The COMMISSIONER INLAND REVENUE VS HARAL TEXTILE MILLS LIMITED, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 2253 (2016)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 2 (32), 50, 52 & 86---Deduction of tax at source---Failure to deduct or pay tax---Liability of person---Scope---Customs Authorities were aggrieved of order passed by Income Tax Appellate Tribunal deciding appeals filed by assessees which were remanded by Supreme Court---Validity---Absurdity could not be attributed to any legislation at the altar of literal interpretation---Court was to harmonize and save the law---Word 'person responsible' defined in S.50(9) of Income Tax Ordinance, 1979, was only for the purpose of making payment and withholding tax on behalf of a company, local authority or an association of persons, as envisaged under S.50(4) of Income Tax Ordinance, 1979---Assessee could not be proceeded against under S.52 of Income Tax Ordinance, 1979, for recovery of tax not withheld---High Court set aside the order passed by Income Tax Appellate Tribunal and remanded the matter to the Tribunal for decision afresh---Reference was allowed accordingly.

Muqtedier Akhtar Shabir, Muzamil Akhtar Shabir and Ahmad Hassan Khichi for Applicant.

Sumair Saeed Ahmad for Respondent No.1.

Muhammad Iqbal Hashmi and Ms. Raisa Sarwat for Respondent No.1 in connected petitions.

Date of hearing: 9th May, 2016.

JUDGMENT

SHAHID JAMIL KHAN, J.---This judgment shall also decide PTR Nos. 498, 499, 500, 501, 502, 503, 504, 505, 506, 507, 508 and 509 of 2012, as all these Reference Applications are directed against five even dated orders passed on 23.07.2012 by Appellate Tribunal Inland Revenue ("Appellate Tribunal").

In all the reference applications, following common questions of law are proposed for opinion:--

"1.Whether under the facts and in the circumstances of the case, the ATIR was justified to deviate from the instructions by the apex court and to cancel the original order as being defective, which was not a subject matter before the CIT(A) and also was not discussed by him while deciding the appeal of the assessee?

2.Whether under the facts and in the circumstances of the case, the ATIR was justified to cancel the orders of the taxation officer with the observation that the taxation officer has not established the default whereas the taxation officer has lawfully treated the person as assessee in default by invoking the provisions of sections 52 and 86 of repealed Ordinance, 1979 after affording reasonable opportunity of being heard to the assessee thereby, establishing the default on the part of the assessee regarding discharge of his legal obligations to withhold tax under express provisions of law?"

2.The Appellate Tribunal decided thirteen appeals, relating to assessment years from 1991-92 to 1999-2000, by impugned even dated orders. The appeals were remanded by Hon'ble Supreme Court of Pakistan through its judgment in C.A. Nos.1091-1092 of 2009 after deciding the issue of limitation relating to Sections 52 and 86 of Repealed Income Tax Ordinance, 1979 ("Repealed Ordinance").

Learned counsel for the applicant/department submits that directions, as given by Apex Court, have not been complied by the Appellate Tribunal; the appeals were dismissed on technical ground that person responsible for making payment was principal officer of the taxpayer company, therefore, proceedings under Section 52 against the company were unlawful. By reading Subsection (4) of Section 50, he contends that payment was to be made by the Company. Further submits that the word "person" used in Subsection (4) is defined in Section 2(32) of the Repealed Ordinance, which includes Company, therefore, the interpretation adopted by Appellate Tribunal, for arriving at impugned decision, is against the spirit of law.

3.Learned counsel for the respondent has opposed the arguments by supporting the interpretation and reasons given by Appellate Tribunal; Subsection (9) of Section 50 of Repealed Ordinance is read, to contend that the principal officer in case of company was responsible for making payments; Adds that Subsection (4) and Subsection (9), if read together, would clearly show that principal officer making payment for company was to be proceeded under Section 52. It is also argued that questions as framed are not arising out of Appellate Tribunal's order.

4.Heard, record perused.

5.We agree with the learned counsel for the respondent that questions of law, as framed, are not arising out of Appellate Tribunal's order. However, the proposition of law, pleaded before us, is discernible from reading of operative part from the Appellate Tribunal order, which needs deliberation by this Court. In the interest of justice, we intend to re-settle the proposition in following words:-

"Whether under the facts and circumstances of the case, Appellate Tribunal was justified to hold that principal officer of the taxpayer company and not the company was a 'person responsible for making any payment', therefore, proceedings under Section 52 could not be initiated against the company?"

6.Examination of the relevant provisions from Subsections (4) and (9) of Section 50 of the Repealed Ordinance is necessary, which are reproduced hereunder:--

50.Deduction of tax at source.

(4)Notwithstanding anything contained in this Ordinance,--

(a)any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person being resident, (hereinafter referred to respectively as "payer" and "recipient"), on account of the supply of goods or for service rendered to, or the execution of a contract with the Government, or a local authority, or a company, or a registered firm, or any foreign contractor or consultant or consortium shall, deduct advance tax, at the time of making such payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, if any, in which the "said date", as referred to therein, falls, whichever is the later.

(9)For the purpose of this section,-

(a)"person responsible" means the prescribed person and includes,-

(i)in the case of a company, local authority or an association of persons, the principal officer thereof; and

(ii)in every other case, the payer himself; and

(b)any sum from which tax is deductible under this section shall be deemed to be income chargeable to tax under this Ordinance. [emphasis supplied]

7.Perusal of both Subsections shows that law envisages withholding of tax on payment to any resident person on account of supply of goods or services rendered or on execution of contract. 'Person responsible', as used in the subsection, is defined in Subsection (9) of Section 50, which means the principal officer would be 'Person responsible' for withholding. It appears that the definition in Subsection (9) is restricted for Section 50 only because Subsection (9) starts with the phrase, "For the purpose of this Section". To further examine this aspect, Section 52 also needs to be examined. Section 52 and Section 2(32) are reproduced hereunder:--

"52. Liability of persons failing to deduct or pay tax.---Where any person fails to deduct or collect, or having deducted or collected, as the case may be, fails to pay the tax as required by, or under, section 50, he shall, without prejudice to any other liability which he may incur under this Ordinance, be deemed to be an assessee in default in respect of such tax."

"2. Definitions.---In this Ordinance, unless the context otherwise requires,-

(32)"person" includes an individual, a firm, an association of persons, a Hindu undivided family, a company, a local authority and every other artificial juridical person;

[emphasis supplied]

After perusal of the provisions, supra, arguments by learned counsel for the applicant department are found substantiated. The word "person" used in the Section 52 was defined in Section 2(32), which includes "a company".

8.If we agree with the interpretation advanced by learned counsel for the respondent, it would lead to an irrational conclusion that for a payment to be withheld by a company, its principal officer should be proceeded against under section 52 for recovery of tax not withheld. Needless to say that the principle officer was supposed to act on behalf of company for the obvious reason that an artificial person cannot act itself; hence a natural person has to act on its behalf, if so authorized under the Articles of Association or through delegation of power/authority. For any reason, if the principal officer disassociates himself from the company, at the time when proceedings under Section 52 were to be initiated, the offered interpretation would mean that the company would escape its responsibility of being taxed under law and the principal officer, who acted as an agent, would become responsible for making the payment under section 52.

9.Absurdity cannot be attributed to any legislation at the altar of literal interpretation. It is duty of the Court to harmonize and save the law. In our opinion, the word 'Person responsible,' defined in Subsection (9) is only for the purpose of making payment and withholding tax on behalf of a company, local authority or an association of persons, as envisaged under Subsection (4) of Section 50 of the Repealed Ordinance, therefore, he could not be proceeded against under Section 52 for recovery of tax not withheld. Our answer to the re-settled question is in negative i.e., in favour of the applicant-department.

10.Under the circumstances, we set aside the order dated 23.07.2012 by Appellate Tribunal and remand the cases back to Appellate Tribunal for decision afresh strictly in accordance with directions given by Apex Court in above noted case, after providing opportunity of being heard to both the parties.

All Reference Applications are disposed of accordingly.

11.Office shall send a copy of this order under seal of the Court to the Appellate Tribunal Inland Revenue as per Section 133(5) of the Income Tax Ordinance, 2001.

MH/ C-11/ LCase remanded.