SHAHID KARIM, J.---This petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 (Constitution) lays a challenge to the order dated 30.08.2013 (impugned order) passed under section 120(4) of the Income Tax Ordinance, 2001 (Ordinance) and also lays a challenge to the notice issued under section 114(4) of the Ordinance (impugned notice).
2. This order shall also decide the connected petitions W.P. No,24393/13., W.P No,24402/13, W.P No,24401/13, W.P No,24397/13 and W.P No,32754/13, which involve a common question of law and challenge similar orders made under the Ordinance in terms of section 120(4) as well as notices issued under section 114(4) of the Ordinance.
3. The facts may differ in each case but as stated above, the challenge is to similarly worded orders passed by the respondents as also that a common question of law arises for determination.
4. For the present purposes, the facts in the instant petition (W.P. No,24400/13) should suffice. It has been stated in the petition that the petitioners are manufacturers and exporters of finished textile goods. The tax of the petitioners is deducted under section 154(1) of the Ordinance on the export proceeds and is deemed as final tax on the income in terms of subsection (4) of section 154 of the Ordinance. The controversy in a nub, is that the petitioners are required to file a statement under section 169 read with section 115 of the Ordinance and are not obliged to file a return under section 114 of the Ordinance.
5. It is admitted on all hands that the petitioners in these petitions have filed statements under section 115(4)' and are not obliged to file a return under section 114 of the Ordinance. By the impugned order, however, the Assistant Commissioner, Inland Revenue has passed an order under section 120(2) requiring the petitioners to file a return in terms of section 114 as also to file the audited accounts along with notice to the accounts. It is the case of the department that the petitioner-company was required to submit the audited accounts along with return of final taxation. The learned counsel for the petitioners retorts that the requirement of filing the audited accounts of the company is a requirement which has been spelt out in section 114 and is not required to be done in case a statement is filed by an assessee in terms of section 115(4) of the Ordinance.
6. The learned counsel for the department concedes on the threshold that in case the petitioners are covered by the provisions of section 115(4) and the entire income of the petitioners comprises of exports then the petitioners are merely required to file statements in terms of section 115(4) and are not required to file a return in terms of section 114. The question, therefore, boils down to whether the petitioners derive their entire income from exports and the tax deducted in respect of those exports is the final tax under the presumptive tax regime.
7. From a reference to the various provisions of Ordinance relating to the filing of returns, it can be culled out that the filing of a return and a statement are two entirely different incidents. The law clearly makes a distinction in respect of taxpayers who ought to file a return and the ones who merely are required to file a statement in certain matters. That distinction is starkly brought forth upon a holistic consideration of the various provisions. These two regimes clearly run parallel to each other and in respect of persons who are required to file a statement, that shall be considered as the final tax for such statements.
8. Section 154 of the Ordinance deals with exports. It says that every banking company shall, at the time of realisation of the proceeds on account of a sale of goods to an exporter under an inland back to back. Letter of credit, deduct tax from the amount of proceeds at the rate specified in Division IV of Part III of the First Schedule. By subsection (4), the tax deductible under section 154 shall be a final tax on the income arising from the transaction referred to in that section. This clearly brings forth the intention of the legislature which is to the effect that the tax deductible under the provisions of section 154, shall be the final tax as far as the income arising from those transactions is concerned. It is the case of the petitioners that the entire income of the petitioners arises from transactions which are proceeds as an exporter and thus it should be treated as the final tax on that income. This is further bolstered by the provisions of section 169 (1)(b) of the Ordinance which lays down that the section shall apply where the tax required to be deducted is a final tax inter alia under subsection (4) of section 154 of the Ordinance. By subsection (3) of section 169, it has been provided that where all the income derived by a person in a tax year is subject to final taxation under the provisions referred to in subsection (1) an assessment shall be treated to have been made under section 120 and the persons shall not be required to furnish a return of income under section 114 for the year.
9. From a reading of subsection (3) of section 169 of the Ordinance, it ineluctably follows that by a deeming clause, where all the income derived by a person is subject to final taxation, his assessm ent shall be treated to have been made under section 120 as also that that person is exempt from the filing of return of income under section 114 for the year. In the alternative, the law itself provides as to what course of action that person will have to take in lieu of filing of return. That has been enumerated in section 115(4) of the Ordinance. By the terms of 'section 115(4) of the Ordinance, any person who is not obliged to furnish a return for a tax year because all the person's income is subject to final taxation inter alia under section 154, that person shall furnish to the Commissioner a statement showing such particulars relating to the person's income for the tax year in such form and verified in such manner as may be prescribed.
10. It is common ground that the petitioners have, in fact, filed a statement in terms of section 115(4) of the Ordinance. This has been done on the terms that the petitioners are not liable to furnish a1 2 3 return in terms of section 114 of the Ordinance and on the basis that all the income derived by the petitioners in a tax year is subject to final taxation. A reference to Rule 34 and Rule 39 of the Income Tax Rules, 2002 (Rules, 2002) will also be in order and will lend credence to the submissions made by the learned counsel for the petitioners. These rules merely spell out the different forms in which the return of income and the statement in lieu of return of income have to be filed respectively.
Once again, Rule 39 of the Rules, 2002 refers to the statement to be filed by a person where tax deduction is to be taken as a final discharge of tax liability under section 169.
11. The discussion in the preceding paragraphs relating to the different provisions of the Ordinance, leaves it in no manner of doubt that the filing of a return of income and of a statement are two different regimes and run parallel to each other and in case a person is obliged to file a statement merely in terms of section 115(4) of the Ordinance, he stands discharged with regard to his tax liability. This begs the question whether that a persons is still required to file a return of income in terms of section 114.
12. The entire premise of the impugned order as also the show cause notice issued by the department is that the petitioners are still required to file audited accounts in terms of section 114 of the Ordinance. Clearly, as adumbrated, the petitioners are merely required to submit a statement and that is the final tax in respect of the petitioners. In other words, by the filing of the statement, the tax deduction shall be taken as the final discharge for tax liability of the petitioners. A reference in this regard to section 169(3) may also be usefully made. There can be no clearer intent of the legislature with regard to the two categories of persons. One of those who have to file a return of income and the other who are required to file a statement in terms of section 115(4) of the Ordinance in case of final tax. By fiction also, the assessment so made under section 169 shall be treated to have been made under section 120 and the person shall also not be required to furnish a return of income under section 114 for the year.
13. The learned counsel for the petitioners has drawn my attention to the statement filed under section 115(4) which is annexed with this petition and which is filed as a final tax statement under the Ordinance, 2901 and according to which statement, the entire income of the petitioners is derived from the exports. This, according to learned counsel for the petitioners, should be taken as the final tax liability of the petitioners and thus has to be treated an assessment made under section 120.
14. The impugned order under section 120(4) is an embodiment of uncertainty and a misapprehension of facts and law permeates the impugned order. It mentions that the tax payer (petitioner-company) derives its income from manufacturing of blankets including travel rugs. It also mentions that the statement under section 115(4) for the tax year 2012, was e-filed on 31.12.2012.
However, the Assistant Commissioner Inland Revenue issuing the impugned order presupposes in the same vein that the petitioner-company was required to submit the audited accounts along with statement of final taxation. It goes on to say that "but the taxpayer has not fulfilled the requirement of return". It can be seen that the impugned order is a contradiction in its own terms. It is not clear from the impugned order as to whether the Assistant Commissioner Inland Revenue considers that a return of income ought have been filed by the petitioner-company or that the petitioner-company was obliged to file the audited accounts irrespective whether a return of income was filed or not. The contradiction is irreconcilable and is tendentious to say the least. In conclusion, the return/statement filed by the petitioner-company for the tax year 2012 has been declined as invalid. Reliance in this regard has been placed on provisions of section 120(4) of the Ordinance. Section 120(4) of the Ordinance, 2001 reads as follows:-- "120(4) Where a taxpayer failed to fully comply, by the due date, with the requirements of the notice under subsection (3), the return furnished shall be treated as an invalid return as if it had not been furnished. "4 5
15. It can be seen from a reading of the provision reproduced above that section 120 has its genesis in and relates to the filing or failure thereof, of a return of income. It merely gives the Commissioner the power to issue notice to the taxpayer in case the return of income furnished is not complete.
Obviously, it presupposes that a person is, in law, required to file a return of income in terms of section 114. Section 120 relates to the filing of return under section 114 and the consequences flowing therefrom. The provisions of section 120 are not relatable to the filing of the statement under section 115(4) of the Ordinance and thus the invocation of the provisions of section 120 by the Assistant Commissioner Inland Revenue was erroneous and ultra vires. It may be pointed out that section 114 of the Ordinance obliges certain persons to furnish a return of income for a tax year. The petitioners admittedly are not classified as the persons included in the ambit of section 114.
Therefore, the provisions of section 120 cannot be called in aid by the respondents to declare the statement filed by the petitioners as invalid. Section 120(4) of the Ordinance does not have any nexus with the provisions of section 115(4) and it was otiose and unlawful for the Assistant Commissioner Inland Revenue to rely upon it in order to base the impugned order. Likewise, the notice under subsection (4) of section 114 of the Ordinance is also ultra vires the powers of the Assistant Commissioner in the case of the petitioners since that provision vests the Commissioner with the power to issue notice to require any person to file a return of income and who has failed to do so to furnish a return of income for that year. The least that was required of the respondent- department to issue an order under section 120 as also to issue a notice in terms of section 114(4) of the Ordinance was to determine as a fact that the liability of the petitioners was not the final liability and the deduction so made from the proceeds of export was not the final tax in terms of section 115(4) of the Ordinance. The impugned orders, the impugned notices issued to the petitioners are without lawful authority and of no legal effect.
16. In view of the above, these petitions are accepted and the impugned orders and notices issued and the subject of challenge in these petitions are set aside. [(4) Any person who is not obliged to furnish a return for a tax year because all the person's income is subject to final taxation under sections 5, 6, 7, 148, 151 and 152, subsection (3) of section 153, sections 154, 156 and 156A, subsection (3) of section 233 or subsection (3) of section 234 A shall furnish to the Commissioner a statement showing such particulars relating to the person's income for the tax year in such form and verified in such manner as may be prescribed.] 154. Exports. - (1) Every authorized dealer in foreign exchange shall, at the time of realisation of foreign exchange proceeds on account of the export of goods by an exporter, deduct tax from the proceeds at the rate specified in Division IV of Part HI of the First Schedule.
(2) Every authorized dealer in foreign exchange shall, at the time of realisation of foreign exchange proceeds on account of the commission due to an indenting commission agent, deduct tax from the proceeds at the rate specified in Division IV of Part III of the First Schedule.
(3) Every banking company shall, at the time of realisation of the proceeds on account of a sale of goods to an exporter under an inland back-to back letter of credit or any other arrangement as prescribed by the [Board], deduct tax from the amount of the proceeds at the rate specified in Division IV of Part III of the First Schedule.
[(3A) The Export Processing Zone Authority established under the Export Processing Zone Authority Ordinance, 1980 (VI of 1980), shall at the time of export of goods by an industrial undertaking located in the areas declared by the Federal Government to be a Zone within the meaning of the aforesaid Ordinance, collect tax at the rate specified in Division IV of Part III of the First Schedule.] [(38) Every direct exporter and an export house registered under the Duty and Tax Remission for Exports Rules, 2001 provided in Sub-Chapter 7 of Chapter XII of the Customs Rules, 2001 shall, at the1 2 time of making payment for a firm contract to an indirect exporter defined under the said rules, deduct tax at the rates specified in Division IV of Part III of the First Schedule.] [(3C) The Collector of Customs at the time of clearing of goods exported shall collect tax from the gross value of such goods at the rate specified in Division IV of Part HI of the First Schedule.]
(4) The tax [deductible] under [this section] shall be a final tax on the income arising from the 4[transactions referred to in this section].
169. Tax collected or deducted as a final tax.-(1) This section shall apply where-
(a) ....
(b) the tax required to be deducted is a final tax under subsection (3) of section 151, subsection (1B) or subsection (1BB) of section 152, subsection (3) of section 153, subsection (1AAA) of section 152, subsection (4) of section 154, subsection (3) of section 156, subsection (3) of section 233 on the income from which it was deductible.
39. Statement in lieu of Return of income.---(1) Where in lieu of Return of income statement is required to be filed namely incomes covered by sections 5,6 and 7 or where tax deduction is to be taken as a final discharge of tax liability under section 169 a statement in the prescribed form shall be filed as prescribed in Part of the Second Schedule to the Rules.
(2) Where a taxpayer has income from a source which does not form part of total income and also income under any head of income given in section 11 (except salary), Return is specifically required to be filed on a prescribed statement as well as shall be filed. (3) Where all the income derived by a person in a tax year is subject to final taxation under the provisions referred to in subsection (1) or under sections 5,6 and 7 an assessment shall be treated to have been made under section 120 and] the person shall not be required to furnish a return of income under section 114 for the year.
[Explanation.. The expression, an assessment shall be treated to have been made under section
120. Means,.
(a) the Commissioner shall be taken to have made an assessment of income for that tax year, and the tax due thereon equal to those respective amounts specified in the return or statement under subsection (4) of section 115; and
(b) the return or the statement under subsection (4) of section 115 shall be taken for all purposes of this Ordinance to be an assessm ent order.]