' NASIR-UL-MULK, C.J.---Income Tax Appellate Tribunal, Peshawar, has referred the following question of law for determination:-- "Whether on the facts and circumstances of the case, the L/ITAT, Peshawar was justified in upholding that the assessee was not liable to be treated as assessee in default under sections 52/86 of the Income Tax Ordinance, 1979 for non-deduction of tax under section 50(4) on account of payments to various shopkeepers who are not actually of the agricultural products and have been involved in the processing and packing of the agricultural products. In this regard reference is made to section 151 of the Income Tax Ordinance, 1979".
2. The background in which the above question arises is that the respondent Messrs New Capital Dall Mills (Pvt.) Ltd., Hattar, is a private limited company, deriving income from the manufacture and sale of various products of pulses and other food grains. The company purchased raw material in the shape of pulses during the assessment year 1998-99. Since it did not deduct tax under section 50(4) of the Income Tax Ordinance, 1979, the Assessing Officer, held the company to be defaulter under section 52 of the Ordinance. The company was, therefore, subjected to tax under section 52 and additional tax under section 86 of the Ordinance. In appeal, the Commissioner of Income-tax (Appeals) deleted both the taxes on 21-10-1999. This order was confirmed by the Income Tax Appellate Tribunal. The department made an application to the Tribunal' for reference of two questions for determination of the High Court. The Tribunal, however, referred only one question, reproduced above.
3. The learned counsel appearing for the Department relied upon section 151 of the Income Tax Ordinance and submitted that the exemption from payment of income-tax can only be extended to the original recipients of the income, which in the present case would be farmers. That, therefore, the respondent/Company, being a subsequent recipient of the agricultural product, cannot claim exemption in view of the limitation imposed by section 151 of the Ordinance. He relied upon "The Commissioner of Income-tax, Punjab & N.-W.F.P. And Bahawalpur v. Mrs. E.V. Miller, (deceased) represented by (1) Mrs. Brickwood and (2) The Grindlays Bank Ltd., Lahore PLD 1959 SC (Pakistan)
219, "Messrs Julian Hoshang Dinshaw Trust and others v. Income Tax Officer, Circle XVIII, South Zone, Karachi and others 1992 PTD 1 and "Dr. Rajah Sir M.A. Muthiah Chettiar (Legal Heirs) v. Commissioner of Income-tax 2001 PTD 121.
4. The learned counsel representing the respondent submitted that the company's case does not fall under section 151 but under subsection (4) of section 50 of the Income Tax Ordinance, 1979, read with S.R.O. 586(1)/91, dated 30-6-1991. Elaborating, he contended that the Department's case against respondent is that it should be treated as a defaulter for not deducting tax at source on payment made to the shopkeepers from whom the company had purchased the food grains and pulses. That the S.R.O. Had excluded such payments from deduction at source.
5. Section 151 of the Income Tax Ordinance, 1979 pertains to exemption from Income-tax and provides a limitation that the first recipients of the income shall be exempted whenever an exemption is provided under the law. The case of the respondent/Company is not one of exemption. It does not claim exemption from payment of tax. The Department's case against Company is that it has failed to deduct tax under section 50 of the Ordinance while making payment for the purchase of pulses and food grains. Thus the liability of the Company was determined under section 52 of the Ordinance and treated as defaulter for not making the deductions at source. Clause (iii) of the proviso to subsection (4) of section 50 empowers the Central Board of Revenue to exempt any payer or recipient from the provision of subsection (4) of section 50 of the Ordinance. It is under these powers that the Central Board of Revenue had issued S.R.O. No,586(I)/91, dated 30-6-1991, under which 12 different categories of persons/ Companies had been exempted from the application of above provision. Clause (v) of the S.R.O. Mentions "persons receiving payments from a company exclusively for the supply of agricultural produce which has not been subjected to any process other than that which is ordinarily performed to render such produce fit to be taken to market". Thus under the said provision, payments received by persons from a company for the supply of agricultural produce would not be subjected to deduction at source under section 50(4) of the Ordinance. The case of the respondent/Company squarely falls under the said provision and thus the Company was not liable to deduct the tax at source. The question formulated is thus answered in the positive.