M/s Siemens Aktiengesellshaft, PIA Building, 3rd Floor, 49 Blue Area, Fazl-ul-Haq Road, F-6/1, Islamabad. | Appellant | |
Vs | ||
The Commissioner Inland Revenue, Zone-III, LTU, Islamabad | Respondent | |
Appellant by | Mr. Muhammad Rashid Quershi, FCA | |
Respondent by | Mr. Faheem Sikandar, DR | |
Date of hearing | 29.08.2019 | |
Date of order | 29.08.2019 |
O R D E R
M. M. AKRAM
(Judicial Member): The titled appeals have been filed by
the appellant/taxpayer against an Order No.235/2017 dated 30.11.2017 and Order-in-Appeal
No.148/2018 dated 26.11.2018 passed by the learned Commissioner Inland Revenue
(Appeals-I), Islamabad for the Tax Years 2015 and 2016 respectively on grounds
as set forth in the memo of appeals. The facts of the case and the grounds in
both the appeals are almost similar, therefore these appeals are decided
through this consolidated order.
2. Brief facts culled out from the record are that the appellant is a
non-resident Company having National Tax Number 2962172-7. The Company was
incorporated in the Federal Republic of Germany, its Pakistan source income is
only from dividends and Fee for
Technical Services which are subject to Final Tax Regime under section 8 of the
Income Tax Ordinance, 2001 (“the Ordinance”). The appellant does not have a
“Permanent Establishment” (“PE”), in Pakistan. This fact is also confirmed by
Second Secretary (BDT-IT), Federal Board of Revenue vide letter dated September
25, 2018. According to the assessing officer, the appellant late-filed its monthly
statements of withholding taxes as required under section 165 of the Ordinance
for the Tax Year 2015 and non-filed the monthly statements for the Tax Year 2016
which attracts penalties for both the years under section 182(1A) of the
Ordinance. In consequence thereof, the proceedings were initiated in both the
years separately by issuing notices under section 182(1A) of the Ordinance. The
appellant submitted its replies which were considered unsatisfactory by the
assessing officer. Resultantly, the penalty orders were passed by imposing a penalty
of Rs.7,287,500/- and Rs.3,560,000/- vide DCR No.02/002 dated 30/09/2015 and
DCR No.05/46 dated 26/05/2016 for the Tax Years 2015 and 2016 respectively.
Being aggrieved, the appellant preferred the appeals before the learned CIR(A)
who vide orders dated 20/01/2016 and 12/07/2016 for the Tax Years 2015 and 2016
respectively remanded the case back to the assessing officer with certain
directions. In compliance with the orders of the appellate authority, the assessing
officer re-assessed the penalties for both years. Felt aggrieved, the appellant
again filed the appeals for both the years before the learned CIR(A) who vide
order No.235/2017 dated 30.11.2017 and Order-in-Appeal No.148/2018 dated
26.11.2018 confirmed the treatment accorded by the assessing officer. The
appellant has now come up before this Tribunal and has assailed the impugned
orders on a number of grounds.
3. The titled appeals came up for hearing on 28.08.2019. The learned AR of the appellant vehemently contended that the appellant being a non-resident company is not required to file the monthly statement under section 165 of the Ordinance. He explains that provisions of section 165 (1) of the Ordinance provide that filing of monthly statements of withholding taxes apply to such person who is collecting tax or deducting tax from the payment during the period. Since the appellant being a non-resident having no Permanent Establishment (PE) in Pakistan was not collecting tax or deducting tax from payment during the period under consideration and as such the provisions of section 165(1) of the Ordinance is not applicable in the instant case. Resultantly, the provisions of section 182(1A) with respect to levy of penalty on account of non-filing of monthly statements do not attract. He further contended that the impugned orders are not speaking orders and the same have been passed without application of judicial mind and as such contrary to the law laid down by the Apex Court and the provisions of section 24A of General Clauses Act, 1897 under which the public functionaries are obliged to decide the controversy between the parties with reasons, otherwise order would not be sustainable under the law. Reliance was placed on the judgments reported as 2005 PTD 2566 (HC) and (2007) 96 Tax 57 (Trib). The learned AR argued that the assessing officer while making the re-assessment penalty orders did not strictly adhere to the directions of the learned CIR(A) and therefore, acted beyond the jurisdiction which is unsustainable in law. In this regard, reliance was placed on the cases reported as (2010) 101 Tax 59 (Trib) and (2010) 101 Tax 365 (Trib). To sum up, his arguments, the learned AR contends that both the Authorities have not properly interpreted the proviso to sub-section (1) of section 165 of the Ordinance and have imposed the penalty without appreciating the facts of the case.
4. On
the other hand, learned DR opposed the appeals on the ground that learned
Commissioner (Appeals) has passed speaking orders and there is no illegality or
lacuna in his orders. He, therefore, prays for the rejection of both appeals.
5. The
orders of both the authorities have been examined in detail and perused the
available record as well keeping in view the submissions advanced by the rival
parties. The submissions made by the learned AR of the appellant have
substance. The facts are now admitted up to the level of the Federal Board of
Revenue vide letter dated September 25, 2018, that the appellant is a
non-resident Company having no Permanent Establishment (PE) in Pakistan. The
perusal of the penalty orders reveals that the assessing officer has imposed
the penalty for both the Tax Years 2015 and 2016 on the following reasons: -
(i)
The
appellant was liable to file monthly withholding statements due to proviso of
sub-section (1) of section 165 inserted through Finance Act, 2010 which
provides that even no tax is collected or deducted from the payment
(ii)
The
appellant is a registered taxpayer under the provision of the Ordinance and
Sales Tax Act, 1990, and as such it is prescribed person in terms of section
153 of the Ordinance being a Company, the appellant was liable to file monthly
withholding statements in terms of provisions of section 165 of the Ordinance.
(iii) The interpretation of the appellant is not accepted that the appellant is a non-resident and it does not fall under the ambit of filing the monthly withholding statements.
The first reason given by the assessing officer on the basis of the
proviso to sub-section (1) of section 165 inserted through Finance Act, 2010 is
misconceived and not tenable. The bare reading of section 165 of the Ordinance
clearly provides that every person collecting
tax under Division II of this Part or Chapter XII or deducting tax from a payment
under Division III of this Part or Chapter XII is required to file monthly
statements in the prescribed form. Under sub-section (2) of section 165 of the
Ordinance, every prescribed person collecting
tax under Division II of this Part or Chapter XII or deducting tax from a payment
under Division III of this Part or Chapter XII is required to file monthly
statements in the prescribed form. Whereas in the instant case, the appellant
being a non-resident Company, none of the provisions of the Ordinance apply to it,
and as such the appellant does not come within the ambit of section 165 of the
Ordinance, and therefore, it was not required to file the monthly statements of
withholding taxes. It is well settled that the provisions of the Ordinance
cannot be enforced beyond its jurisdictions. The reliance is placed on the
judgment of this Tribunal dated July 7, 2014, in ITA Nos. 2014 to 2017/KB/2014
in case of M/s B.L Harbert International (Pvt.) Limited whereby it
has been held that the provisions of the Ordinance are not applicable and
cannot be enforced beyond its jurisdiction. The relevant extract of the judgment
is reproduced hereunder: -
12. We consider that it is well settled that the
provisions of the Ordinance cannot be enforced beyond its jurisdiction, thus
the payer in the instant case making payment in the United States of America is
not required to withhold Pakistan tax at the time of making the payment. He
will be under the jurisdiction of the USA law and would be required to make
withholding under the USA law if such payments were subjected to USA tax
withholding. This proposition finds the support of the judgments of Hon’ble
Peshawar High Court and Hon’ble Supreme Court of Pakistan cited by Ld. AR and
discussed supra. As a general principle, States can legislate effectively for
their own territory. Where the language of a statute is general and may include
foreigner or not, the true canon of construction is to assume that the
Legislature has not so enacted as violate the rights of other nations.
Extraterritorial operation of a statute over foreigners is not to be presumed
as having been intended unless it is expressly so stated.”
The relevant provision of section 165 at the appropriate time is
reproduced hereunder for ease of reference: -
“165. Statements.-
(1) Every person collecting tax
under Division II of this Part or Chapter XII or deducting tax from a payment under Division III of this Part or
Chapter XII shall furnish to the Commissioner a monthly statement in the prescribed form setting out the name
Computerized National Identity Card Number, National Tax Number and address of
each person from whom tax has been collected under Division II of this Part or
Chapter XII or to whom payments have been made from which tax has been deducted
under Division III of this Part or Chapter XII in each month;
(a) ………………………………
(b) the total amount of payments made to a
person from which tax has been deducted under Division III of this Part or
Chapter XII in each month;
(c) the total amount of tax collected from a
person under Division II of this Part or Chapter XII or deducted from payments
made to a person under Division III of this Part or Chapter XII in each month;
and
(d) such other
particulars as may be prescribed:
Provided that every person as provided in sub-section (1) shall be
required to file a withholding statement even where no withholding tax is
collected or deducted during the period.
………………………………………………….
(2) Every prescribed
person collecting tax under Division
II of this Part of Chapter XII or deducting
tax from a payment under Division III of this Part or Chapter XII shall
furnish or e-file statements under sub-section (1) by the 15th day of the month
following the month to which the withholding tax pertains.”
Even otherwise, the proviso to sub-section (1) of section 165
cannot be read in isolation rather it is a part of sub-section (1) and it has to
be read in conjunction with sub-section (1).
If a person does not fall within the ambit of sub-section (1), the
proviso would also not be applicable to such person. It is settled law that the
main section is not to be construed in the light of the proviso but it is a
proviso which is to be interpreted in the light of the main section. The reliance
can be placed on the judgment of the august Supreme Court of Pakistan in the
case reported as CIT Vs Nasir Ali and another (1999) 79 Tax 428 (SC)
wherein it has been held that: -
“5. A proviso, therefore, has to be interpreted
strictly, and where the language of main enacting part is clear and
unambiguous, the proviso cannot by implication exclude from its purview what
clearly falls within the express terms of the main enacting part. We would,
therefore, first determine the scope and meaning of the main enacting part of
section 3(4)(a) of the Ordinance in light of the above-stated legal position.
It is quite clear from the enacting part of section 3(4)(a) of the Ordinance
that where the total income of ``an assessee'' includes any profit or gain derived
from the export of goods manufactured in Pakistan, the income-tax and super-tax
payable in respect of such profit and gain is to be reduced by an amount equal
to half of the income-tax and super-tax which is attributable to the sale
proceeds of the export goods subject, of course, to the conditions mentioned in
clause (b), (c) and (d) of section 3(4) of the Ordinance. The expression ``an
assessee'' used in the enacting part cannot, by any logic of interpretation,
exclude from its purview the partners of a registered firm if they are assessed
to income. We are, therefore, of the view that the expression ``an assessee''
used in section 3(4)(a) of the Ordinance includes both the registered firm as
well as its partners if they are assessed to income tax or super-tax. This
conclusion is further fortified by the use of the expression ``income-tax and
super-tax'' in the main enacting part of section 3(4)(a) of the Ordinance. It
is admitted by the learned counsel for the appellant that the firm pays only
super tax while the income tax is paid by its partners. Therefore, we are in no
doubt that the enacting part of section 3(4)(a) includes, within its ambit,
both the registered firm and its partners. Accordingly, we hold that the export
rebate contemplated under section 3(4)(a) of the Ordinance is admissible both
to the registered firm as well as its partners in respect of super-tax and
income-tax payable by them, respectively.
6. We now turn to the proviso which has been relied on by the
learned counsel for the appellant in support of his contention that export
rebate concession is admissible only for the registered firm and not to its
partners. A careful reading of the proviso would show that it only lays down
the method of calculation of the super-tax payable by the registered firm under
paragraph (c) of para 2 of the Schedule, which was introduced by the Ordinance.
The proviso does not lay down anywhere that the reduction envisaged in the main
enacting part of section 3(4)(a) of the Ordinance on account of export rebate
to ``an assessee'' in respect of income-tax, would not be admissible. As
earlier pointed out by us, the proviso only limits the operation of the main
enacting part to the extent it is indicated in the proviso, meaning thereby
that but for the proviso, the case would fall within the ambit of the enacting
part. The enacting part used two different expressions, namely; admissibility
of an export rebate out of the income tax as well as super tax while the
proviso deals only with the super-tax which is payable by the registered firm.
It is, therefore, quite clear that the proviso in its operation could not limit
the concession of export rebate tax admissible on the income-tax payable in
terms of section 3(4)(a) of the Ordinance. The enacting part of the section is
not to be construed in the light of the proviso but it is the proviso which is
to be interpreted in light of the main enacting part of the statute. We,
therefore, agree with the conclusion of the learned Judges of the High Court of
Sindh that under section 3(4)(a) of the Ordinance, both the registered firm as
well as its partners are entitled to the export tax rebate in respect of the
super-tax and income-tax payable by the registered firm and its partners
respectively. No case for interference with the judgments of the High Court is
made out. The appeals are accordingly dismissed. However, as the respondent
have not appeared and contested the cases, there will be no order as to costs.”
(Emphasis
supplied)
In another judgment of the Supreme Court titled Enmay Zed
Publications (Pvt.) through Director-General vs Sindh Labour Appellate Tribunal
through Chairman and 2 others(2001 SCMR 565) it has been held that proviso cannot be rendered
ineffective substantial provisions of the main section. The relevant extract is
reproduced hereunder: -
“10. The argument of learned counsel for the
appellant is that the legal effect of the second proviso is that the employer
is also relieved of the requirement of making the decision of termination on
good cause. We are afraid, the argument in our considered view is not
sustainable. If the argument is accepted, not only the main provision of
section 4 to which this second proviso is attached would be rendered redundant
but the entire Act would become ineffective and the purpose for which the same
was enacted i.e., to safeguard and secure the newspaper employee against the
arbitrary and whimsical order of termination by the newspaper Establishment would
also fail and frustrate. According to
the well-established principles of interpretation of statutes and in particular,
the proviso attached to the main section is that the same operates as an
exception and cannot render redundant or ineffective the substantial provisions
of the main section. Notice mentioned in this section and in lieu
therefore payment of salary for the period of notice does not relate to the
earlier provisions of section 4 of the Act which require negative command as
observed above that services of newspaper employee shall not be terminated
except on good cause.”
It is also well settled that if a proviso is
capable of two interpretations, the one narrow and the other one wider, the
Court should prefer the one which brings it within the purview of the main
provision of law. Reference may be placed on the judgment titled as Shahi
Bottlers Limited Vs CIT Central Zone, Lahore (1999) 81 Tax 73 (HC)
wherein it has been held that:-
“If a proviso is capable of a wider connotation and is also capable of narrow connotation, and if the narrow connotation brings it within the purview of the section then the court must prefer the narrow connotation rather than the wider connotation, of the two possible interpretations, the Court should prefer that one which brings it within the purview of the section.’’
6. According
to section 165(1) of the Ordinance, filing of monthly statements is required
only when a person is collecting tax or deducting
tax from payment under respective provisions of law which has not been
established in the present case. If the basis adopted by the assessing officer for
imposing a penalty for non-filing of monthly withholding statements is
accepted, then the words “collecting tax
or deducting tax from payment” incorporated in sub-section (1) of section
165 of the Ordinance would become redundant which cannot be attributed to the
legislature. It is an established principle of interpretation of the statute
that various provisions of the law are to be read together and in a harmonious
manner. The construction of the provisions of the law should not be made in a
manner as to make any part of the law redundant or superfluous. Reference in
this regard can be given on the judgment of the Apex Court reported as Muhammadi
Steamship Company Ltd vs CIT(1966) 14 Tax 281 (SC) wherein it has
been held that: -
“The Income-tax authorities have computed the
capital employed in accordance with these rules. They have given exemption in
respect of assets ranking for depreciation, in respect of lands and other fixed
assets not ranking for depreciation, trading stock and stocks of raw materials
in accordance with rules 4, 5, and 6 but in respect of the capital outlay under
rule 7, they have only included sundry debts due from agents, deposits, and
advances, cash in hand and bank balances in the current account. The only items
that they have excluded are capital invested in investments and fixed deposits
as being capital outlay not used in the undertaking. Learned counsel contends
that in so far as rule 7 purports to restrict ``capital employed in an
undertaking'' to ``capital used in the undertaking'' the rule itself must be
held to be ultra vires as being in excess of the powers given by sub-section
(3). It is argued that sub-section (3) of Section 15B merely authorizes the
Central Board of Revenue to frame rules for the computation of capital and not
to define what is employed in the undertaking. We are, however, unable to accept these contentions, for, if the
intention of the Legislature was that the rule was merely for prescribing the
procedure of computation and nothing more it would have been sufficient in
sub-section (3) to say that the amount referred to in sub-section (1) is a sum
equal to 5% of the capital employed in the undertaking. The words ``such
capital being computed in accordance with the rules made by the Central Board
of Revenue under this sub-section'' would have been wholly unnecessary and
redundant. But since it is a well-established rule of interpretation of
statutes that no words in a statute are to be treated as surplusage or
redundant we cannot ignore these words.” (Emphasis
supplied)
A similar issue came before this Tribunal and
has been dilated upon in the judgments reported as (2017) 115 Tax 167 (Trib),(2017)
115 Tax 206 (Trib), and (2017) 116 Tax 101 (Trib). In these judgments, it has
been held that monthly withholding statements under section 165 (1) of the
Ordinance are required to be filed when a person is collecting or deducting tax
from the payment and not otherwise. It has been further held that a penalty cannot
be imposed when there is no loss of revenue.
7. Now we come up the second reason on the basis whereof the assessing
officer as imposed the penalty that the appellant being a Company is a prescribed
person in terms of section 153(7) of the Ordinance was liable to file monthly
withholding statements in terms of section 165 of the Ordinance. It is now
admitted fact that the appellant is a non-resident Company having no PE in
Pakistan and the only source of income is from dividends, Fee for Technical
Services, and royalty which are subject to Final Tax Regime under section 8 of
the Ordinance. This fact was confronted to the learned DR but he could not
rebut the same. On perusal of sub-section (2) of section 165, it appears that
in both the sub-sections (1) and (2) of section 165 it is a prerequisite that the
monthly statements can only be filed when a person is collecting tax or
deducting tax and not otherwise, therefore, the ratio of judgments of this Tribunal
in the cases reported as (2017) 115 Tax
167 (Trib), (2017) 115 Tax 206 (Trib) and (2017) 116 Tax 101 (Trib) are equally
applicable in the case of a prescribed person as well. It is an immutable
principle of law that imposition of penalty is a deterrent to tax evasion and
when there is no evasion of tax, the penalty cannot be imposed. This Tribunal
in numerous cases has deleted the penalty in such like circumstances, reliance
may be placed on the judgments reported as 2016
SLD 1193, 2017 PTD 770, and 2017 PTD 1080. Further, we have noticed that
neither in the show cause notice nor in the penalty order, it has been alleged
or established by the Assessing Officer that the appellant has willfully and
deliberately did not comply with the provisions of section 165 of the
Ordinance. For the purposes of levy of penalty, an exercise has to be carried
out by the department wherein they have to determine whether or not the
non-filing was deliberate and whether it was done with mala fide intent. For
the purpose of levy of penalty, mens-rea is an essential ingredient, which has
to be established in terms of the judgment of the August Supreme Court of
Pakistan rendered in a case cited at "D.G. Khan Cement Company Ltd and
others v. Federation of Pakistan and others” (2004 SCMR 456). The
Apex Court in numerous cases has observed that there are various ingredients to
invoke penal provisions which are: -
a.
Penalty proceedings being criminal
or quasi-criminal, the establishment of mens-rea is an essential ingredient,
and as such the statutory obligation is on the revenue to prove that the
assessee has acted deliberately in defiance of law or was guilty of conduct
contumacious or dishonest or acted in conscious disregard of his obligation.
b.
In the case reported as PLD 1967 SC 1it was held that “even in the case of statutory offence the presumption
is that mens-rea is an essential ingredient.”
c. In the case reported as PLD 1991 SC 963, it was held that where it could be demonstrated that the assessee did not willfully evade the sales tax it would perhaps be permissible to spare him of the penalty.
8. The provisions of section 182 of the Income Tax Ordinance, 2001
relevant to the penalty imposed in the instant appeals read as under: -
“182.
Offences and penalties:- (1) Any person who commits any
offence specified in column (2) of the Table below shall, in addition to and
not in derogation of any punishment to which he may be liable under this
Ordinance or any other law, be liable
to the penalty mentioned against that offence in column (3) thereof:-
TABLE
|
S.No |
Offences |
Penalties |
Section of the Ordinance to which offence has
reference. |
|
(1) |
(2) |
(3) |
(4) |
|
IA |
Where any
person fails to furnish a statement as required under section 115, 165, or
165A or 165B within the due date. |
Such person
shall pay a penalty of Rs.5000 if the person has already paid the tax
collected or withheld by him within the due date for payment and the
statement is filed within ninety days from the due date for filing the statement
and, in all other cases, a penalty of Rs.2500 for each day of default from
the due date subject to a minimum penalty of Rs.10,000. |
115, 165,
165A, and 165B |
The above provisions would clearly indicate that in case of failure of a taxpayer to furnish a statement as required under section 115, 165, or 165A or 165B within the due date, he shall also be liable to pay penalty. The liability is not automatic would be determined by the Assessing Officer as to whether or not there was any reasonable ground for default in filing the statements which could be considered to be willful and deliberate. In the case titled Shamroz Khan and another v. Muhammad Amin and others(PLD 1978 SC 89), it was held that the expression "he shall be liable to have his defense if any, struck off" used in Order XII, Rule 8, C.P.C., would mean that the Court might strike off defense in an appropriate case and it was not incumbent upon the Court to strike off the defense on failure to supply address. In Haji Abdul Razzak v. Pakistan through Secretary, Ministry of Finance, Islamabad and another (PLD 1974 SC 5) by section 168 of the Sea Customs Act No.VIII of 1878, it was provided that conveyance used in the removal of contrabands would be liable to be confiscated. It was held that the provision still gave discretion to the authorities to confiscate the conveyance and that discretion had to be exercised on sound judicial principles. In Muhammad Musa v. Settlement and Rehabilitation Commissioner and 2 others (1974 SCMR 352), the expression "shall be liable to cancellation" was examined. It was held that expression envisaged application of mind by appropriate authority and that failure of auction-purchaser to pay price or installment did not operate an automatic cancellation of the auction sale. In the case of D.G. Khan Cement Factory (supra), it was observed by reference to section 34 of the Act that each and every case had to be decided on its merits as to whether the evasion or non-payment of tax was willful or mala fide, the decision of which would depend upon the question of recovery of additional tax. In the instant case, there is no material available on record that the non-filing of statements were mala fide or willful act of omission on the part of the appellant.
9. For the foregoing
reasons, the appeals of the appellant are accepted and the penalties imposed on
account of non-filing of statements are hereby deleted.
10. This order consists of
(10) pages and each page bears my signature.
|
|
Sd/- (M.M. AKRAM) JUDICIAL
MEMBER |
|
Sd/- (NADIR MUMTAZ WARRAICH) ACCOUNTANT MEMBER |
|
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