CH. SHAHID IQBAL DHILLON (JUDICIAL MEMBER).-- The captioned appeal filed by a company engaged in manufacturing of baby diapers, impugns appellate order, dated 5-1-2015 passed by the Commissioner-IR (Appeals), Gujranwala (CIR-Appeals). The impugned order emanates from earlier appeal filed by the appellant in respect of order passed by the DCIR under sections 161/205 of the Income Tax Ordinance, 2001 (Ordinance), dated 30-1-2014.
2. The facts of the case briefly stated are that the DCIR observed' that appellant being a manufacturer of baby diapers, had deducted short income tax by misapplying Clause 45A of Part IV of the Second Schedule to the Ordinance inserted vide SRO No,333(I)/2011, which provides reduced rate to those covered by zero rating regime of the sales tax under the Sales Tax Act, 1990 (Act). Therefore, the appellant was confronted by the DCIR in this regard and finding non- convincing compliance passed order under sections 161/205 of the Ordinance by working out tax demand at Rs,2,670,752 on account of purchase/services. Besides this short deduction of tax on account of director remuneration has also been worked out with default surcharge on both defaults. Feeling aggrieved, the taxpayer preferred appeal before CIR (Appeal) who vide his impugned order though rejected the zero rating plea of the appellant but partly accept the issues on other basis, however, remanded the case back to the DCIR. Still discontented, the appellant has come up in further appeal before this Tribunal.
3. Initiating the arguments, the learned AR of the appellant contended that proceedings initiated and concluded by the DCIR, being based on self assumed legal foundation, having no effect in the eyes of law. This fact has arbitrarily been skipped by the learned CIR (Appeals) in a mechanical manner. He further contended that action under section 161 has been taken solely on presumption of law by misinterpreting the provisions of income tax, sales tax law and HS codes. As a matter of fact, the impugned order shows that the authorities below have failed to consider the case record of the appellant judiciously wherein the department itself admitted the position of sales tax zero rating regimes. Appellant is a manufacturer of baby diapers and duly registered with the income tax and sales tax but the DCIR intentionally ignored the order passed by the department vide Order-in-Original No,267/ST/2013, dated 27-9-2013, clarification issued by FBR, dated 30-6-2012.
Clause 45A and withholding tax statements. He has contended that such action is not only violative of the principles of natural justice but it is also against the dispensation of justice. In a taxing statute, one can only look at the language used in the law, since there is no room for intendment or presumption in the interpretation of law. The same rule of taxation i,e, a person sought to be taxed can only be taxed, when he comes within the letter of law, is squarely applicable. The rate for tax deduction under section 153 of the Ordinance was rightly charged @ 1% under clause 45A. AR submits that both the authorities below have failed to understand the meanings of zero rating under the Act and misread the various SRO(s) issued under the Act for sales tax zero rating, resultantly tax charged under section 161 of the Ordinance is unwarranted.
4. The main argument of the learned AR revolves around the fact that the origin of the assessment proceedings under section 161 is not valid in the eyes of law, consequently the whole super structure based on that illegal foundation would automatically become void. The AR argued the case at length on facts as well as on law, raising manifold objections. He has at the very outset challenged the legality and validity of the impugned order which according to him is beyond the scope and jurisdiction vested with DCIR. AR further contended that powers vested under section 161 of the Ordinance have arbitrarily been misused by the DCIR and after concluding his arguments has prayed for annulment of impugned orders.
5. On the other hand, learned DR has fully supported the orders passed by authorities below, simply reiterating that the reduced rate did not apply in this case as the diapers are not zero rated under sales tax regime but were taxable under different Customs codes. According to DR, the rate of tax should be charged at normal instead of reduced rate of 1%.
6. The arguments of the respective parties have been heard and due consideration has been given to the facts of the case. A perusal of the impugned orders reveals that it has been recorded by the departmental itself in Order-in-Original No,267/ST/2013, that the appellant being a manufacturer is subjected to zero rating of sales tax through various Notifications such as SRO No,535(I)/2005, SRO No,621(I)/2005, SRO A No,525(I)/2006, SRO No,509(I)/2007, SRO No,283(I)/2011, SRO No,1012(I)/2011, SRO No,1058(I) and SRO No,1125(I)/2011 has also merged in the order passed by this Tribunal in STA No,1552/LB/2014, dated 27-3-2015.
7. After carefully examining the provisions of sections 161 and 153 of the Ordinance and a plain reading of the orders passed by the authorities below indicates that both authorities are trying to read something in law which in fact is not there.
8. We are of the firm view that appellant has correctly deducted withholding tax on reduced rates applicable on zero rating supplies after due compliance of the prevent conditions prescribed for zero rating in the light of applicable law on the issue. None of the conditions specified in the notifications having been violated therefore, the zero rating benefits cannot be denied. A benefit allowed by the department in sales tax and denied in income tax is by all means a discrimination hit by the Article 25 of the Constitution as also laid down by the August Supreme Court of Pakistan in 2005 SCM R 492. It is well-settled principle of law that a person equally placed must be treated alike in the matter of privileges and liabilities under the rule of equal protection of law. There exists no power to target evidence of tax in such a way that similarly placed person be dealt not only with similarly but indiscriminatingly. A person placed at the same pedestal cannot be treated differently as it would constitute a negation of Articles 4 and 25 of the Constitution. In 2010 SCM R 431, the August Supreme Court laid down the principle of equality. "In fact almost all legislation involves some kind of classification whereby some people acquire rights or suffer disabilities whereas others do not. What, however, is prohibited under this principle, is legislation favoring some within a class and unduly burdening others. The basic rule for the exercise of such discretion and reasonable classification is that all persons placed in similar circumstances must be treated alike and the reasonable classification must be based on reasonable grounds in a given set of circumstances, but the same in any case must not offend the spirit of Article 25 of the Constitution".
Perusal of the record along with relevant SRO(s) under the Act, HS codes for diapers as well as Clause 45A of the Ordinance reveals that intention of the legislature on the issue is quite clear and unambiguous that to promote the local business and diapers were zero rated till 30-6-2012 and income tax deduction was to be made at reduced rate of 1%.
9. In view of above, it is obvious that income tax deducted by the appellant by applying reduced rate of 1% by considering the zero rated sales tax regime is absolutely correct and in accordance with law, therefore, withholding tax charged at Rs,2,676,752 is disapproved. The orders passed by both authorities below, being arbitrary and against the law are hereby set at naught.
10. In case of tax charged on account of director remuneration the learned AR has vehemently contended that documents duly provided to both authorities have not been consulted judiciously.
A plain reading of the impugned appellate order show that this is not a speaking order in which specific issues raised by the appellant have not been discussed and dealt with judiciously. The controversy is not difficult to resolve whether the appellant is liable to withhold tax on remuneration paid to directors as observed by the assessing officer. The learned CIR (Appeals) is legally obliged to examine this particular contention of the appellant from relevant record and if this contention is found correct then property demands that the revenue should not charge withholding tax without any hitch. It is now well-settled law that an authority exercising statutory powers of adjudication/assessm ent or appeal affecting valuable rights of the parties shall act as quasi judicial authority and while exercising these powers must pass a speaking order duly supported by reasoning showing due application of mind to the facts as well as applicable law. Any order lacking such criteria is illegal having no legal effect. The Superior Courts in number of judgments have time and again disapproved the passing of such perfunctory orders in the causes involving valuable rights of the parties and have also settled that in order to maintain the sanctity of both quasi-judicial and administrative C proceedings, it is necessary to maintain oversight on the performance of adjudicating authorities whose orders should not be entirely dependent upon the opinions and comments of the assessing officers. The impugned order, without any shadow of doubt, is a non-speaking order. A non-speaking and sketchy order cannot be said to meet the requirements of the judicial order, which must contain the contentions raised before the authority by the rival parties and its reasoning based on evidential substance for passing a reasoned order is accordance with the relevant provisions of the applicable law read with section 24-A of the General Clauses Act, 1897.
11. Keeping in view the submissions made on behalf of appellant and considering the facts of the case, we are of the view since the case of appellant on this score has not been considered judiciously by the learned CIR (Appeals). Since the claim of the appellant has not been rebutted in clear unambiguous words, we feel it appropriate to remand this aspect to learned CIR (Appeals) to examine the record, provides reasonable opportunity of being heard to the appellant and then pass a speaking judicious order on this issue preferably within the sixty days of receipt of this order.
The appellant is also directed to associate himself with the de novo proceedings of this matter before the learned Commissioner (Appeals).
12.As a result the appeal of the appellant taxpayer is disposed of in the manner and to the extent as cited supra.