COMMISSIONER INLAND REVENUE, LAHORE VS SARITOW SPINNING MILLS LTD., LAHORE, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 786 (2015)

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

----Ss. 21(g) & 133---Sales Tax Act (VII of 1990), S. 34---Allowable deduction---Scope---Authorities were aggrieved of the decision made by Income Tax Appellate Tribunal whereby it was held that additional tax under S. 34 of Sales Tax Act, 1990, for late payment of sales tax was not in the nature of "fine" therefore, it was not hit by statutory disallowance of S. 21(g) Income Tax Ordinance, 2001---Validity---Any expense incurred by assessee by way of payment of fine/penalty, late payment charges etc. in breach of some law, then such an expense was not allowable deduction within the scope of provision of S. 21(g) of Income Tax Ordinance, 2001---No equity about tax and no presumption as to a tax---Nothing was to be read in and nothing was to be implied---Court had only to look fairly at the language used---If a person sought to be taxed came within the letter of the law, he must be taxed, however great hardship could thereby be involved---If the State could not bring subject within the letter of law he was free, howsoever, apparent it might be that his case was within what might be called the spirit of law---Even if two views were possible from reading of any provision of law even then the view which favored citizen/assessee had to be given preference over the second view for the reason, firstly that charge upon the subject were to be imposed by clear and unambiguous words, secondly, fiscal provision of a statute was to be construed liberally in favour of taxpayer---In case of any substantial doubt, the same was to be resolved in favour of citizen---Statutory principle of law was that the things should be done as they were required to be done in law or not at all---High Court declined to interfere in the findings passed by Income Tax Appellate Tribunal and question of law was answered in affirmative against authorities---Reference was dismissed in circumstances.

Sui Southern Gas Company Ltd. v. Commissioner of Income-Tax, Companies-V, Income-Tax Building, Shahrah-e-Kamal Ataturk, Karachi 2000 PTD 3741 rel.

(b) Interpretation of statutes---

----Meaning of words---Principles---Letter of law has to be interpreted in the sense it has been used and expressed---Words used are to be construed in their ordinary and natural sense and if different words are sued by legislature, the object is to convey different meaning.

Muhammad Asif Hashmi for Applicant.

Maqsood Ahmad for Respondent.

ORDER

This consolidated order shall dispose of instant reference application under section 133 of the Income Tax Ordinance, 2001, along with following connected Tax Reference as common questions of law and facts are involved in these cases:--

P.T.R. No.644 of 2010. Commissioner Inland Revenue, Lahore v. Saritow Spinning Mills Ltd., Lahore.

2.The following question of law is proposed for our opinion in both the above reference applications:--

"Whether under the facts and in the circumstances of the case the learned Appellate Tribunal Inland Revenue was justified to conclude that additional tax under section 34 of the Sales Tax Act, 1990 for late payment of sales tax is not in the nature of fine and is thus not hit by the statutory disallowance under section 21(g) of the Income Tax Ordinance, 2001?"

3.The proposed question is asserted to have arisen out of the Appellate Tribunal's order dated 04.05.2010.

4.Brief facts are that the returns of income for the charge years 2004 and 2005 were filed declaring loss for both the years which were taken to be an assessment order in terms of section 120 of the Ordinance. Subsequently, it was found that assessments already finalized were erroneous which resulted in show cause notice dated 12.02.2009. Re-assessments were finalized under section 122(5A) of the Ordinance at net income of Rs.6,595,670/- and Rs.17,859,908/- for both the years respectively. The first appellate authority allowed relief to the taxpayer on the issue of set off of determined/assessed losses as well as addition made under section 21(g) of the Ordinance. Feeling dissatisfied with it, the applicant filed second appeal before the Appellate Tribunal which was decided vide order dated 04.05.2010 with the following observations:--

"In the light of the arguments advanced at the bar, we are not in agreement with the assertions made by the learned D.R. Undoubtedly, section 21(g) refers to the term such as fine/penalty but the Sales Tax Act default surcharge has been categorized independently under section 34 of the Sales Tax Act while section 33 deals with the situation where fine would be imposed. In this view of the fact we do not see any merit in the departmental appeal which is hereby dismissed."

5.Learned counsel for applicant submits that learned Appellate Tribunal was not justified to conclude that additional tax under section 34 of the Sales Tax Act, 1990 for late payment of sales tax is not in the nature of fine and is thus not hit by the statutory disallowance under section 21(g) of the Income Tax Ordinance, 2001.

6.Learned counsel for respondent has defended the impugned order contending that the same has been passed strictly in accordance with the provisions of section 21(g) of the Income Tax Ordinance, 2001, and the applicant failed to point out any illegality or legal infirmity in the order impugned herein, therefore, same is liable to be upheld.

7.Arguments have been heard and record perused.

8.Before giving our opinion on the question whether the learned Appellate Tribunal was justified to conclude that additional tax under section 34 of the Sales Tax Act, 1990 for late payment of sales tax is not in the nature of fine and is thus not hit by the statutory disallowance under section 21(g) of the Income Tax Ordinance, 2001, it would be beneficial to reproduce the aforesaid provisions of law for ready reference.

"34. Additional Tax---(1) Notwithstanding the provisions of section 11, if a registered person or enrolled person does not pay the tax due or any part thereof in time or in the manner specified under this Act, rules or notifications issued thereunder or claims a tax credit, refund or makes an adjustment which is not admissible to him, or incorrectly applies the rate of zero per cent to supplies made by him, he shall, in addition to the tax due, and the prescribed penalties, pay additional tax at the rate of [one]percent of the tax due per month or any part thereof.]

(2)For the purpose of calculation of additional tax,--

a)In the case of inadmissible input tax credit or refund, the period of default shall be reckoned from the date of adjustment of such credit or, as the case be, refund is received; and

b)In the case of non-payment of tax or part thereof, the period of default shall be reckoned from the [16th] day of a month (following the due date of the tax period to which the default relates) to the day preceding the date on which the tax due is actually paid.

Explanation.---For the purpose of this section tax due does not include the amount of penalty.]

[33. Offences and penalties.---Whoever commits any offence described in column (1) of the Table below shall, in addition to and not in derogation of any punishment to which he may be liable under any other law, be liable to the penalty mentioned against that offence.

21(g) OF THE INCOME TAX ORDINANCE, 2001

21. Deductions not allowed.---Expect as otherwise provided in this Ordinance, no deduction shall be allowed in computing the income of a person under the head "Income from Business" for-

a)

b)

c)

d)

e)

f)

g)Any fine or penalty paid or payable by the person for the violation of any law, rule or regulation;"

9.Perusal of aforesaid provisions of law, shows that the legislature has in its wisdom, categorized "Additional Tax" (now substituted with "default surcharge") independently under section 34 of the Sales Tax Act, 1990, while section 33 deals with the situation where fine/penalty would be imposed. Additional Tax is imposed under section 34 of the Act, in a situation, if a registered person or enrolled person does not pay the tax due or any part thereof in time or in the manner specified under this Act, rules or notifications issued thereunder or claims a tax credit, refund or makes an adjustment which is not admissible to him, or incorrectly applies the rate of zero per cent to supplies made by him, he shall, in addition to the tax due, and the prescribed penalties, pay additional tax at the rate of [one]percent of the tax due per month or any part thereof.] Similarly fine/penalty is imposed under section 33 of the Act, whenever a citizen commits any offence described in the column 1 of the Table given in the said section, in addition to and not in derogation of any punishment to which he may be liable under any other law, he is liable to the fine/penalty mentioned against that offense in column (2) thereof. The rational behind the above categorization appears to be is that additional tax is compulsory in nature which is meant to retrieve loss caused to the revenue on account of delayed payment of tax, whereas penal/fine proceedings are criminal in nature. Guilt is to be established independently on the basis of cogent evidence as is required in criminal proceedings. The Taxation Officer is supposed to establish mens rea in penalty/fine cases which is a sine quo non.

10.In the instant case, the assessee has paid "Additional Tax" in terms of section 34 of the Act and not the fine/penalty within the contemplation of section 33 of the said Act. Under the law, fine/penalty paid in violation of law is not allowable deduction in terms of section 21(g) of the Ordinance. Since Additional Tax is not a fine/ penalty, thus the same is not hit by the provisions of section 21(g) of the Ordinance and same is allowable/admissible deduction. It is well-settled proposition of law that any expense incurred by the assessee by way of payment of fine/penalty, late payment charges etc in breach of some law, then such an expense is not allowable deduction within the scope of the provisions of section 21(g) of the Ordinance. We have noticed that learned Tribunal has taken into account all the aforesaid provisions of law and has come to the conclusion that payment of Additional Tax is not fine/penalty in terms of section 21(g) of the Ordinance. The impugned findings appear to be in conformity with the law laid down by the Hon'ble Supreme Court of Pakistan, in the case titled Sui Southern Gas Company Ltd. v. Commissioner of Income-Tax, Companies-V, Income-Tax Building, Shahrah-e-Kamal Ataturk, Karachi (2000 PTD 3741), the relevant portion of which is reproduced as under:--

"7. .. It may be pertinent to observe that penalty is to be levied or a fine is to be imposed on account of any criminal infraction/violation of the provision of law but in the instant case there was no criminal violation of any legal provision. In the instant case interest/compensation for delayed payment has been provided in the statute as well as in the agreement, therefore, it may be non-compliance with contractual obligations on the part of the petitioner to make additional payment as interest or compensation for late payment, but it could not be said to be violation or infraction of criminal law, therefore, such payment cannot be termed as a penalty or penal interest, having regard to the fact that payments were made for the purpose of carrying on business to enable the petitioner to carry on and earn profit in business, and if the payment had not been made, the petitioner could have suffered losses. These payments and disbursements made by the petitioner were on account of commercial expediency to facilitate carrying on its business. These were essentially expenses for the purpose of business of the petitioner, as such these could not be termed to be penalty or penal interest or fine, hence petitioner would be entitled to deductions under section 23 as expenditures as laid out or expended wholly or exclusively for the purpose of business. We are fortified in our view by the precedent cases cited in paragraph 5 of the judgment."

11.It would not be out of place to observe here, while interpreting the aforesaid provisions of fiscal statutes, the literal meanings used therein, would prevail. Letter of law has to be interpreted in the sense it has been used and expressed and the words used are to be construed in their ordinary and natural sense and if different words are used by the legislature, the object is to convey different meaning as used in sections 33 and 34 of the Act ibid. For this purpose, we have to look merely at what is clearly said. There is no room for any intendment. There is no equity about tax. There is no presumption as to a tax. Nothing is to read in, nothing is to be implied. We have to only look fairly at the language used.

12.We are also conscious of the well-established proposition of law that if a person sought to be taxed comes within the letter of the law, he must be taxed, however great a hardship may thereby be involved but on the other hand, if the state cannot bring the subject within the letter of the law he is free, however apparent it may be that his case is within what might be called the spirit of the law. Even if two views are possible from reading of the said provisions of law, even then the view which favors the citizen/assessee has to be given preference over the second view for the reason, firstly, that charge upon the subject are to be imposed by clear and unambiguous words, secondly, fiscal provision of a statute is to be construed liberally in favour of the taxpayer and in case of any substantial doubt, the same is to be resolved in favour of the citizen.

13.The statutory principle of law is that the things should be done as they are required to be done in law or not at all which means, something is stated to be done in a particular manner by law, it has to be done in that manner only otherwise any deviation in this regard is illegal.

14.For the foregoing reasons, we uphold the findings of the Tribunal in this regard. The question of law is thus answered in the affirmative, against the applicant department and consequently, the reference applications are dismissed.

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

MH/C-28/LReference dismissed.