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RAHMAT ULLAH MALIK'S COMPUTERISED DIRECT TAX LAW
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008008
HIGH COURTS OF PAKISTAN
HIGH COURTS OF PAKISTAN
----------------------------------------------------------------Continental Chemical Co.(Pvt.) Ltd. v. Pakistan
NO: CP D-707
YEAR: 1999 DECIDED ON 30/03/2000
CITATION: DTPHC1320 ; 83TAX305 ; 2001PTD570
2001PTCL454 ;
----------------------------------------------------------------Income Tax Ordinance, 1979 -- Section 8, 50(4)(a), 52, 53,
80C(4), 86 -Central Board of Revenue Circular No. 19 of 1991, dated 8th July,
1991 -Constitution of Pakistan (1973), Article 199 -Explanation to section 52 -- C.B.R. circular No. 19 of 1991 dated
8-7-1991 -- Advance income tax -- Failure to deduct at source -Assessee in default -- Notice -- Imposition of additional tax -Validity -- Constitutional Petition -- Maintainability -Pre-conditions for deduction of Income tax source -- Failure to
comply with instruction contained in C.B.R. Circular -- Effect of
-- Limitation for issuing show cause notice -- Non-resident -Application of provisions of -- Section 50(4)(a) -- Explanation
to section 52 -- nature of -- Whether where deductee/payers had
paid his full tax, any short fall in or failure to deduct income
tax at source by deductor/payer would not make latter assessee in
default -- Held yes -- Whether applying C.B.R. Circular, assessee
was under no obligation to deduct tax at source in relation to
purchases on which tax at import stage had been deducted and
which constituted final discharge of liability -- Held yes -Whether jurisdiction to apply provisions of ordinance in any
manner was not restricted to proceedings for assessment or
recovery of final income tax liabilities, but also related with
force in respect of advance tax, be it under section 50(4) or
Section 53 or any other provision of ordinance -- Held yes -Whether proviso to section 50(4)(a) categorically confirmed that
substantive provision of said section was also to be applied to
non-residents -- Held yes -- Whether it was settled law that
where impugned orders were void and completely without
jurisdiction, petitioner could directly approach Hiogh Court in
its constitutional jurisdiction -- Held yes -- Whether if tax u/s
50(4)(a) or u/s 53 was imposed after end of year to which it
related, it would cease to have character of advance tax -- Held
yes -- Whether in case assessee continued default of section 53
and time for framing regular assessment or end of assessment year
reached, substantive default of section 53 would automatically
lapsed -- Held yes -Deduction of income-tax at source -- Failure to deduct such
income-tax -- Effect -- Assessee who fails to deduct income-tax
at source is treated as `àssessee in default'' -- where
payee/deductee pays his full tax, any shortfall in or failure to
deduct income-tax at source by the deductor/payer would not make
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the latter an assessee in default, since shortfall in relation
thereof would be of no consequence -Taxing statute -- Words in a taxing statute including
notifications and orders, unless ambiguous must be given their
ordinary and natural meaning -- Subject is not to be taxed unless
the statute clearly imposes the burden of tax, while language of
the taxing statute must not be strained to tax a transaction on
the premise that had the Legislature thought of the same, it
would have covered the events by appropriate words -Deduction of tax at source -- Precondition enlisted -Deduction of tax at source -- Exemption -- Exemption in relation
to deduction of tax at source under Section 50(4) of Income Tax
Ordinance, 1979, has been extended by the C.B.R. Circular to all
recipients who may enjoy exemption under any of the provisions of
the Ordinance as such the same includes further exemption
prescribed by Section 80C(4) of Income Tax Ordinance, 1979 -Instructions given by Central Board of Revenue -- Failure to
comply with the instructions -- Effect -- Where the instructions
were issued in keeping with the provisions of Section 80C(4) of
Income Tax Ordinance, 1979, the Authorities under the provisions
of Section 8 of Income Tax Ordinance, 1979, were bound to obey
such instructions -- Failure to disregard the Circular was ipso
facto unlawful exercise of jurisdiction in circumstances -Advance income-tax, deduction of -- Jurisdiction to apply
provisions of Income Tax Ordinance, 1979 -- Such jurisdiction is
not restricted to the proceedings for the assessment or recovery
of final income-tax liabilities but also relates with the same
force in respect of advance tax, be it under Section 50(4) or
Section 53 or any other provision of Income Tax Ordinance, 1979
Proviso -- Non-resident -- Provision of Sectin 50(4)(a) of Income
Tax Ordinance, 1979 -- Applicability -- Section 50(4)(a) of the
Income Tax Ordinance, 1979 is applicable to non-residents also
but only mutatis mutandis -Constitutional jurisdiction of High Court -- Scope -- Void order
-- Effect -- Where orders are void and completely without
jurisdiction, petitioner can directly approach High Court in its
Constitutional jurisdiction -Advance income tax -- Deduction of tax after end of the year -Effect -- Provision of Section 50(4)(a) having been made subject
to Section 53 of Income Tax Ordinance, 1979, the tax to be
dedcuted was advance tax -- Such tax had to be imposed before the
year ran out -- Income-tax to be deducted had to be a percentage
of purchase and was directly linked up with the transactions -If the tax under Section 50(4)(a) or under Section 53 of Income
Tax Ordinance, 1979 was imposed after the end of the year to
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which it related the same would cease to have the character of
advance income-tax -Advance income-tax -- Failure to deduct the same -- Show-cause
notice -- Limitation -- Case related to assessment year 1996-97
for the purpose of advance income tax and the same had run out on
3-6-1996 and the assessment year 1997-98 and 30-6-1997,
respectively, while the Authorities had issued first notice on
1-6-1998 and then on 3-6-1998 and had completed orders in
July/August, 1998 -- Validity -- Proceedings and orders of the
Authorities were beyond Section 50(4)(a) of Income Tax Ordinance,
1979, incompetent and time-barred -Advance income-tax -- Failure to deduct advance tax when time
framing regular assessment or end of assessment year had reached
-- Effect -- Any payment under section 53 of Income Tax
Ordinance, 1979 being a credit with the exchequer which was
liable to be adjusted with the actual liability for that year,
the substantive default of Section 53 of Income Tax Ordinance,
1979, would automatically lapse -- High Court extended the
application of such benefit to Section 50 of Income Tax
Ordinance, 1979, as well since the same was also an advance tax
and had to be given adjustment as prescribed -Advance income-tax -- Failure to deduct the tax at source -Presumptive tax regime has been made applicable to limited number
of items but the deduction made at source has been made liable
for adjustment against the tax demand created on regular
assessment -Explanation -- Advance tax, deduction of -- Explanation added to
Section 52 of Income Tax Ordinance, 1979 -- Effect -- Explanation
has not created any new obligation or liability on the taxpayers
but has been solely designed to bring about a change in the forum
where a person responsible for deducting advance tax on behalf of
another assessee as per requirement of Section 50 of Income Tax
Ordinance, 1979, is to be proceeded against on his failure to
deduct or collect the advance tax and to deposit the same in
Government treasury -Explanation -- Advance tax, deduction of -- Explanation added to
Section 52 of Income Tax Ordinance, 1979 -- Retrospective effect
-- Retrospective operation of the Explanation would have arisen
only if the same had the effect of imposing new liability or
obligation on the taxpayer or had effected any existing rights
either by taking them away or curtailing time -- Explanation had
only provided a change in the forum whereby the powers to hold
proceedings against the taxpayer as a deemed assessee in default
had been taken away from the Assessing Officer/Deputy
Commissioner of Income-tax dealing with the tax proceedings of
the recipients and had been conferred on the Assessing Officer/
Deputy Commissioner of Income-tax having power to deal with the
tax proceedings of the payer -- Explanation of Section 52 of
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Income Tax Ordinance, 1979, had not taken away the right of
appeal or revision or had not curbed the rights available to the
deemed assessee in default and was merely in the nature of the
change of officer/authority -Change in forum -- Retrospective effect of such change -- Scope
-- When Legislature brings a change in the forum then the same is
always with retrospective effect unless the same had the effect
of curtailing the existing rights available to a party for
challenging any adverse order -Explanation to a statutory instrument -- Object -- Object of the
Explanation to a provision is to clarify, to facilitate proper
understanding of a provision and to serve as a guideline -Assessee in default, proceedings against -- Petitioners failed to
deduct advance income-tax and were proceeded against as assessees
in default under the provisions of Section 52 & 86 of Income Tax
Ordinance, 1979 -- Validity -- Authorities with the tax
assessment proceedings of an assessee would have the right to
initiate and finalize the proceedings against such assessee in
cases where the assessee was to be treated as an assessee in
default -Constitutional petition -- Failure to deduct advance income-tax
at source -- Show-cause notice, issuance of -- Authorities
initiated proceedings against the petitioners for not deducting
advnace income-tax and held the petitioners as assessee-indefault under Sections 50(4), 52 & 86 of Income Tax Ordinance,
1979 -- Contention of the petitioners was that since the advance
tax had already been deducted of their suppliers at the time of
import of the goods, therefore, the petitioners were not required
to deduct the tax and the Authorities had no jurisdiction to
initiate such proceedings -- Validity -- Petitioners should have
satisfied themselves by reliable and satisfactory evidence that
the importers had been subjected to tax and should not have
relied on assumptions, surmises and conjectures for
non-performace of the obligations cast upon them by Section 50(4)
of Income Tax Ordinance, 1979, i.e. deduction and collection of
tax from the amount which they had paid to the importers -- In
view of the addition/incorporation of the Explanation to Section
52 of Income Tax Ordinance, 1979, the Authorities had the
jurisdiction and authority to intitiate proceedings under Section
52 of Income Tax Ordinance, 1979, the Authorities had the
jurisdiction and authority to initiate proceedings under Section
52 of Income Tax Ordinance, 1979, against the petitioners as
assessees-in-default in the assessment proceedings relating to
the petitioners -- No exceptions could be taken to the orders
passed by the Authorities under Section 52, read with Section 86
of Income Tax Ordinance, 1979 -``Supply'' -- Connotation -- Word ``supply'' includes the sale of
goods by the sellers in return for their price from the buyer --
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After amendment in section 5 of the Ordinance, no further
amendments were required in section 9, 50(4)(a) and 53 for
validly conferring the jurisdiction on the Assessing Officer to
initiate proceedings against the assessee in default in the tax
proceedings --
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Tax Ordinance would operate retrospectively -The explanation to section 52 of the Ordinance does not have the
effect of imposing new obligations or liabilities curtailing the
rights available to a taxapyer and is merely in the nature of
change of forum, which the legislature had the nature of change
of forum, which the legislature had ample power to make --
When the sellers/importers in the present case after sfuufering

tax under section 50(5) were required to pay no further tax in
view of section 80C(4), they under any other provision were not
to suffer any further advance tax by way of deduction at source
under section 50(4) on slaes made by them --
The explanation brings about a change in the forum and the words
used in the explanation satisfactory and with clarity give out
the intention of the legislation --
The word `supply' included the sale of goods by the sellers in

return for their price from the buyer --
Section 50(4)(b) of the Ordinance empowers the Commissioner of

Income-tax to issue directions to the person, deducting from the
receipients, not to deduct any tax from any payment made to such
recipients in any financial year till the order is cancelled --
In view of the addition/incorporation of the explanation to

section 52 of the Ordinance, the authoritieshad the jurisdiction
and authority to initiate proceedings under section 52 against
the petitioners (payer) as assessee in default in the assessment
proceedings `relating to the petitioners (payer) and no
exceptions can be taken to the order passed by him under section
52 read with section 86 of the Ordinance -By the virtue of the explanation added/incorporated in section 52
of the Ordinance, the Assessing Officer dealing with the tax
assessment proceedings against the assessee in case where he is
to be treated as an assessee in default -Section 52 of the Ordinance has not created any new obligation or
liability on the taxpayers but has been solely designed to bring
about a change in the forum where a person responsible for
deducting advance tax on behalf of another assessee as per
requirement of section 50 of the Income Tax Ordinance, 1979 is to
be proceeded against on his failure to deduct or collect the
advance tax and to deposit the same in Government treasury -Explanation of section 52 of the Income Tax Ordinance, 1979 had
not taken away the right of appeal or revision or had not curbed
the rights available to the deemed assessee in default and was
merely in the nature of the change of officer/authority --
When the legislature brings about a change in the forum then the
same is always with retrospective effect unless it has the effect
of curtailing the existing rights available to a party for
challenging any adverse order -The object of an èxplanation' to a statutory instrument is to
clarify, to facilitate proper understanding of a provision and to
serve as a guideline -----------------------------------------------------------------[IN THE KARACHI HIGH COURT, KARACHI]
Messrs CONTINENTAL CHEMICAL CO (PVT.) LTD.
v.
PAKISTAN and others
Present: SAIYED SAEED ASHHAD, DR. GHOUS MUHAMMAD and
ATA-UR-REHMAN, JJ
Constitutional Petition No. D-707 of 1999, decided on 30th
March, 2000.
Muhammad Naseem for Petitioner.
The object or the function of the explanation incorporated/added

to section 52 of the Ordinance is to take away the jurisdiction
from one Deputy Commissioner of Income-tax and to confer the same
on another Deputy Commissioner of Income-tax releative to their
powers to initiate proceedings -Where an expalantion was not of penal nature and did not impose
any new obligation liability on the taxpayer, the same would be
condidered to operate retrospectevely -The explanation incorprerated/added to section 52 of the Income
Shaikh Hyder for Respondents.

Date of hearing: 15th July, 1999.
----------------------------------------------------------------JUDGMENT
DR. GHOUS MUHAMMAD, J.--- The main controversy in the instant
petition is whether the Assistant Commissioner of Income-tax,
Circle A-04, Companies III, the Respondent No. 3, held the lawful
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jurisdiction under the provisions of the Income Tax Ordinance,
1979 (hereafter: ``the 1979 Ordinance'') in taking the petitioner
in default under section 52 of the 1979 Ordinance for the
assessment years 1996-97 and 1997-98 for failing to deduct
advance tax at source under section 50(4) and also in imposing
additional tax under section 86 of the 1979 Ordinance. Other
demands raised subsequently in consequence are also challenged.
By consent of parties we have proceeded to decide the main case
at Katcha Peshi stage, as done in so many other cases by the
various learned Benches of this Court.
2. The facts giving rise to the case are discussed hereafter.
The respondent No. 3 issued show-cause notices dated 3-6-1998 and
1-6-1998 (Annexures A-1 and A-2) threstening to treat the
petitioner as an assessee-in-default under section 52 for the
latter's failure to deduct tax at source under section 50(4) in
relation to purchases made by it; additional tax under section 86
was also sought to be imposed. In response the petitioner through
reply (Assexure A-3) challenged the jurisdiction of the
respondent No. 3 and otherwise denied his liability to deduct tax
under section 50(4) on the purchases made by it. The respondent
No. 3 framed the assessment orders under section 52 and also
imposed additional tax under section 86 of the 1979 Ordinance as
under (Annexures B-1 to C-2):-Assessment Year
--------------1986-87
1987-88
Demand under section 52

----------------------13,92,853
12,27,200
Demand under section 86

----------------------6,80,096
3,05,118
In consequence the petitioner filed revision petitions with the

Commissioner of Income-tax, Companies III, the respondent No.2,
under section 138 of the 1979 Ordinance who rejected the same
vide order, dated 28-11-1998 (Annexure D).
3. The respondent No. 3 thereafter further proceeded to
impose the following further demands under the 1979 Ordinance.
The learned counsel for the petitioner has contended that these
demands were raised without a show-cause notice, withour a
hearing and so much so even the copies of these orders were also
not furnished despite requests. The details of demands are as
under:-Nature of tax
Demand
------------Under section
Under section
Under section
Under section
156
88
89
89
Assessment year
1996-97
---------------1,76,664
7,331
4,376
14,396
Assessment Year
1997-98
-----------------13,423
--
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4. Aggrieved by the above treatment, the petitioner has filed
this petition under Article 199 of the constitution. In the
meantime the respondents succeeded in collecting Rs.9,00,000
against the demand by adopting certain coercive meansures for
which a refund is also claimed.
5. Mr. Muhammad Naseem, the learned counsel for the
petitioner, has furnished copies of the following jursidictional
orders and extracts from the Karachi Income Tax Guide 1996-97:--(i) Jurisdictional order of all Commissioner of Income-tax
southern Region, Karachi as notified by the C.B.R. vide C.
No. 3681-S(DTA/93, dated 22nd August, 1994 including
jurisdiction of:-(a) Commissioner of Income-tax Zone-A, Karachi
appearing on pages 1-2 of the order
(b) Commissioner of Income-tax, Zone-E, Karachi
appearing on pages 5-6 of the order
(ii) Jurisdictional order notified for all Commissioners of
Income-tax, Cooperate Region by the C.B.R. vide
No.2(1)DTA-11/94, dated 24-9-1995; the jurisdiction of
Commissioner of Income-tax, Companies Zone-III, Karachi
appears on pages 5 and 6 of the order.
(iii) Jurisdictional Order No. 2(10)R&C/97, dated 24-11-1997
passed by C.B.R. specifying the jurisdiction of
Commissioner of Income-tax, Companies Zones-III, Karachi,
appearing on pages 4 and 5 of the order.
(iv) Karachi Income Tax Guide 1996-97 Azhar Chaudhari showing
the jurisdiction of the respective Deputy
Commissioners:---
(a) Jurisdiction of Circle A-4 Companies III
On pages
-------31
(b) Jurisdiction of Circle 02, Comapnies IV
37
(c) Jurisdiction of Circle A-7, Zone A
50
(d) Jurisdiction of Circle E-10/E-02 Zone E
93
(e) Jurisdiction of Circle E-4, Zone-E
94
(f) Jurisdiction of Circle E-6/E-7, Zone-E
95
(g) Jurisdiction of Circle E-8, Zone-E
96
The petitioner has also impugned the above orders and demands.
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6. Accordingly, on the basis of the above jurisdictional
orders, the petitioner has identified the jurisdictions of the
respective Commissioners and Deputy Commissioners of Income-tax
who were authorised and entitled to deal with the liability under
the provisions of the 1979 Ordinance in respect of the eleven
partiesw from whom purchases were made by the petitioner, during
the assessment years 1996-97 and 1997-98. These parties with
their addresses and the concerned Deputy Commissioner and
Commissioners are highlighted in a chart appearing on pages 243
of the petition and is reproduced as below:--_______________________________________________________________
| S. Name and Sales in
Sales in
*Commissioner *Assessing|
| No. Address
assessment assessment Holding
Officer |
|
of the
year 1997- year 1996- jurisdiction
holding |
|
parties
98
97
jurisdic-|
|
tion
|
|_______________________________________________________________|
| 1. M/s. Akasa 1,47,31,096 1,87,73,071 Companies Circle 02,|
|
(Pvt.) Ltd.
IV
Cos. IV
|
|
TD-14, 6th
|
|
Floor Sea
|
|
Breeze Medical
|
|
Complex M.A.
|
|
Jinnah Road,
|
|
Karachi.
|
|_______________________________________________________________|
| 2. M/s. Yahya 44,54,522
67,90,987
Zone È'
Circle 06 |
|
Afrab & Co.
Zone-E
|
|
907, 9th
|
|
Floor, Unipaza,
|
|
I.I. Chundrigar
|
|
Road Karachi.
|
|_______________________________________________________________|
| 3. M/s. Horizon 64,92,317 72,22,608
Zone È'
Circle 01,|
|
International
Zone E
|
|
G-3, Super
|
|
Mahal Hasrat
|
|
Mohani Road,
|
|
Karachi.
|
|_______________________________________________________________|
| 4. M/s. Pharma
6,04,572
Nil
Zone È'
Circle 01 |
|
Drug, 305,
Zone-E
|
|
Chapal Plaza
|
|
Hasrat Mohani
|
|
Road, Karachi.
|
|_______________________________________________________________|
| 5. M/s. Zareen
32,75,000
32,20,837
Zone È; Circle 02,|
|
International
Zone-E
|
|
B-9, 2nd Floor
|
|
Mehra Sons
|
|
State, Talpur
|
|
Road, Karachi.
|
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|_______________________________________________________________|
| 6. M/s. Dow
17,99,221
10,60,230
Zone À' Circle 07,|
|
Pharma, Plot
Zone-A
|
|
No.4/K, C-I
|
|
Area, Liaqua|
|
tabad, Karachi.
|
|_______________________________________________________________|
| 7. M/s. Emmar
37,06,123
28,23,249
Zone È'
Circle 04,|
|
Traders, Room
Zone-A
|
|
No.6, 2nd Floor
|
|
Shalimar Centre
|
|
Tariq Road,
|
|
Karachi.
|
|_______________________________________________________________|
| 8. M/s. Allied
Nil
71,88,903
Zone À' Circle 06 |
|
General TradZone-A
|
|
ing Co., 3-F,
|
|
19/13, Nazima|
|
bad, Karachi.
|
|_______________________________________________________________|
| 9. M/s. Commerce Nil
21,91,442
Zone È' Circle 02 |
|
International
Zone-E
|
|
2/6, Fatima
|
|
Zohra Building,
|
|
Abdullah Square,
|
|
Altaf Hussain
|
|
Road, Karachi.
|
|_______________________________________________________________|
|10. M/s. Continental Nil
58,51,760
|
Chemical Shalimar
Zone-E
|
|
Centre, Tariq
|
|
Road Karachi.
|
|_______________________________________________________________|
|11. M/s. Hilal Paper Nil
5,90,717
|
Corporation Saifi
Zone-E
|
|
Market, Shahrah-e|
|
Liaquat, Karachi.
|
|_______________________________________________________________|
| Total purchases 3,50,62,851 5,57,13,804
|
|_______________________________________________________________|
7. The learned counsel for the petitioner has further raised
the following pleas:-(i) That the impugned orders under sections 52, 86, 88, 89 and
156 are all without jurisdiction. The Assessing Officer
i.e the respondent No. 3 who passed these orders had no
jurisdiction to deal with the tax matters or liability of
the sellers from whom the petitioner had made the
purchases. The jurisdiction to deal with them under the
provisions of the 1979 Ordinance vested with the
respective officers and respective Commissioners of the
said sellers and not with respondents Nos. 2 and 3. And
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accordingly when there was a complete lack of jurisdiction
for the substantive and regular assessment of tax, any
jurisdiction under section 50(4) (which was only an
advance and provisional tax) and in consequence under
sections 52, 86, 88, 89 or 156 could not have been assumed
by the said respondent No. 3.
(ii) The persons to whom purchases were made not liable to any
further income-tax since they had already suffered
income-tax at import stage in advance under section 80C of
the 1979 Ordinance and their total liability had been
discharged and extinguished in terms of subsection (4) of
section 80C itself. Ths, when there was no tax liability
whatsovere under the 1979 Ordinance on these purchases
(i.e. the same having been fully paid by the sellers under
section 80C), the question of any advance income-tax or
default in regard thereto, in relation to those purchases
was absolutely out of question.
(iii) That the Assessing Officer had acted beyond jurisdiction
for yet one more reason in that he violated the orders of
the Central Board of Revenue contained in Circular No. 19
of 1991 dated 8-7-1991 (Annexure H) since the persons from
whom purchases were made having discharged their full
income-tax liability were also declared to be not liable
for any further deduction of income-tax at source under
section 50(4) of the 1979 Ordinance. The Assessing Officer
had, thus, violated the ordrs of the Central Board of
Revenue (violation section 8 of the 1979 Ordinance), which
orders were only in keeping with section 80C of the 1979
Ordinance which starts with a non-obstante clause and is
to be given an overriding effect.
(iv) That section 50(4) has been liiked upon the treated
erroneously as a provision of regular tax, although it is
only an advance tax, since the benefit/credit of tax so
deducted or imposed has not been imported to the
deductees, nor it was capable of being passed on. The
respondent No. 3 could not invoke and implemant section
50(4) half way. It is settled law that where the final
liability to tax cannot be imposed, no advance tax can be
deducted.
(v) The liability under section 50(4) having been
characterised as one under section 53 of the 1979
Ordinance, and being merely an advance tax, the
jurisdiction to collect advance tax terminated on
30-6-1996 and 30-6-1997 for the two years under
consideration. The proceedings to collect this advnace
tax, however, only commenced vide letter, dated 3rd June,
1998 after the lapse of one and two years, respectively.
In this manner, the very assumption of jurisdiction was
ipso facto incompetent, invalid, without jurisdiction,
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barred by limitation and beyond the scope of section 50
and 53.
(vi) That the sellers/deductees, having paid their full and
complete tax liability already, under the 1979 Ordinance,
the imposition of tax under the garb of sections 50(4) or
52 etc. was, in fact, an exercise of double taxation not
contemplated by the provisions of law.
(vii) That the petitioner had made purchases from the market on
competitive rates and accordingly these purchases did not
constitute ``supplies'' within the meaning of section
50(4) of the 1979 Ordinance.
(viii) That no additional tax under sections 86, 88 and 89 could
have been imposed since all these additional taxes were
imposed without a show-cause notice. The additional taxes
are in fact penal taxes which could not have been imposed
without construing deliberate default in any manner.
(ix) Section 86 of the 1979 Ordinance had been invoked while
the terminal date of payment had not yet arrived.
(x) It is also pointed out that the additional tax could not
have been imposed from the back date i.e. from the date
when the demand had not existed. It was unreal and
unreasonable.
(xi) With regard to the demand under section 156 it is pointed
out that the same has been imposed without a show-cause
notice and without a hearing.
8. In support of his contention that there was no
jurisdiction on the part of the respondent No. 3 to frame orders
under sections 52 and 86 and other ordrs under sections 88, 89
and 156 of the 1979 Ordinance, the learned counsel for the
petitioner has cited recent judgment of the Division Bench of
this Court in C.P. Nos. 1335/98 and 1336/98 and a decision of the
Income-tax Appellate Tribunal (hereafter: `ÌTAT'') in I.T.As.
Nos. 1034 to 1037/KB of 1998-99 dated 10-6-1998. With regard to
the imposition of additional tax the learned counsel for the
petitioner had cited the following decisions in addition:
(a) Mamy Beverages v. Naseem 1995 PTD 91; and
(b) Kamran Industries v. Collector of Customs PLD 1996 Kar.
68.
9. The learned counsel for the respondents, Mr. Shaikh
Haider, has vehemently contested the petition since according to
him: --(i) the respondent No. 3 while passing the orders under
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section 52 was not dealing with the cases of
sellers/suppliers but with the case of the petitioenr for
which he had held the lawful jurisdiction. The petitioner
was liable to deduct the income-tax in terms of section
50(4), while makign payment of consideration to the
sellers/suppliers from which there was no escape except to
ask for exemption certificates so as to show that the
sellers were not liable to income-tax.
(ii) That the orders of the Division Bench relied upon by the
petitioner and contained in C.P. Nos. 1335/98 and 1336/98
related to non-residents and had no application in the
present case, which is a case of a resident.
(iii) That the purchases were covered within the term
``supplies'' as provided clearly in the Explanation added
to section 50(4) of the 1979 Ordinance by the amendment of
1998. Reliance in this regard is placed on C.B.R's
Circular No. 11 of 1998, dated 25-7-1998 and the
definition of the term ``supplies'' appearing in some Law
Lexicon (source not specifically stated).
10. In order to examine and appreciate the merits of the
respective contentions it appears necessary to examine various
relevant provisions of the 1979 Ordinance and the text of the
C.B.Rs. Circular cited. The relevant extracts thereof are
reproduced as under:--(a) On jurisdiction:
---------------(i) Subsection (2) of section 3 of the 1979 Ordinance (dealing
with Income-tax Authorities) reads as under:-----------------------------------------------------------`Ìnspecting Additional Commissioner, Income-tax Panel,
Deputy Commissioner of Income-tax shall be subordinate to
the Commissioner of Income-tax within whose jurisdiction
they perform their functions.''
(ii) Subsection (1)(b) and (1)(c) of section 5 of the 1970
Ordinance reads as under:----------------------------------------------------``(b) The Commissioner and the Appellate Additional
Commissioner shall perform their functions in respect of
such persons and such areas as the Cental Board of Revenue
may direct...''
``(c) The Inspecting Additional Commissioner and they
Deputy Commissioner shall perform their functions in
respect of such persons or such areas as the Commissioner
to whom they ar subordinate may direct. ............''
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(ii) Section 8 of the 1979 Ordinance reads as under:-------------------------------------------------`Àll Officers to follow the orders of the Central Board
of Revenue.--- All officers and persons, employed in
execution of this Ordinance shall observe and follow the
orders, instructions and directions of the Central Board
of Revenue.''
(iv) Subsections 4(a) nd 4(b) of section 50 of the 1979
Ordinance read as under:--------------------------------------------------``(4) Notwitstanding anything contained in this
Ordinance.-(a) any peson responsible for making any payment in full
or in part (including a payment by way of an advance to
any person, being resident, (hereinafter referred to
respectively as `payer' and `recipient'), on account of
the supply of goods or for service rendered to, or the
execution of a contract with the Government, or a local
authority, or a company, or a registered firm, or any
foreign consultant or consortium shall, deduct advance
tax, at the time of making such payment, at the rate
specified in the First Schedule, and credit for the tax so
deducted in any financial year shall, subject to the
provisions of section 53, be given in computing the tax
payable by the recipient for the assessment year
commencing on the first day of July next following the
said financial year, or in the case of an assessee to whom
section 72 or section 81 applies, the assessment year, if
any, in which the `said debt' as referred to therein,
falls whichever is the later.
[Provided that the provisions of this clause shall mutatis
mutandis apply to any payment made on or after the first
day of July, 1992 to any non-resident person as they apply
to any payment made to a resident recipient on account of
execution of a contract for construction, assembly or like
project in Pakistan:]
(b) the Commissioner may, on an application made by any
such recipient and after making such enquiry as he thinks
fit, allow, by an order in writing, any person responsible
for making such payment not to deduct any tax from any
payment or payments made to such recipient in any
financial year; and where such order is made, the person
responsible for making any payment shall thereafter, and
until such order is cancelled, make such payment without
deduction of tax under clause (a) [and]
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(v) Section 52 of the 1979 Ordinance, 1979 reads as under:----------------------------------------------------------``52 Liability of persons failing to deduct or pay tax.-Where any person fails to deduct or collect, or having
deducted or collected as the case may be fails to pay the
tax as required by or under section 50 he shall, without
prejudice to any other liability which he may incur under
this Ordinance, be deemed to be an assessee in default in
respect of such tax.''
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registered firms) shall be paid to the credit of the
Federal Government in each financial year, according to
the following schedule;
_________________________________________________________________
TURNOVER RELATING TO THE
TAX TO BE PAID ON OR
PERIOD
BEFORE
_________________________________________________________________
From 1st of July to 30th of September
the seventh day of
October
From 1st of October to 30th of December
the seventh day of

January
From 1st of January to 30th of March
the seventh day of

April
From 1st of April to 30th of June
the seventh day of

June
(vi) Section 53 of the 1979 Ordinance reads as under:-``53 Advance payment of tax.---(1) An assessee----------------------------(a) other than a company or a registered firm, whose total
income (excluding income to which section 27, section
80B, section 80C, section 80CC of subsection (1) and (2)
of section 50 applies) for the latest assessment year in
respect of which the tax payable by him has been
determined under sections 59, 59A, 60, 62, 63 or 65, is
not less than one hundred and fifty thousand rupees shall
be liable to pay be way of advance tax, an amount equal
to one-fourth of the full amount of income-tax and
supertax so determined to be payable in respect of that
assessment year (without making any adjustment for any
tax already paid by way of advance tax or otherwise), as
reduced by the tax, if any, already collected or deducted
and paid under section 50 in the said financial year; and
(b) being a company or a registered firm shall, in respect of
its income (excluding income to which section 27, section
80C, section 80CC or subsection (2) of section 50 applies)
be liable to pay by way of advance tax an amount which
bears the same proportion to the company's or a registered
firm's turnover for that year as the tax assessed, bears
to the turnover assessed, for the latest assessment year
in respect of which the tax payable by the company or
registered firm has been determined under sections 59,
59A, 60, 62, 63 or 65 as reduced by the tax already paid
under section 50 in the said financial year.
(2) The tax payable,000
(i) Under clause (a) of subsection (1) (i.e. by assessee other
than companies and registered firms) shall be paid to the
credit of the Federal Government, on or before the
fifteenth day of September, the fifteenth day of December,
the fifteenth day of March and the fifteenth day of June
in each financial year; and
(ii) under clause (b) of subsectin (1) (i.e. by companies and
(turnover for 16th June to 30th June shall

be taken equal to the turnover of between
1st of June o 15th of June)''
(vii) Subsection (4) of section 80C of the 1979 Ordinance reads
as under:---------------------------------------------------------``(4) Where the assessee has no income other than the income
referred to in subsection (1) in respect of which the tax
has been deducted or collected the tax deducted or
collected under section 50 shall be deemed to be the final
discharge of his tax liability under this Ordinance and he
shall not be required to file the return of total income
under section 55.''
(viii) The text of C.B.R's. Circular No. 19 of 1991, dated
8-7-1991 is reproduced below:---------------------------------------------------``CIRCULAR NO. 19 OF 1991, DATED 8TH JULY, 1991
[Reported as PTCL 1991 St. 741(I)]
SUBJECT:- DEDUCTION OF TAX UNDER SUBSECTION (4) OF
SECTION 50 OF INCOME TAX ORDINANCE, 1979 -CLARIFICATION REGARDING AMENDMENT IN
NOTIFICATION NO. S.R.O. 586(I)/91,
DATED 30TH JUNE, 1991.
Notification No. S.R.O. 586(I)/91, dated 30th June, 1991
was issued by the Board of grant exemption from
withholding of tax to certain receipients under section
50(4). Accordingly, Circular No. 11 of 1991, dated 30th
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June, 1991 was also issued in this regard. Vide claise
(iv) of the said Notification, recipients enjoying income
from exempt sources under the Second Schedule to the
Income Tax Ordinance, 1979, were exempted from withholding
of tax under section 50(4).
2. The issue of exemption from deduction of tax to such
receipients has been reconsidered in the Board and the
scope of exempt income has been enlarged by deleting the
words ùnder the Second Schedule to the Income Tax
Ordinance, 1979'. Now, exemption under clause (iv) of
Notification No. S.R.O. 586(I)/91, dated 30th June, 1991
shall apply to all recipients whose income is exempt from
tax under any provision of the Income Tax Ordinance, 1979,
or any other law.
3. Necessary amendment in Notification No. S.R.O.
586(I)/91, dated 30th June, 1991 has also been issued
through the Notifiction No. S.R.O. 626(I)/91, dated 4th
July, 1991.
4. These instructions shall take effect from the first day
of July, 1991.
[Issue by the C.B.R. Islamabad, under the signature of Mr.
Abdur Rehman Dogar, Second Secretary, vide File C. No.
ITJI-1(7)/84-Vil-UU.]''
(b) One Additional Tax:
------------------Sections 86, 88 and 89 of the 1979 Ordinance read as
under:-----------------------------------------------------(i) ``86. Charge of additional tax for failure to deduct and
pay tax.--- Where any person fails to deduct, or having
deducted, fails to pay any tax, required section 50, such
person shall, without prejudice to any other liability
which he incur, be liable to pay additional tax at the
rate of [twenty-four] per cent, annum on the amount not
paid for the period commencing from the date which he was
required to pay such tax to the date of the payment
thereof.''
(ii) ``88. Charge of additional tax for failure to pay tax with
the return.--- Where any assessee fails to pay tax under
section 54 or the tax so paid is less than the tax payable
under that section, he shall be liable to pay additional
tax at the rate of [twenty-four] per cent., per annum of
the amount not paid or the amount by which the tax paid by
him falls short of the tax payable under that section, as
the case may be, and such additional tax shall be
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calculated from the first day of October or the date on
which the tax was payable, whichever is the later, to the
date on which the tax is paid or the date on which an
order under subsection (1) of section 59, [section 59A],
section 62, section 63 or section 65, as the case may be,
is made, whichever is the earlier.''
(iii) ``89. Charge of additional tax for failure to pay tax or
penalty.--- Where any assessee fails to pay the whole or
any part of the tax levied under Chapter VII or the whole
or any part of any penalty levided under Chapter XI, [or
has been allowed stay of payment or payment in instalments
of the tax under subsection (2) of section 85] he shall be
liable to pay additional tax at the rate or [twenty-four]
per cent., per annum on the amount of such tax or penalty
or any part thereof, as the case may be, which has not
been paid; and such additional tax shall be calculated
from the date on which such tax or penalty or part
thereof, as the case may be was originally payable to the
date on which it is paid, in respect of each instalment,
the date on which it is paid.''
(c) On rectification:
----------------Section 156(1) of the 1979 Ordinance reads as under:--------------------------------------------------------``156 Rectification of mistakes.--(1) Any Income-tax Authority
or the Appellate Tribunal may amend any order padded by it
to rectify any mistake apparent from the record on its own
motion or on such mistake being brought to its notice by
any other income tax authority or by the assessee.
Word `Record' as used in section 156, Income Tax
Ordinance, 1979. Meaning, Power of Income-tax Authorities
and Income-tax Appellate Tribunal to rectify their own
mistakes, Scope.
Scope. Overlooking a mandatory provision of law can be
rectified. Rectification can be carried out on the finding
of fault from the record of the assessee and not from
subsequent information.
Originally a good order may subsequently reveal a mistake
in the light of a subsequent decision.
Assigning of a wrong status to the assessee being a
mistake if apparent from record. Provisions of section
156, Income Tax Ordinance, 1979 could be invoked.
Income-tax Authority or Income-tax Appellate Tribunal may
amend an earlier order, passed by it to rectify mistake.''
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11. We have heard the learned counsel for parties, persued the
record, the comments filed by the respondents, facts and the law
on the subject.
12. The respondents or their learned counsel have not disputed
that the parties (listed in para. 6 above) from whom purchases
had been made by the petitioner during the two years under review
were all importers and that the goods in question had suffered
tax at import stage in the hands of those importers under section
50(5) read with section 80C of the 1979 Ordinance. This being the
correct factual state of affairs, the said importers (or sellers,
in the case of the petitioner) could not have suffered any
further tax, on subsequent sale or otherwise, under any of the
provisions of the 1979 Ordinance, including under section 50(4),
directly or indirectly. The reason for this is very simple. Under
section 80C(4), the tax paid under section 50 is the final
discharge of liability, entailing no further liability. In this
case the deduction of tax in the hands of the importers at import
stage having been effected under 50(5), the same had thus,
constituted a final discharge of liability of such importer. In
other words, any further tax liability of the sellers in the
event of subsequent sale or otherwise stood extinguished. These
sellers were not liable lto any further tax and were even not
liable to file a return of total income under section 55 of the
1979 Ordinance. recently the Lahore High court in Union Bank Ltd.
v. Federation of Pakistan 1998 PTD 2116 has held that where no
final tax liability is payable, the tax department cannot insist
upon the payment of any advance tax. The Lahore High Court in
deciding this case had followed the judgment of the Hon'ble
Supreme Court in Elahi Cotton Mills v. Federation of Pakistan PLD
1997 SC 582. This settled law has full application in the present
case. When the sellers/importers in the present case after
suffering tax under section 50(5) were required to pay no further
tax in view of section 80C(4), they under any other provision
were not to suffer any further advance tax by way of deduction at
source under section 50(4) on sales made by them. This being the
correct legal position, the petitioner in turn was not liable to
deduct income tax at source on the purchases of merchandise of
the sellers, which had already suffered tax under section 50(5)
and were liable to suffer no further tax in view of section
80C(4). This conclusion in fully supported by the judgments from
the Indian jurisdiction also. Before discussing the Indian
judgments suffice would it be to observe that under the Indian
Income Tax Act, 1961, section 201 thereof provides for the
consequence for an assessee in failing to deduct income tax at
soruce, in which event the assessee is treated as an assessee in
default. This section 201 from the Indian Act is in para. materia
with our section 52 of the 1979 Ordinance. In Commissioner of
Income-tax v. Manager Madhya Pradesh State Cooperative
Development Bank Ltd. (1982) 137 ITR 230, a Division Bench of the
Madhya Pradesh High Court took the view that where the regular
assessment of an employee had been completed and the full amount
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of tax had been paid by him, the Income-tax Officer possessed no
further jurisdiction under section 201 of the Indian Income-tax
Act to demand any further tax from the employer in respect of the
tax alleged to have been short-deducted at soruce in relation to
the employee. this was a case where the employer was udner an
obligation to deduct income-tax at source from the salary paid to
the employee; the tax was short-deducted by the employer,
however, full tax in the hands of the employee had been paid by
the employee at the end of th year, in view whereof it was found
that any default attributable to the employer in not fully
deducting the tax was of no consequence. There are other
decisions from the Indian jurisdiction which propound the same
principle of law. These decisions are Commissioner of Income-tax
v. Divisional Manager, New India Assurance Co. Ltd. (1983) 140
ITR 818 decided by a Division Bench of Madhya Pradesh High Court;
Gwalior Rayon Silk Co. Ltd. v. Commissioner of Income-tax (1983)
140 ITR 832 also decided by a Division Bench of the Madhya
Pradesh High Court; Commissioner of Income-tax v. Shri Synthetics
Ltd. (185) 151 ITR 634 decided by a Division Bench of the Madhya
Pradesh High Court; in the latter judgment the head note of the
case in italics confirm that leave to appeal to the Supreme Court
against this judgment was also refused, in view whereof it can be
said that this view is also fully endorsed by the Indian Supreme
Court; Commissioner of Income-tax v. M.P. Agro Morarju
Fertilizers (1989) 176 ITR 282, also decided by a Division Bench
of Madhya Pradesh High Court. In our vie the principle of law
which thus, emerges from these Indian authorities is that where
the payee/deductee pays his full tax, any short-fall in or
failure to deduct income-tax at source by the deductor/payer
would not make the latter an assessee in default, since
non-deduction or short-fall in relation to thereof would be of no
consequece. This principle is squarely applicable in the present
case since the sellers/importers in the present case having paid
their full tax, any failure to deduct the tax by the petitioner
would be of no consequence. Accordingly, the petitioenr cannot be
termed as an assesse in default under section 52 jin relation to
goods upon which the said petitioner was not liable to deduct any
tax under section 50(4). Any other interpretation would militate
against the clear mandate of section 80C(4) prescribing in a
final discharge of liability in relation to goods on which tax
had already been paid under section 50(5). Reliance by the
learned counsel for the respondents on C.B.R's. Circular No. 11
of 1998 dated 25-7-1998, as reproduced in the parawise comments
of the respondents, seems misplaced. All that this Circular
confims is that `àn explanation has been added to section
50(4)'' according to which the ``the expression supply of goods'
includes both cash and credit purchases by a payer irrespective
of the fact whether these are under a contract or not''. This
Circular is irrelevant to the controversy at hand. Even if we
assume that the purchases made by the petitioner constitute
`supplies', the liability of the sellers to suffer any further
tax cannot exist in view of the final discharge of liability
under section 80C(4) since the said sellers have paid the full
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tax at import stage under section 50(5). This interpretation is
further confirmed by C.B.R's. Circular No. 19 of 1991, dated
8-7-1991, discussed in more detail in para. 14 below, We have
also been able to lay our hands on a decision of the learned
I.T.A. reported in 1997 PTD (Trib.) 1143 which has suquarely
dealt with this controversy in detail conforming to our
interpretation as above and which exposition we find in
accordance with law. The above analysis of sections 50(4) and
80C(4) is in keeping with the fundamental principles of
interpretation of taxing statutes to the effect that words in a
taxing statute, including notifications and orders, unless
ambiguous, must be given their ordinary and natural meaning (see
Pakitan Textile Mills Owners Association v. Administrator of
Karachi PLD 1963 Kar. 137); a subject is not to be taxed unless
the statute clearly imposes the burden of tax, while the language
of the taxing statute clearly imposes the burden of tax while the
language of the taxing statute must not be strained to tax a
transaction on the premise that had the legislature thought of
the same, it would have covered the events by appropriate words
(see Lt.-Col. Nawabzada Muhammad Aamir Khan v. Controller of
State Duty PLD 1961 SC 119; Commissioner of Income-tax v. B.W.M.
Abdul Rehman 1973 SCMR 445; Bisvil Spinners Ltd. v.
Superintendent Central Exise PLD 1988 SC 370) and that there is
no equity and presumption about tax and nothing is to be implied
(Sterling Engineering Corporation v. Collector of Customs PLD
1986 Kar. 211).
13. The orders passed by the respondent No. 3 and confimred by
respondent No. 2 would appear fallacious all the more from yet
another angle highlighted by the learned counsel for the
petitioner. It is pointed out that the respondent No. 3 has
created a liability which cannot be ascribed as one under section
50(4)(a) of the 1979 Ordinance. In fact the deduction of tax
contemplated under section 50(4)(a) also makes the following
incumbent conditions:--(a) the credit of the tax deducted or imposed has to be passed
on to the deductee;
(b) the deductee shall be allowed to claim the benefit of this
deduction in this return of total income-tax and towards
his final tax liability.
No benefit of tax deducted or imposed whatsoever could have been
passed on to the parties facing deductions. In fact it was
incapable of being passed on since the eleven parties to whom
these deductions related held no further tax liability and they
were not even liable to file returns. And even if they had to
file the returns, the dates of filing returns had already gone by
when the demands for the two years were raised in July/August,
1998. The respondent No. 3 was no entitled to implement section
50(4) only half way.
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14. The respondents do not dispute the categorical directions
and orders of the Central Board of Revenue contained in C.B.R.
Circular No. 19 of 1991, dated 8th July, 1991. Earlier, the
recipients of payments enjoyed exemption from deduction at source
under section 50(4) in case their income was exempt under the
Second Schedule. however, through the Circular under discussion
the exemption in relation to deduction at source under section
50(4) has been extended to all recipients who may enjoy exemption
under any of the provisions of the 1979 Ordinance. this would
surely include the further exemption prescribed by section
80C(4). Applying this circular also the petitioner was uner no
obligation to deduct tax at source under section 50(4) in
relation to the purchases on which tax at import stage had been
deducted under section 50(5) and which constituted a final
discharge of liability under section 80C(4). The respondents 2
and 3 were bound to obey these orders/instructions under section
8 of the 1979 Ordinance, while these instructions were also in
keeping with the provisions of the 1979 Ordinance in particular
section 80C(4). Failure to disregard this C.B.R. Circular is ipso
facto an unlawful exercise of jurisdiction. f there are any
authorities needed for the proposition, the same are Julian
Hoshang Dinshaw Trust v. Income-tax Officer 1992 SCMR 250,
Paramount Electric Co. v. Income-tax Officer 1973 PTD 511 (Lahore
High Court), and Navitlal C. Javeri v. K.K. Sen (1965) 56 ITR 198
(SC of India). The discussion and findings in paras. 12 to 14
above are enough to allow the present petition. However, since a
lot was submitted on the point of jurisdiction we would venture
to discuss the same as well.
15. The jurisdictional orders of the C.B.R. submitted on
record as per paragraph 5 above are not held in dispute.
Accordingly, the analysis of those orders show taht the
jurisdiction conferred by the Central Board of Revenue to
exercise powers under the provisions of the 1979 Ordinance (and
of course it would mean all powers exercisable under the said
1979 Ordinance except where they are assigned to other
authorities under specific orders) would vest with the
respondents Nos. 2 and 3 in relation to the petitioenr and with
the officers mentioned in para. 6 above in relation to the
elevent parties from whom the petitioner has purchased th goods.
It is thus no disputed that while the respondents Nos. 2 and 3
held jurisdiction to deal with the income-tax liability of the
petitioner company, the said respondents did not hold any
jurisdiction to deal with the income-tax liability of the eleven
parties from whom the petitioner had made purchases. Their
jurisdictions wee to be exercised by the officers mentioned in
columns 5 and 6 of the chart in para. 6 above. The jurisdiction
to apply the provisions of the 1979 Ordinance in any manner is no
restricted to the proceedings for the assessment or recovery of
final income-tax liabilities but also relates with he same force
in respect of advance tax; be it under section 50(4) or section
53 or any other provision of the 1979 Ordinance. In the context
of advance deduction of income-tax at source there is no
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provision in the 1979 Ordinance not nay jurisdictional order
issued by C.b.R. confers jurisdiction on the respondents Nos. 2
and 3. The jurisdiction to deduct tax under section 50(4) cannot
be simply assumed or implied. In analysing the provisions of
sections 3 and 5 of the 1979 Ordinance and the jurisdictional
orders o the C.B.R. we find ourselves in complete agreement with
the judgment of another learned Division Bench comprising Saiyed
Saeed Ashhad and Abdul Ghani Shaikh, JJ, in C.Ps. N. 1335/98
(i.e. Tapal Energy Ltd. v. Federation of Pakistan and 1336/98
(i.e. Gul Ahmed Energy Limited v. Federation of Pakisan), which
has already settled this issue. In that case the petitioners were
IPPs who had hired non-resident contractors to instal their plant
and equipment. The Assessing Officer holding the jurisdiction to
assess the petitioners found the petitioenrs to be assessees in
default under section 52 for having failed to deduct income tax
at source under section 50(4) in respect of payments made by them
to the non-resident contractors; consequently additional tax was
also imposed. The learned Division Bench in that case after
exhaustively reviewing the scheme of the 1979 Ordinance held that
the jurisdiction to hold the petitioenrs as assessees in default
under section 52 for their failure to deduct income-tax of the
non-resident contractors at source under section 50(4) could not
be assumed by the Assessing Offices holding the jurisdiction to
assess the petitioner; such jurisdiction could only be assumed by
the Assessing Officers holding the jurisdiction in reltion to the
non-resident contractors. The impugned orders were found to be
void and completely without jurisdiction. the case of Tapal
Energy has full application to the facts of the present petition.
In other words, the jurisdiction to treat a particular assessee
(i.e. `À'') as an assessee in default under section 52 for
failure to deduct tax at source under section 50 does not vest
with the Assessing Officer of that assessee; such jurisdiction
even in the case of this assessee (i.e. `À'') for the limited
purpose of treating him as an assessee in default under section
52 would vest with the Assessing Officer in whose jurisdiction
the payee is assessed. The learned counsel for the respondents
states that the Tapal Energy case has no application here as in
that case the payees or recipients of consideration were
non-residents. This contention of the learned counsel for the
respondents is not correct and we are unable to subscribe
thereto. The scheme of the 1979 Ordinance in relation to section
52 read with section 50 does not spell out the distinction
attempted by the learned counsel for the respondents in relation
to non-residents. On the contrary, the proviso to section
50(4)(a) categorically confirms that the substantive provision of
section 50(4)(a) is to apply to non-residents as well, but only
mutatis mutandis. In this regard, the learned counsel for the
petitioner has placed on record a copy of the order of the
learned ITAT in I.T.As. Nos. 1034 to 1937/KB/1998-99, dated
10-6-1999 wherein the Tapal Energy case of the High Court has
been followed. In the I.T.A.T's. order the payee or recipient was
not a non-resident. We cite the I.T.A.T's. order with approval
and hold the impugned order in the present case to be void and
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completely without jurisdiction. The verbal objection with regard
to maintainability of the petition is also not in order since it
is settled law that where impugned orders are void and completely
without jurisdiction (as in this case) a petitioner can directly
approach the Court in its Constitutional jurisdiction. If there
are any authorities needed for the proposition reference is
invited to Gattron Industries v. Collector of Customs 1999 SCMR
1072, Kamran Industries v. Collector of Customs PLD 1996 Kar. 68
and the Tapal Energy case itself recently decided by this Court;
older authorities on the point, still good today, are Premier
Cloth Mills Ltd. v. Sales Tax Offcier 1972 SCMR 257 and The
Murree Brewery Co. v. Pakistan PLD 1972 SC 279. In the comments
no such objection was taken.
16. Lastly, it is an admitted position that the tax to be
deducted is an advance tax, more particularly when the provision
of section 50(4)(a) has been made subject to section 53 of the
1979 Ordinance. Any advance tax, of necessity thus, has otherwise
to be imposed as per the scheme of advance tax under section 53,
before the year runs out. The income-tax to be deducted has to be
a percentage of purchase and is directly linked up with the
transactions. But if the tax under section 50(4)(a) or under
section 53 is imposed after the end of the year to which it
relates, it would cease to have the character of advance tax.
Under section 53 of the 1979 Ordinance the last instalment of
advance tax is to be paid or collected by 15th June. In this case
for the purposes of advance tax, the assessment year 1996-97 had
run out on 30-6-1996 and the assessment year 1997-98 on
30-6-1997, respectivley, while the respondent No. 3, however,
admittedly had issued his first notice on 1-6-1998 and then
3-6-1998 and had completed orders in July/August, 1998. These
proceedings and orders were thus, beyond section 50(4)(a)
incompetent and time-barred as well. In coming to this conclusion
we find further support from Pak Saudi Fertilizer v. Federation
of Pakistan C.P. No. 282 of 1999 (unreported) wherein a Division
Bench of this Court comprising Dr. Ghous Muhammad and S.A.
Sarwana, JJ. had to deal with the interpretation of advance
income-tax under section 53. Writing for the Court, one of us
i.e. Dr. Ghous Muhammad, J. came to the conclusion that in case
an assessee continues default of section 53 and the time for
framing the regular assessment or the end of the assessment year
reaches, the substantive default of section 53 (i.e. advance
income-tax) would automatically lape since under law any payment
of section 53 is a credit with the exchequre which is liable to
be adjusted with the actual liability for that year. we extent
the application of these observations to section 50 as well since
the same is also an advance tax and has to be given adjustment as
prescribed therein.
17. We, therefore, allow this petition and hold that the
orders passed by respondent No. 3 under sections 52, 86, 88 and
89 as per Annexures B-1 to C-2 alongwith other consequential
orders, notices or demands, including notices under section 92 of
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the 1979 Ordinance to be without lawful authority and
jurisdiction and are ordered to be cancelled.
18. In respect of demand of 1,76,664 constituted under section
156 the learned counsel of the petitioner has stated that
although a paid challan was submitted and repeated requests were
made in writing and otherwise by him, copy of the order was not
furnished. If this demand relates in any manner to section
50(4)(a) or 52 as per the controversy settled above it will also
stan cancelled since if the original order is void all aubsequent
orders are also void (See Yousuf Ali v. Muhammad Aslam Zia PLD
1958 SC 104). However, if it has no nexus with the action under
section 50(4) or 52 it is being set aside to be reconstituted in
accordance with law after giving proper opportunity and hearing.
19. It is not disputed that the respondent No. 3 has collected
the sum of Rs.9,00,000 and that as we have already held above
that the orders passed against which the collection was made lack
lawful authority and jurisdiction, the respondents are directed
to issue the said refund within three months of this order.
20. There shall be no order as to costs.
(Sd.)
DR GHOUS MUHAMMAD
ATA-UR-REHMAN, J.--- I have gone through the judgment
proposed to be delivered by my learned brother Dr. Ghous
Muhammad, J. in this case. With great respect I do not agree with
him for the reasons to follow.
2. Petitioner is a limited company and had made purchases
from various parties. It has avoided to deduct tax under section
50(4) of the Income Tax Ordinance, 1979 without obtaining
exemption certificate as was required under section 50(4)(b) of
the Ordinance, 1979. In support of this default it has been
contended by the petitioner that the parties from whom purchases
were made were covered under section 80C of the Ordinance and as
they at the time of import has paid tax under section 50(5) of
the Ordinance, 1979 they had made final discharge of tax
liability and thus, no further tax was due from them. In this
connection reliance has been placed on a number of decisions from
Indian jurisdiction but in my humble view the said decisions do
not improve the case of the petitioners nor in any manner favour
them. Under the Indian Income-tax Act, 1961 presumptive tax
regime has been made applicable to limited number of items but
the deduction made at source has been made liable for adjustment
against the tax demand created on regular assessment.
3. The petitioner has relied upon a decision of I.T.A.T.
which is reported in 1997 PTD (Trib.) 1143; the facts of that
case are different from the case of the petitioner. In that case
À' had made imports and had complied with the provisions of
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section 80C of the Ordinance, 1979, the same goods wee sold to
`B' who had not complied with the provisions of section 50(4) of
the Ordinance, 1979. However, the Assessing Officer of À' had
charged the tax from À' which was to be deducted by `B'.
4. Two unreported cases on which the petitioner placed
reliance, are C.P. No. 1335/98 (Tapal Energy Ltd. v. Federation
of Pakistan) and C.P. No. 1336/98 (Gul Ahmed Energy Ltd. v.
Federation of Pakistan) to support the contention about lack of
jurisdiction of the respondents for invoking sections 52, 86 and
other sections of the Ordinance. these two cases also do not help
the petitioner in view of the explanation inserted in section 52
vide Finance Act, 1999 which reads as under:-`Èxplanation.--- For the purpose of this section, the
Deputy Commissioner having jurisdiction under section 5
over the case of assessee in default may initiate action.
5. The contentions which have been raised by the respondent
No. 3 (which are reproduced in para. 9 of the judgment of my
brother (Dr. Ghous Muhammad, J.) have got force and agreeing with
the said contentions I find that this petition is not
maintainable.
In view of the above the action taken by the respondents is
in order and petition is, therefore, dismissed.
(Sd.)
ATA-UR-REHMAN
SAIYED SAEED ASHHAD, J.--- This Constitutional petition was
referred to me as a referee Judge as my learned brothers of the
Division Bench, Dr. Ghous Muhammad, J. (as he then was) and
Ata-ur-Rehman, J., who had heard the Constitutional petition, had
expressed different opionions.
The facts of the Constitutional petition have been given in
detail by Dr. Ghous Muhammad, J. (as he then was) and it is not
necessary to reproduce them here.
The first issue involved in this Constitutional petition
is whether order made by the Deputy Commissioner of Income-tax
under section 52 read with section 86 of the Income Tax Ordinance
(hereinafter referred to as the Ordinance) against the
petitioners as deemed assessee in default in accordance with the
provisions of section 50(4) of the Ordinance could validly be
passed by the Assessing Officer having jurisdiction to decide the
assessment proceedings of the petitioners and whether in such
proceedings action against them in accordance with the provisions
of sections 52 and 86 of the Ordinance could be initiated.
Another issue involved in this Constitutional petition is whether
in view of the provisions of section 80C(4) of the Ordinance, the
Assessing Officer had authority to proceed against the
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petitioners in their capacity as deemed assessee in default
inasmuch as the contractors/importers from whom the petitioners
had made the purchases in dispute must or ought to have been
subjected to tax at the time of clearance of their consignment
on its import/arrival in Pakistan and no further tax was to be
deducted in respect of the said consignment which was ultimately
purchased by he petitioners and, therefore the question of
deduction and collection of advance tax by the petitioners from
the said importers/suppliers of medicients and deposit thereof in
the Government treasury did not arise. The third issue involved
herein is whether the transaction of sale and purchase between
the petitioners and seller mentioned in para. 2 of the petition
attracted th provisions of section 50(4) of the Ordinance so as
to cast a duty on the petitioners to deduct and collect advance
tax from the said sellers/ importers.
I have heard he arguments of M/s. Muhammad Naseem and Shaikh
Haider, the learned conusel appearing on behalf of the parties,
have perused the relevant provisions of law as well as the case
law relied upon by the learned counsel for the parties in support
of their respective arguments.
It is the case of the petitioners that they had purchased
medicines during the assessment years 1996-97 and 1997-98 from 11
suppliers/importers of medicines whose names have been mentioned
in paragraph No. 2 of the petition. At the time of making payment
to the aforesaid 11 sellers/importers, the petitioners did not
make deduction as required by section 50(4) of the Ordinance for
depositing the same in Government treaury. On this fact coming to
the knowledge of Assessing Officer, who in this particular case
was respondent No. 3, a notice was issued under section 52 read
with section 86 of the Ordinance to the petitioenrs as to why
proceedings should not be initiated against them in their
capacity as deemed assessee in default. Ultimatel, respondent No.
3 framed the assessment under section 52 of the Ordinance and
imposed additional tax under section 86 of the Ordinance. He also
imposed further demands against the petitioners.
Mr. Muhammad Naseem submitted that in view of the provisions
of section 52 of the Ordinance, respndent No. 3 had no authority
whatsoever to proceed against the petitioners for their failure
to deduct or collect tax as required by section 50(4) of the
Ordinance, even if it was proved that such deduction or
collection was to be made by them notwithstanding the ground
raised by the petitioners that the sellers were the importers of
medicines/drugs purchased by the petitioners and in accordance
with section 80-C(1) of the Ordinance they would have been, as fo
necessity, subjected to tax at the time of clearance of the
imported medicines/drugs, inasmuch as these proceedings could
only have been initiated by the concerned Assessing Officer
having jurisdiction to frame assessment against the
sellers/importers of the medicines/drugs. In support of his above
contention, he had placed reliance on the case of M/s. Tapal
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Energy Limited and another 1999 PTD 4037 and M/s. Gul Ahmed
Energy Limited reported in 1999 80 Tax (sic), wherein this Court
while dealing with similar issues, situations and questions had
pronounced that the Assessing Officer having jurisdiction to
frame an assessment in respect of the income of an assessee in
default would not have jurisdiction to proceed against him under
section 52 for his failure to deduct advance tax under section
50(4) of the Ordinance and such power or authority would vest and
be exercisable by the Assessing Officer having jurisdiction to
decide and frame assessment against the importers/selles or the
persons on whose behalf the deemed assessee in default was under
a legal duty or obligation to deduct or collect advance tax. Mr.
Muhammad Naseem submitted that in view of the pronouncement made
in the above case, which was based on the interpretation of
sections 5, 9, 50(4)(a) and 53, there remains no room for doubt
that the assessment framed by respondent No. 3 under section 52
and levy of additional tax under section 86 of the Ordinance was
absolutely illegal, without any authority, void ab initio and
ought to be set aside.
Mr. Shaikh Haider on the other hand submitted that the
contention advanced by Mr. Muhammad Naseem would have held ground
but for the change brought about by the legislature by adding/
incorporating an explanation in section 52 of the Ordinance,
whereby the Deputy Commissioner/Assessing Officer having
jurisdiction under section 5 of the Ordinance to proceed and
frame assessment against the assessee in default would have the
authority to initiate proceedings under section 52 of the
Ordinance against the deemed assessee in default. He further
submitted that after the aforesaid explanation any doubt with
regard to the jurisdiction or authority of the Deputy
Commissioner/Assessing Officer to proceed wih the assessmetn
proceedings against the assessee in default with regard to the
initiation of proceedings under section 52 of the Ordinance
stands clarified and respondent No. 3 was fully authorized and
clothed with power to proceed with the framing of assessment
under section 52 of the Odinance against the petitioners during
the course of finalization of their Income Tax proceedings. In
order to appreciate the arguments of Mr. Shaikh Haider has the
efect of nullifying the pronouncements made by this Court in the
case of M/s Tapal Energy Limited and another ahd Gul Ahmed Energy
Limited and whether the Assessing Officer having jurisdiction to
frame assessment against the assessee in default has been
conferred the power to initiate proceedings under section 52 of
the Ordinance in the assessment proceedings relating to the
assessee in defaut, it will be appropriate to reproduce section
52 of the Ordinance as well as explanation incorporated/added to
section 52 of the Ordinance by Finance Act, 1999, which is as
under:--``52. Liability of persons failing to deduct or pay
tax.--- where any person fails todeduct or collect, or
having deducted or collected, as the case may be, fails
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to pay the tax as required by, or under section 50, he
shall, without prejudice to any other liability which he
may incur under this Ordinance, be deemed to be an
assessee in default in respect of such tax.
Explanation.-- For the purpose of this section, the Deputy
Commissioner having jurisdiction under section 5 over the
case of the assessee in default may initiate action.''
A bare perusal of the explanation added to section 52 of
the Ordinance is sufficient to conclude that it has not created
any new obligation or liability on the taxpayers but has been
solely designed to dring about a change in te forum where a
person responsible for deducting advance tax on behalf of another
assessee as per requirement of section 50 of the Ordinance is to
be proceeded against on his failure to deduct or collect the
advance tax and to deposit the same in Government treasury. In
the case of M/s Tapal Energy Limited and another and M/s. Gul
Ahmed Energy Limited this Court had held that proceedings for
being an assessee in default against the person saddled with the
responsibility of deducting or collecting tax from the payments
which were to be made by him to another person could ony be
initiated against him in the tax proceedings of the recipients.
Ther reason for such conclusion was that the assessee in default
who had been saddled with the responsibility of deducting,
collecting and depositing the tax on behalf of recipient; which
in absence of section 50 of the Ordinance would have been the
responsibility/liability of he recipients themselves and any
default in deduction/collection and deposition of the tax would
have rendered the actual recipients liable to action; but for
section 50 of the Ordinance such responsibility has been plased
on the payer and he was to be deemed as an assessee in default,
therefore, the proceedings under section 56 of the Ordinance for
levying additional tax under section 86 of the Ordinance wee to
be initiated in the assessment proceedings of the recipients.
However, the explanation added to section 52 of the Ordinance had
brought about a change and it has been provided that the
proceedings against the deemed assessee in default can be
initiated and finalized during the tax proceedings of the payer
on whom the responsibility of deduction and collection lies and
further that the Assessing Officer/Deputy Commissioner of
Income-tax having jurisdiction to proceed with the tax assessment
of the payer responsible for making collection, deduction and
payment would have the jurisdiction to initiate and finalize the
proceedings under section 52 read with section 86 of the
Ordinance against the deemed assessee in default.
Mr. Muhammad Naseem vehemently attacked the explanation
added/inporporated in section 52 of the Ordinance and submitted
that even if it be admitted that it had legally conferred
jurisdiction on the Assessing Officer/Deputy Commissioner of
Income-tax, having jurisdiction to frame assessment against the
petitioners, to initiate proceedings under section 52 of the
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Ordinance against the deemed assessee in default in the tax
proceedings relating to the assessee in default, the fact was
that the order in dispute under section 52 read with section 86
of the Ordinance was finalized much earlier than the addition/
incorporation of the explanation in section 52 of the Ordinance
and therefore, it would have no application to an order which had
already been passed prior to the addition/incorporation of the
aforesaid explanation. In support of his above contention, he
placed reliance on the following case:--(i) Adnan Afzal v. Capt. Sheer Afzal (PLD 1969 SC 187);
(ii) Dr. Sher Afghan v. Amir Hayatkan and others (1987 SCMR
1787);
(iii) Yew Bon Tev v. Kanderan Bas Mara 1983 PSC 1200 (PC).
I have considered the arguments to Mr. Muhammad Naseen and
I am not at all impressed with the contention raised by him. The
question of retrospective operationof the explanation would have
arisen only if it had the effect of imposing new liability or
obligation on the taxpayer or had effected any existing rights
either by taking them away or curtailing them. A bare perusal of
the explanation is enough to hold that it only provides a change
in the forum, whereby the powers to hold proceedings against the
payer as a deemed assessee in default have been taken away from
the Assessig Officer/Deputy Commissioner of Income-tax dealing
with the tax proceedings of the recipients and have been
conferred on the Assessing Officer/Deputy Commissioner of
Income-tax having power to deal with the tax proceedings to the
payer. It is a well-established principle of law that when the
legislature brings about a change in the forum then the same is
always with retrospective effect unless it has the effect of
curtailing the existing rights available to a party for
challenging any adverse order. By the aforesaid explanation, the
legislature has not taken away any right of appeal or revision or
has not in any manner curbed the right available to a deemed
assessee in default and is merely in the nature of a change of
officer/autority. In support of the above, reliance is pleced on
the following cases:--(i) Hakim Ali Zardari v. The State and another PLD 1998 SC 1;
(ii) Malik Gul Hasn & Co. and another v. Allied Bank of
Pakistan 1996 SCMR 237; and
(iii) Yusuf Ali Khan v. Shanghai Banking Corporation 1994 SCMR
1007.
In this connection. I may also refer to the case of Messrs
Ever Shine Limited v. Commissioner of Income-tax (1995 PTD 624),
wherein this Court while discussing the scope of an explanation
added to a provision of a Statute had pronounced that where an
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explanation was not of penal nature and did not impose any new
obligation/liability on the taxpayer, then the same would be
considered to operate retrospectively. In view of the above, the
contention advanced is without any substance. It may also be
staed that the object of an èxplanation' to a Statutory
instrument is to clarify, to facilitate proper understanding of a
provision and to serve as a quideline as pronounced by the
Hon'ble Supreme Court in the case of Naveed Textile Mills Ltd. v.
Assistant Collector (Appraising) Customs House and others
reported in PLD 1984 SC 92. It will be useful to reproduce the
relevant portion from the cited judgments of the Hon'ble Supreme
Court which is as under:--``We have heard the learned counsel at length. We ae in
agreement with him that the ordinary function of any
explanation is to clarify, to facilitate the proper
understanding of a provision, to serve as a guide, as held
in the case of Muhamamd Hussain Patel. Nevertheless, it
does not exhaust or complete the function and the purpose
of an explanation. In the Privy Council case of Krishna
Ayyangar; In re (ILR 43 Mad. 550), it was held that `The
construction of the explanation must depend upon its
terms, and no theory of the purpose can be entertained
unless it is to be inferred from the language'. In another
case from Indian jurisdiction, State of Bombay v. United
Motors (AIR 1953 SC 252), the explanation was found to
contain a legal fiction, to provide a simpler and
workable tes directed at facilitating the operation of the
statute itself.
The object or the function of the explanation
incorporated/added to section 52 of the Ordinance is to take away
the jurisdiction from one Deputy Commissioner of Income-tax and
to confer the same on another Deputy Commissioner of Income-tax
relative to their powers to initiate proceedings under ectin 52
of the Ordinance against `payer' as envisaged in section 50(4) of
the Ordinance on his failure to make deuction/collection of
advance tax from the payments made by him to the recipients. Such
a change according to Mr. Shaikh Haider would result in
facilitating the working and operation of the Ordinance by
providing a simple procedure for initiating proceedings under
section 52 of the Ordinance against the deemed assessee in
default. The case law relied upon by the learned counsel for the
petitioners has no application to the facts and circumstances of
this case and is of no assistace to the petitioners. As a matter
of fact, the pronouncement made in the case of Adnan Afzal v.
Capt. Sheer Afzal PLD 1969 SC 187 supports the version raised on
behalf of the Department that the explanation would operate
retrospectively.
Mr. Muhammad Naseem further submitted that the explanation
would not be effective in view of the fact that the jurisdiction
to proceed against a deemed assessee in default could not be
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conferred on the Assessing Officer/Deputy Commissioner of
Income-tax having jurisdiction to undertake the tax proceedings
against the recipients unless necessary amendments were made in
sections 5, 9, 50(4)(a) and 53 of the Ordinance inasmuch as this
court in the case of M/s. Tapal Energy Limited and another and
M/s. Gul Ahmed Energy Limited had relied on the aforesaid section
for holding that the proceedings against the payer for being
deemed assessee in default could only be undertakne in the
assessment proceedings of the recipients. In support of the
above, he placed reliance on the following cases:--(i) (1965) 55 ITR 741 (SC);
(ii) (1972) 86 ITR 2(SC); and
(iii) Messrs Elahi Cotton Mills v. Federation of Pakistan and
six others PLD 1997 SC 582, p.677.
This contention is also without any substance inasmuch as
the explanation has taken care of section 5 of the Ordinance
which is the most important section for determining the
jurisdiction of Assessing Officer/Deputy Commissioner of
Income-tax to deal with the tax assessment proceedings of an
assessee. the explanation specifically states that the Assessing
Officer/Deputy Commissioner of Income-tax having jurisdiction
under section 5 of the Ordinance to deal with the tax assessment
proceedings of the payer would have the jurisdiction to initiate
proceedings under section 52 of the Ordinance against the deemed
assessee in default. The effect of these words is that the
Assessing Officer/Deputy Commissioner of Income-tax having
jurisdiction to proceed with the tax assessment proceedings of
the recipients has ceased to have jurisdiction. Amendments or
changes in sections 9, 50(4)(a) and 53 are not at all necessary
to take away the juriscition from one Assessing Officer/Deputy
Commissioner of Income-tax and for conferring the same on another
Assessing Officer/Deputy Commissioner of Income-tax as the
explanation added/inserted satisfiactorily takes care of all the
provisions contained in the aforesaid sections. A minute
examination of sections 9, 50(4)(a) and 53 of the Ordinance
reveals that they do not contain any provision which would cause
any hindrance for effective operation of the explanation in
question. The pronouncement made in the aforecited cases relied
upon by Mr. Muhammad Naseem are of no advantage to the
petitioners in view of the observations made hereinabove that
they only hurdle in the change of forum by the explanation would
have been faced in view of sections 5 and 52 of the Ordinance but
the explanation has amply take care of the provisions of both the
sections by specifically providing that Assessing Officer/Deputy
Commissioner of Income-tax having jurisdiction to frame
assessment against the payer/assessee in default would have the
jurisdiction to initiate proceedings against a deemed assessee in
default under section 52 of the Ordinance.
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Mr. Muhammad Naseem further submitted that in the absence of
any correspoinding changes in sections 9, 50(4)(a) and 53 of the
Ordinance the jurisdiction of the Assessing Officer/Deputy
Commissioner of Income-tax to initiate proceedings against a
deemed assessee in default could not be taken away and the
amendment brought by the legislature in adding/incorporation of
the explanation to section 52 would not have the effect of
reversing or invalidating the pronouncements made by this Court
in the case of Messrs Tapal Energy Limited and another and Messrs
Gul Ahmed Energy Limited. In support of the above, Mr. Muhammad
Naseem placed reliance on the following cases:-(i) Molasses Trading export (Pvt.) Ltd. v. Federation of
Pakistan and others (1993 SCMR 1905); and
(ii) Mirpurkhas Sugar Mills Limited v. District Council,
Tharparkar and 3 others (1991 MLD 715).
As per my observations hereinafter, I have expressed the
view that after amendment in section 5 of the Ordinance, no
further amendments were required in sections 9, 50(4)(a) and 53
for validly conferring the jurisdiction on the Assessing Officer/
Deputy Commissioner of Income-tax to initiate proceedings against
the assessee in default in the tax proceedings. Furthermore, e
case law relied upon by Mr. Muhammad Naseem also does not support
his contention as the explanation does not have the effect of
imposing new obligations or liabilities on the tax payer nor has
the effect of imposing new obligations or liabilities on the tax
payer nor has the effect of taking away or curtailing the rights
available to a taxpayer and is merely in the nature of change of
forum, which the legislature had ample power to make and no
exception can be taken to the amendment/change brough about by
the said explanation.
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This issue has already been discussed by me while discussing the
question of retrospectivity of the explanation wherein it has
been observed that the amendment/clarification brought about by
the explanation related to change of forum and an amendment/
clarification relating to change of forum operates
retrospectively unless by such change of forum there is
curtailment or taking away of a vested right or a right of appeal
or revision available to the aggrieved party.
In the circumstances, the arguments advanced by Mr.
Muhammad Naseem are without any substance and I have no doubt in
my mind in concluding that by virtue of the explanation
added/incorporated in section 52 of the Ordinance, the Assessing
Officer/Deputy Commissioner of Income-tax dealing with the tax
assessment proceedings of an assessee would have the right to
initiate and finalize the proceedings against the said assessee
in cases where he is to be treated as an assessee in default. As
such in view of this, no exception can be taken to the orders
passed under section 52 read with section 86 of the Ordinance by
Assessing Officer/Deputy Commissioner of Income-tax, respondent
No. 3, against the petitioerns.
Mr. Muhammad Naseem has also referred to me the following
cases in support of his contention that where full tax has been
paid, default cannot be considered in the hands of deducting
assessee or those liable to dedcution and that no further tax
could be imposed by way of default.
(i) (1982) 137 ITR 230;
(ii) (1983) 140 ITR 818;
(iii) (1985) 151 ITR 634; and
Mr. Muhammad Naseem relying on sections 6 and 21 of the

General Clauses Act further submitted that the explanation could
not relate to past and closed transaction and as the order in
dispute had been passed prior to the addition/incorporation of
the explanation in dispute, the same could not be effective and
useful invalidating the impugned order. Reliance for the above
was also placed on the following cases:--(i) Province of East Pakistan v. Sharafatullah and 87 others
PLD 1970 SC 514;
(ii) Arshad Akram & Co. and others v. Divisional Superintendent
Pakistan Railways and others PLD 1982 Lah. 109;
(iii) Pakistan v. Muhammad Himayatuallh Farukhi PLD 1969 SC 407;
and
(iv) (1989) 176 ITR 282.

The contention advanced as well as the case law relied upon by
Mr. Muhammad Naseem has no relevancy or application to the facts
and circumstances of this case and is absolutely of no assistance
to him in advancing the cause of the petitioner. He further
submitted that section 52 of the Ordinance construed default and
imposed a new tax which is not income tax but is penal and quasicirminal in nature and imposition of a new tax which was penal
and quasi-criminal would not have retrospective effect. In
support of the above contention, he placed reliance on the
following cases;
(i) (1961) 42 ITR 589;
(ii) (1964) 53 ITR 250;
(iv) Province of Punjab and another v. Mian Manzoor Ahmed

Wattoo 1998 CLC 1585.
(iii) (1979) 119 ITR 475;
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(iv) (1984) 149 ITR 143; and
(v) PLD 1998 SC 1.
In deciding the issue with regard to the effectivences of the
explanation added/inserted in section 52 of the Ordinance, the
question whether section 52 of the Ordinance imposed a new tax
which was penal and quasi-criminal in nature is not at all in
issue requiring determination. The question is issue is whether
the explanation added/inserted to section 52 of the Ordinance,
which brings about a change in the forum/Deputy Commissioner of
Income-tax to initiate proceedings under section 52 of the
Ordinance against an assessee in default for non-compliance by
his of the provisions of section 50(4)(a) of the Ordinance, would
operate retrosepctively. The case-law relied upon by the Advocate
for the petitioner has no applicability and relevancy to the
facts and circumstances of this case.
In was submitted on hebalf of the petitioner that the
addition/insertion of the explanation to section 52 of the
Ordinance was in the nature of an incompetent legislation as it
was contrary to the provisions of sections 5, 50(4)(a) and 53 of
the Ordinance and also because it had the effect of unllifying
the judgment of this Court in the case of Messrs Tapal Energy
Limited and Messrs Gul Ahmed Energy Limited. In support of the
above, reliance was placed on the case of Molasses Trading Export
v. Federation of Pakistan and others PLD 1993 SC 1905. In this
case, the Supreme Court had laid down the requirements which were
to be followed by the legislature, if it wanted to bring an
amendment in a statute for nullifying or invalidating the
judgment of a Court and it was further observed that in the
ultimate analysis it will have to be examined whether the
validating piece of legislation removed the defect which the
Court had found in the existing law and whether adequate
provisions in the validating law for valid imposition of tax were
made. In the present case, the question of imposition of a tax or
a liability does not arise nor this Court in the case of Messrs
Tapal Energy Limited and Messrs Gul Ahmed Energy Limited had
pointed out to any defect in the Ordinance which is sought to be
rectified/removed by the explanation. On the contrary, the
explanation brings about a change in the forum and the words used
in the explanation satisfactorily and wit clarify give out he
intention of the legislature.
Mr. Muhammad Naseem next submitted that the petitioners
had purchased imported drugs/medicines from eleven different
dealers who used to import the drugs/medicines and according to
section 50(5)(a), the said 11 importers of the drugs/medicines
were liable to deduction of advance tax computed on the bases of
the value of such medicines/drugs as increased by Customs duty/
Sale Tx if any levies thereon at the rates specified in the First
Schedule and such advance deduction of tax was deemed to be the
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final discharge of the tax liabilities of all the aforesaid
importers in vew of the provisions of obligation/liability to
deduct tax from the payments made or the price paid by them to
the aforesaid eleven sellers/importers for purchase of the
medicines from them. He further submitted that in view of te
provisions of section 50(5)(a), it was impossible that the
medicines offered by the eleven importers for sale to the
petitioners were taken out of the bonded Customs area withou
payment f advance tax by the said eleven importers and, therefore
the petitioners did not deduct or collect advance tax from the
payments made by them as such deduction would have amounted to
subjecting the eleven sellers/importers to tax liability which
they had already discharged but his fact was not at all
considered either by the original Assessing Officer/Deputy
Commissioner of Income-tax or by the Assessing Officer/Deputy
Commissioner of Income-tax, who had finalized the proceedings
under section 52/86 of the Ordinance. In advancing the aforesaid
arguments, Mr. Muhammad Naseem perhaps seems to have lost sight
of section 50(4)(b) of the Ordinance which empowers the
Commissioenr of Income-tax to issue directions to the person, who
is saddled with the responsibility of deducting o collecting tax
from the recipients, not to deduct any tax from any payment or
payment to be made to such recipients in any financial year and
the payer or person responsible for making any payment shall
thereafter, till such order is cancelled, make such payment
without deduction of tax under section 50(4)(a). The proper
course in view of the provisions of section 50(4)(a) for the said
eleven sellers/importers in question was to obtain the necessary
order from the concerned Commissioner after satisfying him that
they had paid advance tax on the medicines/drugs sold by them to
the petitioners at the time of their clearance by the ustoms
Authorities and they were not under any liability or
responsibility to pay further advance tax and had the said
sellers/importers obtained such a certificate nd produced it
before the petitioners, then the petitioners would have been
justified in nor deducting/collecting advance tax from the
payments made by them to the said sellers/importers by way of
price of the medicines purchased by thim. In the absence of any
suh certificate, the contention of Mr. Muhammad Naseem that in
view of the provisions of section 50(5)(a) the relevnat
authorities would have collected advance tax from all of them on
the basis of the value of the medicines imported by them as
increased by Customs duty and Sale tax as the said medicines
would not have been cleared without collection of the advance tax
is based merely on assumption and surmises without being
supported by any substantive material on record. Mr. Muhammad
Naseem's contention that it was not for the importers in question
to obtain a certificate as required by section 50(4)(b) as they
would not have been able to clear the imported medicines without
collection of advance tax at the stage of payment of Customs duty
and it was for the relevant authorities of the Income Tax to
satisfy themselves as to whether such advance tax had been
collected or not is without any substance inasmuch as it is the
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case of the petitioners that the importers in question would have
been subjected to tax on the medicines which had been purchased
by the petitioners and under the law they could not be subjected
to further tax in view of the provisions of the section 80-C(4)
and, therefore, the petitioners did not deduct or collect tax
from the payments made by them. The petitioners should have
satisfied themselves by reliable and satisfactory evidence that
the said importers had been subjected to tax and should not have
relied on assumptions, surmises and conjunctures for nonperformance of the obligations case upon them by them by section
50(4) of the Ordinance i.e. deduction and collection of tax from
the amount which they had paid to the elevant importers/sellers
of medicines.
The last ground raised by Mr. Muhammad Naseem in support
of the petition was that the responsibility of deduction or
collection of tax and deposit thereof in the Government treasury
in pursuance of section 50(4)(a) of the Ordinance has been placed
on a person responsible for making any payment in full or in part
on account o supply of goods, or for service rendered to or the
execution of a contract with the Government or a local authority
or a company or a registered firm or any foreign contractors/
consultants or consortium in any financial year where the total
value of the goods supply or contract executed exceeded Rs.50,000
and he submitted that in the present case, the said service to
the petitioners so as to attract the provisions of section
50(4)(a) of the Ordinance. He further submited that the
transactions between the petitioenrs and the elevant
importers/sellers were in the nature of transactions of sale of
the medicines by the importers/sellers and purchase thereof by
the petitioners for which the petitioners made payments to the
importers/sellers towards the price of the medicines/drugs sold
by them and such transactions would not amount to supply of goods
of tradition of service or execution of a contract as envisaged
in teh aforesaid setion so as to case a liability/responsibility
on the petitioners to deduct and deposit the advance tax from the
amounts paid by them to the imoporters/sellers as price of the
medicines/goods purchased. This contention is without any
substance and merits no consideration in view of the
pronouncements made by the Lahore High Court in the case of
Commissioner of Income Tax/Wealth Tax v. M/s. Prime Dairies Ice
Cream Limited, reported as 1999 PTD 4147. In the cited case the
issue involved before the learned Division Bench of the Lahore
High Court was whether word ``supplies'' was general in its
nature and was inclusive of sale when the seller supplied his
goods in lieu of he price to the buyer and the learned Division
Bench after taking into consideration the meaning of the words
``sale'' and ``supply'' as per legal dictionaries as well as
ordinary disctionaries pronounced that the words ``supply''
included the sale of godos by the sellers in return for their
price from the buyer. It will be appropriate to reproduce the
relevant portions from the judgment of the Lahore High Court
which is as under:---
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``From the aforesaid examination, it is thus, clear that
expression `supplies' is of wide amplitude. Manifestly,
`sale' means transfer of sold or agreed to be sold
property from seller to buyer in future for payment of
price. Such transfer is for a consideration/payment of
money or promise thereto by the buyer. Necessarily, it so
means a transfer of title in property from seller to
buyer. Briefly, sale and purchase are two phases of
transaction of sale. If we look it from the sie of
purchasers, it is a purchase of the title in the property
and if we see it from seller's side it is a sale or
transfer of the title in the property from seller to
purchasers. The supply on the other hand is expression of
general nature. It connotes the availability of aggregate
of things needed or demanded for a given use of purpose.
Consequently, the supply may include sale but this cannot
be synonymous with the aforesaid expression. This view was
taken in Exh. P. Turner. Re Hardy (1948) 18 N.S.W.S.R.
133. It is settled that statute are to be construed with
reference to plain language of such statutes and Courts
are not required to add or omit to clear the language of
such statute. Tested on the above touch stones, we are, in
no manner, of doubt that the word supplies is general in
nature and is inclusive of sale when the seller supplies
his godos in lieu of their price to buyer. The
interpretation of Tribunal, to our view is completely
illega, based upon totally irrelevant consideration and
cannot be sustained. A bare reading of section 50(4)(a) of
Ordinance shows that in order to eliminate any possibility
of doubt the legislature has used word supply of godos and
further used the word maker of payment and recipient of
payments/as a `payer' and recipient. Even the case of a
recipient/recipients who were not liable to pay any tax
under section 9 of the Ordinance, have been taken care of
by legislature in section 50(4)(b) of the Ordinance. This
provision is as follows:-(b) the Commissioner may on an application made by any
such recipient and after making such inquiry as he things,
fit, allow, by an oder in writing any person responsible
for making such payment not to deduct any tax from any
payment or payments made to such recipient in any
financial year, and where such order is made, the person
responsible for making any payment shall thereafter, and
until such order is cancelled, make such payment without
deduction of tax under clause (a).''
This provision has two parts. In first part, the recipient
has been equipped with a right to move the Commissioner
for seeking certificate that he is not liable to pay any
tax and so the payer/buyer be restrained from deducting
the prescribed tax from him. The Commissioner is empowered
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to hold the necessary inquiry and if he finds that the
recipient or the supplier is not liable to pay any tax
under section 9 of the Ordinance, he may accept his
application and grant him such certificate. Resultantly,
thereafter, the payer/buyer will not deduct the amount of
prescribed tax from such suppliers/sellers. On the above
analysis, we have no difficulty in holding that the
expression `supplies' as embodied in section 50(4) of
Income Tax Ordinance (XXXI of 1979) does include `sales'
and so the view taken by the learned Income Tax Appellate
Tribunal is wholly illegal, erroneous on the face of
record and so is hereby set aside. these income tax
appeals are so decided in the above terms.''
After going through the cited judgment. I do not find any
reason for not agreeing with the observation made by the Lahore
High Court and the objections to the effect that the transactions
between the petitioners and the eleven sellers/importers did not
attract the provision of section 50(4)(a) of the Ordinance holds
no ground.
Upon the above discussion, I am unable to concur with the
view expressed by Dr. Ghous Muhammad, J. (as he then was) and
hold that in view of the addition/incorporation of the
explanation to section 52 of the Ordinance, respondent No. 3 had
the jurisdiction and authority to initiate proceedings under
section 52 against the pettioners as assessee in default in the
assessment proceedings relating to the petitioenrs and no
exceptions can be taken to the order passed by him under section
52 read with section 86 of the Ordinance. Consequently, this
Constitutional Petition is found to be without any substance and
must fail. Accordingly concurring with the view expressed by
Ata-ur-Rehman, J this Constitutional Petition stands dismissed
with no order as to costs. The petitioners will be at liberty to
approach the concerned forum/authority for establishing the fact
hat the sellers/importers had been subjected o income tax
liability at the time of clearance of the imported medicines by
the Customs Authorities and that the petitioners were under no
obligation to make deduction o collection of the advance tax in
accordance with the provisions of section 50(4) of the Ordinance.
Petition dismissed.
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4.

When the sellers/importers in the present case after sfuufering

The word `supply' included the sale of goods by the sellers in

Section 50(4)(b) of the Ordinance empowers the Commissioner of

In view of the addition/incorporation of the explanation to

The object or the function of the explanation incorporated/added

Shaikh Hyder for Respondents.

Demand under section 52

Demand under section 86

In consequence the petitioner filed revision petitions with the

(a) Jurisdiction of Circle A-4 Companies III

(b) Jurisdiction of Circle 02, Comapnies IV

(c) Jurisdiction of Circle A-7, Zone A

(d) Jurisdiction of Circle E-10/E-02 Zone E

(e) Jurisdiction of Circle E-4, Zone-E

(f) Jurisdiction of Circle E-6/E-7, Zone-E

(g) Jurisdiction of Circle E-8, Zone-E

the seventh day of

From 1st of January to 30th of March

the seventh day of

From 1st of April to 30th of June

the seventh day of

(turnover for 16th June to 30th June shall

Mr. Muhammad Naseem relying on sections 6 and 21 of the

(iv) (1989) 176 ITR 282.

(iv) Province of Punjab and another v. Mian Manzoor Ahmed

(iii) (1979) 119 ITR 475;

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