' This judgment shall deal with and decide Writ Petition No,20218 of 2002, Writ Petition No,20219 of 2002, Writ Petition No,20220 of 2002 and Writ Petition No,20221 of 2002, raising identical questions of law and facts and filed by Companies belonging to the same group against same respondents.
2. The grievance purportedly arose to the petitioners upon service of notice by the respondent No,1 in July, 2002 for contravention of provisions of section 50 of repealed Income Tax Ordinance; 1979 and to initiate prosecution under section 117 ibid. Reply thereto was filed by petitioners. Upon withdrawal of the notice by respondent No,1, present Constitutional petitions were filed.
3. The admitted facts as emerging from the plea of the parties raised in the Constitutional petitions and reply/parawise comments of respondent No, 1 thereto, concisely are that petitioner- companies, during ihe period relevant to assessment year 1998-1999, deducted tax at source under section 50 of repealed Income Tax Ordinance, 1979 from the payments to Messrs Zafar Farhat Industries (Pvt.) Ltd. i,e, suppliers. The amount so deducted was not deposited/paid within one week as per provisions of Rule 50 of Income Tax Rules, 1982. In the meanwhile, upon complaint of Messrs Zafar Farhat Industries (Pvt.) Ltd., to learned Federal Tax Ombudsman, following observations were made by learned Federal Tax Ombudsman in his order, dated 10-6-2002:- "Sh. Ghulam Asghar, Advocate, counsel of the complainant pointed out that the Department was not addressing the problem seriously because allegedly, the intention was to drag on so as to delay the refund as long as possible. He produced the original letter of ACIT, Circle 33, Multan addressed to one "Hakim-udDin, Karachi" but wrongly delivered by the postal authorities at complainant's address. The fact that complete address of Mr. Hakim-ud-Din was not noted on the letter clearly betrays the unfair motive. It was pointed out that even the withholding agents whose offices were at a walking distance from the Income Tax Office, Multan were not approached and the treasury challans of Rs,110,657, Rs,112,582, Rs,52,781 and Rs,178,315 relating to Arain Mills Limited, Suleman Spinning Mills Limited, Arain Textile Mills and Arain Fabres Limited, Multan were obtained by the complainant through his own efforts without any assistance from the department.
(5) It transpires that the functionaries deal with the tax withholding agents very casually and quite obviously, do not attach due importance to the fact that millions of rupees deducted on behalf of the State by the textile mills and several others are unlawfully retained by them for indefinite periods to be employed in their own business at the cost of public.
(6) This amounts to embezzlement of Government funds by the withholding agents. In the case in hand the above mentioned four mills among them had deducted Rs,45,43,675 only from one complaint as far back as 1997-98 and paid these into Government treasury after almost four years, on 8-2-2002 and that too when the complainant persuaded them to give copies of the treasury challans. The complainant claims to have furnished a long list of other tax deducting agencies who deliberately, did not deposit amounts into the exchequer. Sh. Ghulam Asghar, the learned counsel, furnished photocopy of letter, dated 3-3-2002 written by him to the CIT, Multan pointing out this embezzlement.
(7) In Complaint No,250 of 2002 where similar issues were involved, a detailed decision has been rendered with recommendations amongst which following are incorporated and made in this case as well. The only difference between the facts of instant complaint with the facts in Complaint No,250 of 2002 is that here refund was delayed by denying credit claimed on account of taxes withheld while in the other case not only demand was created by refusing to allow credit against such claims but such dubious demand was collected from the complainant under duress.
4. In para 9, learned Federal Tax Ombudsman held that maladministration in that case was established and in para 10 of the orders, recommendations were made. The recommendations relevant to the case regarding initiation of prosecution against the petitioners are also reproduced hereunder:-
(ii) "That the additional tax be charged under section 86 of the Income Tax Ordinance on the delayed deposits discussed in Para. 4 and 6 supra.
(iii) That notices are issued to all the four defaulters under section 116 for default under section 108 for non-filing of statements prescribed under the Rules framed in pursuance of section 51 of the Ordinance and initiate proceeding for imposing penalties chargeable under the law.
(iv) That RCIT to direct the CIT concerned to refer the matter of default committed by the four mills to the legal advisor for prosecution proceedings to be filed against them."
' It was upon this recommendation that respondent-Department sought legal advice of the Legal Advisor under section 117 of the repealed Income Tax Ordinance. Learned Legal Advisor, through legal advice, dated 27-7-2002, advised prosecution under section 117 ibid as was recommended by learned Federal Tax Ombudsman, hence the present Constitutional petitions.
5. Since cases were thoroughly and fully argued, therefore, the same are disposed of as admitted Pacca' cases.
6. The arguments of the learned counsel for the petitioners are that upon repeal of Income Tax Ordinance, 1979 and promulgation and consequent effectiveness from 1-7-2002 of Income Tax Ordinance, 2001, proceedings for prosecution of the petitioners through a notice under section 117, after repeal of Income Tax Ordinance, 1979, were ultra vires and without jurisdiction. Further argued that respondent No,1 acted upon the recommendation of Federal Tax Ombudsman and did not apply his mind to serve show-cause notice for prosecution. He also submitted that the learned Federal Tax Ombudsman's order was also void ab initio as petitioners were not a party and were, as such, condemned unheard. And that section 50(4) of late Income Tax Ordinance, 1979 only provided for deduction of the tax at source and did not visualize deposit wherefor, action, at maximum, could be taken under section 52 ibid by serving a prior notice declaring the non-paying person as assessee in default in respect of non-paid amount. And further that effect of nonobstante clause of subsection (4) of section 50 ibid, is that no further action under section 117 could be taken over and above invocation of section 86 ibid for charging additional tax, which in the case of the petitioners has already been imposed.
' Contrarily, learned counsel for respondent No,1 by reference to section 239(6) of newly- promulgated Income Tax Ordinance, 2001, stated that proceedings for any income year ending on or before 30th June, 2002, had been saved and thus notice for prosecution was validly served upon the petitioners in mid-July, 2002, as the same related to the period prior to 30th June, 2002. He further answered the contentions of the learned counsel for the petitioners by stating that petitioners delayed deposit of the amount deducted, for a period of four years, despite mandate contained in subsection (8)(c) of section 50 of late Income Tax Ordinance, 1979 to pay deducted amount within the prescribed time and in the prescribed manner, which in turn has been prescribed to be seven days in Rule 50 of the Income Tax Rules, 1982. And any violation thereto attracted additional tax under section 86 ibid without prejudice to any other liability including that of prosecution under section 117 ibid for non-compliance with the provisions of section 50 ibid, as has been mandated in the provisions of section 124 ibid. He further stated that provisions of section 52 have no applicability in the present case because the same applied to failure to pay the tax deducted, but in the present case, .The tax was paid but with a delay of four years. The impugned notice was thus supported by the learned counsel for respondent No,1.
7. Hearing the learned counsel for the parties, the record annexed with the petitions as well as the provisions of law referred to were examined with able assistance of the learned counsel for the parties. The chronology of events and facts re-counted above shows that the facts in the present case are not disputed. Petitioners specifically admit having deducted tax under section 50(4)(a) of repealed Income Tax Ordinance, 19.79 for the assessment year 1998-1999 from the payments made to Messrs Zafar Farhat Industries (Pvt.) Ltd., who had supplied goods to A the petitioners and that the petitioners did not pay the same in the Government treasury for about a period of four years.
As a result of this non-payment of the deducted amount, Zafar Farhat Industries (Pvt.) Ltd. Was not given the credit on account of the tax so deducted from their proceeds and Department delayed or failed to refund all the deducted amounts in excess of their assessed liability. Zafar Farhat Industries (Pvt.) Limited thus filed Complaint No,1596 of 2001 before learned Federal Tax Ombudsman. Proceedings upon this complaint were initiated. These proceedings ultimately culminated in order, dated 10-6-2002, relevant parts of which have been reproduced in pars 3 above. Adequate to state here that learned Federal Tax Ombudsman taking serious view of non- timely payment of the deducted amounts by the petitioners to the credit of the Government, termed such action as unlawful retention, embezzlement and misuse of Government money by withholding agents like petitioners, who were observed to have deducted a huge sum of Rs,45,43,675 from the payment of the said complainant in 1997-1998, but did not deposit the same till 8-2-2002 i,e, for a period of about four years.
8. Learned Federal Tax Ombudsman holding action of the Revenue in non-recovery of Government funds as maladministration, recommended reference of the matter by CIT "to the Legal Advisor for prosecution proceedings against them", (the petitioner) it was upon this recommendation that respondent No,1 referred the matter to Legal Advisor under section 117 of the repealed Ordinance, 1979 for advice, who, on the basis of facts and law, recommended proceedings for recovery of additional, tax under section 86 and also for prosecution undef section 117 read with section 124 of the repealed Ordinance. Computer copy of the advice has been placed on record during hearing.
9. Upon receipt of such advice, respective show-cause notices were issued by respondent No,1 to the petitioners _in the second week of July, 2002. Reply was given by each of the petitioners. Their defence was that Zafar Farhat Industries (Pvt.) Ltd. Verbally requested them not to deposit the deducted tax has they had' obtained Exemption Certificate from the Commissioner of Income Tax (Companies), Multan, but it was upon non-production of the Certificate that the amount was deposited and delay so caused, was because of the verbal request and non-production by Zafar Farhat Industries of the Exemption Certificate.
10. Since the plea of defence so taken is not under adjudication by this Court, therefore, no opinion need be expressed upon the same. However, examination of the contents of the show-cause notice shows that although reference has been made to recommendation of learned Federal Tax Ombudsman, yet the facts leading to delayed deposit of the deducted amount on 8-2-2002 have been specifically stated in the notice as foundation for the allegation of contravention of provisions of section 50 of the repealed Ordinance read with Rules 61 and 200 of the Income Tax Rules, 1982 to invoke petitioner's liability to additional tax under section 86 as well as prosecution under section 117 of the said Ordinance, for the purposes of seeking a reply from the petitioners. It has not been denied by the petitioners that prior to issuance of notice for proceedings of prosecution under section 117 ibid, legal advice was also sought by respondent No,1 and was so given by the learned Legal Advisor of the Department. Petitioners thus cannot say that the Notifying Authority mechanically served the notice upon mere recommendation of the learned Federal Tax Ombudsman: The contents of the notice itself demonstrate due and proper applications of mind to the facts of the case and provisions of law by CIT.
11. Even otherwise, show-cause notice contains prima ,facie allegation of facts and law and not final adjudication through process of trial. Such notice is obviously for the purposes of determining prima facie existence of a case with reference to the offended provisions of law. And upon receipts of reply thereto, if Notifying Authority tentatively finds commission of default of offence, proceedings are initiated for prosecution, wherein, accused person obviously has an alienable right to defend himself and disprove allegations through evidence. In this case, the learned Federal Tax Ombudsman only recommended reference of the matter to learned Legal Advisor for advice as to prosecution of petitioners in view of their admitted delay in depositing the deducted amounts. As such, learned Federal Tax Ombudsman was not obliged to grant a hearing to the petitioners as a party for kind of recommendations made by him in order, dated 10-6-2002.
12. Another serious objection of the learned counsel for the petitioners is that after repeal of the Income Tax Ordinance, 1979 and promulgation of new Income Tax Ordinance, 2001 with effect from 1-7-2001, show-cause notice of mid-July, 2002 could not be issued and proceedings thus could not be initiated after 1-7-2001. This objection would have of course been very valid and forceful, had such proceedings for prosecution not been saved in subsection (6) of section 239 of the Income.
Tax Ordinance, 2001, which being pertinent is reproduced hereunder:- "Any proceeding for prosecution in respect of an assessment for an income year ending on or before the 30th day of June, 2002 shall be taken and continued as if this Ordinance has not come into force."
Bare reading of the above said reproduced provision shows that proceedings for prosecution in respect of an income tax year ending on or before 30th June, 2002, have specifically been permitted by the above said subsection (6) of section 239 of Income Tax Ordinance, 2001 "to be taken and continued as if this Ordinance has not come into force."
13. In the present case, deduction and non-payment of the deducted tax by petitioners relates to income tax year 1997-1998 as per pleadings of the petitioner in Para. 2 of the petitions. The period precedes 30th June, 2002. Proceedings for prosecution under the late Income Tax Ordinance, 1979, have been specifically saved and kept alive in respect of assessment upto 30th June, 2002 disregarding repeal of Income Tax Ordinance, 1979 and promulgation of Income Tax Ordinance, 2001. The impugned notices have although been served in mid-July, 2002, yet the same relate to assessm ent period prior to 30th June, 2002, where for, petitioner's objection of repeal of Ordinance, 1979 cannot succeed.
14. There is no substance in the proposition advanced by the learned counsel for respondent- Revenue that provisions of section 52 are not applicable to the present case. Reason thereof is that the said section applies "where any person fails to deduct or collect, or having deducted or collected fails to pay the tax as required by or under section 50." The provisions of this section thus apply to person failing to deduct the tax under section 50 or having deducted such tax, fails to pay the same under or as required by section 50 ibid. In the present case, tax was admittedly deducted and was also paid by the petitioners. The payment of the deducted tax was, however, with a delay of tour years, which obviously was not in compliance with the requirements and provisions of subsection 8(c) of section 50 of repealed Ordinance, 1979, which reads as under:--
(8) "Any sum deducted or collected or purported or collected under this section shall be-
(a) deemed in cases to which subsections (1) (2) and (3) apply, to be income received by the assessee'
(b) treated as payment of tax on behalf of the assessee; and
(c) paid within the prescribed time and in the prescribed manner by the person making the deduction or collection, as the case may be, to the credit of the Federal Government."
The above reproduced provisions of section 50 (8) ibid thus mandate payment within the prescribed time in the prescribed manner by the person making the deduction. The applicable rule prescribing time and the manner is Rule 50 of Income Tax Rules, 1982. This rule provides for one week's time for crediting the amount so deducted in the Government treasury. The cumulative reading of section 50(8)(c) and section 52 of repealed Income Tax Ordinance, 1979 and Rule 50 of the Income Tax Rules, 1982, does show that petitioners are also assessees in default having violated the express provisions of section 5 (8) ibid of the Ordinance and Rule 50 ibid by deposit of deducted tax years after the "prescribed time" of one week.
15 The petitioners' action attracted provisions of section 86 as well as those of section 117(a) of the repealed Ordinance, 1979. Section 86 relates to imposition of additional tax on the amount not paid.
Additional tax has been imposed upon the petitioners. Additional tax is admittedly in the nature of interest for delayed payment of the amounts due and is a civil liability. Such imposition does not, in any way, affect the liability of the petitioners to be criminally prosecuted under section 117 ibid. Section 86 itself provides that imposition of additional tax for violation of the provisions of section 50 "shall be without prejudice to any other liability" which such person may incur. Furthermore, section 124 of repealed Income Tax Ordinance, 1979 caters for a converse situation. It states that a prosecution for an offence against the Ordinance may be instituted "without prejudice to any other liability incurred by any person under this Ordinance." As such; provisions of sections 86 and 124 ibid read together show that imposition of additional tax or prosecution for an offence are independent actions which do not, in any way, affect or prejudice or exclude each other and can both be resorted to at the same time in appropriate cases.
16. Furthermore, subsection (4) of section 50 ibid no doubt begins with a non obstante clause mandatorily providing .For relevant persons liability to deduct tax "notwithstanding anything contained in this Ordinance". No such clause was added to any other subsection except subsection
(5) of section 50. The nature of notwithstanding clause of subsection (5) was also different and begins With the words "notwithstanding anything contained in any law for the time being in force", while the provisions of 'subsection (4) have been made applicable li "notwithstanding anything contained in the Ordinance." Such rider was neither placed upon entire section 50 nor were provisions of sections 86' and 114 meant to become superfluous, redundant or inapplicable upon deduction of tax under subsection (4) of section 50 ibid. Plain reading of provisions of this subsection reveals that an intendment, construction of provision in the Ordinance; contrary to the purpose/scope of aforesaid subsection (4), was negatived by insertion of "notwithstanding" clause in the said subsection. The object was to achieve deduction of tax imperatively as per the said provision. It is thus fallacious to argue that such non obstante clause excludes liability of, persons violating provisions of said subsection, to be prosecuted under section 117 ibid. Such construction would not only render the provisions of section 117 ibid redundant but would essentially detract from purpose of section 50(4); for violation of which prosecution under section 117(a) has been prescribed. Such construction being patently contrary to the settled principles of interpretation of statutes, cannot be accepted.
17. Lb. View of what has been held above, the impugned notices for initiation of proceedings against the petitioners under section 117 of the late Income Tax Ordinance, are held to be valid and proper. D Furthermore, no additional notice Was required to be given to the petitioners as assessees in default. In view thereof, these petitions have no merit and are accordingly dismissed with no order as to costs.