' CH. ANWAAR UL HAQ (JUDICIAL MEMBER).---The titled appeals pertaining to tax years 2009 and 2010, have been preferred at the instance of taxpayer, calling in question the impugned Order-in- Appeals Nos. 19 and 20. Dated 17.09.2012, passed by the learned CIR (A), Lahore. The appellant before only pressed following ground of appeal:-- "That the additions made under section 21(c) of the Income Tax Ordinance, 2001, as upheld by the first appellate authority is unjustified and against the provisions of section 158 of the Income Tax Ordinance, 2001".
2. The brief facts involved in both appeals is that the through amendment of assessments made under section 122(1)/(5), the assessing authority made additions under section 21(c) amounting to Rs,1,101,087/- and Rs,676,976/- for tax years 2009 and 2010, respectively for the reason that the appellant had failed to deduct tax while making payments towards re-rolling charges on purchases made from Messrs Pakistan Steel and Mughal Steel though they had exemption certificates. On 'appeal filed, the learned CIR(A) upheld the impugned additions.
3. It is the contention of the learned AR before me that the CIR(A) was not justified to upheld the impugned illegal additions made by the assessing authority under section 21(c). He contended that in terms of section 158 of the Income Tax Ordinance, 2001, the taxpayer was not required to deduct tax while making payment under consideration. On the other hand, the learned DR supported the orders of the authorities below.
4. I have looked into the matter and I deem it appropriate to reproduce the relevant section 158 of the Ordinance, for ease of ready reference:--
158. Time of deduction of tax. ---A person required to deduct tax from an amount paid by the person shall deduct tax--
(a) in the case of deduction under section 151, at the time the amount is paid or credited to the account of recipient, whichever is earlier; and
(b) in other words, at the time the amount is actually paid; and ' Bare perusal of clause (a) of section 158 reveals that the same is applicable to banking transactions regarding profit on debts in terms of section 151(1) of the Income Tax Ordinance, 2001, reads as under:- "151. Profit on debt.- [(1) (a) Where a person pays yield on an account, deposit or a certificate under the National Savings Scheme or Post Office Savings Account]
(b) a banking company [or] financial institution pays any profit on a debt, being an account or deposit maintained with the company or institution; [(c) the Federal Government, a Provincial 'Government or a [Local Government] pays to any person profit on any security [other than that referred to in clause (a)] issued by such Government or authority; or] [(d) a banking company, a financial institution, a company referred to in [sub-clauses (i) and (ii) of clause (b)] of subsection (2) of section 80, or finance societies pays any profit on any bond, certificate, debenture, security or instrument of any kind (other than a loan agreement between a borrower and a banking company or a development finance institution) to any person other than financial institutional the payer of the profit shall deduct tax at the rate specified in Division [IA] of Part III of the First Schedule from the gross amount of the yield or profit paid as reduced by the amount of Zakat, if any, paid by the recipient under the Zakat and Ushr Ordinance, 1980 (XVII of 1980), at the time the profit is paid to the recipient."
5. In the present case, issue of deduction of tax on re-rolling charges is involved and its squarely falls under clause (b) of section 158 of the Income Tax Ordinance, 2001, which deals with the deduction of tax other than profit on debts and stipulates that tax is to be deducted at the time the amount is "actually paid" whereas under .Clause (a) of said section, tax may be deducted on accrual basis. Accordingly, the matter is remanded to the assessing authority to verify the time of payment against said charges by the taxpayer to the recipient company in terms of section 158(b) of the Ordinance and then proceed into the matter in accordance with law. Keeping in mind consequence of the facts if during the intervening period the recipient had discharged its tax liability for the period under consideration what would be the fate of tax required to be deducted.
Accordingly, orders of both authorities below are vacated and appeals are disposed of in the above manner.