DR. MANZOOR AHMED, ACCOUNTANT MEMBER.--- The instant appeal has been filed by the Taxpayer assailing the order No,99/A-I dated 30.10.2013, passed by the learned CIR (Appeals-I), Karachi. The order passed by CIR (Appeal-I) is against the appeal filed by the Taxpayer/Respondent against order passed under section 205(1) of the Income Tax Ordinance, 2001 by the DCIR, E&C Unit-03, Zone-III, LTU, Karachi. The Taxpayer has agitated through the sole ground of appeal:-- 'The CIR has erred in maintaining the action of DCIR in imposing additional tax of Rs.
62,093.983/- under section 205(1) of the Income Tax Ordinance, 2001".
2. Brief facts as gathered from record, are that the DCIR issued a show cause notice for recovery for Tax Years 2006 to 2010 dated 23.04.2012. This notice, inter alia, included an amount of Rs.672,573,804/- for the tax year 2010 wherein as per show cause notice date of order was 28.02.2011 and demand was not paid till the issuance of show cause by DCIR dated 23.04.2012. The DCIR, confronted the taxpayer that previously a notice for recovery was sent on 10.05.2011. The DCIR continued to observe that as per clause (4A) of Article 199 of constitution, the stay in revenue cases cannot hold the field beyond a period six months. The DCIR also referred to certain MOU between the companies having such business and revenue authorities and also observed that the Hon'ble Islamabad High Court in certain Writ Petitions on the MOU, has not stayed recovery of demand vide their order sheet on hearing dated 10.04.2012. The DCIR, therefore, proceeded to issue the above mentioned notice for recovery of demand by 26.04.2012 for Rs.1,516,830,178/- for various years, which included Rs.672,573,804/- for the tax year 2010, which is under appeal.
The AR Messrs A.F. Ferguson vide their reply dated 24.04.2012, referred to CIR(A)'s Order No,299 dated 30.08.2011. The appeal effect of which was, however, allowed by the Department vide order under sections 124/122(1) dated 27.04.2012. Wherein principal amount of demand came to Rs.343,458,910/-, which was paid on 30.04.2012 by the taxpayer. The DCIR observed that taxpayer committed a default of non-payment of the above amount of tax remained unpaid for the period from due date of payment i,e, 27.03.2011 to 30.04.2012, for the tax year 2010. As such, he issued a show cause for payment of default surcharge for the tax year 2010, for delayed payment for the tax year 2010, which he worked out at Rs.62,406,014/- for 400 days of default, referring to provisions of section 205(1) of the Ordinance. This show cause was responded by the AR vide their letter dated 27.07.2012, referring to certain legal position and case laws. The DCIR, after considering the reply and rebutting the case laws put forth by AR of the taxpayer, passed an order dated 05-09.2013, under section 205(1) of the Ordinance, creating a demand of Rs.62,093,983/- in respect of default surcharge payable for delayed payment of principal amount of tax, settled after giving appeal effect.
3. Being aggrieved and dissatisfied with the treatment meted out by the DCIR under section 205(1) of the Income Tax Ordinance 2001, Taxpayer filed the appeal before the learned CIR (Appeals-I), Karachi who maintained the order of DCIR but the Taxpayer felt dissatisfied. Hence, the Taxpayer has filed this appeal before this forum.
4. On the date of hearing, Mr. Qadeer Ahmed, FCA appeared on behalf of the Taxpayer/Company while Mr. Nisar Barki, DR appeared on behalf of the Department.
5. We have patiently heard the arguments from both sides After careful consideration of the issue involved, our findings are as under:-
(i) Before proceeding further, it would be in fairness of things to reproduce the relevant provision of the Ordinance, which has been invoked by the DCIR, while passing the order: Quote
205. Default surcharge.--- (1) A person who fails to pay--
(a) any tax, excluding the advance tax under section 147 and default surcharge under this section,
(b) any penalty; or
(c) any amount referred to in section 140 or 141, On or before the due date for payment shall be liable for default surcharge at a rate equal to 18 per cent per annum on the tax, penalty or other amount unpaid computed for the period commencing on the date on which the tax, penalty or other amount was due and ending on the date on which it was paid.
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(ii) The DICR, after rebutting the case laws put forth by the taxpayer imposed default surcharge. It would be appropriate to reproduce his concluding paragraph for clear understanding of the issue: Quote Without prejudice to above and as discussed earlier, in the Income Tax Ordinance, 2001 separate provisions are provided for the default in payment of Income Tax due. The taxpayer can take excuse that for imposition of penalty or prosecution the establishment of mens rea or willful default is precondition. However, default surcharge under section 205 of the Income Tax Ordinance, 2001 is the compulsory levy if the taxpayer fails to pay due taxes on due date. In the section 205 words shall be liable to pay has been used which means irrespective of the fact if the delay in payment of government dues was willful or otherwise, the default surcharge is to be paid by the taxpayer. The default surcharge in this case can be compared with additional payment by way of compensation provided in section 171 payable to the taxpayer on the delay in payment of due refund. In such payment of compensation the department cannot take the plea that delay in payment of refund were not deliberate or willful, hence, no compensation can be paid to the taxpayer.
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(iii) In the first appeal before the learned CIR(A), the appellant /taxpayer came up with following arguments: Quote
1. It is to be appreciated that the appellant being a compliant taxpayer discharged its liability without waiting for the amnesty that was expected to be announced in May 2012 through SRO 547(1)/2012 (copy enclosed) wherein amounts of default surcharge and penalty were made exempt on payment of principal amount by June 25, 2012.
3. In the current circumstances, a taxpayer who was making deliberate defaults and had not made payment till May 22, 2012, got the benefit of amnesty announced in May 2011. On the other hand, the appellant being a reputable organization and a responsible taxpayer has been penalised by the levy of default surcharge for making payment, before the announcement of amnesty. Thus, the levy of default surcharge in this regard is completely unjustified.
3.1 At this point, we would like to refer to the decision of the Honourable Lahore High Court regarding grant of amnesty to the payments made before the announcement of amnesty reported as 2006 PTD 336 (copy enclosed). Relevant extract is reproduced as under: "6. It needs to be brought home that the amnesty granting legislation both superior as well as subordinate needs to be construed liberally so that it does not either trap an unwary taxpayer or else otherwise succeeds in taking away with the other hand while giving it by the one. The petitioner having paid the fixed tax due from him is as much entitled to the amnesty contemplated in the said S.R.O. As any other registered persons/manufacturer who pays the fixed tax amount after issuance of the S.R.O. To hold otherwise would result in the situation as noted above.
7. Therefore, we will allow this appeal by setting aside the orders of the Revenue authorities as well as the impugned order of the Tribunal. Resultantly the additional tax as well as the penalty imposed against the appellant shall be remitted in toto"
6.1 Similar decision was given by the Honourable Lahore High Court reported as 2008 PTD 1461 (copy enclosed)".
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(iv) The learned CIR(A) rejected the appeal of the taxpayer/ appellant with the following observations: Quote 'The appellant in compliance to the show cause notice issued for levy of default surcharge did not contest that the payments were made under Amnesty through S.R.O. No,547(I)/12 dated 22.05.2012 but the main contention of the appellant before the officer was that the principal payment was not paid because of the stay from the Honourable High Court and since, there was a stay of demand therefore, default surcharge could not be imposed as there was no deliberate default on the part of the appellant. The appellant also contended that for levy of default surcharge mens rea should be established. The officer has successfully rebutted the contention and imposed default surcharge after discussing the case law given to the officer in support of appellant's viewpoint.
Whereas before this forum, the AR of appellant has taken altogether different set of arguments and tried to get shelter under the umbrella of S.R.O. No,457(I)/2012 dated 22.05.2012 and relied upon the case law as discussed supra that the payments were made before the announcement of Amnesty and thus the said Amnesty should be construed liberally and the benefit of the case law should be extended to the appellant against the levy of default surcharge.
In view of the discussion given supra and the facts showing that the principal payment was made by the appellant when it had no protection of stay from court and the Full Bench of the learned Tribunal have given decision on the contested issue in the favour of department. Besides appellant was fully aware that nonpayment of tax would entail recovery by force through attachment of bank accounts and receivable. Hence, the referred case law is not a parallel to the appellant's case for extending waiver against default surcharge. Therefore, the action of the officer is confirmed and appeal is rejected.
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(v) Before this forum, the learned AR of the taxpayer/appellant repeated the same arguments.
The position emerging from the above discussion is that the taxpayer was obliged to pay certain amount of tax on 29.03.2011, which he paid on 30.04.2012. The grounds taken by him was stay by Hon'ble High Court and his appeal pending before the learned CIR(A). The Department established that stay by Hon'ble High Court expired after six months and gave appeal effect to the learned CIR(A), as requested by the taxpayer, which resulted in reduction of original demand of Rs.672,537,804/- to Rs.343,458,910/-, which was paid by him on 30.04.2012. The DCIR then passed an order for default surcharge for delayed payment of Rs .343,958,910/-, amounting to Rs.62,093,983/-, which is subject matter of this appeal. Before DCIR, the taxpayer came with a set of arguments and certain case laws for his contention that default surcharge under section 205(1) is not leviable, which was, however, levied. The relevant part of DCIR's order has already been quoted in above paragraph.
However, before the learned CIR(A), the taxpayer came with another set of arguments, seeking protection of SRO 547(I)/12 dated 22.05.2012. The said SRO is reproduced hereunder for the sake of understanding: Quote S.R.O. 547(1)12012.- In exercise of the powers conferred by section 183 of the Income Tax Ordinance, 2001 (XLIX of 2001), the Federal Government is pleased to exempt whole of the amount of default surcharge and penalty for non-payment leviable under the said Ordinance in cases where:--
(i) the withholding agents have not deducted advance withholding tax as required under the said Ordinance; or
(ii) the withholding agents have deducted or withheld income tax but not deposited the tax deducted or withheld within due dates as prescribed under the Ordinance; or
(iii) any tax amount is outstanding as on the 30th April, 2012,and the defaulting withholding agents or taxpayers specified in clauses (i), (ii) and (iii) deposit the due amount of tax in the government treasury on or before the 31st May, 2012.
2. In a case where refund becomes due to any person in consequence of a decision or judgment of court after the issuance of the Notification, the tax deposited by that person under this Notification shall be refunded to him.
Unquote It is observed that the tax amount of Rs.343,458,910/- on which default surcharge has been levied was not outstanding on 30.04.2012, which was paid in other circumstances, wherein Department, made the efforts of recovery, gave the appeal effect, which reduced the original payable amount and the order leving the default surcharge was issued on 05.09.2013, whereas, the S.R.O. 547 was issued on 22.05.2012. Meaning thereby that the referred SRO was in the field at the time of issuance of show cause and ultimate order under section 205(1). However, the taxpayer did not refer to it in his arguments before DCIR.
It was before the learned CIR(A), that the appellant argued to take advantage of SRO 547 dated 22.05.2012. The grounds of appeal thus filed before the learned CIR(A) regarding taking the refuge of SRO 547 dated 22.05.2012, did not arise from DCIR's order. However, a new set of arguments were put forth. CIR(A) rejected the appeal considering the above point too.
As already discussed the amount of tax demand on which default surcharge is levied was not outstanding on 30.04.2012, rather it was paid on 30.04.2012. Hence, legally speaking the case of the appellant taxpayer does not fall under the ambit of SRO 547 dated 22.05.2012, as the same was paid on the day and that also due to continuous efforts in shape of show causes issued by the Department.
The spirit of the SRO 547 was to recover the disputed tax demand voluntarily and to give incentive to the taxpayers in shape of waiver of default surcharge that too in the case wherein tax demand was outstanding on 30.04.2012 and payment is made from 01.05.2012 on wards till 25.06.2012 as a special incentive. If the position would have been otherwise, all those taxpayers, who have paid their principal amount of tax due to recovery proceedings any time before 01.05.2012 would claim the protection of this SRO and would deny to pay default surcharge, although the principal amount may have been paid years ago, but after due date and action in shape of default surcharge remained pending. This would be an unending process and the taxpayer may claim that any payments made in past regarding principal amount, although after due date are eligible for exemption from default surcharge, which certainly cannot be intention of the legislature. This would be against the spirit of SRO. 547 dated 22.05.2012.
The upshot of above discussion is that in the facts and circumstances mentioned hereinabove, the appeal of the taxpayer is not allowable and hence rejected.
6. The appeal of the appellant/taxpayer is disposed off in the manner stated above.