies) for the latest assessm ent year in respect of which the tax payable by him has been determined under sections 59, 59A, 60, 62, 63 or 65, is not less than one hundred and fifty thousand rupees shall be liable to pay by way of advance tax, an amount equal to one-fourth of the full amount of income-tax and super tax so determined to be payable in respect of that assessment year (without making any adjustment for any tax already paid by way of advance tax or otherwise), as reduced by the tax, if any, already collected or deducted and paid under section 50 in the said financial year; and (b) being a company or a registered firm shall, in respect of its income (excluding income to which section 27, section 80C, section 80CC or subsection (2) of section 50 applies) be liable to pay by way of advance tax an amount which bears the same proportion to the Company's or a registered firm's turnover for that year as the tax assessed, bears to the turnover assessed, for the latest assessm ent year in respect of which the tax payable by the company or registered firm has been determined under sections 59, 59A, 60, 62, 63 or 65 as reduced by the tax already paid under section 50 in the said financial year.
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(2) The tax payable,- (i) Under clause (a) of subsection (1) (i.e. By assessee other than companies and registered firms) shall be paid to the credit of the Federal Government, on or before the fifteenth day of September, the fifteenth day of December, the fifteenth day of March and the fifteenth day of June in each financial year; and (ii) under clause (b) of subsection (1) (i.e. By companies and registered firms) shall be paid to the credit of the Federal Government in each financial year, according to the following schedule: TURNOVER RELA TING T O THE PERIODTAX T O BE P AID ON OR BEFORE From 1st of July to 30th of September the seventh day of October From 1st of October to 30th of December the seventh day of January From 1st of January to 30th of March the seventh day of April From 1st of April to 30th of June the seventh day of June (turnover for 16th June to 30th June shall be taken equal to the turnover of between 1st of June to 15th of June)" (vii) Subsection (4) of section 80C of the 1979 Ordinance reads as under "(4) Where the assessee has no income other than the income referred to in subsection (1) in respect of which the tax has been deducted or collected the tax deducted or collected under section 50 shall be deemed to be the final discharge of his tax liability under this Ordinance and he shall not be required to file the return of total income under section 55." (viii) The text of C.B.R's. Circular No. 19 of 1991. Dated 8-7-1991 is reproduced below:- CIRCULAR NO. 19 OF 1991, DATED 8TH JULY, 1991 [Reported as PTCL 1991 St. 741 (i)] SUBJECT:- DEDUCTION OF TAX UNDER SUBSECTION (4) OF SECTION 50 OF INCOME TAX ORDINANCE, 1979- CLARIFICATION REGARDING AMENDMENT IN NOTIFICATION NO. S.R.O. 586(I)/91, DATED 30TH JUNE, 1991. Notification No. S.R.O, 586(I)/91, dated 30th June, 1991 was issued by the Board to grant exemption from withholding of tax to certain recipients under section 50(4). Accordingly, Circular No. 11 of 1991, dated 30th June, 1991 was also issued in this regard. Vide clause (iv) of the said Notification, recipients enjoying income from exempt sources under the Second Schedule to the Income Tax Ordinance, 1979, were exempted from withholding of tax under section 50(4). 2. The issue of exemption from deduction of tax to such recipients has been reconsidered in the Board and the scope of exempt income has been enlarged by deleting the words 'under the Second Schedule to the Income Tax Ordinance, 1979'. Now, exemption under clause (iv) of Notification No. S.R.O. 586(I)/91, dated 30th June, 1991 shall apply to all recipients whose income is exempt from tax under any provision of the Income Tax Ordinance, 1979, or any other law. 3. Necessary amendment in Notification No. S.R.O. 586(I)/91, dated 30th June, 1991 has also been issued through the Notification No. S.R.O. 626(I)/91, dated 4th July, 1991. 4. These instructions shall take effect from the first day of July, 1991. [Issued by the C.B.R. Islamabad, under the signature of Mr. Abdur Rehman Dogar, Second Secretary, vide File C. No. ITJI-I (7)/84-Vol-II.J " (b) On Additional Tax; Sections 86, 88 and 89 of the 1979 Ordinance read as under:- (i) "86, Charge of additional tax for failure to deduct and pay tax.-Where any person fails to deduct, or having deducted, fails to pay any tax, required section 50, such person shall, without prejudice to
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any other liability which he incur, be liable to pay additional tax at the rate of [twenty-four] per cent, annum on the amount not paid for the period commencing from the date which he was required to pay such tax to the date of the payment thereof." (ii) ''88. Charge of additional tax for failure to pay tax with the return.-Where any assessee fails to pay tax under section 54 or the tax so paid is less than the tax payable under that section, he shall be liable to pay additional tax at the rate of [twenty-four] per cent., per annum of the amount not paid or the amount by which the tax paid by him falls short of the tax payable under that section, as the case may be, and such additional tax shall be calculated from the first day of October or the date on which the tax was payable, whichever is the later, to the date on which the tax is paid or the date on which an order under subsection (1) of section 59, [section 59A], section 62, section 63 or section 65, as the case may be, is made, whichever is the earlier." iii) "89. Charge of additional tax for failure to pay tax or penalty .-Where any assessee fails to pay the whole or any part of the tax levied under Chapter VII or the whole or any part of any penalty levied under Chapter XI, [or has been allowed stay of payment or payment in instalments of the tax under subsection (2) of section 85] he shall be liable to pay additional tax at the rate of [twenty- four] per cent., per annum on the amount of such tax or penalty or any part thereof, as the case may be, which has not been paid; and such additional tax shall be calculated from the date on which such tax or penalty or part thereof, as the case may be was originally payable to the date on which it is paid, in respect of each instalment, the date on which it is paid." (c) On rectification: Section 156(1) of the 1979-Ordinance reads as under: - "156. Rectification of mistakes. -(1) Any Income-tax Authority or the Appellate Tribunal may amend any order passed by it to rectify any mistake apparent from the record on its own motion or on such mistake being brought to its notice by any other income tax authority or by the assessee." Word 'Record' as used in section 156, Income Tax Ordinance 1979.-Meaning. Power of Income-tax Authorities and Income-tax Appellate Tribunal to rectify their own mistakes. Scope. Scope.-Overlooking a mandatory provision of law can be rectified. Rectification can be carried out on the finding of fault from the record of the assessee and not from subsequent information. Originally a good order may subsequently reveal a mistake in the light of a subsequent decision. Assigning of a wrong status to the assessee being a mistake if apparent from record. Provisions of section 156, Income Tax Ordinance, 1979 could be invoked. Income-tax Authority or Income-tax Appellate Tribunal may amend an earlier order, passed by it to rectify mistake." 11. We have heard the learned counsel for parties, perused the record, the comments filed by the respondents, facts and the law on the subject. 12. The respondents or their learned counsel have not…
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