ORDER: Briefly stated the facts of the case are that the appellant filed returns for the tax periods 1999-2000 to 2002-2003 declaring nil income claiming exemption under clause 62 of Part I of the 2nd schedule of the repealed Income Tax Ordinance, 1979. The Assessing Officer did not accept the declared version, created tax liabilities against the appellant vide order dated 9-4-2002. The taxpayer being aggrieved with the treatment meted out by the Taxation Officer, filed appeals before the learned Commissioner of Income Tax (Appeals) who vide his combined order dated 24- 8-2004 rejected the appeals of the taxpayer. The taxpayer preferred further appeals before the Appellate Tribunal which was allowed vide order dated 12-5-2009 disagreed with the orders of the authorities below. The appeal effect order of the above judgment of the Tribunal as per the statement of the learned AR was passed by the learned Deputy Commissioner Income Tax, E & C Unit 4, Division-1,- RTO, Lahore vide order dated 15-12-2010 without giving opportunity of being heard to the taxpayer, therefore, the taxpayer filed appeal before the learned CIR(A), who vide order dated 17-5-2011, set aside the order of the DCIT with the direction to provide opportunity of being heard to the taxpayer. The DCIR, Unit-05, Zone-II, RTO, Lahore passed Order Nos. C. 21, 22, 23, 24 dated 30-6-2012 under sections 62/135 of the Income Tax Ordinance, 1979 (repealed). The taxpayer again filed appeals before the learned C.I.R (Appeals-II) who vide a combined Orders Nos.
35,36,37,38 dated 31-12-2012 upheld the order of the learned DCIR, Unit-05, Zone-II, RTO, Lahore.
Hence the instant appeals by the taxpayer before this Tribunal.
2. During the course of hearing of this case, the learned AR has argued that the subject case, after decision by the Tribunal, has not been finalized within the period stipulated in section 124(2) and section 124(4) of the Income Tax Ordinance, 2001. He explained that the last date to finalize this case under section 124(2) was 30-6-2012 while the order of the Deputy Commissioner Inland Revenue has been delivered to the post A office on 12-7-2012. According to him an order passed on file but not communicated to the concerned party, cannot be termed as having been passed within the prescribed period. He relied on a reported judgment cited as 2008 PTD 609 (PTO) - Messrs Dandot Cement Company Ltd., Lahore v. Secretary Revenue Division, Islamabad. He further submitted that the Tribunal has provided direct relief to the taxpayer vide order dated l2 May 2009 but the appeal effect order has not been passed within the 2 months period as stipulated in section 124(4) ibid. He referred to the judgments of the superior courts cited as PTCL 2008 CL 1.
(H.C) Messrs Super Asia Muhammad Din Sons (Pvt.) Ltd. v. The Central Board of Revenue and 1 Other, 2012 PTD 1092 Commissioner Inland Revenue v. Messrs Crescent Textile Mills and others, 2012 PTD 1016 Messrs Pakistan Ordnance Factories (POF) Wah, Cantt v. Collector of Customs, Sales Tax and Excise (Adjudication) Islamabad wherein it has been held that where a statute provides time limit during which tax liability can be created against a taxpayer the prescribed period is mandatory. According to him, the orders passed beyond the prescribed period are void.
The learned counsel also disputed the quantum of expenses allowed with reference to collection of voluntary contributions. He explained that the Tribunal vide Order dated 12-5-2009 has ordered deduction of expenses related to voluntary contribution. However, the Deputy Commissioner Inland Revenue vide order dated 30-6-2012 has prorated the expenses between the exempt Income (Voluntary Contribution) and taxable income (Rice Inspection). He elaborated that proration of expenses is not a valid concept and, as held vide 2005 PTD 2161 (Trib.), specific expenses should be allocated to the respective sources of receipt. He elaborated that collection of voluntary contribution simply entails receipt of cheques and deposit thereof in the bank. He referred to various figures given in the assessment order dated 30-6-2012 and highlighted obvious discrepancies therein. He pointed out that the Deputy Commissioner Inland Revenue has allowed Rs. 1,5 I 0,894 and Rs. 2,549,505 as prorated expenses for collection of voluntary contribution of Rs.
2,200,500 and Rs. 1,900,000 during 2001-2002 and 2002-2003 respectively. He pleaded that such huge expenditure cannot be related to the simple collection of voluntary contribution involving only receipt of cheques and deposit of the same in the bank. According to the AR, the main function of REAP is inspection of rice consignments being exported out of Pakistan earning substantial foreign exchange. He emphasized that the taxpayer has only spent following amounts for collection of voluntary contribution:- 1999-2000 50,000 2000-2001 60,000 2001-2002 75,000 2002-2003 75,000 According to him, the remaining expenses are attributable to the inspection of rice. He also submitted a chart indicating the aforesaid bifurcation.
The learned AR also assailed the levy of default surcharge/ additional tax in this case. He pointed out that in welfare nonprofit organizations like REAP, there, is no individual gains or any monetary benefit by evasion or non-payment of taxes and hence mense rea or guilty intention can be safely ruled out in such case. He relied on PTCL 2004 CL. 225 D.G. Khan Cement Company Ltd. v.
Federation of Pakistan wherein the Supreme Court has held that where non-payment of sales tax within tax period was neither willful nor it could be construed to be mala fide evasion of payment of duty, the recovery of additional tax as penalty or otherwise was not justified in law.
He argued that where there is a dispute with regard to interpretation of provisions of law, additional tax could not be levied. He drew our attention to the fact that in the first round of litigation, plea of taxpayer with regard to exemption was accepted by the Tribunal and receipts made on account of voluntary contribution were declared to be exempt. He relied on the case- law reported as 2002 PTD 629 (H. C. Lah.) in the case titled CTT, B-Zone, Lahore v. L.C.C.H.S., Lahore wherein it was held that where a taxpayer had declared nil income either due to no income or his income being exempt from tax and later he is held to be liable to income tax additional tax cannot be levied.
He also pointed out that the Assessing Officer has neglected consideration important judicial decision relied upon by the REAP while the Commissioner Inland Revenue (Appeals) has failed to examine even a single judicial decision presented before him.
3. The learned DR on the other hand supported the orders of the authorities below and prayed for maintaining of the same.
4. Both the parties have been heard and relevant record alongwith case-law cited at bar perused.
Regarding the legal issues we have observed that the reliance by the learned AR on section 124(4) is mistaken because this legal provision related to a case where direct relief has been provided by the Appellate Tribunal or the Commissioner Inland Revenue (Appeals). A perusal of the order dated 12-5-2009 by the Tribunal and the to decisions given by Commissioner Inland Revenue (Appeals) reveals that direct relief has not been provided to the appellant, rather, this is a case of re- assessm ent of tax liability. Resultantly section 124(4) of the Income Tax Ordinance, 2001 is not applicable in the facts and circumstances of this case.
Likewise the interpretation of legal provisions relating to issuance of impugned order after the expiry of period of limitation under section 124(2) ibid is also not convincing. The Deputy Commissioner has shown the date of issuance of the order as 30-6-2012 and the sanctity attached to the performance of duties during the ordinary course of working by the government functionaries belies the contention of the appellant. Hence, it is ruled that this case has been finalized by the Deputy Commissioner Inland Revenue within the period stipulated in the Income Tax Ordinance, 2001.
5. Now averting the merits of the case we have given our anxious consideration to the plea relating to proration of expenses between the exempt receipts (Voluntary Contributions) and taxable receipts (Rice Inspection). It is obvious that main function of REAP during the years under review i.e. 1999 to 2003 has been the inspection of rice and the extent of this mammoth exercise relating to certification of quality of rice can be very well comprehended. The department has failed to rebut the contention of the appellant that collection of voluntary contribution simply entails receipt of cheques relating thereto and depositing the same in the banks. We agree to the point raised by the appellant that Rs. 1,510,894 and Rs. 2,549,505 can not be spent for collection of Rs. 2,200,500 and Rs.
1,900,000 during 2001-2002, 2002-2003 respectively. Keeping in view overall facts of the case, working of the organization the nature of voluntary contributions and rice inspection and affidavits submitted by Secretary General REAP, it is ordered that the following expenses relating to voluntary contributions are directed to be allowed:- Assessment Year Amount 1999-2000 50,000 2000-2001 60,000 2001-2002 75,000 2002-2003 75,000
6. The appellant has also agitated the levy of additional tax/default surcharge in this case. In this regard we find force in the contention of the learned AR that in non-profit organizations like REAP no individual gains or any monetary benefit by evasion or non-payment of taxes is involved. Thus ordinarily the mensrea or guilty intention cannot be attributed to such welfare organizations. The honourable Supreme Court of Pakistan has held in the case reported as PTCL 2004 CL. 225 in the matter of Messrs D.G. Khan Cement Company Ltd. v. Federation of Pakistan that additional tax is payable only where non-payment of the tax was either wilful or due to mala fide intention of evasion. It has also been held by the honourable High Court in the case reported as 2002 PTD 629 (H.C) in a case titled CTT, B-Zone, Lahore v. L.C.C.H.S., Lahore that where assessee has declared nil income in his return but after protracted litigation income is finally determined, additional tax cannot be levied. As stated earlier, it is not disputed that REAP has declared nil income for years 1999-2000 to 2002-2003 for the reason that receipts on various counts by REAP were considered by it to be exempt from levy of tax. In view of the aforesaid discussion, we are of the view that levy of default surcharge/additional tax is not tenable in this case.
7. All the four appeals of the taxpayer succeed in the manner discussed above.