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Petitioner: TRUSTEES OF THE PORT OF KARACHI VS Respondent: CENTRAL BOARD OF REVENUE and JUDGMENT
Court Name: Sindh High Court Judge(s): Saleem Akhter, Mamoon Kazi, Abdul Qadeer Chaudhry Title:TRUSTEES OF THE PORT OF KARACHI vs CENTRAL BOARD OF REVENUE and
JUDGMENT
Reported As: 1989 PTD 1048 Result: Order accordingly Judgment JUDGMENT ' ABDUL QADEER CHAUDHRY, J.--The petitioner is a statutory trust responsible for managing the affairs of Karachi Port. The petitioner was constituted under Karachi Port Trust Act, 1886. The petitioner frequently has to get hold unserviceable and surplus stores belongings to it disposed of. For this purpose the petitioner appoints auctioneers under contracts who sell the goods by public auction. During the period from 1-7-1981 to 30-6-1983 articles and goods belonging to the petitioner were sold by the auctioneers engaged by the petitioner. According to the petitioner the auctioneers paid to the petitioner the sale price of the goods sold by them after deducting their commission. At the instance of the Respondent No,2 the petitioner submitted a list of auctioneers to the respondent. The Respondent No,2 by letter dated 22-11-1983 required the petitioner to deposit the tax under Section 50(7A) of the Income Tax Ordinance 1979 (hereinafter referred to as the Ordinance) calculated at 3% of the amounts of sale price of the goods belonging to the petitioner which were auctioned by the auctioneers after 1-7-1981. The case of the petitioner is that the auctions were held by the auctioneers and not by the petitioner and the responsibility for collecting the tax under Section 50(7A) of the Ordinance lay on the auctioneers and not on the petitioner. The Respondent No,2 did not accept this contention of the petitioner and the petitioner had to made a representation to the Respondent No,1 who also rejected the representation of the petitioner on the ground that the legal obligation to deduct and deposit taxes remains on the petitioner. The petitioner has therefore filed this Constitutional Petition. 2. We have heard the learned counsel for the parties. Learned counsel for the petitioner submits that the plain reading of Section 50(7A) of the Ordinance makes it clear that the petitioner was not
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responsible and it was the liability of the auctioneer. In order to appreciate the contention of the petitioner it is necessary to refer to the relevant section 50(7A) which reads as under:- "Any person making sale, by public auction of any property belonging to the Government, a local authority, a public company, a foreign association declared to be a company under clause (16) of section 2, or a foreign contractor or consultant or consortium shall collect advance tax, computed on the basis of sale mice of such property and at the rate specified in the First Schedule, from any person to whom such property is sold, and credit for the tax so collected in any financial year shall, subject to the provisions of section 53 be given in computing the tax payable by the person purchasing such property for the assessment year commencing on the 1st 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 assessm ent year, if any, in which the "said date" as referred to therein, falls, whichever is the later. ' At first sight the contention of the learned counsel appears to be sound as the words are quite clear which lays down that any person making sale by public auction of any property belonging to the Government etc. Shall collect advance tax computed on the basis of sale price of such property, but learned counsel for the Respondent has submitted that the interpretation is to be made in such a way as not to negate the intention of the main Act itself. It is contended by the learned counsel for the Respondent that the principal is liable if his agent has not deducted any amount. Section 50 of the Ordinance is to be read with Sections 51 and 52 of the Ordinance. According to Section 51 every person deducting or collecting tax under section 50 shall, at the time of making payment of the sum from which tax has been deducted, or at the time of the collection of the tax, as the case may be, furnish to the person, to or from whom such payment or collection has been made, a certificate to the effect that tax has been so deducted or collected and such other particulars as may be prescribed. ' A bare perusal of this Section would show that an auctioneer has to furnish to the person to or from whom such payment or collection has been made a certificate to the effect that tax has been so deducted. According to Section 52 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. ' The cumulative effect of these provisions is that any person who sells by public auction any Government property must deduct advance tax and then he would issue a certificate from whom such deduction has been made and if he fails to deduct then he would be deemed to be an assessee in default in respect of tax. ' Learned counsel for the petitioner has stated that all these provisions would show that only the auctioneer is responsible. On the other hand learned counsel for the respondent has stated that these provisions would be interpreted in a way so that the machinery of the Income Tax Act may be workable and nobody could avoid the income tax. ' In order to elucidate further we would revert to the definition of person given in Section 2(32) of the Ordinance and it includes an individual, a firm, an association of persons, a Hindu undivided family, a company, a local authority and every other artificial juridical person prescribed by rules under this Ordinance and 'principal officer' used with reference to a local authority, or a company or any association of persons, includes managing director, secretary, treasurer, manager, agent or accountant by whatever designation known, of the authority, company or association and any person connected with the management or administration of the local authority, company or association upon whom the Income Tax Officer has served a notice of his intention of treating him as the principal officer thereof (Section 2(34)). Under Section 50(4)(a) of the Ordinance any person responsible for making any payment in full or in part including a payment by way of an advance to
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any person on account of 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 any foreign contractor or consultant or consortium shall, where the total value in any financial year, of goods supplied or contract executed exceeds fifty thousand rupees, or of service rendered exceed ten thousand rupees 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 subject to the provisions of Section 53 be given in computing the tax payable by the recipient for the assessment year.... ' The reasonable conclusion would be that the principal would deduct the advance tax and he would be liable if his agent has not deducted the amount. Auctioneers were appointed by the petitioner company. They were agents of the company and therefore if their agents have not deducted the amount then they would be liable for the payment of the same. They cannot escape the liability because the Income Tax Act itself provides to collect the income tax and make all possible means to recover the income tax which has escaped their notice or an assessee has failed to make the payment. The provisions of the Ordinance cannot be frustrated by shifting the burden on the agent if the principal has failed to perform his legal duties. Even in this petition the petitioner has not named its agents who had auctioned the goods. It was the duty of the petitioner to instruct the auctioneers to collect the advance tax so that the mechanism of taxation could be workable. The petitioner who was the principal cannot be permitted to defeat the provisions of law. As stated above the petitioner was duty bound to instruct his agent to deduct the tax in advance and if the auctioneers have not deducted the advance tax, the petitioner would be liable. An explanation was added in Section 50(7A) and the explanation reads as under: "For the purposes of this subsection, sale of any property includes the awarding of any lease to any person, including a lease of the right to collect octopi duties, tolls fees or other levies, by whatever name called." ' Learned counsel for the respondent has referred to judgment given in C.P. No,D-462 of 1984 wherein it has been observed that this explanation is in the nature of a declaratory provision and these provisions are not charging section. They only provide a mechanism for collection of revenue but the liability for payment of tax has to be determined in independent proceedings under the Income Tax Act and the amount so collected is liable to be refunded partly or wholly in case it is found to be in excess of liability or where no liability to pay tax is incurred. As such it was observed that the explanation shall have retrospective effect. ' Learned counsel for the respondent has referred to the case of Messrs Escorts Ltd. v. Income Tax Officer, Lahore reported in 1975 PTD 50 which lays down that in interpreting a section of a Taxing Act which deals merely with the machinery of assessment and does not impose a charge on the subject, that construction should be preferred which makes the machinery workable. ' Similar view was taken in AIR 1940 Privy Council 124. ' In Income Tax Reports Vol. 36 (1959) page 449 it has been held that in the case of payments of income chargeable under the head 'salaries' the expression "person responsible for paying" in Section 18 of the Income Tax Act, Section 50 of the Ordinance, if the employer is a company, means the company itself including the principal officer thereof. The fact that the explanation to section 18 to that effect was included in the section by an amendment does not mean that the expression did not have that meaning before amendment. ' For the aforesaid reasons I am of the opinion that the petition has no force. The same stands dismissed with no order as to costs. ' MAMOON KAZI, J.--I have had the advantage of going through the udgment proposed to be delivered in this case, but I regret my inability to agree with the conclusions of my learned brother, Abdul Qadeer Chaudhry, J. Before I state my reasons for the same, the facts of the case may first be summarised as follow:
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' The petitioner is a statutory trust and is responsible for managing the affairs of Karachi Port. It was constituted under the Karachi Port Trust Act, 1886 and is a body corporate. The petitioner has to appoint auctioneers for disposal of its surplus and unserviceable goods. It is averred in the petition, that between 1st uly, 1981 and 13th June, 1983, some articles and goods belonging to the petitioner were sold by their auctioneers. The auctioneers paid to the petitioner the sale price of the goods after deducting their commission. Thereafter, the Central Board of Revenue, the respondent No,2 asked the petitioner to submit a list of auctions held on their behalf during the four years ending 30th June 1983 which was duly furnished by the petitioner. The respondent No,2 then wrote a letter dated 22nd November 1983 which required the petitioner to deposit tax under section 50, subsection (7A) of the Income-tax Ordinance, 1979 (hereinafter referred to as "the Ordinance") which was calculated at the rate of 3% on the amounts recovered from sales conducted by the petitioner after the 1st July, 1981. The petitioner sent reply to the respondent No,2 denying its liability to pay the tax since the auctions were held by the petitioner's auctioneers and not by the petitioner. It was stated by the petitioner in the reply that the responsibility to collect tax under section 50 (7A) of the Ordinance lay on the auctioneers and not on the petitioner. The petitioner then sent its representation to the Member (Income-Tax), Central Board of Revenue, Government of Pakistan on 8-3-1984 which also failed to find favour as according to the respondent, obligation to deduct and deposit tax was on the petitioner. Under such circumstances this petition was filed. ' The contention of Mr. All Athar, the learned counsel for the petitioner before us, was that according to sub-section (7A) of section 50 of the Ordinance, the responsibility to collect tax from purchaser of the goods clearly lay on the person making sales by public auction and not on the person to whom the goods belong. To appreciate the argument, it is necessary to reproduce subsection (7- A) which reads as under:- "(7-A) Any persons making sale, by public auction, of any property belonging to the Government, a local authority, a public company, a foreign association declared to be a company under clause (16) of section 2, or a foreign contractor or consultant or consortium shall collect advance tax, computed on the basis of sale price of such property and at the rate specified in the First Schedule, from any person to whom such property is sold, and credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the person purchasing such property for the assessment 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 8 applies, the assessm ent year, if any, in which the "said date" as referred to therein, falls, whichever is the later." ' A plain reading of subsection (7-A) makes it clear that this subsection refers to three persons, namely, (1) the person making sale by public auction, (ii) the person to whom the goods auctioned belong and (iii) the person to whom the goods have been sold. The liability to pay tax is on the purchaser of the goods and the responsibility to collect such tax has been placed clearly on the person who makes a sale by public auction and not on the person to whom the goods belong. Besides subsection (7-A) of section 50 section 52 of the Ordinance is also relevant as according to this section "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". A perusal of section 52 of the Ordinance shows, that section 52 cannot be read in isolation but it has to be read together with section 50 of the Ordinance which is clear even from the language used in section 52. The language used by the Legislature clearly suggests that the liability under section 52 has been placed on the person who fails to deduct or collect tax, or having deducted or collected, fails to pay the same as required by section 50. Now, referring again to section 50, subsection (7-A) thereof, which alone is relevant here, shows, that the
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person required to collect, deduct or pay tax is the person making sale by public auction. Such person, according to section 52 of the Ordinance, shall be deemed to be an assessee in default in respect of such tax. The argument advanced by Mr. Ali Athar, therefore is not without force. ' The contention of Mr. Shaikh Haider, the learned counsel for the respondents, however, has been that the object of section 50 of the Ordinance is to prevent persons, earning income from escaping assessm ent of tax. The counsel has further argued, that section 50 is a machinery and not a charging section since it only provides for mechanism for collection of tax and the liability to pay tax is to be determined under separate and independent proceedings. The learned counsel, therefore, has further contended that the provisions of section 50 should get a liberal construction to achieve the object of the Income Tax Ordinance. The learned counsel has also referred to the words "payer" and "person responsible" occurring in section 50 of the Ordinance and has sought to derive support from the meaning assigned to them in the said section. Reliance in this respect has also been placed by the learned counsel on the case-law. The cases cited by him are, Messrs John Patterson and Co., (India) Ltd. v. Income-tax Officer, District V(A), Calcutta and others 36 I T R 449, Commissioner of Income-tax Bengal v. Messrs Mahaliram Ramjidas AIR 1940 P.C. 124 and Messrs Escorts Ltd. v. Income-tax Officer, Lahore 1975 PTD 50. Reliance was also placed on an unreported D.B. Judgment of this Court in Rehman Corporation v. Income-tax Con- missioner Circle A, Mirpurkhas and another C.P. No,D-462 of 1984. ' Although there cannot be any cavil with the contention raised by Mr. Shaikh Haider, but the intention of the Legislature is always gathered from the language it uses in the enactment, whatever be the consequences which may ensue. As I have already said, according to the language used in subsection (7-A) of section 50, the responsibility to collect advance tax is on the person making sale by public auction and not on the person to whom the auctioned goods belong, it, therefore, cannot be understood as to how the language of subsection (7A) can stretched so as to make the petitioner liable. Reference in this respect may be made to the Interpretation of Statutes and General Clauses Act, by Bindra, fourth edition, page 324, where it is said: "Where the language of an Act is clear and explicit, we must give effect to it, whatever may be the consequences, for in that case the words of the statute speak the intention of the Legislature. If any statutory provision is capable of only one construction then it would not be open to the Court to put a different construction upon the said provision merely because the alternative construction would lead to unreasonable or even absurd consequences. The question of consequences and consideration of policy would be relevant only where the provision sought to be constructed is capable of two constructions. In such a case the Court is not concerned with the results which may ensue from giving to the plain meaning of the words used by the Legislature. If these results are unfortunate, it is for the Legislature to take action to remedy the defects of the law as enacted, it is not for the Courts to usurp the functions of the Legislature and by straining the meaning, and ignoring the clear terms, of the law to seek to evade consequences which, in the opinion of the Court, may prove illfraught. The effect of the words is a question of law. ' The argument of Mr. Shaikh Haider is, therefore, very hard to accept. ' The learned counsel for the respondents, next, referred to clause (a) of subsection (4) of section 50 of the Ordinance and further argued that subsection (7-A) must be interpreted together with subsection (4) (a). It is necessary to reproduce subsection (4)(a) which reads 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 (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 any foreign contractor or consultant or consortium shall, where the total value exceeds fifty thousand rupees, or deduct advance tax, at the time of making such
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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 fmancial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessm ent year, if any, in which the "said date" as referred to therein falls whichever is the later." ' The learned counsel also referred to the words "payer" and person responsible" used in section 50 which according to him place the responsibility to collect tax under sub-section (7A) on the petitioner. ' According to clause (a) of subsection (4) of section 50, "payer" and "recipient" respectively, is the person responsible for making any payment and the person receiving the payment. The provisions of subsection (4)(a) only refer to person who is responsible for making payment to any other person on account of the supply of goods or for service rendered or the execution of a contract etc According to the said provisions, the "payer" has been made responsible to deduct advance tax while making payment to the "recipient". A perusal of the said provisions clearly makes the distinction between subsection (4)(a) and sub section (7A) of section 50. In case of the former, the liability to pay advance tax on the person receiving the payment and the responsibility to deduct or collect t is on the person making the payment, but in the case of the latter, the liability to pay tax is on the person purchasing the goods and the responsibility to collect t is on the person making sale of such goods by auction. Similarly, the meaning assigned to the words "person responsible" in sub-section(9) of section 50 is with reference to the context in which they have been used. Since such words do not appear in subsection (7-A), any reference to them in the instant case would be wholly irrelevant. ' Next, coming to the cases referred to by Mr. Shaikh Haider, in the case of John Patterson & Co. (India) Ltd., the question was as to the interpretation of the words "person responsible for paying" appearing in section 18 of the Indian Income-tax Act. It was held by the Calcutta High Court that such words occurring in section 18 of the Income-tax Act, if the employer is a company, would mean, the company itself including the principal officers thereof. It was accordingly held, that the notices and certificates for recovery of tax from the company, which had failed to deduct tax from salaries paid to an employee, issued to the principal officers of the company without the name of any particular officer being given were valid. In the Privy Council case, referred to by Mr. Shaikh Haider, the question was as to the interpretation of section 34 of the Indian Income-Tax Act. It was held by the Privy Council, that section 34, although it is part of a taxing Act, imposes no charge on the subject and deals merely with the machinery of assessment, therefore, in interpreting provisions of this kind, the rule is that that construction should be preferred which makes the machinery workable, ut res valeat potties Quam preheat. The same rule was reaffirmed in the case of Messrs Escorts Ltd., decided by the Lahore High Court. Similar observations can also be found in the unreported case decided by the Division Bench of this Court reference to which has already been made above. The question before the D.B. In that case was whether the "Explanation" which was added to subsection (7-A) of section 50 was to be given retrospective effect ' Although it cannot be denied that subsection (7-A) of section 50 is a machinery provision and the Courts should always prefer that interpretation which makes the machinery workable, but such a rule would apply only when the language used in a statute is capable of more than one interpretation. The acceptance of the interpretation as proposed by Mr. Shaik Haider, would clearly amount to doing violence to the clear and unambiguous language of subsection (7-A). ' My learned brother in the judgment proposed to be delivered has also sought support from the definition of the term "person" in clause (32) of section 2 of the Ordinance which says: "Person" includes an individual, a firm, an association of persons, a Hindu Undivided family, a company, a local authority and every other artificial juridical person."
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' With utmost respect, it may be said, that "person" no doubt, includes and individual, a firm, an association of persons, a company, etc., but clause (32) when read with sub-section (7A) makes only such person responsible for collection or deduction of advance tax, who makes sale by public auction of any property belonging to another person. The former may be an individual, a firm, a company, etc., therefore, in my view, the definition of "person" does hardly make any difference vis- a-vis the responsibility fixed by the Legislature to collect or deduct tax under sub-section (7A) of section 50. Such…
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