APPELLATE TRIBUNAL INLAND REVENUE, DIVISIONAL BENCH-I,
ISLAMABAD
ITA No.1790/IB/2018
(Tax Year 2018)
&
ITA No.1791/IB/2018
(Tax Year 2019)
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M/s Pak Telecom Mobile Limited, U-Fone Tower, 55-C
Jinnah Avenue, Blue Area, Block J, Islamabad. |
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Appellant
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VS |
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Commissioner Inland Revenue, Zone-IV, LTU,
Islamabad. |
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Respondent |
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Appellant by |
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Mr. Aazar Abdul Hameed, FCA |
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Respondent by |
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Mr. Jawad Khan, DR |
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Date of hearing |
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27.01.2021 |
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Date of order |
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27.01.2021 |
O R D E R
M. M.
AKRAM (Judicial Member): The
titled appeals have been filed by the Appellant/taxpayer against the
consolidated Order in Appeal No.78,79/2018
dated 25.09.2018 passed by the learned CIR (Appeals-I), Islamabad for the tax
years 2018 & 2019 on the grounds as set-forth in the memo of appeal.
2. Briefly facts culled out from the record are that
the taxpayer, Pak Telecom Mobile Limited,
incorporated in Pakistan on July 18, 1998 as a Public Limited Company to
provide cellular mobile telephone services in Pakistan. The company commenced
its commercial operations in January, 2001, under the brand name of U-fone. The
company is a wholly owned subsidiary of Pakistan Telecommunication Company
Limited (PTCL). As a consequence of
PTCL’s privatization during the year 2006, 26% of PTCL shares along with
management control were acquired by Etisalat International Pakistan which is a
subsidiary of Emirates Telecommunication Corporation (Etisalat), based in the
United Arab Emirates (U.A.E). Admittedly, the proceedings in the instant case
were initiated on the direction of the Senate Standing Committee of Finance (SSCF) and in consequence thereof, the Additional
Commissioner Inland Revenue for the purpose of implementation of the instructions
of such Committee, issued a letter bearing C.No.383 dated 16.05.2018 to the
appellant for conducting of withholding audit at their premises. Accordingly,
on-site withholding audit was conducted by the Deputy Commissioner IR with the
help of I.T Experts team of P.R.A.L from May, 30 to May, 31 to analyze and
check veracity of the system so employed by the company to record revenue and
to conduct and collect tax thereon. As per instruction of the SSCF committee the
audit has to be completed by 30.06.2018. During audit proceedings various
reports/ information and data regarding forensic analysis of system were called
for but the appellant failed to do so. It has been alleged that repeated
reminders were issued, therefore, a follow up visit to the premises of the
company was conducted on June 06, 2018 to obtain the required data, but the
appellant failed to apprise the same. However, the appellant provided break up
of only pre-paid revenue through an e-mail on 12.06.2018 but failed to provide
system generated Month-wise Post-paid as well as Pre-paid revenue data, detail
and breakup of revenue earned in FATA or PATA, stock inventory detail of
scratch cards breakup and system report of electronic sale of air time, top up
and easy load, detail of free air time provided, party wise detail of sale to
franchises and other reports etc. Consequently, to meet the dead line provided
by the Standing Committee final reminder dated 19.06.2018 was issued to the
appellant for compliance on 21.06.2018. On 26.06.2018, the appellant through
e-mail provided only revenue amount related to FATA without any supporting
evidence. Therefore, in order to complete the on-site audit, show cause notice
dated 26.06.2018 under section 161 read with section 205 of the Income Tax
Ordinance, 2001 (“the Ordinance”)
was issued to the appellant stating therein that examination of the
information/reconciliation obtained and analyzed during site Withholding Tax audit of the appellant
company for the months of July, 2017 to December, 2017 (pertaining to Special
Tax Year 2018) and January, 2018 to April, 2018 (pertaining to Special Tax Year
2019) has reflected short deposit of withholding tax under section 236 of the
Ordinance amounting to Rs.263,257,097/- and Rs. for the tax years 2018
and 2019 respectively on account of adjustments enumerated in the said notices.
The said notices were issued through I.R.I.S for compliance on 28.06.2019. The
appellant submitted its reply and further requested for extension in time to file
proper response to the notices, however,
the Assessing Officer proceeded to issue the orders dated 30.06.2018 under
section 161/205 of the Ordinance. The
appellant felt aggrieved, filed appeals before the learned CIR (Appeals-I), Islamabad
who decided the appeals of the appellant vide consolidated Order in Appeal No.78,79/2018 dated 25.09.2018. Being
aggrieved, the appellant has now come up before this Tribunal and has assailed
the impugned consolidated order on a number of grounds.
3. The titled appeals
came up for hearing before this Bench on 27.01.2021. Learned AR
reiterated the contentions already submitted in the grounds as set forth in the
memo of appeal and contended that the learned CIR(A) has not adjudicated the
ground of appeal relating to the audit. He argued that in the light of the
judgment of this Tribunal reported as 2015 PTD 654(Trib), the audit under
section 177 of the Ordinance is a necessary prerequisite for invoking the
provision of section 161 of the Ordinance. It has been stated that the orders
under section 161 are based on “withholding tax audit” initiated by the
Additional Commissioner IR whereas only the CIR is empowered to select a person
for audit under section 177 of the Ordinance and that to after providing valid
reasons as held by the Hon’ble Islamabad High Court in the case reported as Pakistan
Telecommunication Company Ltd vs Federation of Pakistan, (2016 PTD
1484). The learned AR argued that since the proceedings are illegal and void
ab-initio, the supper structure based thereon automatically falls to ground. As
far as the withholding of tax from subscribers located in FATA/PATA are
concerned, the learned AR pleaded that both the authorities below have not
properly appreciated the submissions made by the appellant. He argued that the Ordinance
has not been extended to FATA or PATA within the contemplation envisaged under
Article 247(3) of the Constitution of Islamic Republic of Pakistan. Therefore,
none of the provision of the Ordinance would apply in such areas. That’s why
the appellant did not deduct or collect the tax from the subscribers located in
such areas. In support of this, he placed reliance on the judgment of the
Hon’ble Supreme Court reported as 2018 PTD 1204. Further stated that the
Assessing Officer’s contention that tax was required to be deducted unless an
exemption certificate is not available with the withholding agent is also
contrary to the provisions of the Ordinance and the law enunciated and
articulated by the Hon’ble Peshawar High Court in the case reported as 2019 PTD
1652. He therefore, pleaded that the appeal be accepted. On contrary, the learned
DR opposed the appeal on the ground that learned Commissioner (Appeals) has
passed a speaking order and there is no illegality or lacuna in his order.
4. The arguments
advanced by both the learned Counsels have considered and perused the record
with their assistance keeping in view the facts of the case and the law
relevant thereto. Admittedly, the proceedings in the instant case were
initiated and concluded on the directions of the Senate Standing Committee of
Finance (SSCF). It is also an
admitted fact that for the purpose of implementation of the instructions of
such Committee, withholding audit was conducted at the premises of the
appellant by the Deputy Commissioner IR with the help of I.T Experts team of
P.R.A.L from May 30, 2018 to May 31, 2018 to analyze and check veracity of the
system so employed by the company to record revenue and to deduct or collect
tax thereon. As per instruction of the Standing Committee the audit has to be
completed by 30.06.2018 and accordingly the Assessing Officer complied with and
passed the orders for both the tax years on 30-06-2018. It appears that the
Assessing Officer has not applied his an independent mind rather followed the
directions, instructions of the SSCF during the quasi-judicial proceedings and acted upon their whims and wishes
within the stipulated time given by committee i.e 30.06.2018, without adhering
to the law and procedure for the purpose of invoking the provisions of
section 161 of the Ordinance read rule 44 of the Income Tax Rules, 2002. It is
settled law that in case where tax authorities
exercise quasi-judicial function, it
is not even bound by the instructions and directions or orders of the Board
which tend to interfere with its judicial discretion. It has to make its own
decision on the basis of the facts and circumstances and the law applicable to
the case. The provisions of the section 214 of the Ordinance, clearly protects
discretion of the Income Tax Authorities in exercise of their quasi-judicial functions, where the
Board or any other authority does not figure in the hierarchy of the forums
provided for adjudication of taxpayers liabilities to tax. It may be beneficial
here to refer to the judgment in the case of M/s Central Insurance Co. and
others v. The Central Board of Revenue, Islamabad and others, (1993
SCMR 1232). Relevant portion thereof reads as follows:-
“Though the
Central Board of Revenue has administrative control over the functionaries
discharging their function under the Ordinance, but it does not figure in the
hierarchy of the forums provided for adjudication of assessee’s liability as to
the tax. Any interpretation placed by the Central Board of Revenue, on a
statutory provision cannot be treated as pronouncement by a forum competent to
adjudicate upon such a question judicially or quasi-judicially. The Central
Board of Revenue cannot issue any administrative direction of the nature which
may interfere with the judicial or quasi-judicial functions entrusted to the
various functionaries under a statute. The functionaries and directions of the
Central Board of Revenue are binding on the section 8 so long as they are
confined to the administrative matters. The interpretation of any provision of
the Ordinance can be rendered judicially by the hierarchy of the forums
provided for under the above provisions of the Ordinance, namely, the Income-Tax
Officer, Appellate Assistant Commissioner, Appellate Tribunal, the High Court
and the Supreme Court and not by the Central Board of Revenue. In this view of
the matter, the interpretation placed by the Central Board of Revenue on the
relevant provisions of the Ordinance in the Circular, can be treated as
administrative interpretation and not judicial interpretation.”
The above judgment of the Hon’ble Supreme Court has
recently been followed in another case reported as Collector of Customs, Islamabad vs M/s Asakri
Cement (Pvt.) Ltd and others, 2020
SCMR 649. Therefore, by
respectfully following the judgments of the Hon’ble Supreme Court, the
proceedings initiated and concluded by the Assessing Officer are void ab-initio
and without jurisdiction.
5. The Assessing
Officer while passing the order under section 161/205 of the Ordinance for the
tax year 2018 observed at Page 6 second Para of the order that:-
“……………….It
is pertinent to mention here that the deadline to complete this forensic audit
was 30-06-2018 and Taxpayer Company has been duly intimated in this respect.
Further, the reason of this audit was to check the veracity of the system so
deployed by the taxpayer company to record revenue under various heads and to
collect and deduct due taxes thereon. The taxpayer company should appreciate
the fact that during the course of audit various quarries have been raised by
this office as well as by the I.T team of P.R.A.L regarding sales and deduction
of tax, which has to be duly verified through system generated reports, which
taxpayer company failed to provide. However,
Taxpayer Company provided reconciliation of the revenue and taxes with the
withholding statements, which was not the purpose of this audit.
Forensic audit was meant to verify the system so employed by the
taxpayer for recording the revenue earned as well as taxes deducted thereon,
therefore, taxpayer Company was duly bound to provide the reports and data
extracted from the system to this office for the completion of audit.”
The above findings of the Assessing Officer clearly suggest that
the purpose of the audit was just to verify the system so employed by the
taxpayer company for recording of revenue earned as well as taxes deducted or
collected thereon and not for the reconciliation of the revenue and taxes with
the withholding statements. If, foregoing was the only purpose of audit then why
the Assessing Officer passed the order under section 161 read with 205 of the
Ordinance without adhering to the proper procedure given in Rule 44 of the Income
Tax Rules, 2002 and the law lay down by the Courts in respect thereof.
6. According
to the law laid down by the Hon’ble High Court, the following are the basic
requirements for assuming the jurisdiction under section 161 of the Ordinance:
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(i) Taxpayer is
a withholding agent and comes under the definition of prescribed person.
(ii) A
particular transaction is liable to deduction/withholding; and
(iii) That
specific tax of a specific person was to be withheld who could take credit of
the tax recoverable under section 161 of the Ordinance.
Reliance may be
placed on the judgment titled as CIR Vs Islam Steel Mills,
(2015 PTD 2335) and M/s Nishat (Chunian) vs Federal Board of Revenue, (2015
PTD 1385). The record shows that the case of the revenue is held to be
deficient on this account. The Assessing Officer has not kept in mind the scope
of all the three provisions of law i.e. section 161, section 205 and Rule 44 of
the Income Tax Rules, 2002 as none of them provide the kind of mandate he has
derived. For the sake of convenience, sub sections (1) and (1A) of section 161
are reproduced, as under: -
“161. Failure to pay tax collected or
deducted.— (1) Where a person –
(a) fails to
collect tax as required under Division II of this Part 1 or Chapter XII or
deduct tax from a payment as required under Division III of this Part or
Chapter XII or as required under section 50of the repealed Ordinance; or
(b) having
collected tax under Division II of this Part 4 or Chapter XII or deducted tax
under Division III of this Part or Chapter XII fails to pay the tax to the
Commissioner as required under
section 160, or having collected tax under section 50 of the repealed Ordinance
pay to the credit of the Federal Government as required under sub-section (8)
of section 50 of the repealed Ordinance,
the person shall
be personally liable to pay the amount of tax to the Commissioner who may pass
an order to that effect and proceed to recover the same.”
(1A) No recovery
under sub-section (1) shall be made unless the person referred to in
sub-section (1) has been provided with an opportunity of being heard.”
Sub-section
(1) of section 161 can only be invoked in two situations, firstly, to recover
tax under the provisions of Clause (a) of sub section (1) thereof from a person
who fails to collect tax or deduct tax and secondly, to recover tax under the
provisions of Clause (b) of sub section (1) thereof from a person who after
having collected tax or deducted tax fails to pay to the Commissioner. Before
issuance of a show cause notice under section 161 of the Ordinance, there must
be identified any amount of tax which falls within the mischief of above
mentioned two eventualities. In this case, the Assessing Officer, instead of
seeking reconciliation under Rule 44(4) has demanded production of records
which are not permissible within the scope of section 161. We are of the view
that the Assessing Officer has not identified any recoverable amount of tax at
a point of time prior to resort to invoking the machinery provision of section
161 provided in the scheme of the Ordinance for recovery of tax in specific
circumstance. Determination of default of the withholding agent is the
condition precedent for invoking the provisions of section 161 of the Ordinance.
The action of the Assessing Officer is therefore, held to be departed from the
scope of the provisions of sections 161 and 205. The CIR (Appeals) has also
failed to take notice of the deficiency mentioned above and has fell an error of
confirming the action of the Assessing Officer.
7. Section 205 of the Ordinance provides
powers to the Commissioner to charge default surcharge for late payment of tax
which is computed from the date on which payment of withholding tax was due
under Rule 43 of the Income Tax Rules, 2002 read with section 158 of the Income
Tax Ordinance, 2001. Unless and until findings have been given to the effect
that any amount of tax deducted or collected is paid after the time prescribed
under the law, the provisions of section 205 cannot be pressed into service.
8. Similarly the Rule 44(4) of the Income
Tax Rules, 2002 envisage that: -
“(4) A person required to furnish the
statement under sub-rule (1) or (2) shall, wherever required by the
Commissioner, furnish a reconciliation statement of the amounts mentioned in
the aforesaid annual and monthly statements with the amounts mentioned in the return
of income, statements, related annexes and other documents submitted from time
to time.”
Rule 44(4) provides powers to the Commissioner to seek
reconciliation between the payments mentioned in the return of income tax read
with audited accounts thereto and the withholding statements filed under
section 165. Before issuance of notice under section 161, it is incumbent upon
the Assessing Officer to issue notice under Rule 44(4) to seek reconciliation
thereunder. Reliance is placed on judgments of the Hon’ble Lahore High Court,
Lahore titled as M/s Noon Sugar Mills Ltd Vs FOP, (2015 PTD 1653), WP
No. 25020 of 2014 RE: Sahir Associates (Pvt) Ltd Vs FOP, Akhtar
Saeed Medical & Dental College Vs FOP etc, 2015 PTD 267 (H.C), M/s
Nishat ChunianVs Federal Board of Revenue, (2014 PTD 2078). In
the instant case, there is no mention of issuance of notice under Rule 44(4) or
the reconciliation provided thereunder. In other words, the Assessing Officer
has not identified any un-reconciled amount before issuing the show cause
notice under section 161(1A). The proceedings in the case were initiated
directly by issuing notice under section 161/205 of the Ordinance without first
adopting the procedure as contemplated in Rule 44(4) of the Income Tax Rules,
2002 therefore, the proceedings are contrary to the procedure prescribed in the
Ordinance and the law laid down by the Hon’ble High Court in the judgments
cited supra. The Assessing Officer has not mentioned the defects in the
statements filed under section 165 of the Ordinance. In case the statements
under section 165 of the Ordinance were not filed or the same were filed but
were lacking in making correct disclosure, the appropriate course was to
confront the taxpayer on this account and impose penalty under section 182 of
the Ordinance. The Assessing Officer has not given findings in his order to the
effect of any deficiency in the conduct of the appellant taxpayer in filing of
the statements under section 165 ibid. It appears that he was satisfied with
the quality of disclosures required to be made in terms of statements under
section
9. We
have noted that in the instant case, the so called audit has been conducted for
the months of July, 2017 to December,
2017 (pertaining to Special Tax Year 2018) and January 2018 to April 2018 (pertaining to Special Tax Year
2019) and the liability under section 161 is created to the extent of the said
period only. When the provisions of section 161 read with rule 44 of the Income
Tax Rules, 2002 read together, it clearly emerges that a reconciliation has
to be made with the statement of the amounts mentioned in the annual and
monthly statements with the amounts mentioned in the return of income,
statements, related annexes and other documents submitted from time to time.
Therefore, in the event of reconciliation, if one thing is missing either
monthly statements or income tax return, the question of reconciliation would
not arise and accordingly, the said rule would not come into service. Thus, for
reconciliation to ensure that the appellant being
withholding agents of the Government, has deposited all amounts that it were
required to collect or deduct of withholding tax in the Government treasury both
the documents i.e return and monthly statements should co-exist for invoking
the provisions of section 161 read with rule 44 ibid. If one thing is missing
then the Assessing Officer is required under the law to first adopt the course
to make available under the Ordinance to cure the deficiency and thereafter should
proceed under the said rule. In the instant case, while determining the tax
liability such provisions have not been kept in mind by the Assessing Officer.
Therefore, on this score also, the orders passed by the Assessing Officer are unsustainable
in the eye of law.
10. For complete justice, now
we come to the contentions of the appellant that in the light of the judgment
of this Tribunal reported as 2015 PTD 654(Trib), the audit under section 177 of
the Ordinance is a necessary prerequisite for invoking the provision of section
161 of the Ordinance. This contention of the learned AR is flawed and against
the statutory provisions, hence not sustainable. Under the scheme of the
Ordinance, there are two types of taxable liabilities
on the person who comes within the ambit of the Ordinance, one relates to the assessment
of his taxable income and the other, being withholding agent, inter alia is
required to deduct, collect or pay the tax under different provisions of the
Ordinance. Accordingly, the person is required to file his income tax return
under section 114 of the Ordinance and monthly/quarterly statements as well as
a yearly statement under Section 165 of the Ordinance to show the total
withholding tax deducted under Division III of Chapter XII of the Ordinance and
the total amount of tax collected under Division II of Chapter XII of the
Ordinance. Rule 44 of the Income Tax Rules, 2002 provides for the forms in
which statements under Section 165 have to be filed and for the statutory
period within which they have to be filed. Sub-rule (4) of Rule 44 provides
that a Commissioner can call for a reconciliation statement from a taxpayer
with respect to all amounts mentioned in the monthly or yearly statement filed
under Section 165. The provisions of section 177 has restricted its scope to
the extent of conducting of an audit of the income tax affairs of the person
relating to his income and after completion thereof, the proceedings has to be
initiated either under section 122 or 121 of the Ordinance in terms of
sub-section (6A) and (10) of section 177 respectively. Similarly, if the person
fails to deduct or collect and pay the tax, the provisions of section 161 ibid
are available for such default and a separate mechanism is available in the
shape of rule 44 of the Income Tax Rules, 2002 to proceed against the person
who fails to deduct or collect and pay the tax. After reconciliation under rule
44, if the Assessing Officer arrives to the conclusion that certain
transactions are unverifiable and the person fails to deduct or collect the tax
then he shall issue a notice to the taxpayer/person under section 161 of the
Ordinance and after giving proper opportunity of being heard as provided under
section 161(1A) shall pass the order. Thus, for the foregoing reasons, it is
crystal clear that the Ordinance caters both the eventualities with an
independent mode and manner under separate mechanism and provisions of law.
11. As
far as the withholding of tax from the subscribers located in FATA/PATA are
concerned, the contention of the appellant is well founded. It is now well settled
legal position that the Sales Tax Act, 1990 (“the Act”) and the Income Tax Ordinance, 2001 (“the Ordinance”) have not been extended to FATA or to PATA, within
the contemplation of Article 247(3) of the Constitution of Islamic Republic of
Pakistan. It is a matter of record that, the Hon’ble High Courts, and the august
Supreme Court have in the past rendered their valuable findings on the extent
of applicability of the provisions of Act and the Ordinance, to persons
carrying on business in FATA and PATA. The review of the said decisions, reveal
that the views of the superior Courts have evolved with time. The Hon’ble
Peshawar High Court in the case titled as M/s Taj Packages Company (Pvt) Ltd Vs
Government of Pakistan and 6 others, (PTCL 2016 CL 402) has almost
considered all the judgments and traced the stages of evolution in the judicial
views, so rendered by the High Courts, and that of the august Supreme Court and
the summary of the judicial pronouncements on core issues rendered, are as
follows: -
“Supreme Court.
I.
That
the Ordinance and the Act have not been extended to FATA or PATA within the
contemplation envisaged under Article 247 (3) of the Constitution.
II.
Persons carrying on business and deriving
income within FATA or PATA would not be liable to payment of Sales Tax and
Income Tax under the Act and the Ordinance, respectively.
III.
The
principle laid down in Master Foam’s case (supra) cannot be borrowed and
extended to a person carrying on business in FATA or PATA, as the Ordinance has
not been extended to FATA or PATA.
IV.
The
only exception to the general rule of exemption from payment of Income Tax
under the Ordinance to a person carrying on business in FATA or PATA is when
the said person extends its business beyond the territorial limits of FATA or
PATA into the settled areas.
V.
The
Revenue has the authority under the Ordinance to carry out an inquiry to
ascertain whether the person is carrying on business in FATA or PATA or has
extended the scope of its business or commercial activities beyond the
territorial limits of the said area into the settled area.
VI.
The
final judgment in the field, which is to determine the applicability of the
Ordinance, would be adjudged on the principles laid down in the judgment of the
Apex Court in review of its decision in Gul Cooking Oil’s case, which was also
confirmed in the decision of the Apex Court in Review of its decision in
Mahsood Ghee Industries case.
High Court.
I.
Sales
Tax and Advance Income Tax is leviable at import stage from persons carrying on
business in FATA or PATA.
II.
Sales
Tax paid at import stage is non-refundable to a person carrying on business in
FATA or PATA.”
Recently the Hon’ble Supreme Court in the case titled as Pakistan
through Chairman FBR and others Vs Hazrat Hussain and others, (2018
PTD 1204) it has been observed that the Constitution itself grants a complete
immunity for, and in relation to, Sales Tax and Income Tax in FATA/PATA.
Therefore, it is evident that the Ordinance and the Act has not been extended
to FATA or PATA therefore, none of the provision of the Ordinance is
applicable. Thus, the question of withholding of tax does not arise against a
person who is located in FATA or PATA. However, it is incumbent upon the
appellant to establish with evidence that the appellant was not required to
deduct or collect tax under section 236 of the Ordinance on prepaid balance
recharge and post-paid bills of subscribers located in FATA or PATA. However,
the record shows that the appellant has not provided any proof of such
transactions before the Assessing Officer.
12. For what has been
discussed above, the proceedings initiated by the Assessing Officer are void
ab-initio and therefore, not sustainable in the eye of law. Accordingly, the
orders passed by both the authorities are annulled. However, it is made clear
that fresh/de-novo proceedings may be initiated by the competent authority
within the stipulated time in accordance with law.
13. In view of the above, the
appeals of the appellant are accepted. This order consists of consists of (13) pages and each page bears my signature.
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(M.M. AKRAM) JUDICIAL MEMBER |
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(IMTIAZ AHMED) ACCOUNTANT
MEMBER |
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