SHAHID MASOOD MANZAR, CHAIRMAN.----The titled four (04) appeals filed by the appellant Company (the "PESCO") against the impugned order of the learned CIR(A) dated 26.09.2019 are disposed of through this order as common/identical questions of facts are involved therein and the parties of appeals are the same.
2. The facts in brief are that the Deputy Commissioner, IR issued four Show-Cause Notices bearing C. Nos. 184 -187 dated 30-10-2017 for the periods 2012-2015 to the appellant. It was alleged in the show-cause notices that no deduction of withholding Income Tax was made under section 153(1)
(b) of the Income Tax Ordinance, 2001 on payment of "Use of system charges" to National Transmission and Dispatch Company (the "NTDC"). The appellant tiled reply to the above mentioned Show-Cause Notices wherein charges levelled were denied. After the proceedings, the DCIR vide order dated 02-03-2018 affirmed the charges alleged in the show-cause notices.
However, on the application submitted by the appellant under section 122(A) of the Ordinance, 2001, the learned Commissioner Inland Revenue IR (Appeals) remanded the case for fresh decision on merits vide order dated 11-06-2018. In the second round of litigation, the DC1R again upheld his earlier decision vide orders DCR. Nos. 05 to 08 dated 30-06-2019. On appeal by the appellant/PESCO, the learned CIR(A) partially allowed the appeal and remanded the case to the extent of fresh calculation of the default surcharge. However the rest part of the impugned Assessm ent order was kept intact vide his Order-in-Appeals Nos. 52 to 55 dated 26-09-2019.
Hence these appeals.
3. The learned A.R explained that NTDC sells electricity to PESCO and the sale price comprises various components. "Use of system charges" relates to the cost of usage of electricity wires between points of generation and delivery to PESCO. He has raised the preliminary objection that the National Transmission and Dispatch Company (NV)C) and appellant (PESCO) exclusively deal with the supply of electricity and companies receiving payments for the supply of electricity are exempt from payment of withholding tax under Clause 46AA of the 2nd Schedule to the Part-IV of the Ordinance, 2001. He submitted that under SRO 586(I)/91 dated 30th June, 1991 read with Section 239 of the Ordinance, 2001, the appellant was exempted from payment of with-holding tax under Section 153 of the Ordinance, 2001. He maintained that it is well established principle of law that if anything on the face of it is exempted under the law then there is no need to prove the same through documentary evidence. Reference in this regard was made on judgment reported as 2016 PTD (Trib.) 1519.
He contended that this Tribunal Bench at Lahore has given a decision in ITA No. 1687/18/2019 - M/s Multan Electric Power Company. Multan v, The C1R, RTO, Multan dared 15-03-2022 relating to 'Use of system charges (UoSC)". It has been held by the Tribunal that these charges were not liable to deduction of with-holding tax under Section 153 of the Ordinance, 2001 in view of Clause 46AA and SRO 586(I)/91 supra. He stressed that a thing required by law to be done in a certain manner must be done in the same manner as proscribed by law or not at all. In this regard reliance was placed on 2001 SCMR 838 and 2003 SCMR 1505. The learned AR argued that it is trite law that beneficial amendments should be applicable to the pending proceedings. Reference was placed on judgement reported as 2005 SCMR 492, 2019 PTD 1780 (LHC) and 2016 PTD 427 (KHC).
The learned A.R. pleaded that the Inland Revenue Department is required to conduct audit prior to issuance of the show-cause notice under section 161 of the Ordinance, 2001. He explained that the direct invoking of Section 161 without recourse to audit under section 177 of the Ordinance ibid constitutes fishing and roving inquiry which are against the law. Reliance was placed on judgment reported as 2015 PTD (Trib.) 654 and 2012 PTD (Trib.) 122.
As regards the merits of the case, the learned A.R asserted that the CIR(A), Peshawar unlawfully rejected the confirmation letter issued by the Central Power Purchasing Agency Guarantee Limited (the "CPPA (G)") as to non-payment for 'Use of System Charges' by PESCO. He elaborated that the letter dated 24-10-2018 issued by the CPPA-G certified the fact that 'Use of System Charges' had not been paid by PESCO. He highlighted that these cases relate to the tax years of 2012, 2013, 2014 and 2015 and NTDCL has paid its tax liability as required under Section 120 of the Ordinance, 2001 to the extent of these years. The learned A.R stated that the presumption of regularity and correctness is attached to the contents of all official documents. He placed reliance on judgment reported as 2001 SCMR 279 and 2017 CLC Note 139 [SHC]. It was emphasized by the learned A.R that it is well established principle of law that Section 153 of the Ordinance, 2001 is not applicable to the registered person unless the actual payment has been made. Reliance was placed on 2017 PTD 1372 (Supreme Court), PTR No. 349 of 2010 ILHC] and 2015 PTD (Trib.) 654. He contended that it is settled law that the burden of proof lies on the party which affirmatively asserts a proposition and where party deposes that no payment was made, the burden is not on him to prove the assertion.
Reference in this regard was made on 2021 PTD (Trib.) 1737 and 2020 PTD) (Trib.) 465.
He argued that no tax liability can be created on the basis of presumptions and intendment.
Reliance was placed on 2004 SCMR 1649, 2020 PTD 2200 (SHC) and 2018 PTD 1413 (IHC). The learned A.R. pleaded that it is a well settled principle of law that in case of dispute as to the exact connotations of a provision of a fiscal statute, interpretation favourable to the taxpayer is to be adopted. Reliance was placed on 2020 SCMR 420, 2007 SCMR 1367 and 2002 PM 877 (Supreme Court of Pakistan].
While concluding his arguments, the learned A.R submitted that the appellant is not liable to pay default surcharge provided under Section 161(1B) read with section 205 of the Income Tax Ordinance, 2001 as there is no willful evasion of tax. In addition, there cannot be any mens rea in the case of a public sector organization where its functionaries have no stake or benefit in short payment of taxes. In this respect he placed reliance on the judgments reported as 2018 PTD 900 [SHC], PTCL 2022 CL. 658 (SHC) and 2004 PTD 1179 = PTCL 2004 CL. 224.
On the basis of above arguments, the learned AR has requested to allow the appeals and to vacate the impugned orders of the authorities below.
4. On the other side none appeared to represent the respondent department.
5. We have perused the impugned Assessment orders, the orders by the learned CIR (Appeals), the case law referred and the available record of the case. For the sake of convenience, It is important to reproduce the relevant provisions of law:-
(i) Clause 46AA of the 2nd Schedule to the Part-IV of the Income Tax Ordinance, 2001:- "46AA The provisions of section 153 shall not apply to the following persons as recipients of payment, namely:- i. ........................................... ii. ........................................... iii. ........................................... iv. ........................................... v. Companies receiving payments for the supply of electricity and gas including companies receiving payments for the transmission of electricity and gas [Emphasis added]
(ii) SRO 586(1)/91 dated 30 June, 1991 provides:- "Notification No. S.R.O. 586(1)/91, dated 30th June 1991.---In exercise of the powers conferred by clause (ii) of the proviso to subsection, (iv) of section 50 of the Income Tax Ordinance, 1979 (XXXI of 1979), hereinafter referred to as the Ordinance, and in supersession of its Notification No. S.R.O.
659(1)/81, dated 25th June 1981, the Central Board of Revenue is pleased to specify the following to be the recipients, or the classes of recipients, to whom the said subsection shall not apply, namely:-
(i) ............................................
(ii) ...........................................
(iii) ..........................................
(iv) ..........................................
(v) ..........................................
(vi) companies receiving payments for the supply of electricity and gas;"
(Emphasis Supplied)
(iii) Section 239 of the Ordinance, 2001 postulates that: "239.Savings
(1) .....................................................................................................................
(12) Any notification issued under section 50 of the repealed Ordinance and in force on the commencement of this Ordinance shall continue to remain in force, unless, cancelled or repealed by, or under, this Ordinance."
(iv) Section 153(1)(b) of the Ordinance of 2001, as existed at the relevant time, reads as under:- "153. Paym ents for goods and services.---(1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person -
(a) ................................................................................................
(b) for the rendering of or providing of services;
(c) ...............................................................................................
This case relates to failure to withhold income tax from payments made for Use of System Charges ("UOSC") to NTDC. Therefore, it is relevant to quote the definition of the "Use of system charges" which are defined in SRO 1130(1)/2008 dated 30-10-2008 as follows:- "(j) use of System Charges (UoSC)" means any charge (fixed or variable) payable by a Distribution Company. BPC or any other use of the transmission system for Transportation of Power from Generator to delivery metering point and delivery to a distribution company, BPC or any other user and as required under Articles 13 and 14 of the NTDC License".
After perusal of the afore-quoted provisions of law, it is apparent that the payments relating to "use of system charges" are in fact made for the supply of electricity and taking into consideration the nature/definition/explanation of UOSC, it can be construed that "UOSC" is part and parcel of the process for electricity supply and cannot be separated from supply of electricity. As such, exempt from deduction of income tax as per Clause 46AA and SRO 586(I)/91 supra.
In addition, this issue has now been settled by this Tribunal Bench at Lahore in ITA No. 1687/LB/2019 -- M/s Multan Electric Power Company, Multan v. The C1R, RTO, Multan wherein it has been held that these charges (UOSC) are not liable to deduction of withholding tax under Section 153 of the Income Tax Ordinance, 2001 in view of Clause 46AA of the 2nd Schedule to the Part-IV of the Ordinance ibid and SRO 586(1)/91 dated 30.06.1991. The relevant papas are reproduced below:- "4. Arguments heard and record perused. We find ourselves in agreement with the line of arguments adopted by learned counsel being supported by plausible reasons as well as acceptance of taxpayer contention by learned CIR (Appeals) in the following manner:- "I am of the view that, CPPA-G is an independent corporate entity who has been invoicing to MEPCO against supply of electricity and is recipient of payment for electricity, it expressly comes under the ambit of clause (vi) of 586(I)/91 dated June' 30, 1991 and exempted from purview of income. Appellant's reliance on SRO. 586 carries weight and some legal standing. However taking into consideration the nature/definition/explanation of UoSC and payment mechanism thereof, it can be construed that UoSC is part and parcel for electricity supply and cannot be separated from supply of electricity"
5. Furthermore, the payments made by the MEPCO are exempt from withholding tax in the light of Clause 46AA of Part-IV of 2nd Schedule to the Ordinance, which reads as under:- "46AA. The provisions of section 153 shall not apply to the following persons as recipients of payment, namely:-
(v) Companies receiving payments for the supply of electricity and gas including companies receiving payments for the transmission of electricity and gas.
6. In view of above clear provisions, the orders passed by both the authorities below are hereby vacated leading to acceptance of instant appeal. We order accordingly."
It is thus manifestly clear that the payments relating to "Use of system charges" are in fact made for the supply of electricity by the NTDC and hence exempt from deduction of withholding tax and where no income tax can be legally withheld, there is no question of delayed payment or default surcharge relating thereto. It is well settled principle of law that a thing required by law to be done in a certain manner must be done in the same manner as prescribed by law or not at all.
Reference in this regard is made on the decision of Hon'ble Supreme Court reported as 2001 SCMR 838 and 2003 SCMR 1505.
As regards the merits of the case, we agree to the contentions addressed by the learned A.R that the learned CIR(A) has unlawfully rejected the CPPA-G's confirmation as to non-payment for 'Use of System Charges' by PESCO. The letter dated 24-10-2018 by CPPA-G, unequivocally certified the fact that 'Use of System Charges' have not been paid by PESCO. For ready reference, the relevant extract of this letter is reproduced below:- "It is intimated that this office has been receiving payment on account of Energy Charges and GST only from the Peshawar Electric Supply Company (PESCO), whereas, the remaining balance are still receivable and PESCO has yet to make payment."
Suffice it to say that the presumption of regularity and correctness is attached to the contents of all official documents. Hence the CPPA's letter authenticating non-payment of Use of System Charges by PESCO is reliable unless proved otherwise by the department. Reference in this regard is made to judgment reported as 2001 SCMR 279 and 2017 CLC Note 139 [SHC]. We are also inclined to agree to the argument of the learned A.R that the direct invoking of Section 161 without recourse to audit under section 177 of the Ordinance ibid is bad in law. Reliance in this regard is placed on the judgment reported as 2015 PTD (Trib.) 654 and 2012 PTD (Trib.) 122.
In view of what has been stated above, particularly in the light of law and judgments quoted supra, the impugned show-cause notices and consequent orders passed by both the authorities below are declared to be illegal and unlawful hence, are hereby vacated.
6. The instant appeals are disposed of in the manner and to the extent as dilated supra.