APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,
ISLAMABAD
ITA No.1883/IB/2023
MA(AG) No.171/IB/2023
ITA No.1884/IB/2023
MA(AG) No.172/IB/2023
ITA No.1885/IB/2023
MA(AG) No.173/IB/2023
ITA No.1885-A/IB/2023
MA(AG) No.174/IB/2023
MA(Stay) No.1782/IB/2023
MA(Stay)
No.1783/IB/2023
MA(Stay)
No.1784/IB/2023
MA(Stay)
No.1785/IB/2023
(Tax Years
2015 to 2018)
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Mr. Anjum
Khalid Malik, House No.02, Street No.16E, Sector C, Bahria Enclave, Islamabad. |
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Appellant |
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Vs |
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Commissioner
Inland Revenue, Cant Zone, RTO, Rawalpindi |
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Respondent |
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Appellant By: Respondent
By: |
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Mr. Nazir Abdul Wajid,
Advocate Ms. Maria Sharif, DR |
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Date of Hearing: |
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14.09.2023 |
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Date of Order: |
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14.09.2023 |
ORDER
M. M. AKRAM (JUDICIAL MEMBER): The
titled appeals as well as MA (Additional Grounds) along with stay applications have
been filed by the appellant/taxpayer against impugned Appellate Orders all dated
21.09.2021 passed by the learned Commissioner Inland Revenue (Appeals-III), Islamabad
for the tax years 2015 to 2018 on the grounds as set forth in the memo of
appeals. The facts of the case and the issue involved in all these appeals are
similar, therefore, these appeals are being decided through this common order.
2. Brief facts culled out from the record are that the department-initiated proceedings under section 182(2) of the Income Tax Ordinance, 2001 (“the Ordinance”) on the ground that the appellant was required to furnish returns of income for the tax years 2015 to 2018 which he failed to file by the due date despite service of notices under section 114(4) of the Ordinance. Show cause notices under section 182 for the imposition of penalty were issued but the appellant allegedly failed to respond. The assessing officer, therefore, imposed penalties at Rs.40,000/- for each tax year. Being aggrieved taxpayer filed appeals before the CIR (Appeals-III), Islamabad who vide Appellate Orders dated 21.09.2023 confirmed the orders passed by the Deputy Commissioner Inland Revenue in a slipshod manner. Felt aggrieved with these orders, the appellant has preferred appeals before this forum and assailed the impugned orders on a number of grounds.
3. This
case came up for hearing on 14.09.2023. The learned AR for the appellant at the
very outset contended that the impugned orders are void ab-initio and without
jurisdiction on the ground that without first determining the tax payable under
sections 120, 121, 122, or 122D the penalty prescribed at serial No. 1 can not
be imposed as the said penalty is depending upon with the tax payable. He
explained that in the instant case, the learned assessing officer has imposed
the penalty before determining the tax payable by the appellant. He, therefore,
pleaded that on the said sole ground the penalty is liable to be deleted. When
confronted with this to the learned DR, she frankly conceded the arguments of
the learned AR.
4. We have heard the arguments and perused
the record. Undisputedly, the appellant filed the returns of income for all the
tax years under consideration after passing the impugned penalty orders. The
arguments advanced by the learned AR for the appellant have substance. The
following question emerges for determination by this tribunal: -
Whether the penalty
prescribed in serial No.1 of Table of section 182 of the Ordinance could have
been imposed before determining the tax payable by the taxpayer under sections
120, 121, 122, or 122D of the Ordinance?
First, it
has to be considered precisely the nature of the penalty proceeding. Is it
possible to say that simply because the word "penalty" is used in a
statute, it has classified that proceeding as a proceeding of a criminal
nature? When a statute provides for the imposition of a penalty, it will have
to be found out from the scheme of the Ordinance and the particular provision
under which penalty is imposable, whether the imposition of penalty is provided
as a punishment for an offence. Simply because something more than the usual
payment of tax that is payable by an individual is imposed on him, could it be
said that punishment is inflicted on him for an offence he has committed? Once
again, it will have to be kept in mind that as human values have been changing
and changing at a fast pace, a spate of social legislation has been taken up by
all countries, particularly developing countries like India. Taxation statutes
have two purposes. They are intended not only to collect revenues for the State
but also for bringing about social justice and to enable the State to implement
social welfare schemes undertaken by it. Consequently, several taxation
statutes, if not all, have taken great care in making provisions for the
collection of taxes imposed, as speedily as possible. If there is a delay on
the part of the taxpayer to pay his taxes, taxation statutes have provided for
not only remedial and coercive proceedings, but also punishments treating
certain tax delinquencies as offences. These several measures should not be
confused with each other. The position has been explained thus in Corpus Juris
Secundum, Volume 85, on page 580: -
"A penalty imposed for a tax delinquency is a
civil obligation, remedial and coercive in its nature, and is far different
from the penalty for a crime or a fine or forfeiture provided as punishment for
the violation of criminal or penal laws."
On the
same page, it proceeds to state: -
"In some jurisdictions, it is
held that the penalty becomes, by operation of the statute imposing it, a part
and parcel of the taxes due, and in other jurisdictions, penalties are a type
of tax. In still other jurisdictions, however, it is held that the penalty is
not a part of the tax, and that will not be regarded as a legal incident to a
tax. It is merely a method of enforcing payment of the tax."
It was
held by the Supreme Court of the United States dealing with the nature of
penalties in Guy T. Helvering v. Charles E. Mitchell (303 US 391): -
"Where the civil procedure is prescribed for
the enforcement of remedial sanction, the accepted rules and constitutional
guarantees governing the trial of criminal prosecutions do not apply."
Once
again, the Supreme Court of the United States, dealing with penalties imposed
for evasion or avoidance of payment of income-tax, observed in Murray R.
Spies v. the United States, (317 US 492 at 495): -
"The penalties imposed by Congress to enforce
the tax laws embrace both civil and criminal sanctions. The former consists of
additions to the tax upon determinations of fact made by an administrative
agency and with no burden on the Government to prove its case beyond a
reasonable doubt. The latter consists of penal offences enforced by the
criminal process in a familiar manner. Invocation of one does not exclude
resort to the other... The failure in a duty to make a timely return, unless it
is shown that such failure is due to reasonable cause and not due to willful
neglect, is punishable by an addition to the tax of 5 to 25 percent thereof
depending on the duration of the default... The offence may be more grievous
than a case for a civil penalty. Hence, the willful failure to make a return,
keep records, or supply information when required, is made a misdemeanor, with
regard to the existence of tax liability."
5. We
will now examine how the Income Tax Ordinance, 2001 dealt with the
penalties. Practically all taxing statutes lay down their own procedure and
machinery for enforcing, implementing their provisions. It must be remembered
that all these taxation laws are intended to fetch revenue for the State to
enable it to run its administration and implement welfare programs. There shall
be neither evasion of tax, nor delay in the procedure relating to assessment
and collection of taxes. In order to see that payment of tax is not evaded, and
that there is no delay in assessment or the collection of the tax imposed,
every taxation statute lays down a clear-cut procedure. While doing so, the
statute may treat minor delinquencies lightly, some other delinquencies which
are not simple in nature slightly harshly, and delinquencies of grave nature
very severely. The Income Tax Ordinance, 2001 adopts the same policy. If
the Ordinance is analyzed, it could be seen that it has dealt with different
types of penalties in different ways. Section 182 of the Ordinance deals with
"Penalties imposable" separately. The said Section 182 defines the offences described in column (2) of the
Table given in the section and makes a person liable to the penalty mentioned
against that offence in column (3). Primarily, therefore, the provision is about
the imposition of penalties. However, the nature of section 182 is to describe
various offences and penalties for those offences by taxpayers under various
provisions of the Ordinance. Those sections have been mentioned in column (4)
of the Table given in section 182. That is the entire scheme which permeates
section 182.
6. In
the backdrop of the aforesaid analysis, now we turn to the question. It would
be beneficial to first reproduce hereunder the relevant provision of the Ordinance
at the time of passing the penalty order:-
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
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Sr No. |
Offences |
Penalties |
Section of the Act to which offences have reference |
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(1) |
(2) |
(3) |
(4) |
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1 |
Where
any person fails to furnish a return of income as required under section 114
within the due date. |
Such
person shall pay a penalty equal to 0.1% of the tax payable in
respect of that tax year for each day of default subject to a maximum penalty
of 50% of the tax payable provided that if the penalty worked
out as aforesaid is less than forty thousand rupees or no tax is
payable for that tax year such person shall pay a penalty of forty
thousand rupees: Provided
that If seventy-five percent of the income is from salary and the amount of
income under salary is less than five million Rupees, the minimum amount of
penalty shall be five thousand Rupees: “Provided
further that if taxable income is up to eight hundred thousand Rupees, the
minimum amount of penalty shall be five thousand Rupees: Provided also that
the amount of penalty shall be reduced by 75%, 50% and 25% if the return is
filed within one, two and three months respectively after the due date or
extended due date of filing of return as prescribed under the law. Explanation.— For the purposes of this
entry, it is declared that the expression “tax payable” means tax chargeable
on the taxable income on the basis of assessment made or treated to have been
made under sections 120, 121, 122 or 122C. |
114 and 118 |
It
can be seen from the above provision of law that the levy of a penalty is
dependent on the tax payable. Before triggering the above penalty provision, it
is mandatory on the part of the taxpayer to file the return of income in
compliance with section 114 of the Ordinance, and in default thereof, the
assessing officer has to pass the order under section 121 of the Ordinance to
determine the tax payable. According to the above-stated provision, the
computation of the penalty is dependent on the tax payable, therefore, the
assessing officer has to first determine the tax payable and thereafter, he has
to decide or reach the conclusion that the penalty is equal to 0.1% of the tax
payable in respect of that tax year for each day of default subject to a
maximum penalty of 50% of the tax payable provided that if the penalty worked
out as aforesaid is less than forty thousand rupees or no tax is payable for
that tax year such person shall pay a penalty of forty thousand rupees. Although
a penalty proceeding is different from an assessment proceeding and is not a
mere formality. It starts after the assessment proceedings are over/completed.
We are, therefore, of the view that in the absence of determining the amount of
tax payable, no penalty can be imposed, as the amount of penalty is firstly
directly co-related with the amount of tax payable. Quantum of penalty has a
nexus to the amount of tax payable and if no tax is payable then a minimum
penalty can be imposed. We are of the view that the purpose of the law is to
curb and prevent tax evasion as reflected in and determined by the amount of
tax sought to be evaded. It would be useful to refer to the judgment of the
Hon’ble Lahore High Court in the case of Commissioner of Income Tax/
Wealth Tax, Companies Zone III, Lahore v. Idara-I-Kissan Lahore,
(2006 PTD 2569). In this judgment, the Hon’ble Lahore High Court has held that
it was settled law that if the law prescribes a particular manner and procedure
in which things are required to be done, the same must be done that way or not
at all. Going by this principle, the assessing officer before imposition of
penalty under section 182 of the Ordinance has to first determine the tax
payable under sections 120, 121, 122, or 122D of the Ordinance. Admittedly, the
assessing officer has not adopted the foregoing procedure and has imposed the
penalty before determining the tax payable under section 121 of the Ordinance,
therefore, the imposition of penalty is unsustainable in law. Under the
circumstances, the appeals of the appellant are accepted and the orders passed
by the lower authorities are annulled.
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Sd/- (M.
M. AKRAM)
JUDICIAL MEMBER |
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Sd/- (SAJID NAZIR MALIK) ACCOUNTANT MEMBER |
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