APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I ISLAMABAD
ITA No.44/IB/2025
MA(Cond) No.37/IB/2025
MA(Stay) No.139/IB/2025
(Tax Year, 2019)
ITA No.45/IB/2025
MA(Cond) No.38/IB/2025
MA(Stay) No.163/IB/2025
(Tax
Year, 2022)
********
O R D E R
M. M. AKRAM (JUDICIAL MEMBER): The appellant taxpayer has filed the
present appeals along with applications for condonation of delay and stay
against the impugned orders dated December 28, 2021, and October 31, 2024,
concerning the tax years 2019 and 2022, respectively. These orders were issued
by the Deputy Commissioner of Inland Revenue, Range-I, Unit-I, Zone-II, CTO,
Islamabad. The appeals are based on the grounds outlined in the respective
memoranda of appeals. As the facts of the case and the issues involved in these
appeals are identical, they are being decided through this common order.
2. The brief facts of the case, as derived
from the record, are that the appellant is a private limited company engaged in
the business of providing services, as per the information available in ITMS.
The taxpayer is a prescribed entity under sections 153(7), 149/155/233, and
other advance tax provisions of the Income Tax Ordinance, 2001 (hereinafter
referred to as "the Ordinance") and falls within the
jurisdiction of the respondent unit for withholding tax purposes. In accordance
with section 161 of the Ordinance, the appellant taxpayer is required to remit
the tax collected or deducted under various provisions of the law and submit a
prescribed statement to the Commissioner every month, as per section 165 of the
Ordinance. A review of the Returns of Income and audited accounts for the tax
years 2019 and 2022, in conjunction with the withholding statements, reveals that
the taxpayer has claimed substantial expenses. However, the withholding
statements filed for the relevant period indicate that the taxpayer has failed
to fully fulfill its legal obligations as a withholding agent, as the
withholding tax was not properly accounted for as required by the Ordinance. As
a result, a notice under Rule 44(4) of the Income Tax Rules 2002 was issued,
requesting the taxpayer to reconcile the heads of expenses with the payments
made and the corresponding deductions/collections of withholding tax. However,
there was no response from the taxpayer, either by attending the office or
submitting the requested records. Consequently, show cause notices were issued
under section 161(1A) for both tax years under consideration, but the taxpayer
failed to comply. Despite several opportunities provided to the appellant, no
response was received. As a result, the assessing officer passed separate
impugned orders for both tax years. Dissatisfied with these orders, the
appellant filed appeals before this tribunal on various grounds.
3. The case was heard on 27.02.2025. The
learned AR for the appellant submits on the condonation of delay applications
that the impugned order was served in violation of the mandatory provisions
delineated in Section 218 of the Ordinance. Specifically, he contends that the
manner of service of notice did not comply with the prescribed methods under
Section 218, which clearly delineates the appropriate modes of service for both
individuals and non-individual entities. In particular, for companies and legal
entities, service must be conducted in accordance with Clauses (a), (b), and
(c) of subsection (2) of Section 218. These clauses outline service on the
entity's representative, at its registered office, or in accordance with the
Civil Procedure Code, all of which are applicable to non-individual entities. However,
the appellant argues that Clause (d) of subsection (2), which refers to
electronic service on an individual, is a drafting error that does not apply to
companies or legal entities. The reference to the electronic service of an
individual in Clause (d) creates confusion, as companies operate through
representatives, not individuals. Therefore, the appellant asserts that
electronic service under Clause (d) is inapplicable to companies and should not
be relied upon. As such, service should have been effected through the
appropriate methods prescribed in Clauses (a), (b), and (c), and any failure to
adhere to these provisions renders the service of notice and order invalid.
4. On the merits of the case, the learned AR
for the appellant raises concerns regarding various procedural violations and
breaches of legal principles in the impugned order. He asserts that the learned
DCIR issued the impugned order without properly considering the documentary
evidence presented by the appellant and without providing the appellant a fair
opportunity to be heard, thus violating the principle of audi alteram partem,
which mandates that all parties be allowed to present their case. The appellant
relies on several decisions of the Supreme Court of Pakistan, including those
reported in 2004 PLD 441, 1994 SCMR 2232, and 1996 PLD 536, which emphasize the
importance of adhering to these principles.
5. Furthermore, the appellant argues that the
DCIR disregarded the instructions issued by the Hon’ble Supreme Court of
Pakistan, particularly concerning Section 161 of the Ordinance. The DCIR's
reliance on a generalized show-cause notice was inconsistent with the Supreme
Court’s rulings, such as in the cases reported in 2021 PTD 1367 (MCB Bank) and
2023 SCMR 1856, as well as the Appellate Tribunal Inland Revenue’s decision in
126 TAX 114. Additionally, the appellant contends that the impugned order is
void and illegal due to the failure to follow mandatory legal provisions. It is
well-established that limitation periods do not apply to orders passed in
violation of mandatory legal requirements, as affirmed by the Supreme Court in
its decisions reported in 2007 SCMR 834 and 2007 SCMR 262. This principle is
further reinforced by the Appellate Tribunal Inland Revenue’s decision in 2011
PTD 726, which clarifies that where the adjudicating authority violates
principles of natural justice, no limitation applies. In conclusion, the
learned AR for the appellant asserts that despite repeated requests to transfer
the jurisdiction from the Islamabad Capital Territory tax office to the Karachi
tax office, these requests have been disregarded, further compounding the
procedural irregularities in the case.
6. In contrast, the learned DR supported the
order of the assessing officer and argued that the mode of service utilized by
the officer in the instant case, as per clause (d) of subsection (2) of section
218 of the Ordinance, which permits service through electronic means in
accordance with the procedure outlined in rule 74, is valid and appropriate.
The DR further pointed out that the Hon'ble Peshawar High Court recently
affirmed the validity of such a mode of service, ruling in favor of the
department in a reference application. Consequently, the DR contended that both
appeals are clearly time-barred and should, therefore, be dismissed on this
score alone.
7. We have heard the parties and reviewed the
record. It is important to note that the appellant’s status under the Ordinance
is that of a "Company" as defined in section 2(12) read with section
80 of the Ordinance. Therefore, the appellant’s case falls within the scope of
section 218(2) of the Ordinance for the purpose of the service of notice,
order, or requisition. The primary issue before this Tribunal relates to the
interpretation of Section 218(2)(d) of the Ordinance. It is undisputed
that the impugned recovery orders were issued under sections 161/205 on December
28, 2021, and October 31, 2024, in respect of the tax years 2019 and 2022,
respectively, and were served upon the appellant on the same dates via
electronic means, as prescribed under Section 218(2)(d) of the Ordinance read
with rule 74 of the Income Tax Rules, 2002. The appeals, however, were filed on
January 30, 2025, while the statutory limitation period for filing an appeal is
thirty days, as provided in Section 131(1) of the Ordinance.
8. Before interpreting the provisions of
section 218(2)(d), which are relevant to the present case, we shall first
examine the recent judgment of the Hon’ble Peshawar High Court in the case of Commissioner
of Inland Revenue, Peshawar Zone, RTO, Peshawar Vs Miss Shabnam Riaz,
bearing Tax Reference No. 79-P/2022, delivered on 27.01.2024. In this judgment,
the Court critically addresses two main issues: the validity of service of the
assessment order on an individual via electronic means and the
commencement of the limitation period for filing an appeal under Section 127(5)
of the Ordinance.
i.
Validity of Electronic Service [Section
218(1)(d)]:
The Court holds that the
service of the assessment order via electronic means is legally valid and in
line with Section 218(1)(d) of the Ordinance, which allows for such service
provided it is done in the prescribed manner. This provision, introduced by the
Finance Act of 2018, treats electronic service as an independent and valid
method of serving notices, orders, or requisitions on individuals or entities.
The Court disagrees with the Tribunal’s stance, which suggested that the
limitation period for filing an appeal would begin only when the taxpayer
receives an attested physical copy of the assessment order. The Court points
out that the Tribunal’s interpretation fails to align with the legislative
intent, which seeks to streamline and modernize service methods through
electronic means. The Court emphasizes that the use of "or" in
Section 218 signals that each mode of service (including electronic service) is
a distinct and independent method that can be considered sufficient for legal
purposes when completed correctly, as per the prescribed requirements.
ii.
Commencement of the Limitation Period [Section
127(5)]:
The Court holds that the
limitation period for filing an appeal, as prescribed under Section 127(5) of
the Ordinance, begins from the date the taxpayer receives the assessment order
through any of the prescribed modes of service (including electronic service),
not from the date the taxpayer receives an attested copy of the order. Section
127(5) specifies that the appeal must be filed within thirty days from the
"date of service" of the assessment order or notice of demand. The
use of the word "shall" makes this a mandatory provision, and the
Court stresses that the limitation period should not be extended based on
subjective interpretations that overlook the clear statutory language.
iii.
Tribunal's Error:
The Court criticizes the
Tribunal for condoning the delay in filing the appeal. It argues that the
Tribunal’s decision fails to apply the clear statutory framework that defines
the commencement of the limitation period. By accepting an alternative interpretation
that the limitation period begins only when the taxpayer receives an attested
copy of the order (as opposed to the date of electronic service), the
Tribunal's decision introduces unnecessary procedural leniency that is
inconsistent with the law's intent. The Court points out that such an approach
could undermine the efficiency and purpose of the statute, which aims to ensure
timely appeals and prevent delays.
In
conclusion, the Court holds that electronic service is a valid and sufficient
method for serving assessment orders, and the limitation period for filing an
appeal starts from the date the taxpayer receives the order via any of the
prescribed methods of service, including electronically. The Court finds that
the Tribunal misapplied the law and thus erred in its decision to condone the
delay in filing the appeal.
9. We now proceed to interpret section
218(2)(d), which is directly relevant to the present case. To facilitate a
proper understanding of the provisions of Section 218, we will first provide a
comparative analysis of subsections (1) and (2) of Section 218 in the following
tabular format:
|
Aspect |
Section 218(1) |
Section 218(2) |
|
Scope |
Applies to resident individuals (other than in a
representative capacity). |
Applies to persons other than resident individuals
(including entities and non-resident individuals). |
|
Service on an individual |
- Personally served on the individual or their
representative (if under legal disability or non-resident). |
- Personally served on the representative of the person. |
|
Service by Post/Courier |
- Sent by registered post or courier to the individual’s
last known address in Pakistan or the place specified. |
- Sent by registered post or courier to the person’s
registered office or address in Pakistan, or if unavailable, to any office or
place of business. |
|
Service as per the Code of Civil Procedure (CPC) |
- Service in the manner prescribed for summons under the Code of Civil
Procedure, 1908 on the individual. |
- Service in the manner prescribed for summons under the Code of Civil
Procedure, 1908 on the person. |
|
Electronic Service |
- Can be served electronically in the prescribed manner. |
- Can be served electronically in the prescribed manner. |
|
Type of Individual |
Resident individual (other than in a representative
capacity). |
Non-resident individuals through
electronically. |
|
Representative |
Only applicable if the individual is under a legal
disability or is non-resident. |
Service on the representative of the person. |
This
table highlights the key differences and similarities between the two
subsections regarding the service of notices, orders, or requisitions. The
expression “Person” has been defined in section 2(12) read with section 80 of
the Ordinance. As per section 2(12) read with section 80 of the Ordinance, the
term "person" is broadly defined. Section 2(12) of the Ordinance
defines "person" to include:
1.
An individual
2.
A Hindu Undivided Family (HUF)
3.
A company
4.
A firm
5.
An association of persons (AOP)
6.
A body of individuals (BOI)
7.
A trust
8.
A corporation
9.
Any other entity or body recognized as
a person under the law
Section 80, in turn, provides specific provisions
regarding the taxation of different types of "persons" under the
Ordinance, clarifying how each type is treated for tax purposes. So, in
essence, a "person" under the Ordinance encompasses a wide range of
legal entities and individuals.
10. Upon analysing
the key differences and similarities between subsections (1) and (2) of Section
218, the interpretation of the distinction between "individual"
and "person" appears logical and consistent with standard
legal drafting conventions. However, it is crucial to consider the broader
legislative context and the underlying intent of the law. Below, we present our
findings and reasoning regarding the appropriate manner of service of notices
or orders in the case of a person (in the instant case company, etc) and a
non-resident individual.
1.
Subsection (1) – Resident Individual: Subsection (1) is specifically applicable to resident individuals,
providing various modes for the service of notices. These modes—personal
service, registered post, service via summons in accordance with the Code of
Civil Procedure, 1908, or electronic service—ensure flexibility and accommodate
the specific circumstances of resident individuals, whose physical presence and
address are more easily identifiable within the country. This
interpretation aligns with the reasoning provided by the Hon’ble Peshawar High
Court in the aforementioned judgment. Further, it is imperative to point out
that in each mode of service clause (a) to (d) the word “individual” has been
used by the legislature in subsection (1) of section 218 ibid.
2.
Subsection (2) – "Person"
(Non-Resident Individuals and Legal Entities): Subsection (2) pertains to "person" other than resident
individuals, which encompasses non-resident individuals as well as legal
entities, including companies, firms, and other corporate bodies. The term
"person" is intentionally broader, recognizing the different forms of
entities defined above in section 80 of the Ordinance that may be subject to
legal notices, orders, or requisitions.
i.
Clause (d) of subsection (2),
which pertains to the electronic service of notices on "individuals,"
is likely intended to ensure that electronic service is applicable to
non-resident individuals. Given the broader definition of "person" in
subsection (2), it is reasonable to interpret this clause as applying
specifically to non-resident individuals. Additionally, in clauses (a) to (c)
the word “Person” has intentionally been used, and in clause (d) the word
“individual” has been used.
ii.
For legal entities such as companies
or other organizations, the appropriate methods of service would be governed by
clauses (a), (b), and (c), which focus on service at the registered office,
places of business in Pakistan, or through methods prescribed for summons under
the Code of Civil Procedure.
3.
Potential Ambiguity:
The term "individual" in clause (d) of subsection (2) may lead to
confusion, particularly if the term "person" is understood to include
all legal entities, while "individual" is interpreted as referring
solely to natural persons. However, interpreting "individual" in
clause (d) as referring to non-resident individuals resolves this ambiguity and
aligns with the principle of harmonious interpretation. Accordingly, clauses
(a), (b), and (c) would continue to apply to legal entities, while clause (d)
would extend to non-resident individuals only.
4.
Legislative Intent:
The use of the term "individual" in clause (d) suggests that the
legislature intended to limit the electronic mode of service specifically to
non-resident individuals.
5.
Harmonious Interpretation:
The principle of harmonious construction dictates that statutory provisions
should be interpreted in a manner that prevents any term from being rendered
redundant. It is well-established that, in interpreting the law—particularly
fiscal laws—when multiple reasonable interpretations exist, the construction
that preserves the statute's purpose should be adopted. The statute should be
read in its entirety, and every effort must be made to reconcile and preserve
conflicting provisions through purposive and harmonious construction. Reference
is made to the judgments titled Waqar
Zafar Bakhtawari v. Mazhar Hussain Shah,
(PLD 2018 SC 81), Lucky Cement Ltd. v. Commissioner Inland
Tax, (2015 SCMR 1494), Collector
of Sales Tax and Central Excise (Enforcement) v. Mega Tech (Pvt.) Ltd,
(2005 SCMR 1166), Abdul Saboor v. Federation of Pakistan,
(2024 PTD 517), and Reliance Commodities (Private) Ltd v.
Federation of Pakistan, (2020 PTD 1464). The
distinct use of the term “person” in clauses (a) to (c) of subsection (2) of
section 218 suggests that the service of notices, orders, or requisitions on a
"person" would be governed by the respective modes of service outlined
in those clauses.
Conclusion:
The interpretation that clause (d) was intended to apply to non-resident
individuals is consistent with the broader legislative context. This reading
aligns with the understanding that, for companies or other entities, the modes
of service specified in clauses (a), (b), and (c) would be applicable. This
interpretation removes any ambiguity and ensures the law is applied coherently.
11. In light of
the foregoing, since the appellant in this case is a company, the assessing
officer was obligated to adhere to the modes of service prescribed in
Subsection (2) of Section 218, specifically clauses (a), (b), and (c), as a
company is a legal entity and not an individual. It is evident that the
assessing officer incorrectly applied the mode of service outlined in clause
(d) of subsection (2) of Section 218. Consequently, the applications for
condonation of delay for both tax years are hereby accepted, and the appeals
are decided on their merits as follows.
12.
On merits, the submissions made on behalf of the appellant have substance. This
Tribunal, in its recent order dated 29.01.2025, outlined a step-by-step
procedure for conducting proceedings under section 161, read with section 205
of the Ordinance, in the case of M/s Wise Communication Systems (Pvt)
Limited Vs Deputy Commissioner Inland Revenue, Zone-IV, Range-II, LTO,
Islamabad bearing ITA NO.1889/IB/2024. Following this order, the
FBR also issued instructions to all Chief Commissioners-IR/LTOs/CTOs/MTOs/RTOs
through C.No.3(08)SS(A&A)/2023 dated 19.02.2025. We find that the assessing
officer has not fully complied with the provisions of the Ordinance and the
applicable rules. Therefore, the impugned orders are hereby annulled, and the
case is remanded to the assessing officer with instructions to strictly follow
the decision of this Tribunal and the guidelines issued by the FBR. The
assessing officer is directed to pass a reasoned order thereafter. The
appellant is also directed to avail this opportunity and appear before the
assessing officer with the complete record upon receiving this order. The
appeals along with all applications are disposed of accordingly.
|
|
Sd/- (M. M. AKRAM) JUDICIAL MEMBER |
|
Sd/- (IMRAN
LATIF MINHAS) ACCOUNTANT
MEMBER |
|
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