CH. MUHAMMAD ASGHAR PASWAL (JUDICIAL MEMBER).---The present six appeals have been preferred by a public limited company, listed on the stock exchanges of Pakistan, engaged in the business of sale and distributon of natural gas to industrial, commercial and residential consumers. For assessm ent years 1988-1989, 1991-1992, 1992-1993 and 1996-1997 a common issue is involved and the appeals of the assessee impugn separate orders dated 26-1-2009 (assessm ent years 1988-1989 and 1991-1992) and 4-3-2009 (assessment years 1992-1993 and 1996-97) issued by the first appellate authority. Similarly, for assessment years 2001-2002 and 2002-2003 a common issue is involved in the present appeals and the assessee feels aggrieved by the order dated 4-3-2009 passed by the first appellate authority. The appeals are disposed of in terms of observations and findings recorded in the paragraphs to follow.
(a) Assessm ent years 1988-89, 1991-92, 1992-93 and 1996-97
2. Relevant facts in brief are that through a consolidated order 31-1-2006 an amount of Rs.367,780,909 was determined as compensation due to the assessee for as many as 17 years (running from assessm ent years 1983-84 through 1999-2000) including the years involved in the present appeals. The order determining the aforesaid amount of compensation was issued by Deputy Commissioner of Income Tax, Enforcement Division, Large Taxpayers Unit, Lahore in terms of provisions contained in section 102 of the repealed Income Tax Ordinance, 1979 read with section 171 of the Income Tax Ordinance, 2001.
3. Following the issuance of compensation, as aforesaid, the Additional Commissioner, Enforcement Division, Large. Taxpayers Unit, Lahore issued notices dated 13-8-2008 under section 221 of the Income Tax Ordinance, 2001 stating therein that for assessment years 1988-89 and 1991- 1992 the compensation determined in the order dated 31-1-2006 was in excess of what was legally due to the assessee and required the assessee to show-cause as to why the said excess amount be not retrieved through rectifying the compensation order dated 31-1-2006. Similar notices were issued on 23-09-2008 for assessm ent years 1992-1993 and 1996-1997. These notices were also issued by the. Additional Commissioner, Enforcement Division, Large Taxpayers Unit, Lahore. The action proposed in the show-cause notices was enforced.
While for assessm ent years 1988-1989 and 1991-1992 the rectification orders were passed on 23-8- 2009, however, the orders for assessment years 1992-1993 and 1996-1997 were passed on 22-10- 2008. The rectification orders were upheld by the learned first appellate authority while disposing of the appeals filed by the assessee feeling aggrieved therefrom.
4. Before us, the learned AR challenged the orders of the authorities below fundamentally on the basis of following two arguments:--
(a) The action under section 221 of the Income Tax 'Ordinance, 2001 initiated and concluded by the, learned Additional Commissioner was void ab initio as under the law rectification could only be carried out by the authority which passes the original order, sought to be rectified. It was argued by the AR that since the order dated 31-1-2006 was passed by the Deputy Commissioner, therefore, only Deputy Commissioner could rectify the order. In this respect, it was submitted that under the law Additional Commissioner is vested with powers under section 122(5A) of the Income Tax Ordinance and since admittedly the action had been undertaken under section 221 of the Income Tax Ordinance, 2001, therefore, the same having not been concluded by the authority which passed the original order is void ab initio;
(b) It was submitted that there is no dispute or disagreement that the IC compensation, through the earlier consolidated order dated 31-1-2006, was determined for as many as 17 years inter-lia including the years in appeal. In this background, it was argued that even if the. Department's contention that compensation, in the years in appeal, was wrongly/excessively allowed because certain refunds, which were considered for the computation of Compensation, had already been adjusted against some other years, is accepted still it does not effect the quantum of overall compensation and that is so because the counter effect in the said other year (in which the refunds were accounted for according to the department) would of- set the impact of alleged excess compensation.
5. The learned DR opposed the appeals. It was submitted that no matter the original order dated 31-1-2006 was passed by the Deputy Commissioner, the rectification was rightly carried out by the Additional Commissioner as on the date of rectification the jurisdiction remained with the Additional Commissioner. It was submitted that all matters pertaining to compensation were assigned to Additional Commissioner vide internal jurisdiction order dated 21-8-2006 i.e. After the passing of the order dated 31-1-2006 but much before the rectifications. On the alternative argument, the DR submitted that there is no infirmity in the rectification orders as the department had already taken into consideration the aspect or counter effect and as such the retrieved amount was lawful.
6. We have heard the arguments of both the sides, perused the available record and have given earnest consideration to the submissions of the representatives of the rival parties. We feel inclined to agree with the contention of the DR that rectification was lawful' if the jurisdiction had already been assigned to the concerned Additional Commissioner. The order of the Additional Commissioner, however, is silent on the point of assumption of jurisdiction. The same could not be produced even before us. On the alternate plea of the representative of the assessee, the learned DR could not demonstrate before us as to how the counter effect of adjustments, for the purposes of rectifications, had been duly considered in the other years where the refunds were statedly adjusted. For assessm ent year 1988-1999 the basis for rectification was that a refund of Rs.24,234,430 had already been adjusted and its effect was not taken while determining *compensation on refund of Rs.43,783,107. The rectification order, otherwise available record or the DR could not demonstrate before us that refund for Rs.43,783,107 was required to be corrected on account of earlier alleged adjustment of Rs.24,234,430. For assessment year 1991-1992 the alleged adjustment of Rs.71,660,959 is not visibly appearing in the order dated 31-1-2006 and the DR could not satisfy us on the contentions raised in the rectification order . Likewise, the DR could not support the alleged adjustments vis-a-vis the assessment years 1992-93 and 1996-97 so far as the plea of the assessee on counter effect was concerned.
7. In view of the circumstances that the learned DR could not satisfy us on the alternate plea of the assessee regarding counter effect of alleged adjustments in other years and since the same needs sincere consideration, we have no option but to vacate the orders of the authorities below and remit the matter back to the taxation officer to examine the matter afresh. The taxation officer shall scrutinize the record in coordination with the assessee and ensure that the assessee is not deprived of its legitimate right in any manner whatsoever. The assessee shall be given reasonable opportunity of being heard in the process of remand proceedings. We also note that the action of the taxation officer of denying opportunity of being heard to the assessee in finalizing proceedings for 1988-1989 and 1991-1992 was contrary to the spirits of law and should therefore be avoided under all circumstances. While undertaking the proceedings the taxation officer shall also bring on record appropriate evidence regarding assumption of lawful jurisdiction in terms of discussion recorded supra.
(b) Assessm ent years 2001-2002 and 2002-2003
8. The assessee in these two appeals feel aggrieved by the imposition of additional tax levied by the taxation officer in terms of provisions contained in section 86 of the repealed Income Tax Ordinance, 1979. Facts briefly are that orders under section 52 of, the repealed Income Tax Ordinance, 1979 were passed on 30-1-2002 and 17-2-2003 respectively for assessment years 2001- 2002 and 2002-2003 and the assessee/appellant was held to be an assessee in default regarding it's withholding tax obligations in respect of payment of dividend to shareholders. Subsequently, through orders dated 30-8-2008 the taxation officer levied additional tax which is impugned in the present appeals. These orders were issued under section 86 of the repealed Income Tax Ordinance, 2001.
9. Before us the arguments of the learned counsel for the assessee/appellant are two fold. It is the contention of the assessee that orders dated 30-8-2008 are in fact in the nature of rectification of earlier orders dated 30-1-2002 (assessment year 2001-2002) and 17-2-2003 (assessment year 2002-2003) and hence these are barred by time, therefore illegal, having been passed beyond a period of 4 years applicable to rectification proceedings under the repealed Income Tax Ordinance, 1979. It was submitted by the AR that through the orders dated 30-8-2008 the taxation officer rectified the earlier orders in which, as per the stance of the taxation officer, legitimate additional tax was not levied . In support thereof the learned counsel placed reliance on 2010 PTD
150. It has been further contended that even if the action is not regarded as rectification of the earlier order, the imposition of additional tax under section 86 of the repealed Income Tax Ordinance, 1979 would still remain barred by time. In this respect, it was argued that since courts have held that proceedings under section 52 are governed by time limitation, therefore, the consequential additional tax, which is levied in H connection with default under section 52, would also be legally sustainable if levied within such time frame. In support thereof, the learned counsel relied upon decisions in 2003 PTD 1571 (SHC) and. PTR No. 345 of 2003 (LHC) wherein proceedings under section 52 of the repealed Income Tax Ordinance, 1979 have been held to be subject to time limitation. The learned DR, on the other hand, supported the orders of the authorities below and submitted that additional tax was rightfully charged to the assessee as there was a default in payment of tax as prescribed in law.
10. We have considered the submissions of the representatives of the parties and have read the decisions relied upon before us. In our view the decision in 2010 PTD 150 is on all fours vis-a-vis the present appeals. In the reported decision our learned brothers have already addressed the controversy and the finding thereof, being relevant, is reproduced hereunder for the ease of reference:-- "(6) We have considered arguments of both the sides in the light of relevant record and we tend to agree with learned AR that if there was any mistake in the first order under sections 161/205, the assessing officer could/should have rectified it under section 221. Passing of fresh order under sections 161/205 in respect of omitted amount of default is tantamount to a fresh independent order. When an assessm ent is made in respect of income of a taxpayer, any error or omission appearing therein can be rectified under section 221. Fresh assessment cannot be made in respect thereof because it will be case of double assessment which is not permissible under law. Exactly same situation prevails in this case which in our opinion is not rightful in the eyes of law. We therefore hold that in this case rectification could/should have been made under section 221. The impugned order under sections 161/205 is therefore illegal which is hereby cancelled."
11. Relying upon the aforesaid observations in the reported decision we agree with the learned counsel of the appellant/assessee that in this case the action of the taxation officer for imposing additional tax was a rectification of original orders passed under section 52 of the repealed Income Tax Ordinance, 1979 and that admittedly having been done after the lapse of statutory time limit the orders, imposing additional tax, are illegal in the eyes of law. Resultantly, the orders of both the authorities are vacated and appeals are allowed.
(CH. MUHAMMAD ASGHAR PASWAL) JUDICIAL MEMBER (MUHAMMAD ASHRAF) ACCOUNTANT MEMBER DISSENTING NOTE MUHAMMAD ASHRAF (ACCOUNTANT MEMBER).---1. I have minutely examined the consolidated order for assessm ent years 1988-1989, 1991-1992, 1992-1993, 1996-1997 2001-2002 and 2002-2003 made by my learned honorable colleague. I do not have any difference of opinion as far as 1st 4 Years are concerned as, the same have been set aside with the direction to the Assessing Officer to examine it afresh. But I do not agree with my learned colleague for assessment 2001- 2002 and 2002-2003 for the reasons discussed below in detail.
2. Brief facts of the case are that the company announced and paid dividend to the share holders.
It was noted by the Assessing Officer that tax amounting to Rs.13,567,875 deducted under section 50(6A) of the Income Tax Ordinance, 1979 was not deposited into the government exchequer by the company. Therefore the taxpayer was treated as assessee in default and an amount of Rs.13,567,875 was charged and recovered under section 52 of the repealed Income Tax Ordinance, 1979 vide order dated 8-10-2002. However later on it was noted that the company was also required to pay additional tax under section 86 on the said amount recovered by invoking the provisions of section 52 of the repealed Income Tax Ordinance, 1979, for the period for which the tax withheld under section 50(6A) was retained by the company and was not deposited in the government exchequer as per the prescribed time frame. In order to levy additional tax a show- cause notice was issued which was duly replied by the taxpayer. It was contended in the reply that action under section 86 was barred by time limitation, as the said action have to be taken within four years of the default committed for not depositing the tax withheld. But the Assessing Officer by relying upon the judgments reported as,
(i) 1977 PTD 183, PLD 1997 Lah. 797, 1977 PTD 183
(ii) 2002 PTD 2355, 2002 PTD 226 Charged additional tax under section 86 amounting to Rs.160,584.
3. The appellant being aggrieved filed appeal before the CIT(A) who vide order dated 4-3-2009 upheld the order of the Revenue Officer in the following manner:- "In order to levy the additional tax under section 86 before passing the order in this regard a notice was issued to the taxpayer vide No.T1237 dated 4-3-2008 responding which the taxpayer agitated that the proposed action under section 86 was barred by time and in this regard reliance was placed on the cases cited as 2003 PTD 1571 (Khi HC), 1999 PTD 3357 (ITAT). The order was passed after considering these two case law. However, the taxation Officer relied on the case-law cited as 2002 PTD 2355, 86 Tax 129. The involved is that for the income year ending 30-6-2001 i.e assessm ent year 2001-2002 order under section 52 of the Repealed Income Tax Ordinance, 1979 was passed vide order dated 8-10-2002 which is within statutory time limitation. Likewise for the income year ending 30-6-2002 i.e. Assessment Year 2002-2003 order under section 52 was passed on 17-2-2003 which is also within statutory limitation period. However, addition tax under section 86 has been charged for both the Assessment Years vide orders under section 86 of the repealed Income Tax Ordinance, 1979 passed separately on 30-8-2008. The appellant is of the view that the order under section 86 could be passed within four years of the order passed under section 62.
From the above it is evident that there is no dispute as to the action under section 52 of the repealed Income Tax Ordinance, 1979 for both the years. The taxpayer has however, agitated action under section 86 and is of the view that it is governed by limitation of time. The matter has been examined and it is held that where the action establishing default on the part of the taxpayer is undisputed and categorically admitted the consequential action becomes eminent and essential.
The amount of additional tax being part and parcel of the demand raised as an action under section 52 its charge and recovery under section 86 is legally provided and justified. In this regard it is pertinent to quote relevant portion of order of the learned ITAT.
"In view of the foregoing discussion we feel no hesitation to hold that charge of additional tax under sections. 86 to 89 of the Income Tax Ordinance, 1979 is obligatory if a tax payer has failed to make payment of due tax within the prescribed period and ITO has no discretion to waive or remit or forgo the levy.
4. The appellant being aggrieved filed appeal before this forum on the following grounds:--
(1) The consolidated appellate order dated January 26, 2009 (served on February 6, 2009) issued under section 129 of the Income Tax Ordinance, 2001 (Ordinance) by the learned Commissioner of Income Tax, Appeals 1, Lahore (CITA) is not law and against the facts of the case.
(2) That learned CIT(A) has erred in holding that the Additional Commissioner of Income Tax, Enforcement and Collection Division, Large Taxpayer Unit, Lahore (ACIT) was justified to assume jurisdiction under section 221 of the Ordinance as the order under section 171 of the Ordinance, rectified through the impugned order, was originally passed by Deputy Commissioner of Income Tax, Enforcement Division, Large.. Taxpayers unit, Lahore and that rectification, in any, could have been made only be such officer or his successor in office.
(3) without prejudice to ground of Appeal No. 2 above, learned CIT(A) has erred in confirming the action of ACIT regarding conclusion of rectification proceedings without affording the appellant an opportunity of being heard in complete violation of the provisions of section 221(2) of the Ordinance.
(4) without prejudice to grounds of Appeals Nos. 2 and 3 above learned CIT(A) has erred in omitting to adjudicate appellant's ground of Appeal No. 4 whereby it was contested that action of ACIT was not in accordance with the provisions contained in section 102 of the repealed Income Tax Ordinance, 1979 read with section 171 of the Ordinance".
5. While adjudicating the grounds of appeal my learned colleague has relied upon the case-law reported as 2010 PTD 150. I have minutely examined this case-law and I beg to differ with the interpretation adopted by my learned colleague. The said case-law prescribed time limitation for passing order under section 161 of Income Tax Ordinance, 2001 and does not prescribe any limitation for charging additional tax under section 205. The other case-law reported as 2003 PTD 1571 (HC) and PTR 'No.345 of 2003 (LHC) also prescribe time limitation for invoking the provision of section 52 of the repealed Income Tax Ordinance, 1979. It is worth noting that provision of section 52 were invoked within time limitation as prescribed by different appellate courts and there is no difference of opinion on this point.
6. It is worth pointing out that Islamabad High Court in a case reported as 2009- PTD 1767 held that no time limitation is provided for passing order under section 52 of the Repealed Income Tax Ordinance, 1979. The relevant paragraph from the said judgment is re-produced below:-- "(8) The matter can be examined from another angle. Section 52 not only deals with the cases of failure to deduct but it also deals with the case of failure to deposit, deduction having been made.
Should the person, who had deducted the tax while making payment be permitted to pocket the amount so deducted on the ground that he has not been declared assessee in default within four years from the end of the assessm ent year In which the payments liable to deductions were made.'
The legislature has chosen not to provide any period of limitation for passing an order declaring a person to be assessee in default. The income tax authorities or for that matter the Income Tax Tribunal has no power to read the period of limitation prescribed under section 156 of the Ordinance in section 52.
(9) For what has been said above, we are of the opinion that there is not nine limit for action under section 52 of the repealed Ordinance".
7. It is worth mentioning that law does not provide any limitation K for charging additional tax because it is an interest which is paid by the taxpayer for using government money.
8. It is also worth mentioning here that parallel provisions regarding compensation for delayed payment of refund exist in the statue book. And the compensation, on delayed refund is allowed for the whole period for which taxpayer's money remain in the use of government. No time limitation for allowing compensation and passing order under section 102 of the repealed Income Tax Ordinance, 1979 or under section 171 of the Income Tax Ordinance, 2001 is prescribed.
9. Similarly the provisions of additional tax envisages that when a taxpayer uses government money, it should pay interest for the period for which the said money is utilized and no time limitation for charging additional tax (interest) is prescribed in the statutes. It is an independent provision which raises the charge against the defaulter and statute has not provided any time limitation for passing order under section 86. The said section is an independent provision and its invokation does not require rectification of order made under section 52 of the Repealed Income Tax Ordinance, 1979.
10. After minutely studying the provision of law I am of the considered opinion that the taxpayer was under legal obligation to pay additional tax for the period for which government money remained in its use, but it failed to discharge its obligation so, the action of the Assessing Officer is lawful and is required to be maintained.
11. In view of forgoing facts and legal position Honorable Chairman is requested to refer the case to the 3rd Member for his opinion.
(MUHAMMAD ASHRAF) ACCOUNTANT MEMBER
12. In view of the difference of opinion, the following issues are framed to be decided by 3rd member for his opinion:--
(I) That section 86 of Repealed Income Tax Ordinance, 1979 is an independent section for charging additional tax and order can be passed under the said section. And no rectification of order made under section 52 is required?
(II) That the law does not prescribe any time limitation for passing order under section 86?
(III) That the case-law relied upon are irrelevant as these do not prescribe any time limitation for passing order under section 86?
(MUHAMMAD ASHRAF) Accountant Member (CH. MUHAMMAD ASGHAR PASWAL) Judicial Member Asim Zulfiqar Ali, F.C.A. For Appellant.
Muhammad Majid Chaudhry, D.R. (LTU) for Respondent.
SHAHID JAMIL KHAN (JUDICIAL MEMBER).---Following questions are referred for opinion, as difference of opinion erupted between learned Judicial and Accountant Members, while deciding I.T.As. Nos.450 and 451/LB/2009 relating to assessment years 20012002 and 2002-2003:--
(i) That section 86 of repealed Income Tax Ordinance, 1979 is an independent section of charging additional tax and order can be passed under the said section. And no rectification of order made under section 52 is required?
(ii) That the law does not prescribe any time limitation for passing order under section 86?
(i.e) That the case-law relied upon are irrelevant as these do not prescribe any time limitation for passing order under section 86?
2. The facts found by both the members are that orders under section 52 of the Income Tax Ordinance, 1979 were passed for relevant assessment years respectively on 30-1-2002 and 17-2- 2003, for not depositing tax required to be withheld under section 50(6A) of the Income Tax Ordinance of 1979. Additional Tax under section 86 was not charged in the orders under section 52, therefore, the provisions of section 86 were invoked separately and additional tax was charged through order dated 30-8-2008. For the purpose of answering above noted questions, of, facts important are that provisions of the section 86 were invoked separately and after delay of about 5 to 6 years from the order under section 52.
3. Perusal of the orders, separately recorded, by both learned members reveal that learned Judicial Member has relied on a judgment by this Tribunal reported as 2010 PTD 150 to hold that separate order under section 86 was rectification of original order passed under section 52, therefore, were passed beyond the statutory limitation prescribed under section 156. On the contrary, learned Accountant Member has disagreed by .Observing that provision of section 86 are independently invokable and no limitation was provided for an action under this provision. Learned Accountant Member has relied on judgment by Islamabad High Court, reported as 2009 PTD 1767 in support.
4. Mr. Asim Zulifiqar, CA, representing the appellant/taxpayer, has supported the opinion by learned Judicial Member. He submits, additionally, that, invocation of the provision of section 86 was never intended, either in show-cause notice or orders under section 52, therefore, belated action under section 86 was an afterthought as well. DR has supported the opinion by learned Accountant Member and submits that charging of additional tax under section 86 was in the nature of recovery for which no limitation was provided by Income Tax Ordinance, 1979.
5. I have examined relevant provisions from Income Tax Ordinance, 1979 as well as Income Tax Ordinance, 2001, in light of the facts of this case. Additional tax under section 86 was charged with delay of 5 to 6 years, when the Ordinance of 1979 had already been repealed. However, subsection
(3) of section 239 of Income Tax Ordinance, 2001 ordained that additional tax/default surcharge shall be charged under the provisions of Income Tax Ordinance, 1979 by the authorities appointed under Income Tax Ordinance, 2001. In this backdrop, examination of the provisions of Income Tax Ordinance 1979 becomes relevant. Perusal of section 86(1) unequivocally shows that it envisages a consequential levy of additional tax, as no procedure of taking independent action under this section was available in Income Tax Ordinance, 1979. In practice, therefore, notices under section 52 were used to be issued along with section 86, likewise order under section 52 was used to be recognized as order under sections 52/86. Since additional tax under section 86 had to be charged, as a consequence of order under section 52, therefore, failure to charge the same could be expounded either that taxation officer had not intended to charge it, or charging of the same was omitted mistakenly. Be that as it may, charging of additional tax independently cannot be termed other than an amendment through rectification of order under section 52. I am unable to agree with the opinion of learned Accountant Member that order in question under section 86 was of recovery in nature, which could be passed at any time as no limitation for that was provided. A demand for recovery can arise from any order, determining liability of a taxpayer. If the determined liability was not paid by the taxpayer voluntarily, a notice of demand could be issued under section 85 of Income Tax Ordinance, 1979. In the proposition under discussion, the liability of additional tax was not determined by any order, therefore, recovery of the same could not be demanded under section 85. For this reason an attempt was made to determine liability of additional tax through separate/independent order under section 86. As discussed supra, no procedure for passing independent order under section 86 was available in Income Tax Ordinance, 1979, therefore, at best this order, being consequential in nature, be termed as a rectification of order under section 52. It is not disputed on facts that the order in question was passed after more than five years, in my opinion, therefore, the same was hit by limitation.
6. So for, judgment by Islamabad High Court (2009 PTD 1767), relied upon by learned Accountant Member, is concerned, the same is not relevant to the facts of this case. Question discussed in that judgment was of invoking the provisions of section 52, for which no limitation was provided in Income Tax Ordinance 1.979. It may be pointed out that section 52 was independently invocable for which proper procedure was available. The issue, before us, has arisen after the order under section 52, as consequence of which only the provision of section 86 could be invoked but not independently.
7. The questions proposed are answered in the discussion noted hereinabove. In my opinion, appeals are rightly allowed by learned Judicial Member .