CH. SHAHID IQBAL DHILLON (JUDICIAL MEMBER).--- The titled appeals pertaining to tax years 2014 and 2015, have been preferred at the instance of taxpayer calling in question the impugned two separate Appellate Order Nos, 0673 and 0674, both dated 26.01.2018 passed by the learned CIR(A), Faisalabad.
2. Facts in brief for disposal of the present appeal are that the appellant is a private limited company , derives income from manufacturing of textile good s and exports thereof. Statement in terms of section 115(4) of the Income Tax Ordinance, 2001 were filed declaring export receipts covered tinder Final Tax Regime (FTR) at Rs,4,612,734,536/- and Rs,3,759,359,099/- for tax years 2014 and 2015 respectively . The declared receipts were deemed to be treated as assessment in terms of section 120(1) of the Income Tax Ordinance, 2001. Later on, the Additional Commissioner found that the deemed assessments completed were erroneous insofar as prejudicial to the interests of revenue for the reasons as communicated through show-cause notice. After obtaining explanation of the taxpayer , the proceedings were concluded and deemed assessments were amended under section 122(5A) of the Income Tax Ordinance, 2001. Besides income covered under FTR, the total income- for tax years 2014 and 2015 subject to normal tax were determined at Rs,32,327,038/- and Rs,49,983.71 1/- in the following manner:- 2014 2015 Income from profit on debt9,144,143 30,436,547 Balances written back 22,508,986 Addition under Section 22(8)(a)673,909 19,547,164 In addition to above, the alleged capital gain which was not offered for taxation in the statements/returns were assessed at Rs,46,756,360/- and Rs,8,170,050/- and the same were subjected to tax 010%.
3. Being aggrieved, the taxpayer went in appeal before the learned CIR(A), who through impugned orders upheld the action of the assessing authority . Hence these appeals.
4. Before us, the learned counsel appearing for the appellant vehemently argued the case on legal as well as on factual grounds. First contention was that prior to issuance of notice under section 122 (5A) of the Ordinance for amending the deemed assessment order under section 120 of the Ordinance, the ACIR was required to call for a normal tax return under section 114 of the Ordinance as the statement filed under section 115 of the Ordinance was not the substitute of the normal tax return. In absence of such exercise, the amended assessment order made under section 122(5A) of the Ordinance is not sustainable in law and confirmation thereof by the learned CIR (Appeals) is unwarranted. Another contention is that confirmation of invocation of proceedings under section 122 (5A) of the Ordinance by the CIR (A), for amending the assessment, was unjustified as the conditions precedent for inviting Section 122 (5A) of the Ordinance were missing in the instant case. Thus the impugned orders are liable to be struck down.
5. None appeared on behalf of Revenue/Department despite communication of hearing date.
6. We have heard the arguments and have carefully perused the impugned orders, and the case law cited at the bar. Admittedly the appellant for the tax years 2014 and 2015 exported 100% of its textile products after getting manufactured and, as such, was under legal, obligation to furnish the statement in terms of section 115(4) of the Ordinance, instead of filing normal tax return under section 114 of the Ordinance, whereby merely such particulars in such forms and verified in ouch manners as are prescribed on the basis of liability determined under section 154 of the Ordinance are to be declared as the deduction of tax so made is the final taxation under subsection (4) of section 154 of the Ordinance and the statement filed under subsection (4) of Section 115 of the Ordinance is to be taken for all purposes of this Ordinance to be an assessment order in terms of clause (b) of subsection (3) of Section 169 of the Ordinance being the tax collected or deducted is a final tax. For the purpose of ready reference, the relevant provisions of Sections 1 15 and 169 of the Ordinance are being reproduced hereunder:-- Section 1 15 of income T ax Ordinance, 2001:
115. Persons not required to furnish a return of income:--
(1) ...........................................
(2) ..........................................
(3) ..........................................
[(4)] Any person who is not obliged to furnish a return for a tax year because all the person's income is subject to a 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 tax year in such form and verified in such manner as may be prescribed.] 3[(4A)] .....................................
4[(5)] ..........................................
(6) .................................................
Section 169 of Income T ax Ordinance, 2001:
169. T ax collected or deducted as a final tax.- 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 (4) of Section 154 [ ] subsection (3) of Section 156, [subsection (2) of Section 156A [or] subsections [(1) and] (3) of Section 233 [ ] [ ] on the income from which it [was deductible].
(2) Where this Section applies--
(a) the income shall not be chargeable to tax under any head of income in computing the taxable income of the person;4 5 6 7/8 10 11 12 13 14 15 16
(b) no deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the income;
(c) the amount of income shall not be reduced by--
(i) any deductible allowance under Part IX of Chapter III; or
(ii) the set off of any loss;
(d) the tax deducted shall not be reduced by any tax credit allowed under this Ordinance;
(e) there shall be no refund of the tax collected or deducted 2[unless the tax so collected or deducted is in excess of the amount for which the taxpayer is chargeable under this Ordinance]; 3[and] [(f) Tax deductible has not been deducted, or short deducted the said non-deduction or short deduction may be recovered under section 162, and all the provisions of this Ordinance shall apply accordingly .]
(3) where all the income derived by a person in a tax year is subjected to final taxation under the provisions referred to in subsection (1) or under Section 5, [(other than dividend received by a company)] 6[and] 7 7[ ], 8[an assessment shall be treated to have been made under Section 120 and] the perso n shall not be required to furnish a return of income under Section 1 14 for the year .
(a) ....................................
(b) .....................................
7. Plain reading of sub Section (3) of Section 169 of the Ordinance vividly spells out that where all the income derived by a person is subjected to final taxation, he is not required to furnish a return of income under section 114 of the Ordinance. However , his assess ment shall be treated to have been made under section 120 of the Ordinance. Meaning thereby that person is exempt from the filing of return of income under section 114 of the Ordinance for that 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 subjected to final taxation, inter alia, under Section 154 of the Ordinance, that person shall furnish to the CIR 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. A reference to Rule 34 and Rule 39 of the Income Tax Rules, 2002 will also be in order and will lend credence to the submissions made by the counsel for the appellant.
These rules merely prescribe the different forms in which the return of income and the statement in lieu of return of income have to be filed respectively . Rule 39 of the Income Tax 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 of the Ordinance.
8. There is no ambiguity that filing of 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 his statement merely in terms of Section 115(4) of the Ordinance, he stands discharged with regard to his tax liability . 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 made under Section 169 of the Ordinance shall be treated to have been made under section 120 of the Ordinance and the person shall also not be required to furnish a return of income under section 114 of the Ordinance for the year .
9. It is manifestly clear that Section 120 of the Ordinance has its genesis in and relates to the filing or failure thereof, of a return of income. Subsection (4) of Section 120 of the Ordinance 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 of the Ordinance.
Section 120 of the Ordinance relates to the filing of return under section 114 of the Ordinance 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. It may be pointed out that section 114 of the Ordinance obliges certain person to furnish a return of income. The appellant admittedly is not classified as the persons included in the ambit of section 114 of the Ordinance. Evidently Section 120(4) of the Ordnance does not have any nexus with the provision of section 115(4) of the Ordinance and it was illegal and unlawful for the assessing officer to invoke provisions of section 122(5A) of the Ordinance without requiring the return of income under section 114 of the Ordinance.
10. Actually Subsection (3) of section 169 of the Ordinance has been misinterpreted and mis-construed by the authorities below . This section merely refers to that where all the income by a person is subjected to final taxation under subsection (1) or under sections 5, 6 and 7 of this section, the person shall not be required to furnish a return of income under section 114 of the Ordin ance. However , the person's assessment shall be treated to have been made under section 120 of the Ordinance. The legislature by its wisdom added the word "and" in between the two phrases; one that "the person shall not be required to furnish a return of income under section 114 of the Ordinance for the year" and the other is that "an assessment shall be treated to have been made under section 120 of the Ordinance". So these are injunctive and not the disjunctive phrases. None of those can be read in isolation.
Subsection (3) of section 169 of the Ordinance simply envisages that the statement filed under section 115 of the Ordinance shall be taken to be the asse ssment order under section 120 of the Ordinance without requiring the normal income tax return. Whereas, it is of paramount importance to visualize and nothing else. If sections 120 and 122 of the ordinance are read together , it is manifestly clear that only the order passed under section 120 of the Ordinance shall be amended on comple te and valid return and not otherwise. Therefore, it does not mean that before proceeding under section 122(5) or (5A) of the Ordinance, the normal return of income shall not be required.
If it is so then how come a deemed assessment, made under section 120 of the Ordinance, on the basis of a statement filed under section 115 of the Ordinance can be held to be erroneous and prejudicial to the interest of revenue until unless the person furnishes his manufacturing and profit and loss account or income and expenditure statement and balance sheet and also declares his taxable income. In view of the aforesaid discussion it can be safely concluded that invocation of proceedings under section 122(5A) of the Ordinance in the instant case is illegal and is also without lawful authority and is liable to be cancelled.
11. The issue in hand has already been decided by the Hon'ble High Court in the judgment reported as 2016 PTD 1168, wherein it was held that "return of income and of a statement art two different regimes and run paralle l 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 liability" . While agreeing with the contentions of the learned AR, we also placed reliance on the decision of this Tribunal recorded in I.T.A. No,01/LB/17, dated 13.11.2017, in re: Messrs Habib Construction Services (Pvt.) Limited, Lahore .
12. In the end, we would like to also observe that the two conditions, that the order should be erroneous in law or facts as well as prejudicial to the interest of Revenue, for invoking Section 122(5A) of the Ordinance are mandatory . If one condition exists and the other is missing, proceedings under section 122(5A) cannot be initiated.
In this behalf, we place reliance on the judgments of Apex Court, the High Courts and the Appellate Tribunal cited as 1992 PTD 937 (SC) (Galaxo Laboratories Limited v. Inspectin g Assistant Commissioner ), 2004 PTD 330(HC), 2008 PTD (T rib.) 1491, 2009 PTD (T rib.) 121 and 2014 PTD (T rib.) 1 10.1.
13. In view of the above, we are inclined to hold that the provisions of Section 122(5A) of the Ordinance have unlawfully been invited in the present case corollary of which would be that amendment of the assessment made under section 122(5A) of the Ordinance for both years under appeal are not sustainable and, as such, has no legs to stand upon. Resultantly , the impugned orders are cancelled/annulled.
14. Since, we have disposed of the appe llant's appeals on legal premises, therefore, the other grounds raised are not adjudicated upon hereunder .
15. Resultantly , the appellant's appeals are accepted.