CH. IRSHAD AHMAD, JUDICIAL MEMBER.--1. Sub-section (1) of section 134 of the Income Tax Ordinance 1979 (the Ordinance) provides that an assessee objecting to an order passed by an Appeal Commissioner under any of the sections mentioned therein may appeal to the Appellate Tribunal. The proviso to sub-section (3) of section 134 ibid added by Finance Act 1994 effective July 1, 1994 provides that no appeal by an assessee shall lie before the Tribunal unless an amount not less than 50% of the amount of tax assessed has been paid.
2. The assessee has filed an appeal in this Tribunal against the Appeal Commissioner's orders without complying with the requirement of the proviso to sub-section (3) of section 134 ibid and through a miscellaneous application has submitted that on the facts and in the circumstances of its appeal, it is not required to comply with the said requirement before filing the appeal. The matter has been placed before us to answer the office query whether the assessee's appeal can be registered for hearing even if it has not paid the amount of tax referred to in the proviso ibid. A brief reference to the circumstances in which the assessee has filed the appeal would be quite relevant to dispose of the assessee's submissions made in the miscellaneous application and the office query.
3. The assessee, a non-resident company, derives income from providing services to various companies engaged in oil exploration in Pakistan. Section 80AA inserted in the Ordinance by Finance Act 1987 provides that notwithstanding anything contained in the Ordinance where any consideration by way of fees for technical services referred to in the explanation to sub-section (5) of section 12 is received or is being received by, a non-resident, the whole of such consideration shall be deemed to be income of the nonresident and tax thereon shall be charged at the rate of 15 per cent (earlier 20%) of such income. The explanation to sub-section (5) of section 12 of the Ordinance explains the expression "fees for technical services" to mean any consideration (including any lump-sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of the services of technical or other personnel) but does not include consideration for any construction, assembly or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salary". The assessing officer making assessment on the assessee found that the assessee was receiving income from fees for technical services as envisaged by section 80AA ibid charged tax @ 15 per cent on the assessee's total receipts. The assessee's case before the assessing officer as well as before the Appeal Commissioner was that section 80AA does not apply to it for the reasons that the said section applies to 'individuals' and not to the companies and that the assessee's receipts were not "fees for technical services". The Appeal Commissioner rejected the assessee's contention that section 80AA applies only to the individual and not to companies but accepted the assessee's contention that its receipts were not fees for technical services as envisaged by section 80AA ibid and setting aside the assessm ent directed the ITO to compute the assessee's gains and profits as income from business in accordance with the provision of section 22 read with section 23 & 24 of the Ordinance.
4. The assessee has objected to the order of the Appeal Commissioner on the sole ground that the Appeal Commissioner, after finding that the assessment made by the assessing officer on the assessee in accordance with the provision of section 80AA was not legal, the Appeal Commissioner should have annulled the assessment rather than to set it aside with the direction to the assessing officer to make it in accordance with the provision of section 22 read with section 23 & 24 of the Ordinance.
5. As stated earlier the assessee has not paid any amount of tax as envisaged by the proviso to sub-section (3) of section 134 ibid before filing this appeal. The question is whether the assessee is entitled to file this appeal without paying any amount of tax. It may be pointed out that the ITO to has objected to the order of the Appeal Commissioner by which he has held that the provision of section 80AA are not applicable to the assessee's case.
6. We have heard Mr. Oliver Peter Pervez. ACA for the assessee and Mr. Muhammad Ali Shah, DR.
7. The assessee's submissions are that before filing this appeal it is not required to comply with the requirement of the proviso to sub-section (3) of section 134 of the Ordinance because with the Appeal Commissioner's order setting aside the assessment no tax demand is outstanding against it and the proviso will not come into play if no tax demand is outstanding against the assessee.
According to the assessee the expression "tax assessed" referred to in the proviso means the "outstanding demand of assessed tax". On the contrary the DR contended that the expression "tax assessed" as used in the proviso to sub-section (3) of section 134 ibid would refer to the amount of "tax assessed" by the assessing officer notwithstanding that the assessment order has been set aside and no tax demand is outstanding against the assessee.
8. The proviso to sub-section (3) of section 134 of the Ordinance providing for that no appeal shall lie to the Tribunal unless an amount not less than 50% of the amount of the "tax assessed" has been paid by the assessee and the amendment in sub-section (5) of section 134 of the Ordinance by which the fee payable for filing an appeal before this Tribunal has been increased have, quite recently been considered by this Tribunal in its decision reported in (1995) 71 Tax 126 (Trib) and (1995) 71 Tax 318 (Trib) respectively. In both the decisions, the question was whether the proviso to sub-section (3) of section 134, or the amendment in sub-section (5) of section 134 of the Ordinance would apply retrospectively or not. Although the question regarding the retrospective application of the proviso is not in issue in this appeal but the question regarding the exercise of the right of appeal and the curtailment of that right is an issue in this case, and in that context the precedent decisions of the Tribunal are relevant. In this Tribunal's view, clearly and comprehensively expressed in its decision reported (1995) 71 Tax 318, the right of appeal where it exists should not be thwarted or inhibited unless the inhibition is provided by explicit language of the statute. The express "tax assessed" used in the provision to sub-section (3) of section 134 of the Ordinance has not been defined by the Ordinance itself. The expression, however, has been clarified by the CBR in its letter No. 129 (1) DTP-/94 dated 24-8-1994 addressed to a Member of Islamabad Tax Bar, answering his certain queries. It has been clarified, so far as material, that for the purpose of the proviso to sub-section (3) of section 134 of the Ordinance "tax assessed" would mean total tax liability and where the tax liability has been modified in the first appeal, the demand as modified and the quantum of tax is to be determined in the light of the direction contained in the first appellate order. Further, in case where the assessment order has been partly set aside by an order in the first appeal the tax originally assessed shall be adopted as the basis for mandatory payment. Thus the CBR's letter clearly refers to "tax assessed" as used in the proviso ibid as tax liability and such liability would mean the liability created under the assessment order and modified by Appeal Commissioner's order. Thus, where as a consequence of Appeal Commissioner's order there remains no liability of the assessee to pay any tax the assessee will not be required to pay any tax before filing an appeal in this Tribunal. Adapting a purposive approach to construe the true meanings of the expression "tax assessed" as used in the proviso to sub- section (3) of section 134 of the Ordinance we have no option but to hold that it means the tax assessed and payable by the assessee at the the he files an appeal in this Tribunal. It is an accepted position where the assessment made by an assessing officer has been set aside by the Appeal Commissioner, any liability created under the assessment made by the assessing officer stand wiped out and unless a new assessment is framed the assessee is not liable to pay any tax.
In this context reference may be made to oft quoted decision of a Division Bench of the Lahore High Court in case CIT v. Begum Mumtaz Jamal (1976) 33 Tax 288 (HC). The Court held that "an assessm ent order passed by an assessing officer is subject to the incidents of appeal etc. In turn demand notice and the recovery proceedings taken in pursuance therefor are likewise subject to the incidents of the appeal against the original assessment (order on which the demand is based Indeed it is well recognized general principle that on appeal the original order ceases to exist and merges itself in the appellate order of various. As a necessary corollary, with it all proceedings taken in pursuance of the original order would be washed away and obliterated."
9. It is true that there is no inherent right of appeal to any party to any proceedings including an assessee in tax proceedings. Such right has to be spelt from the words of the statute providing for an appeal. But it is an equally well established proposition of law that if there is a provision conforming a right of an appeal it would be read in a reasonable, practicable and liberal manner and anything impinging against the exercise of that right must be construed very strictly and narrowly. Therefore, the words of the proviso to sub-section (3) of section 134 of the Ordinance that the appeal shall not lie unless that assessee has paid the specified amount, are to be construed strictly and the envisaged prohibition would apply only to a situation where there is no escape from applying the prohibition. Thus, in our view an. Assessee against whom no demand of tax is outstanding is not required to pay the amount envisaged by the proviso to sub-section (3) of section 134 of the Ordinance and since no demand of tax is outstanding against the assessee it is entitled to file this appeal without paying the amount referred to in the proviso. Let the appeal be registered for regular hearing on its turn.