COMMISSIONER INLAND REVENUE VS MUHAMMAD ALI

2016 P T D 377

[Lahore High Court]

Before Shahid Jamil Khan and Muhammad Sajid Mehmood Sethi, JJ

COMMISSIONER INLAND REVENUE

Versus

MUHAMMAD ALI

P.T.Rs. Nos.328 to 333, 337 to 345 and 347 to 351 of 2009 and 86 to 93 of 2008, decided on 14/09/2015.

(a) Income Tax Ordinance (XLIX of 2001)---

----Ss. 114, 115, 120, 153, 153(6) & 153(1)(b)---Payments for goods, services and contracts---Deduction of tax at source---Scope---Section 153 of Income Tax Ordinance, 2001 dealt mainly with deduction of tax at source on transactions specified in S. 153(1) of Income Tax Ordinance, 2001----Under S. 153(6) of Income Tax Ordinance, 2001 deducted tax was final tax on transactions except transactions under S. 153(1)(b) of Income Tax Ordinance, 2001---Person falling under Final Tax Regime had to file statement under S. 115 of Income Tax Ordinance, 2001 instead of Normal Tax Return under S. 114 of Income Tax Ordinance, 2001---Under S. 169(3) of Income Tax Ordinance, 2001 tax deducted at source was taken to be assessment order under S. 120 of Income Tax Ordinance, 2001 in the same way as return filed under S. 114 of Income Tax Ordinance, 2001 was taken to be an assessment order for all purposes of Income Tax Ordinance, 2001.

(b) Income Tax Ordinance (XLIX of 2001)---

----Ss. 122 & 177---Amendment of assessment---Scope---Assessment order created through fiction of law could be amended by invoking provisions of S. 122 of Income Tax Ordinance, 2001 either through process of Audit under S. 177 of Income Tax Ordinance, 2001 or otherwise---Jurisdiction of Commissioner or Taxation Officer, under S.122 of Income Tax Ordinance, 2001 was distinguishable from jurisdiction envisaged under S. 170 of Income Tax Ordinance, 2001.

(c) Income Tax Ordinance (XLIX of 2001)---

----S. 170---Income Tax Rules, 2002, R. 71---Disclosure of total income of relevant tax year---Scope---Section 170 of Income Tax Ordinance, 2001 deal with conditions, procedure and powers for issuing or refusing refund---Rule 71 of Income Tax Rules, 2002 provided that an application for refund of tax would be in pro forma specified in Part VI of First Schedule to Income Tax Rules, 2002---Taxpayer had to disclose in application the total income of relevant tax year, tax chargeable in respect of total income and amount of tax paid and such application was to be verified and accompanied by documents specified in pro forma and was required under Income Tax Ordinance, 2001.

(d) Income Tax Ordinance (XLIX of 2001)---

----Ss. 170, 170(2) & 170(3)----Refund---Commissioner, duty of---Scope---While exercising jurisdiction under S. 170 of Income Tax Ordinance, 2001, Commissioner was required to see first that whether requirements of S. 170(2) of Income Tax Ordinance, 2001 were met; and under S. 170(3) of Income Tax Ordinance, 2001 he had to satisfy himself through probing into supportive document that tax was overpaid---Commissioner could adjust the overpaid amount of tax against any other tax due from taxpayer----After being so satisfied, Commissioner had to refund the remaining portion of overpaid ta--- After inquiring into correctness of overpaid tax, if Commissioner was not satisfied then he should pass a written order of reducing or refusing claimed refund after giving an opportunity of being heard to taxpayer---Order of refund or its refusal or reduction was to be passed within 45 days under S. 170(4) of Income Tax Ordinance, 2001.

(e) Income Tax Ordinance (XLIX of 2001)---

----Ss. 120 & 170---Refund---Procedure---Scope---Perusal of S. 170 of Income Tax Ordinance, 2001 in juxtaposition with S. 120 of Income Tax Ordinance, 2001 showed that S. 170(2)(b) of Income Tax Ordinance, 2001 while providing a condition of filing of an application for refund stated that such application should be made within two years of date on which Commissioner had issued assessment order---Refund could be claimed on basis of an assessment order and if an amount was paid in excess of chargeable tax, as determined in assessment then it could be claimed as refund under S. 170(1) of Income Tax Ordinance, 2001---Section 170 of Income Tax Ordinance, 2001 gave powers only to see whether claimed refund was supported by evidence or not.

(f) Income Tax Ordinance (XLIX of 2001)---

----Ss. 120, 122 & 170----Refund---Commissioner, duty of---Scope---Assessment order under S. 120 of Income Tax Ordinance, 2001 was an order for all purposes of Income Tax Ordinance, 2001 including issuance or rejection of refund under S. 170 of Income Tax Ordinance, 2001, therefore, Commissioner could not go behind such assessment order while exercising jurisdiction under S. 170 of Income Tax Ordinance, 2001---Only course available to Commissioner was to assume jurisdiction under S. 122 of Income Tax Ordinance, 2001 by issuing a show-cause notice, proposing amendment of such assessment order and Commissioner could proceed under both jurisdictions simultaneously---In case, assessment order was amended in accordance with law then Commissioner could refuse to process the application for refund because very basis of refund application was the assessment order which was not in field.

Commissioner of Income Tax/Wealth Tax, Multan Zone, Multan v. Rehman Enterprises 2008 PTD 1897 ref.

Ch. Muhammad Shakil and Khadim Hussain Zahid for Applicants (in PTR Nos. 328 to 333, 337 to 345 and 347 to 351 of 2009).

Amjad Hussain Malik for Applicants (in PTR Nos. 86 to 93 of 2008).

Nemo for Respondent.

Date of hearing: 14th September, 2015.

JUDGMENT

SHAHID JAMIL KHAN, J.---This judgment shall also decide PTR Nos. 329 to 333, 337 to 345, 347 to 351 of 2009 and PTR Nos. 86 to 93 of 2008, as the propositions of law, requiring expression of this Court's opinion, are put forth in backdrop of common facts.

Two sets of questions are arising from two independent orders by erstwhile Income Tax Appellate Tribunal ("Appellate Tribunal"), whereby Revenue's appeals were dismissed for different reasons. Following questions of law are arising from order dated 06.08.2009:--

"(i)Whether on the facts and in the circumstances of the case, the learned ITAT was justified in upholding the order of the CIT(A) ignoring the statutory provision as laid down in section 234(5), read with sections 153(1)(b) and 153(9) of the Income Tax Ordinance, 2001?

(ii)Whether on the facts and in the circumstances of the case, the learned ITAT was justified in ignoring Circular No.11 of 1991 wherein a carriage contract is clearly included in the definition of contract?

(iii)Whether "providing of service" and "rendering of service" are two situations as also given in Central Excise Service and Sindh Sales Tax and Excise Ordinance, 2000?"

The other set of questions (reproduced below) are arising from Appellate Tribunal's order dated 18.10.2007, which are proposed in PTR Nos. 86 to 93 of 2008:--

"(1)Whether on the facts and in the circumstances of the case, the learned ITAT was justified in holding that Taxation Officer has no jurisdiction under section 170 of the Income Tax Ordinance, 2001 to determine proper amount chargeable to tax?

(2)Whether on the facts and in the circumstances of the case the learned ITAT has erred by restricting the jurisdiction under section 170 of the Income Tax Ordinance, 2001 only to the mechanical aspect of refund processing whereas the said Section provides for the "Satisfaction of the Commissioner" which carries both mechanical as well as legal connotations?"

2.The common facts, in all the Tax References, are that respondents/taxpayers, being carriage contractors, filed returns under normal law for tax years 2003 to 2006. As their receipts were subjected to withholding tax under Section 153 of the Income Tax Ordinance, 2001 ("Ordinance"), therefore, the tax withheld in excess of chargeable tax was claimed as refund through applications under Section 170. Claimed refund was rejected through orders under Section 170(4) by treating the withheld tax as final discharge of tax liability. Respondent Taxpayers approached Commissioner (Appeals), under Section 170(5) against rejection of refund. Appeals were accepted by First Appellate Authority and Department had to file second appeals before Appellate Tribunal. Appellate Tribunal dismissed the appeals through two separate orders, ibid, which are assailed by proposing the reproduced questions.

3.During arguments, while examining Appellate Tribunal's order dated 06.08.2009, it transpired that first set of questions has already been answered by Division Bench of this Court in Commissioner of Income Tax/Wealth Tax, Multan Zone, Multan v. Rehman Enterprises [2008 PTD 1897] and that Appellate Tribunal's order dated 06.08.2009 is based on the judgment ibid. Learned counsel for the applicant could not controvert that the judgment applies, on all fours, under the facts and circumstances of the cases under consideration.

Examination of the judgment shows that relevant provisions of the Ordinance, as available at relevant time, were deeply examined and discussed before giving opinion, which is reproduced:--

"7. For what has been discussed above, we have no hesitation to hold that the order of CIT(A), was rightly upheld by the Income Tax Appellate Tribunal, Circular No. 11 of 1991 has no application to the matters falling under Ordinance, 2001 and the word "providing" service has rightly been interpreted by the Tribunal. Questions framed and referred, are accordingly answered. Resultantly, these Tax Reference Applications have no merit and are accordingly rejected."

4.We agree with the conclusion and opinion arrived at by learned Division Bench of this Court in Rehman Enterprises' Case (supra), therefore, the first set of questions is answered in same terms i.e., against the department.

5.To answer second set of questions, proposed in PTR Nos. 86 to 93 of 2008, we have examined the order by Appellate Tribunal dated 18.10.2007. Department's representative ("DR") pleaded, before Appellate Tribunal, that respondent taxpayer was required to be taxed under Final Tax Regime ("FTR"), therefore, his refund application was rightly rejected by treating his return under normal law as incorrect. Appellate Tribunal did not agree with the reason, by observing that Taxation Officer of 'Enforcement and Collection Wing' (a functional unit) had no jurisdiction to question the nature of assessment, when return, under normal law, had attained status of an assessment order under Section 120 of the Ordinance. It was concluded that rejection of refund by holding the return as incorrect was not within Taxation Officer's jurisdiction, while exercising its powers under Section 170 of the Ordinance. Refund applications were allowed as a consequence.

6.To form an opinion on second set of proposed questions, examination of relevant provisions is necessary.

Section 153 (as available at relevant period) dealt mainly with deduction of tax at source (withholding tax) on the transactions specified in its subsection (1). Under its subsection (6) (before its substitution by Finance Act, 2006), the deducted tax was final tax on the transactions, except transactions under Section 153(1)(b). Persons falling under Final Tax Regime had to file a Statement under Section 115 instead of Normal Return under Section 114. Under provisions of Section 169(3), the tax deducted at source was taken to be assessment order under Section 120 in the same way as Return filed under Section 114 was taken to be an assessment order for all purposes of the Ordinance. An assessment order, created through fiction of law, could be amended or further amended by invoking provisions of Section 122, either through process of Audit under Section 177 or otherwise. Jurisdiction of Commissioner or Taxation Officer, under Section 122, was and is distinguishable from the jurisdiction envisaged under Section 170.

Section 170 deals with conditions, procedure and powers for issuing or refusing Refund. Rule 71 of the Income Tax Rules, 2002 ("the Rules"), provides that an application for refund of tax shall be in the proforma specified in Part VI of the First Schedule to the Rules. Taxpayer has to disclose in application; (i) the total income of relevant tax year, computed in accordance with provisions of the Ordinance; (ii) tax chargeable in respect of total income and (iii) amount of tax paid. The application is to be verified and accompanied by documents specified in the proforma and as required under the Ordinance/Rules.

On these declarations, in the prescribed application, Commissioner or Taxation Officer assumes jurisdiction under Section 170. While exercising this jurisdiction, he is required to see First, whether requirements of subsection (2) of Section 170 are met. Secondly, under subsection (3), he has to satisfy himself, through probe into the supportive document, that the tax is overpaid. He can adjust the overpaid amount of tax against any other tax due from the taxpayer. Lastly, after being so satisfied, remaining portion of the overpaid tax is to be refunded. If he is not satisfied, after inquiring into the correctness of overpaid tax, he shall pass a written order of reducing or refusing the claimed refund, after giving an opportunity of being heard. The order of Refund or its refusal or reduction is to be passed within 45 days under subsection (4). Section 170 is reproduced for facility:--

"170. Refunds.---(1) A taxpayer who has paid tax in excess of the amount which the taxpayer is properly chargeable under this Ordinance may apply to the Commissioner for a refund of the excess.

(1A) ..

(2) An application for a refund under subsection (1) shall be--

(a)made in the prescribed form;

(b)verified in the prescribed manner; and

(c)made within two years of the later of--

(i)the date on which the Commissioner has issued the assessment order to the

taxpayer for the tax year to which the refund application relates; or

(ii)the date on which the tax was paid.

(3)Where the Commissioner is satisfied that tax has been overpaid, the Commissioner shall--

(a)apply the excess in reduction of any other tax due from the taxpayer under this Ordinance;

(b)apply the balance of the excess, if any, in reduction of any outstanding liability of the taxpayer to pay other taxes; and

(c)refund the remainder, if any, to the taxpayer.

(4)The Commissioner shall, within sixty days of receipt of a refund application under subsection (1), serve on the person applying for the refund an order in writing of the decision after providing the taxpayer an opportunity of being heard.

(5)A person aggrieved by--

(a)an order passed under subsection (4); or

(b)the failure of the Commissioner to pass an order under subsection (4) within the time specified in that subsection, may prefer an appeal under Part III of this Chapter."

7.A glance on Section 170, in juxtaposition with Section 120 would show that clause (b) to subsection (2) of Section 170, while providing a condition of filing an application for refund, says that the application shall be made within two years of "the date on which the Commissioner has issued the assessment order". Whereas, clause (b) to subsection (1) of Section 120 reads, "the return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished". Needless to say that refund can be claimed on the basis of an assessment order. If an amount was paid in excess of the chargeable tax, as determined in the assessment order, it can be claimed as refund under subsection (1) of Section 170. Section 170 gives powers; only to see whether claimed refund is supported by evidence or not.

Examination of relevant provisions, do not suggest that the Commissioner can look into correctness of Return, which has attained status of an assessment order. The assessment order (under Section 120) is an order for all purposes of the Ordinance including issuance or rejection of refund under Section 170, therefore, Commissioner cannot go behind the assessment order, while exercising jurisdiction under Section 170.

Only course available to Commissioner (if in his opinion the tax deducted was to be treated as Final Tax) was to assume jurisdiction under Section 122 by issuing a Show Cause Notice, proposing amendment of the assessment order. He could proceed under both jurisdictions simultaneously. In case assessment order was amended in accordance with law, he could refuse to process the application for refund because very basis of refund application i.e., the assessment order would not have been in field.

8.Question No.2, in second set of questions is argumentative in nature, therefore, we decline to answer the same. However, Question No.1 clinches the proposition and our answer to this question is in Affirmative i.e., against the applicant-department.

All Reference Applications are decided against the applicant-department.

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

RR/C-25/LOrder accordingly.