HABIB BANK LTD. VS FEDERATION OF PAKISTAN through Secretary, Revenue Division
2013 P T D 1659
2013 P T D 1659
[Sindh High Court]
Before Ghluam Sarwar Korai and Munib Akhtar, JJ
HABIB BANK LTD.
Versus
FEDERATION OF PAKISTAN through Secretary, Revenue Division and 5 others
C.P. No.D-371 of 2013, decided on 31/05/2013.
(a) Limitation---
----Determination---Principle---Limitation can arise in three ways: Where there is an express time bar, imposed by statute; Where such bar can or is to be inferred from and on a proper reading and interpretation of relevant provisions; or where action has been taken beyond reasonable period of time.
(b) Income Tax Ordinance (XLIX of 2001)---
----Ss.161 & 162---Amendment of assessment---Action against party---Limitation---Principle---Even if period for amendment of assessment has expired, action can still be taken against primary party under S.162 of Income Tax Ordinance, 2001.
(c) Income Tax Ordinance (XLIX of 2001)---
----S.161---Initiation of proceedings---Limitation---Even though there is no period of limitation, a point in time must eventually be reached so that if action is to be taken thereafter, the same must be properly justified by Commissioner---Beyond stipulated point in time, onus lies on Commissioner to show as to why action is being taken belatedly and if he fails to discharge this onus, then proceedings would be liable to be set aside.
(d) Discretion---
----Exercise of---Principle---All discretion is structured, channelized and controlled and there is no such thing as unfettered discretion---Any and all statutory power must be exercised reasonably, fairly and justly.
(e) Income Tax Ordinance (XLIX of 2001)---
----Ss.151, 161, 162 & 174---Constitution of Pakistan, Art.199---Constitutional petition---Non-deducting of tax---Proceedings---Limitation---Petitioners were banking companies and were aggrieved of notices issued by authorities for initiation of proceedings on the allegation of non-deduction of taxes---Validity---If Commissioner was to take action under S. 161 of Income Tax Ordinance, 2001 and the amount from which deduction had to be made was relatable to deducting authority's income then any such action taken beyond the period up to which deducting authority had to maintain its books of account etc., under S.174 of Income Tax Ordinance , 2001, required proper justification---Onus then would be on the Commissioner to explain as to why action was being taken belatedly---If there was proper justification, then onus was discharged and action could be sustainable in law---If there was no proper justification, then onus would not be discharged and action was liable to be set aside---Time fixed for purposes of S. 174 of Income Tax Ordinance, 2001, provided necessary dividing time line, as beyond such time deducting authority / taxpayer was not under any obligation to maintain books of account etc.---If Inland Revenue Department, in the present case, had been so minded, it could have taken action in question much earlier and well before the period stipulated in S. 174 of Income Tax Ordinance, 2001, had elapsed---Authorities did not do so and no proper justification was provided for belated action, onus that was on the Department, had not been discharged---Actions of authorities in question were not barred by limitation but the Department had failed to cross threshold of time related limiting factor---Actions in question were not sustainable and exercise of statutory power conferred by S. 161 of Income Tax Ordinance, 2001, was unlawful---High Court set aside notices and all proceedings taken on the basis thereof, including all orders made thereon or with reference thereto and the same were quashed---Petition was allowed in circumstances.
??????????? Commissioner of Income Tax v. Hossen Kasam Dada PLD? 1961 SC 375; Gulistan Textile Mills Ltd. v. Collector (Appeals) Customs Sales Tax and Federal Excise and another 2010 PTD 251; Commissioner of Income Tax v. Pakistan Mobile Communication (Pvt.) Ltd. 2009 PTD 1767; Commissioner of Income Tax v. Agha's Supermarket 2003 PTD 1571; Said Ghani v. Central Board of Revenue and others 1990 CLC 511; Commissioner of Income Tax v. Kamran Model Factory 2002 PTD 14; Commissioner of Income Tax v. NHK Japan Broadcasting Corporation (2008) 305 I.T.R. 137; State of Punjab v. Bhatinda District Co-op. Milk Producers Union Ltd. (2007) 11 SCC 363; Shahnawaz (Pvt.) Ltd. v. Pakistan and others 2011 PTD 1558 and Iqbal Hussain v. Federation? of? Pakistan? and? others? 2010? PTD? 2338? ref.
??????????? Ejaz Ahmed and Aijaz Shirazi for Petitioner (in C.P.D.-371 of 2013).
??????????? Naveed Andrabi and Anwar Kashif Mumtaz along with Messrs Usman Alam and Ammar Ather Saeed for Petitioners (in C.P.D.-373 of 2013).
??????????? Iqbal Salman Pasha for Petitioners (in C.P. D-551 of 2013).
??????????? Kafeel A. Abbasi and Mohsin Imam along with Dr. Tariq Ghani, Additional Commissioner of Income Tax for the Inland Revenue Department.
??????????? Jawed Farooqui, D.A.-G.
??????????? Dates of hearing: 21st, 26th, 27th and 28th February, 2013.
JUDGMENT
??????????? MUNIB AKHTAR, J.---By this judgment we intend disposing off the petitions listed in para 39 below, since common questions of law arising out of materially similar facts are involved. The petitioners are all banking companies. Subsection (1) of section 151 of the Income Tax Ordinance, 2001 ("2001 Ordinance") provides, in its clauses (b) and (d), that whenever a banking company pays profit on debt in any of the situations therein envisaged it must deduct tax thereon at the rate specified in the First Schedule (10% of the yield or profit paid). Section 160 provides that the tax so deducted is to be paid to the Commissioner (i.e., deposited with the Revenue) within the period and in the, manner as prescribed. The case of the Inland Revenue Department is that the petitioners, in respect of various tax year(s) as identified for each, did not fulfil the obligation to deduct tax under section 151 in full, i.e., in respect of all the persons from whom tax ought to have been so deducted. Thus, the amounts deposited in each of the identified tax years in each case were less than as required under law. The Department therefore issued notices to the petitioners initiating proceedings in this regard. The notices were under section 161, making specific reference to subsections (1) and (1A) thereof. Subsection (1) provides that any person who, inter alia, fails to deduct the required tax under section 151 shall be personally liable to pay the same, and empowers? the Commissioner? to? proceed? to? recovery? it? after? passing? an order to this effect. Subsection (1A) provides that no order shall be made under subsection (1) without an opportunity of hearing being provided.
2.???????? While the petitioners deny any shortfall in or short deduction of tax under section 151, they challenge the action taken by the tax authorities in these petitions on legal grounds. The primary ground taken is that the action is out of time, i.e., is barred by limitation. The Department on the other hand contends that there is no time limit in respect of action taken in terms of section 161. This is the central issue that falls for determination.
3.???????? Since the facts of each case are essentially the same, it will be convenient to refer to the case of only one petitioner. We turn to CPD 371/2013? which has been filed by Habib Bank Ltd. ("HBL"). The tax years involved in this petition are 2006 and 2007. (We may note that the tax year for banking companies is the calendar and not the financial year.) In HBL's case the periods involved were thus from 1-1-2005 to 31-12-2005 (tax year 2006) and 1-1-2006 to 31-12-2006 (tax year 2007). It appears that HBL received two notices dated 2-6-2012, one for each calendar year. Since the notices were identical, we will refer only to the one in relation to the calendar year 2005. The notice referred to subsections (1) and (1A) of section 161, and also section 205 (which relates to default surcharge), and stated that an examination of its annual accounts had shown that HBL had paid certain amounts as markup, return or interest, and the tax that ought to have been deducted at the stipulated rate (i.e., 10%) on these amounts was stated in the notice as a consolidated figure. HBL was asked to reconcile this figure with the amounts shown in? the statements of tax deducted under section 151, as had been previously filed by it for the calendar year 2005. (These statements are required to be filed periodically under section 165 read with Rule 44 of the Income Tax Rules, 2002.) HBL was also asked to file copies of the aforesaid statements and details of any exempt payments (i.e., those on which tax under section 151 is not required to be deducted). We pause to note that in fact what happened in the case of each petitioner was that the Department took up the annual accounts for the year concerned, and from the detailed notes appended to those accounts, located that note which gave the details of markup, return or interest expensed (i.e., paid) by the petitioner. Thus, in the case at hand, the Department took up the consolidated accounts of HBL for 2005 and reproduced note 21 to the accounts in the notice. This note was titled "Mark-up/Return/Interest Expensed", and was reproduced in the notice as it appeared in the note along with the amount of tax that ought to have been deducted according to the Department, as follows:--
| Nature of expense | Amount as per Accounts | Amount of tax to be deduced @ 10% | Section under which deduction is required |
| Mark-up | 1. Deposit | 6,016,621,000 | ??? 732,760,300 | |
| | 2. Security sold under repurchased agreement | 336,172,000 | | |
| | 3. Long term borrowings | 37,223,000 | | 151 of the Income Tax Ordinance, 2001 |
| | 4. Short term borrowings | 936,410,000 | | |
| | 5. Others | 1,177,000 | | |
| | Total | 7,327,603,000 | 732,760,300 | |
4.???????? To this notice (and of course the corresponding notice for the calendar year 2006), HBL's tax consultants (Messrs A.F. Ferguson & Co.) gave a detailed reply dated 3-08-2012. The consultants took two points, which were distinct but ultimately linked, and since these were also the principal submissions made before us by learned counsel for the petitioners, may be stated in some detail. The first point was in terms of section 174. This provides that a taxpayer had to maintain such accounts, documents and records as may be prescribed (subsection (1)) and that such accounts, etc. had to be maintained for a period of five years "after the end of the tax year to which they relate" (subsection (3)). (The period was increased to six years by the Finance Act, 2010.) The five years period had already elapsed in respect of both tax years 2006 and 2007 by the time the notices were issued. It was contended that HBL no longer had any obligation under and for purposes of the 2001 Ordinance to maintain any accounts in relation to these tax years. Hence, HBL could not be asked to provide the information sought in terms of the notices, and in particular, to reconcile the amount of tax deducted as per the statements filed by it with the consolidated figure given in the notices. The demand was thus barred by limitation.
5.???????? The second point was in relation to section 161 itself. It was conceded that there was no express time limit prescribed for issuance of a notice in terms of subsection (1). However, reference was made to the corresponding provisions of the repealed Income Tax Ordinance, 1979 ("1979 Ordinance"). The obligation to deduct tax was there to be found in section 50(2A), while section 52 was said to correspond to section 161. It was contended, relying on certain decisions (those of this Court and also of the Appellate Tribunal) that action in terms of section 52 for an alleged failure to deduct tax in terms of section 50(2A) had been regarded as being barred by limitation if such action was commenced after a period of four years. This period was based on section 156 of the 1979 Ordinance, which allowed for rectification of such mistakes in any order as were apparent from the record, but only if an application in this regard was made within a period of four years from the date of the order sought to be rectified. It was contended that the aforesaid period of limitation, made applicable to section 52 of the 1979 Ordinance, applied also in relation to section 161 since it was in pari materia the predecessor provision.
6.???????? It was therefore contended on behalf of HBL that on either basis, the notices were barred by limitation and were liable to be withdrawn. It appears that thereafter there was somewhat of a lull, and then the Department served two reminder notices (dated 10-1-2013), seeking? compliance? of? the? earlier? notices.? Hearings? took? place? on? 11-1-2013 and 16-1-2013, which were attended by the consultants, and it appears that there, HBL was confronted with an (unreported) decision of the Supreme Court dated 17-5-2011 in a bunch of connected appeals (Pakistan Mobile Communications (Pvt.) Ltd. v. Commissioner of Income Tax and others cases (sic.) herein after "Pakistan Mobile"). This judgment will be considered in detail later. Here, it suffices to note that the Department took the position that the Supreme Court had expressly held that there was no time limit to action under section 52 of the 1979 Ordinance, and hence there was no time limit to action under section 161 either. The tax consultants, by reply letter dated 16-1-2013, made a detailed analysis of the Supreme Court decision and sought to explain why it did not apply in relation to the 2001 Ordinance. The Department however? was? not? satisfied? with? this? reply? and? by? notices? dated? 22-1-2013, once again sought compliance of the original notices.
7.???????? It was at this stage that HBL filed its petition, C.P. No.D-371 of 2013, on 23-2-2013. An application was made for interim relief on which, after notice, we made an order on 1-2-2013 directing that while hearing on the notices could take place no final order be made without the permission of the Court. HBL subsequently filed further applications, including by way of amendment to the petition. It appears that the Department's stand is that the concerned officer had already made orders under section 161 on the notices on 29-1-2013, i.e., before the interim order. On 13-2-2013, certain further interim orders were made, and on 21-2-2013 the amendment application was allowed, bringing on record (and formally impugning) the orders made under section 161. These orders may briefly be considered. Again, since the orders are identical, reference will be made only to that in relation to the tax year 2006, the notice relating to which has been considered above.
8.???????? The adjudicating authority (the Deputy Commissioner, E&C Unit-IV, Range-B, Zone-I, LTU, Karachi) rejected HBL's contention that the notice under section 161 was barred by limitation. He relied on the decision of the Supreme Court in Pakistan Mobile to conclude that there was no time limitation involved. It will be recalled from the notice (see para 3 above) that the Department's case was that a consolidated amount of Rs. 732,760,300 should have been deducted during the calendar year 2005. The adjudicating authority noted that as per the Department's record (on its ITMS system), HBL had deducted only Rs.192,875,016. Thus, there was a short deduction of Rs.539,885,284 and an order to this effect was made under section 161. Default surcharge in the sum of Rs.64,786,234 under section 205 was also imposed. A similar order was made in respect of the notice in relation to the tax year 2007. There, the amount of short deduction as per the adjudicating authority came to Rs.1,139,773,834 and the default surcharge was Rs.136,772,860.
9.???????? The position of the other petitioners is similar. In some cases, actual orders were made under section 161 by the time the petitions were heard. In others, only the stage of hearing had been readied. However, the essential points involved were the same. It is therefore not necessary to burden the record with a detailed rehearsal of the facts of each case and we turn straightaway to the submissions of learned counsel for the petitioners.
10.?????? Mr. Ejaz Ahmed, who appeared on behalf of HBL, opened the case for the petitioners. His first submission was in relation to section 174. He submitted that on expiry of the period therein provided (five years) the taxpayer was not obliged to maintain any records, documents or accounts. He emphasized that there was a link between section 161 and section 174, and action under the former could not be taken after the period stipulated in the latter. This was so because a person could only be proceeded against after an opportunity of hearing in terms of subsection (1A) and if action was taken after expiry of the stipulated period, then the taxpayer would be unable to defend himself since he would not (and need not), in law, have the records, documents and accounts available to present his case. Learned counsel further submitted that the proviso to subsection (1) of section 174 had no relevance and in any case, having been added by the Finance Act, 2010, could not apply retrospectively. The next submission (without prejudice to the first) was in respect of the period within which action under section 161 could be initiated. Learned counsel submitted that the primary liability to pay the tax deducted was that of the person from whom it was being deducted (here, the recipient of the profit on the debt). The final determination of the latter's liability was governed by various provisions of the 2001 Ordinance, all of which imposed time limits. Thus, if the recipient filed a tax return, it would be deemed an? assessment order under section 120 and could, as a general rule, be amended under section 122? only? within? a? period? of? five? years? as? therein provided. The liability of the person liable to deduct tax (i.e., the petitioners) was only secondary and vicarious. It would be highly anomalous if the liability of the actual or primary taxpayer was time bound? but? that? of? the? deducting? authority? under? section? 161? was? without any such limit. Learned counsel submitted further, relying on section 24-A of the General Clauses Act, 1897 that all statutory power had to be exercised reasonably, fairly, justly and for advancement of the purposes of the enactment. Thus, the power to take action under section 161 could not be open-ended and without limit. Relying on various reported decisions, learned counsel contended that it was well settled that even if there was no specific time limit prescribed in respect of the exercise of a power conferred by a fiscal statute, it had to be exercised within a reasonable time. Learned counsel referred also to a number of reported decisions of the Appellate Tribunal, where it had been held that proceedings under section 52 of the 1979 Ordinance could only be initiated within a period of four years.
11.?????? Learned counsel submitted in relation to section 161 that action in terms thereof could, broadly speaking, be taken within two time categories: firstly, within the tax year during which the deduction ought to have been made up to the period by which the primary taxpayer had to file his return, and secondly (and at most) from the latter time up to the expiry of the period provided in section 174 (as it applied to the deducting authority). Learned counsel submitted that if action was initiated within the first time period, then the onus would lie initially on the Department to show that deductions ought to have been, but were not made and in this regard the relevant primary taxpayers and payments of profit on debt would have to be identified. If the Department discharged this onus, then the burden would shift on to the deducting authority to show that it had, in fact, made the deductions (and deposited the amounts with the Revenue) or that no deductions were required to be made (e.g., because the primary taxpayer enjoyed the benefit of an exemption). For the second time period, the Department would have the onus of not merely identifying the persons from whom tax ought to have been deducted, but also would have to show that the tax had not, in the meanwhile, already been recovered from the primary taxpayer. Only then would the onus shift on to the deducting authority to show, as before, either that the deductions had been made or that the relevant payments were exempt. Learned counsel submitted that the present cases clearly came within the second time period (by reason of the long time period between the tax years in question and the issuance of the notices) and since the Department had not discharged the onus that lay on it, the action under section 161 was not sustainable in law.
12.?????? Learned counsel also referred to Rule 44 of the Income Tax Rules, 2002 ("2002 Rules"), sub-rule (4) of which empowers the Commissioner to ask the deducting authority for a reconciliation of the amounts shown to have been deducted in the various statements filed in this regard. Learned counsel submitted that this power was of a `limited nature, and could not be invoked in the facts and circumstances of the present case.
13.?????? Learned counsel further respectfully submitted that the decision of the Supreme Court in Pakistan Mobile did not apply to the facts and circumstances of the petitioners' cases. This was so because that judgment was under the 1979 Ordinance and not the 2001 Ordinance. The former did not have any provision equivalent to section 174 of the latter. On the facts, in the case before the Supreme Court, the income tax officer, while framing the deducting authority's assessment had noted that it had failed to deduct tax properly and had intimated that proceedings under section 52 would be initiated. Learned counsel also stated that as per his instructions a review petition was also pending in the Supreme Court. Learned counsel prayed that the petitioners had made out a clear case and were entitled to relief accordingly.
14.?????? Mr. Naved Andrabi and Mr, Anwar Kashif Mumtaz appeared in a number of petitions. To the extent that their submissions covered the same ground as those by Mr. Ejaz Ahmed it is not, with respect, necessary to burden the, record with a rehearsal of the same. Learned counsel emphasized that section 161 could only be applied once the particular primary taxpayer and payment involved had been specifically identified. It was impermissible to initiate proceedings simply by taking a consolidated figure appearing in the petitioners' audited accounts, which was the sole basis on which the Department had acted. Learned counsel further submitted that it was only those payments of profit on debt that specifically came within clauses (b) and (d) of section 151(1) that were relevant. The consolidated figures used by the Department included a substantial number of payments that did not come within the ambit of the foregoing clauses. Since no tax was to be deducted in respect thereof, the Department had fallen into serious legal error and this vitiated the entire exercise. Developing their point, learned counsel submitted that by purporting to take a lump sum amount from the deducting authority's own accounts and failing to particularize and identify the primary taxpayers, the Department had in effect imposed the tax on the deducting authority. But insofar as the deducting authority was concerned, the lump sum amount was not its income; it was in fact an expense incurred in the earning of income. Thus, the Department had, in effect, imposed a tax on something that was not income, and this was patently unconstitutional. Like Mr. Ejaz Ahmed, learned counsel also respectfully submitted that the decision of the Supreme Court in Pakistan Mobile was distinguishable and could not be applied to the facts and circumstances of the present case.
15.?????? Mr. Iqbal Salman Pasha also appeared for some of the petitioners. Again, to the extent that his submissions complemented those of other learned counsel it is not, with respect, necessary to burden the record with a rehearsal of the same. Learned counsel emphasized that the petitioners had duly filed all the statements of tax deducted as required under law and all of this information was (or ought to be) available with the Department without at all considering the record as was at hand, the Department issued the impugned notices and it was contended that it had no jurisdiction to act in such a manner. Learned counsel also respectfully submitted that the decision of the Supreme Court in Pakistan Mobile was inapplicable. With regard to section 174, learned counsel also relied on Rule 29 of the 2002 Rules, which has been framed with reference thereto. He submitted that sub-rule (4) also specifically provided for the period beyond which records need not be maintained. Learned counsel submitted further that section 161 could not be read in isolation; it necessarily had to be considered along with sections 174 and 176. Any action taken under section 161 was time bound and that section could not operate otherwise. Thus, the issuance of the impugned notices was illegal and liable to be quashed. Any action taken or order made in terms thereof was likewise liable to be set aside.
16.?????? Mr. Kafeel A. Abbasi appeared for the Department in the petitions and strongly resisted the same. Learned counsel raised a preliminary objection as to the maintainability of the petitions. He submitted that the petitioners had adequate alternate remedies by way of statutory proceedings, not least of which was the right to appear before the adjudicating authority to contest the notices and then to file an appeal if dissatisfied with the ensuing order. All the grounds taken in the petitions could easily be taken while availing the statutory remedies. The petitions were therefore liable to be dismissed. On the facts, learned counsel explained that the entire exercise was part of the monitoring of tax collection and payments being carried out under the 2001 Ordinance entirely in accordance with law. The statements of tax deducted as filed by the petitioners as also the amounts shown in their annual accounts were cross checked and matched with the data available on the PRAL/ITMS system and in case of any mismatch the action permissible under law was taken. It was a simple case of the petitioners being asked to reconcile the relevant amounts, and since the relevant facts were especially within their knowledge, they could be asked to do so. Reliance in this regard was placed on Article 122 of the Qanun-e-Shahadat, 1984. It was submitted that in? fact in relation to more recent tax years (such as 2010, 2011 and even 2012) similar notices and action had been taken against the petitioners and orders made. Substantial amounts had either been paid by the petitioners on account of short deduction of tax under section 151 or the orders made were at various stages of challenge. In any case, the entire exercise was being conducted within the four corners of the 2001 Ordinance. Thus, the objections taken to the impugned notices, which related to earlier tax years, were unjustified and misconceived.
17.?????? Learned counsel submitted that there was no time limit imposed with respect to action under section 161. It was contended that the position in respect of section 161, which came under Part V of Chapter X was different from that obtaining in respect of section 122 (amendment of assessment order), which came under Part II of the said Chapter. In relation to the latter, it could be argued (although learned counsel did not concede this point) that the tax authorities were acting to assess, amend or enhance the tax burden of a taxpayer and hence the onus lay on them to show that the action was warranted. However, in terms of section 161, the tax authorities were only acting to recover tax revenue and hence the onus lay on the deducting authority (i.e., the petitioners) to show that they had acted in compliance of law. The deducting authority only acted as an agent of the Revenue. Learned counsel submitted that the legislative intent was clear: since recovery of unpaid tax revenue was involved, there could be no time limit to action being taken. Learned counsel further submitted that section 161 was an independent provision, which had to be applied as such on its own footing. Learned counsel submitted that the rule enunciated by the Supreme Court in Pakistan Mobile was fully applicable to section 161. It was submitted that the plea that the 1979 Ordinance had no equivalent to section 174 was erroneous, and reference was made to the proviso to section 61 of the repealed statute. It was further submitted that in any case, reliance on section 174 was misconceived. This was so because it related to the maintenance of records, etc. by a taxpayer in the context of his own tax liability. However, under section 161, the liability of the deducting authority (even if it was a taxpayer itself) was as an agent of the Revenue, which was a different position altogether. Learned counsel submitted that the petitioners had erroneously conflated two distinct situations, and section 174 did not at all have any relevance for or apply to the petitioners' position and obligations as the deducting authority. Learned counsel submitted that all the jurisdictional facts necessary for the exercise of powers under section 161 existed prior to the issuance of the notices and hence the notices or any ensuing action/order could not be faulted on this? ground. He prayed that the petitions be dismissed. Mr. Mohsin Imam and learned D.A.-G., adopted the submissions by Mr. Abbasi.
18.?????? Exercising their right of reply, learned counsel for the petitioners rebutted the various grounds taken by learned counsel for the Department and in particular submitted that the preliminary objection was without merit. The petitions were maintainable and ought to be allowed. At the conclusion of the hearing, we allowed learned counsel to submit written synopses along with case-law relied upon. Learned counsel did so, and we have benefited from the assistance provided by them not merely at the hearing but also through the synopses.
19.?????? We have heard learned counsel as above, examined the record with their assistance and considered the case-law relied upon. We begin by gathering in one place the relevant provisions of the 2001 Ordinance, as they stand at present. These are as follows:--
??????????? "151. Profit on debt.---(1) Where -
(b)??????? a banking company or financial institution pays any profit on a debt, being an account or deposit maintained with the company or institution;...
(d)??????? a banking company, financial institution ... pays any profit on any bond, certificate, debenture, security or instrument of any kind (other than a loan agreement between a borrower and a banking company or a development finance institution) to any person other than financial institution,
??????????? the payer of the profit shall deduct tax at the rate specified in Division I of Part III of the First Schedule from the gross amount of the yield or profit paid ... at the time the profit is paid to the recipient.
??????????? 161. Failure to pay tax collected or deducted.---(1) Where a person--
(a)??????? fails to ... deduct tax from a payment as required under? Division III of this Part ... or as required under section 50 of the repealed Ordinance; or
(b)??????? having ... deducted tax under Division III of this Part ... 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 subsection (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 subsection (1) shall be made unless the person referred to in subsection (1) has been provided with an opportunity of being heard.
??????????? (1B) Where at the time of recovery of tax under subsection (1) it is established that the tax that was to be deducted from the payment made to a person ... has meanwhile, been paid by that person, no recovery shall be made from the person who had failed to ... deduct the tax but the said person shall be liable to pay default surcharge at the rate of eighteen percent per annum from the date he failed to collect or deduct the tax to the date the tax was paid.
(2)??????? A person personally liable for an amount of tax under sub-section (1) as a result of failing to ... deduct the tax shall be entitled to recover the tax from the person from whom the tax should have been ... deducted.
??????????? 162. Recovery of tax from the person from whom tax was not collected or deducted.---(1) Where a person fails to ... deduct tax from a payment as required under Division III of this Part ... the Commissioner may pass an order to that effect and recover the amount not ... deducted from the person ... to whom the payment was made.
(2)??????? The recovery of tax under subsection (1) does not absolve the person who failed to deduct tax as required under Division III of this Part ... from any other legal action in relation to the failure, or from a charge of default surcharge or the disallowance of a deduction for the expense to which the failure relates, as provided for under this Ordinance.
??????????? 163. Recovery of amounts payable , under this Division.---The provisions of this Ordinance shall apply to any amount required to be paid to the Commissioner under this Division as if it were tax due under an assessment order.
??????????? 165. Statements.---(1) Every person ... deducting tax from a payment under Division III of this Part ... shall, furnish to the Commissioner a monthly statement in the prescribed form setting out-
(a)??????? the name, Computerized National Identity Card Number, National Tax Number and address of each person ... to whom payments have been made from which tax has been deducted under Division III of this Part ... in each month;
(b)??????? the total amount of payments made to a person from which tax has been deducted under Division III of this Part ... in each month;
(c)??????? the total amount of tax ... deducted from payments made to a person under Division III of this Part ... in each month; and
(d)??????? such other particulars as may be prescribed:
??????????? Provided that every person as provided in subsection (1) shall be required to file withholding statement even where no withholding tax is collected or deducted during the period. ...
??????????? 166. Priority of tax collected or deducted.---(1) Tax ... deducted from a payment under Division III of this Part ... shall be -
(a)??????? held by the person in trust for the Federal Government; and
(b)??????? not subject to attachment in respect of any debt or liability of the person ...
??????????? 174. Records.---(1) Unless otherwise authorised by the Commissioner, every taxpayer shall maintain in Pakistan such accounts, documents and records as may be prescribed.
(2)??????? The Commissioner may disallow or reduce a taxpayer's claim for a deduction if the taxpayer is unable, without reasonable cause, to provide a receipt, or other record or evidence of the transaction or circumstances giving rise to the claim for the deduction.
(3)??????? The accounts and documents required to be maintained under this section shall be maintained for six years after the end of the tax year to which they relate:
??????????? Provided that where any proceeding is pending before any authority or court the taxpayer shall maintain the record till final decision of the proceedings.
??????????? Explanation.---Pending proceedings include proceedings for assessment or amendment of assessment, appeal, revision, reference, petition or prosecution and any proceedings before an Alternative Dispute Resolution Committee. ..."
??????????? The word "six", appearing in subsection (3) of section 174, was substituted for "five" by the Finance Act, 2010. We note this to reflect the submissions of learned counsel for the petitioners.
20.?????? As noted above, the central issue raised is that of limitation. Are the notices, and impugned action, under section 161 barred by limitation? The issue of limitation can arise in three ways: (a) where there is an express time bar, imposed by statute; (b) where such a bar can or is to be inferred from and on a proper reading and interpretation of the relevant provisions; or (c) where the action has been taken beyond a reasonable period of time. There is of course no express time limit within which action under section 161 must be taken, so the first possibility does not arise. The petitioners' case rested primarily on the second possibility: on a proper reading of the various provisions including in particular sections 161 and 174, such a bar had or ought to be inferred. The third possibility was also canvassed but very much as a secondary submission, without prejudice to the main case. Clearly, the three possibilities are distinct. However, there is one point of commonality. If any one of them is found to exist or apply, then the impugned action cannot be taken at all beyond the period identified. This, after all, is what is meant by the action being barred by limitation.
21.?????? It is not without interest to note that once, long ago, there actually was an express statutory time bar in respect of recovery' proceedings under income tax law. Section 46(7) of the Income Tax Act, 1922 ("1922 Act") laid down the general rule (subject to exceptions not presently relevant) that "no proceedings for the recovery of any sum payable under this Act shall be commenced after the expiration of two years from the last day of the financial? year in which any demand is made under this Act". Although there was no express time limit on the demand being made, once made time did begin to run. This provision was omitted in 1967 and of course nothing similar found any place in either the 1979 Ordinance or the 2001 Ordinance. Section 46(7) did gain a renewed lease of life in India, in section 231 of the Income Tax Act, 1961 ("Indian Act"). Interestingly, that provision applied the time bar in two situations. One was as had been stated in section 46(7). The other, of more direct relevance, was "in the case of a person who is deemed to be an assessee in default under any provisions of this Act". Section 201 inter alia deemed a person who did not deduct tax to be an assessee in default. This provision, which is still part of the Indian Act, is of course similar to section 52 of the 1979 Ordinance, which in turn is regarded as being in pari materia section 161 of the 2001 Ordinance. Thus, in India, there was an express statutory time bar in relation to an action of the sort impugned in the present petitions. However, section 231 was omitted from the Indian Act in 1987 (with effect from 1989). Another example of an express bar of limitation was to be found in section 14 of the Business Profits Tax Act, 1947, which was successfully invoked by the assessee before the High Court and then, in appeal by the Department, before the Supreme Court (see Commissioner of Income Tax v. Hossen Kasam Dada PLD 1961 SC 375, cited by learned counsel for the petitioners). In our view, with respect, this decision does not assist the petitioners' case since it is an example of an express time bar, a situation which admittedly does not exist in the present case. Another decision cited by learned counsel for the petitioners, Gulistan Textile Mills Ltd. v. Collector (Appeals) Customs Sales Tax and Federal Excise and another 2010 PTD 251 (SHC; DB) may also be considered here. The reference arose out of the Sales Tax Act, 1990 and in relation to section 11(4) at it stood then. By means of the Finance Act, 2008, a time limit of five years was imposed (by way of a suitable insertion) within which a show cause notice could be issued for failure to pay sales tax. Earlier, there had been no period of limitation. The question was whether this insertion had retrospective effect. A learned Division Bench of this Court gave an answer in the affirmative. Again, with respect, this case does not assist the petitioners since it involved an express time limit and the dispute was with regard to its retrospective operation.
22.?????? Insofar as the second possibility is concerned, which is the main point canvassed by the petitioners, the Department's case is that whatever may have been the position in the past, this possibility no longer exists on account of the decision of the Supreme Court in Pakistan Mobile. The petitioners have of course sought to distinguish this decision. The first and in many ways most important task must necessarily be to consider this judgment in detail. The dispute arose under the 1979 Ordinance. The Supreme Court disposed off a number of appeals by means of the decision, which fell into two groous. One set of appeals came from the Islamabad High Court and the other from the Lahore High Court. In the former case, it was the assessee who was the appellant, while the latter appeals were filed by the Department. The appeals from the Islamabad High Court were dismissed, while the latter appeals were allowed and the cases remanded to the Appellate Tribunal for reconsideration in light of certain observations made by the Supreme Court. It is the appeals from the Islamabad High Court that are of direct relevance inasmuch as the Department has relied on the observations of the Supreme Court made with regard thereto. The decision of the Islamabad High Court is reported as Commissioner of Income Tax v. Pakistan Mobile Communication (Pvt.) Ltd. 2009 PTD 1767 and it will be convenient to begin looking at this decision.
23.?????? The assessee was found to be in default of an obligation to deduct tax under the relevant subsection of section 50 on payments made by it. The deductions related to the income years corresponding to the assessment years 1997-98 and 1998-99, and the order under section 52 was made on 31-12-2002. It was contended by the assessee that the order was out of time and therefore barred. This plea was accepted by both the CIT (Appeals) and (on the Department's appeal) the Appellate Tribunal. The Department filed references in the Islamabad High Court. The question of law raised was whether the Tribunal "was legally justified to prescribe time limit for action under section 52 of [the 1979 Ordinance], whereas the law does not provide any such limitation for such action as it is more akin to recovery of outstanding taxes for which no limitation is prescribed". This of course, is the issue at hand in the present petitions. The Tribunal had concluded, on the basis or analogizing from section 156, that action under section 52 could only be taken within four years and anything done beyond that was barred by limitation. As it happens, this view had also found favour with this Court. Thus, in Commissioner of Income Tax v. Agha's Supermarket 2003 PTD 1571, a learned Division Bench, relying on an earlier decision of this Court, decided the issue in favour of the assessee, and dismissed the Department's reference application. However, the Islamabad High Court, which was also referred to the decisions of this Court, took a different view. It was observed as follows: "We failed to understand as to how section 156 can be taken into consideration to hold that period of four years is provided for declaring a person to be assessee in default" (pg. 1770) The cited decisions were distinguished, and it was also observed as follows (pg. 1771; emphasis supplied):--
??????????? "7. The matter can be examined from another angle. Section 52 not only deals with the cases of failure to deduct but it also deals with the case of failure to deposit, deduction having been made. Should the person, who had deducted the tax while making payment be permitted to pocket the amount so deducted on the ground that he has not been declared assessee in default within four years from the end of the assessment year in which the payments liable to deductions were made. The legislature has chosen not to provide any period of limitation for passing an order declaring a person to be assessee in default. The income tax authorities or for that matter the Income Tax Tribunal has no power to read the period of limitation prescribed under section 156 of the Ordinance in section 52."
??????????? This passage was expressly cited with approval by the Supreme Court.
24.?????? As noted, the assessee's appeals to the Supreme Court failed. After reproducing section 52 of the 1979 Ordinance, the Supreme Court observed as follows:--
??????????? "9. The language as employed in the above mentioned section is unambiguous, plain and hardly needs any scholarly interpretation. It can safely be inferred from the language of section 52 of the Repealed Ordinance that action can be initiated where any person fails to pay the requisite tax or which cannot be deducted or collected and can be termed as an assessee in default and further action can be taken. Neither any bar whatsoever has been imposed in such like cases nor any period of limitation has been specified which means that concerned functionaries can initiate action if circumstances as mentioned in section 52 of the Repealed Ordinance so justify. In our considered view, it is a deliberate omission by the legislature so that there could be no possibility of evasion or failure to assess the requisite tax which can be deducted at any point of time. Had there been stipulated period, the tax evasion could have been made easily and no action could have been taken against the delinquents which in our view cannot be the object of legislature. The provisions as enumerated in section 52 of the Repealed Ordinance are independent and therefore, cannot be stretched in such a manner to incorporate the period of limitation as mentioned in section 156 of the Repealed Ordinance as it would be a farfetched interpretation which would not be in consonance with the well entrenched principles of interpretation."
??????????? The Supreme Court referred also to section 52A of the 1979 Ordinance (which is equivalent to section 162) and observed:--
??????????? "10. A bare perusal of the provisions of Section 52A of the Repealed Ordinance would make it clear that action can be initiated under Section 50 of the Repealed Ordinance where the due tax could not be deducted or calculated without prejudice to any liability. The learned Income Tax Appellate Tribunal has not dilated upon the question of limitation in accordance with the settled law of interpretation and no reasoning whatsoever has been given while deciding the question of limitation rather the conclusion as arrived at by the learned Commission of Income Tax/Wealth Tax (Appeals) was endorsed without assigning any cogent reasoning."
25.?????? It is clear from the judgment of the Supreme Court that no bar of limitation can be inferred or analogized in respect of action under section 52 of the? 1979 Ordinance on the basis of section 156 thereof. Clearly, the decisions of this Court such as Agha's Supermarket (which was relied upon before us by learned counsel for the petitioners) need to be reconsidered in light of what the Supreme Court has said. Another decision cited by learned counsel for the petitioners, Said Ghani v. Central Board of Revenue and others 1990 CLC 511 (SHC; DB), may also be considered here. The provision under consideration was section 81 of the Customs Act, 1969. This deals with provisional assessment and as it stood then required that the assessment be finalized "as soon as may be". It was on an interpretation of these words that a learned Division Bench of this Court held that a purported finalization of assessment after a period of four and a half years was contrary to law. The statutory words found in section 81 are of course missing in the provisions presently under consideration. It would also not be out of place to note the earlier decision of this Court that was relied upon in Agha's Supermarket. This was Commissioner of Income Tax v. Kamran Model Factory 2002 PTD 14 (DB). In this decision, the Court was considering the Workers Welfare Fund Ordinance, 1970. Section 4(4) provided that a determination of the amount due under the said Ordinance was to be made at the time of framing the relevant assessment under the 1979 Ordinance, "or as soon thereafter as may be". It was these words that were considered by the Court. The Appellate Tribunal had? concluded? that? a? determination? within? 90? days? was? compliant? with the statutory requirement but the learned Division Bench reduced this period to 30 days. Again, these words or anything similar are missing? in the provisions under consideration here, or even in the 1979 Ordinance. Indeed, this point was specifically noted by the Islamabad High Court while distinguishing this decision when it was cited before it (see at pp. 1770-71).
26.?????? Learned counsel for the petitioners also relied on certain Indian decisions, which may also be considered. Primary reliance was placed on a decision of the Delhi High Court, Commissioner of Income Tax v. NHK Japan Broadcasting Corporation (2008) 305 ITR 137. The facts were that the respondent was obligated to deduct tax from salary paid to its employees, and the admitted position was that there had been a short deduction in this regard. The result was that the respondent became a deemed assessee in default under section 201 of the Indian Act, the provision already noted above. The question before the High Court was the levy of penalty under sections 221 and 271C of the Indian Act (equivalent, essentially, to section 205 of the 2001 Ordinance). The proceedings in this regard were initiated after what the Tribunal regarded to be a reasonable period had already elapsed and were therefore held barred by limitation. The High Court agreed with the Tribunal and dismissed the Department's appeal. Reliance was placed by the High Court on a decision of the Indian Supreme Court, State of Punjab v. Bhatinda District Co-op. Milk Producers Union Ltd. [2007] 11 SCC 363, a decision also relied upon by learned counsel for the petitioners. The matter before the Indian Supreme Court arose out of the Punjab General Sales Tax Act, and it was held that the initiation of proceedings had to be within a reasonable time, and for this purpose a period of five years was regarded as reasonable. The Delhi High Court applied this reasoning to the Indian Act. Reference was made to section 153 thereof, which prescribes (in general) a period of two years for the completion of assessment. The High Court noted that in cases similar to the one before it, the Tribunal had in fact held that a period of four years would be reasonable, and observed (pg. 141): "We are not inclined to disturb the time limit of four years prescribed by the Tribunal and are of the view that in terms of the decision of the Supreme Court in [Bhatinda District Co-op.] action must be initiated by the competent authority under the Income Tax Act, where no limitation is prescribed as in section 201 within that period of four years".
27.?????? We are of the view, with respect, that the Indian case-law cannot be relied upon. The reason is that it clashes directly with the decision of the Supreme Court in Pakistan Mobile. The Supreme Court has held categorically that there can be no period of limitation. The Indian case law however imposes precisely such a limitation. Whether the period is derived from a reference to or by analogy with other provisions where there is an express time limit, or is simply a period that the Court regards as reasonable, the crucial point is that it is a specific period beyond or after which no action can be taken. It would be out of time and hence barred. However, any such conclusion has been disapproved by the Supreme Court. The Delhi High Court was of course applying a rule developed by its own Supreme Court; in like manner, we are bound by the rule that has been laid down by ours.
28.?????? Section 156 of the 1979 Ordinance, which was applied by reference or analogy to section 52, has its equivalent in section 221 of the 2001 Ordinance. Subsection (4) thereof imposes a time limit of five years. Perhaps in view of Pakistan Mobile, this section was not relied upon by learned counsel for the petitioners. Instead, they sought to infer a period of limitation on the basis of section 174 and it is to consider this point that we now turn. Learned counsel for the petitioners relied on this section because, it was submitted, it had no equivalent in the 1979 Ordinance, and this was one basis on which the decision in Pakistan Mobile was sought to be distinguished. Learned counsel for the Department submitted that in fact section 174 did have an equivalent in the 1979 Ordinance, being the proviso to section 61. With respect, we are unable to agree. The purpose of section 61 was to empower the adjudicating authority to call for the books of account, etc. from a person who had furnished an income tax return, in order to frame the assessment. It was in this context that the proviso imposed a three year limit. Under the 2001 Ordinance, the position is otherwise. Here, the return is the deemed assessment order. The purpose behind requiring the taxpayer to maintain and retain his books of account, etc. for a specified period is quite different. (For convenience, the record required to be maintained in terms of section 174 is compendiously referred to as "books of account, etc.")
29.?????? The positions taken by learned counsel for the opposing parties with regard to section 174 are radically different. Learned counsel for the petitioners contend that this section is crucial inasmuch as after the period therein provided, the petitioners are not obligated, in law, to maintain books of account, etc. and therefore they would be (or in law must be regarded as being) unable to defend themselves against a charge of having failed to deduct tax under section 151 or even to carry out the exercise of reconciling their audited accounts with the statements filed in respect of tax deducted. Learned counsel for the Department on the other hand contended that section 174 was wholly irrelevant, since it related to the petitioners as taxpayers, whereas section 161 applied to them as the deducting authority or collecting agency and not at all as taxpayers. In our view, with respect, the correct position is more nuanced. There is certainly weight in what has been said by learned counsel for the Department. Undoubtedly, the position of the petitioners as taxpayers is different from their obligations as the deducting authority under section 151. However, it is to be remembered that we are here concerned with a deduction of tax and not a mere collection of it. A deduction is made from an amount that the payer is paying over to the payee. In many (though certainly not in all) such situations, the amount that is being paid over by the payer is reflected in some way or another in the determination of his income, and thus is relatable to his income tax if he is a taxpayer. Usually, this would be because the payment is an item of expense. Should this be the case, then clearly, his books of account, etc. do have relevance for the amount that is being deducted. It is only if the deducting authority is not a taxpayer or the amount being paid over (from which tax is to be deducted) has no relevance for or nexus with the payer's income that it could be said that the books of account, etc. are likewise irrelevant. In the present case, there is no doubt that the amounts from which the petitioners are required to make deductions are related directly to their incomes, being an expense. Indeed, as noted above, this is the very basis on which the amounts have been taken by the Department from the petitioners' audited accounts and used in the impugned notices. We are therefore of the view that the books of account, etc. required to be maintained under section 174 do have relevance in the facts and circumstances of the present petitions. Hence, the period for which the said books of accounts, etc. have to be maintained is also of relevance.
30.?????? Before proceeding? further, it will be convenient to consider two other points that were taken. One is the submission by learned counsel for the petitioners that it would be anomalous for the deducting authority (which only has a secondary or vicarious liability) to be liable without any time limit, whereas the primary party, the actual taxpayer from whom the amount is to be deducted, would cease to be liable once the period of amending his deemed assessment has expired. In our view, this submission cannot be accepted. It is no doubt true that if a deducting authority as payer fails to deduct tax and the payee also does not pay the tax along with his tax return, his deemed assessment can be amended to recover the unpaid tax. And of course, such amendment can only happen within the stipulated time period. It is perhaps for this reason that section 52A was added to the 1979 Ordinance, and now finds place in the 2001 Ordinance as section 162. It will be noted that this section, like section 161, is not subject to any express time limit. Thus, even if the period for amendment of the deemed assessment has expired, action can still be taken against the primary party under section 162. There is therefore to this extent, no anomaly between the position of the deducting authority and the primary taxpayer.
31.?????? The other point that requires attention is one of the grounds given by the Islamabad High Court for there being no time limit to action under section 52, namely that otherwise a deducting authority that has deducted the tax would be able to pocket the amount, which is otherwise rightfully payable to the Revenue (see the passage reproduced in para 23 above). As noted, this passage was expressly approved by the Supreme Court. It is to be noted that the facts of the case in Pakistan Mobile were not that the assessee, having deducted the tax, had failed to deposit it. And of course, there is no such allegation in the present cases either. In our respectful view, the point developed by the High Court was only by way of a supplemental reason that provided an additional basis to arrive at the conclusion that there is no period of limitation. It will be seen that section 161(1) has two clauses, of which the first covers the situation at hand (failure to deduct) and the second the additional reasoning given by the Islamabad High Court (having deducted, failure to deposit). Now, section 166 expressly provides, in subsection (1)(a) that any amount deducted but not paid over to the Revenue shall be "held by the person [i.e., the deducting authority] in trust for the Federal Government". This provision is new, having no equivalent in the 1979 Ordinance. Even under the general law, where property vests in a person by way of a trust for a specific purpose, there is no period ' of limitation (see section 10 of the Limitation Act, 1908). Thus, insofar as the issue of limitation is involved, under the 2001 Ordinance the position of a deducting authority that fails to pay over the Revenue any amount actually deducted is rather different from that of an authority that has failed to deduct at all. In the former case, there is now no period of limitation. This follows necessarily by reason of section 166(1)(a). To this extent, in our respectful view, one of the grounds on which the decision in Pakistan Mobile rests is distinguishable; the statutory provisions are markedly different.
32.?????? Having carefully considered the matter, and in light of the discussion in the foregoing paras, we are of the view that the rule laid down by the Supreme Court in Pakistan Mobile is applicable as much to the 2001 Ordinance as it was in respect of the 1979 Ordinance. Therefore, as held by the Supreme Court, there can be no period of limitation or time bar for action under and in terms of section 161.
33.?????? This does not however, in our respectful view, end the matter. As noted above (see para 20) the whole point of a period of limitation, howsoever based or derived, is that action beyond or after that period cannot be taken at all; it is barred. This was the point in issue in Pakistan Mobile and was the point pressed by learned counsel for the petitioners. It can no longer be accepted in view of the decision in Pakistan Mobile. The question that now requires consideration is whether, even if there is no period of limitation, there is nonetheless some other time related limiting factor in relation to action under section 161?
34.?????? To this question, our answer would be in the affirmative. In our view, section 161, on its proper interpretation and application, entails that even though there is no period of limitation, a point in time must eventually be reached such that if action is to be taken thereafter, this must be properly justified by the Commissioner. In other words, beyond the stipulated point in time, the onus would lie on the Commissioner to show why action is being taken belatedly and if he fails to discharge this onus, then the proceedings would be liable to be set aside. It is important to keep in mind that there is no limitation involved here. The Commissioner is not barred from taking action under section 161 after the stipulated point in time. But he does then carry the onus of justifying the delay in taking action. There may be a superficial similarity between what we say here and a rule that states that action must be taken within a reasonable period, but this is not so. There is a material difference. The rule of the reasonable period (as enunciated and applied, e.g., by the Delhi High Court in the cited decision or this Court in the cases of Said Ghani and Kamran Model Factory or endorsed in Agha's Supermarket) is in the end a rule of limitation. Action beyond the period is barred. What we enunciate here raises no such bar. In principle, action under section 161 could be taken even though years-indeed decades-may have passed. But, if it is taken beyond or after the stipulated point in time, then the initiation of the action must be properly justified, and the onus in this regard must be discharged, by the Commissioner. Clearly, the further one moves in time from the stipulated point, the greater the onus on the Commissioner, and the heavier the burden that he would have to discharge in properly justifying his delayed action.
35.?????? In our view, the rule enunciated follows directly from the settled principles that govern the exercise of any discretion conferred by statute. All discretion is structured, channelized and controlled. There is no such thing as unfettered discretion. Any and all statutory power must be exercised reasonably, fairly and justly. And here becomes relevant a distinction between section 52 of the 1979 Ordinance and section 161. Section 52 deemed a person who, inter cilia, failed to deduct tax to be an assessee in default. Thus, under the 1979 Ordinance, this position arose by operation of law itself. No order or finding of any adjudicating authority was required. To the extent that an order was made under section 52, it was merely confirmatory in nature, simply affirming what had already come to pass by operation of law. The position under the 2001 Ordinance is different. Unless an order is made "to that effect" under section 161, the deducting authority is not in default. It is only when such an order is made that action can be taken. Once such an order is lawfully made, then the amount due becomes recoverable "as if it were" tax due under an assessment order (see section 163). The words quoted are in the nature of a deeming provision. Thus, the 2001 Ordinance has, as it were, shifted the deeming from where it lay previously, i.e., from the deducting authority to the amount that ought to have been, but was not, deducted. The shift may appear slight, but it has certain important consequences for the issue at hand. If a person is culpable by operation of law itself, then he must face the consequences of his culpability, and this could be so without regard to any time limit, unless the law itself imposes such a limit. However, where a person becomes culpable only on the making of an order in exercise of a statutory power, then the exercise of that power is in law controlled and guided. It cannot be regarded as open-ended and untrammeled. In particular, it may well be subject to some time related limiting factor.
36.?????? For the foregoing reasons, we are of the view that such a time related limiting factor does exist in relation to the exercise of powers under section 161, although it is not of course, a bar of limitation as such. This brings us to the next question: what is the point in time, beyond which the Commissioner, if he is to act at all, must justify the taking of action? Where does the, dividing? time line lie, beyond (but not before) which the Commissioner carries the onus that he must discharge? In our view, it is in answer to this question that? section 174 becomes relevant. If the Commissioner takes action under section 161 for a failure to deduct tax, and the amount from which the deduction had to be made was relatable to the deducting authority's income (in the manner explained in para 29 above) then any such action taken beyond the period up to which the deducting authority had to maintain its books of account, etc. under section 174 would require proper justification. The onus would then be on the Commissioner to explain why action was being taken belatedly. If there is a proper justification, then the onus would stand discharged and the action would be sustainable in law (subject of course, to any other defences available to the deducting authority). If however, there is no proper justification, then the onus would not be discharged and the action would be liable to be set aside. The reason why the time fixed for purposes of section 174 provides the necessary dividing time line is as canvassed by learned counsel for the petitioners. Beyond that time, in law and for purposes of the 2001 Ordinance, the deducting authority/taxpayer would not be under any obligation to maintain the books of account, etc. The opportunity of hearing envisaged by section 161(1A), which is mandatory, may well become illusory. But by reason of section 174, it is not for the deducting authority/taxpayer to show that this is so once the period stated in this section has elapsed. Rather, it would be for the Commissioner to justify his belated action. The onus would lie on him and not the other way around. It is pertinent to note that section 162 has no equivalent to subsection (1A) of section 161. This of course, does not mean that the primary taxpayer is not to be given an opportunity of hearing. However, the strong language employed in subsection (1A) ("No recovery under subsection (1) shall be made ...") does suggest that what we have said herein above in relation to there being a time related limiting factor for action under section 161 may not be the case in relation to section 162. The latter section may apply without any time related limiting factor. This would of course be understandable; after all, the basic liability is that of the primary taxpayer. However, we leave this point open for further consideration in an appropriate case.
37.?????? In the present cases, the impugned actions taken against the petitioners have been taken well after the elapse of the period(s) for which they had to maintain their books of account, etc. Thus, the onus lay on the Commissioner to explain why such action had been taken belatedly. In our view, no such explanation has been forthcoming nor can be given on the admitted factual position. It is clear that all the necessary information and record on the basis of which the impugned notices were issued were well within the knowledge and possession of the relevant authorities. The audited accounts, which form the basis of the entire exercise, were submitted by the petitioners along with their returns for the tax years in question many years prior to the notices. The statements of tax deducted were duly filed, again many years before the action was begun. Thus, there is no doubt that if the Department had been so minded, it could have taken the impugned action much earlier and well before the period stipulated in section 174 had elapsed. It did not however, do so. No proper justification has been provided for the belated action. In our view, the onus that lies on the Department has not been discharged. Thus, although it cannot of course be said that the impugned actions are barred by limitation, the Department has nonetheless failed to cross the threshold of the time related limiting factor identified in the paras hereinabove. The actions are not sustainable and the exercise of the statutory power conferred by section 161 is, in the facts and circumstances of the present cases, unlawful.
38.?????? Insofar as the preliminary objection taken by learned counsel for the respondents is concerned, it is, with respect, also not sustainable. Although a number of cases were cited by learned counsel for both sides, it is not necessary to consider them in any detail. Learned counsel for the petitioners referred to two recent Division Bench decisions of this Court, Shahnawaz (Pvt.) Ltd. v. Pakistan and others 2011 PTD 1558 and Iqbal Hussain v. Federation of Pakistan and others 2010 PTD 2338 in both of which one of us (Munib Akhtar, J.) was a member and in which similar objections were taken but repelled. For the reasons therein stated, we are of the view that these petitions are maintainable.
39.?????? This? judgment? applies? to? the? following? petitions:? C.Ps. Nos.D-371, 372, 373, 374, 375, 376, 551, 552, 667, 678, 679, 680, 681, 695, 696, 701, 718, 719, 751, 752, 733 and 774, all of 2013.
40.?????? In view of the foregoing discussion and analysis, these petitions are allowed. The impugned notices and all proceedings taken on the basis thereof, including all orders made thereon or with reference thereto, are set aside and quashed. The respondents are restrained and injuncted from giving effect to any of the foregoing or from acting thereon. There will however, be no order as to costs.
MH/H-15/K???????????????????????????????????????????????????????????????????????????????????????? Petition allowed.