FAUJI FERTILIZER COMPANY LTD. VS FEDERATION OF PAKISTAN through Secretary, Ministry of Finance, Islamabad, 2018 PTD-ISLAMABAD 719 (2017)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 147 & 205---Advance tax paid in quarterly installments---Tax Officer, powers of---Scope---Notices issued to petitioner-company seeking proof of basis for estimation of advance tax paid in installments---Legality---Perusal of S.147 of the Income Tax Ordinance, 2001 led to the conclusion that once estimate (of advance tax) was filed by the tax payer whether right or wrong, there was no provision which provided any authority to the Taxation Officer to discard such estimate and ask the taxpayer to continue paying the tax in accordance with the provision of subsection (1) of S. 147 read with subsection (4) ---No provision in the Income Tax Ordinance, 2001 empowered the tax authorities to question the correctness of the estimates filed by the tax payer- and only recourse was when the tax returns were filed and in the same it was found that the estimate was incorrect then additional surcharge under S.205 of the Ordinance could be imposed by the tax department ---Constitutional petition was allowed accordingly and impugned notices issued to the petitioner-company were set-aside.

Messrs Pak Telecom Employees Trust (PTET) v. Federation of Pakistan and others W.P. No.2447 of 2016; Karachi Port Trust Karachi v. Commissioner Inland Revenue, Karachi 2011 PTD 1996 and Commissioner of Income Tax and another v. Dawood Hercules Chemicals Ltd. 2007 SCMR 227 = 2006 PTD 2498 ref.

Sirdar Ahmed Jamal Sukhera for Petitioner.

Babar Bilal for Respondents.

Date of decision: 23rd October, 2017.

JUDGMENT

AAMER FAROOQ, J.---This judgment shall decide the instant petition as well as Writ Petition No. 4803/2016 as common questions of law and facts are involved.

2.The petitioners are taxpayers who under section 147 of the Income Tax Ordinance, 2001, (the Ordinance) are liable to pay advance tax. The petitioners are aggrieved of notices issued by the respondent department for providing proof of payment of the installments and basis for assessment of tax liability.

3.Learned counsel for the petitioner, inter alia, contended that the issue raised in the instant petition is the same as was in Writ Petition No. 2447/2016, titled "Messrs Pak Telecom Employees Trust (PTET) v. Federation of Pakistan and others". In light of the referred judgment, it was requested that the instant petition be allowed.

4.Learned counsel for the respondent department, inter alia, contended that there is no justification or basis for filing estimation for the tax year 2017. It was further contended that through the notice the respondent department is seeking proof of payment of the installments for the advance tax with respect to the relevant quarters.

5.The facts leading to filing of the instant petition have been mentioned with brevity hereinabove, therefore, need not be recapitulated. The petitioners are aggrieved of notices dated 27.12.2016 and 27.09.2017, whereby proof for payment of advance tax for quarter ending December, 2016 and September, 2017 as well as justification and basis for estimation has been sought. Under the law i.e. section 147(1) of the Ordnance, a taxpayer is liable to pay advance tax for the year in accordance with the section. In this behalf, tax is to be paid in four quarterly installments. In case of company or association of persons, advance tax is to be paid with respect to September quarter, on or before the 25th day of September and in case of December quarter, on or before the 25th day of December. The petitioners in both the petitions categorically submitted that the referred installments have been paid and in this behalf along with petition has appended the proof thereof. The question regarding justification or basis for filing of the estimation by the petitioners cannot be sought by the respondent department at this stage. The matter regarding estimation of payment and installments was dealt in detail by this Court after discussing relevant case-law and provisions in case titled "Messrs Pak Telecom Employees Trust (PTET) v. Federation of Pakistan and others" (W.P. No. 2447/2016) vide judgment dated 18.07.2016. This Court in the referred judgment held as follows:--

"However, under subsection (6) of section 147 ibid, if any Tax Payer who is required to make payment of advance tax under Subsection (1) submit an estimate before the last installment is due that its tax liability for the relevant tax year is less than the amount it is required to pay under Subsection (1). The purpose and scope of advance tax was lucidly explained by the Hon'ble Lahore High Court in case titled "Lone Cold Storage, Lahore v. Revenue Officers, Lahore Electric Power Co. and others" (2010 PTD 2502). The Hon'ble Lahore High Court after discussing various judgments on the subject held as follows:--

28. Advance Tax is, therefore, an estimated amount of proposed income tax to be paid by the taxpayer at the close of the Tax Year. After the said estimation the law requires the taxpayer to pay the said estimated amount during the currency of the Tax Year in four quarters. The estimate is to be made by the taxpayer and is not for the tax authorities to question or object till the close of the Tax Year when the law authorizes the tax authorities to verify the advance tax paid and impose additional tax if the advance tax paid has been less than 90% of the total income tax liability of the taxpayer (section 205 of the Ordinance),

The obligation of the Tax Payer and filing of the estimation and its consequences was discussed in detail by the Hon'ble Division Bench of Sindh High Court in case titled "Commissioner (Legal) Inland Revenue v. E.N.I. Pakistan (M) Ltd., Karachi" (2011 PTD 476) and held as follows:

11. A perusal of subsection (1) of section 147 reveals that it provides that every taxpayer subject to the provisions of subsection (2) which provides that those individuals whose latest taxable income excluding the heads of income mentioned in the exclusions (a) to (d) provided in subsection (1) is Rs.500,000 or more, shall be liable to pay advance tax. Subsection (4) provides how the advance tax payable by a company or an association of persons shall be computed,

Subsection (4A) provides that the companies and association of persons shall estimate their tax payable for the relevant tax year at any time before the last installment is due and in case they find that the tax payable is likely to be more than the amount they are required to pay under the formula provided in subsection (4) then they shall furnish an estimate of the amount of the tax payable by them and thereafter pay such amount after adjustment for the amount if any already paid in terms of subsection (4), whereas subsection (6) provides that if any taxpayer who was required to make payment of advance tax estimates before the last installment is due, that the tax payable by him for the relevant tax year is likely to be less than the amount required to be paid under subsection (1), he may furnish to the Commissioner an estimate of the amount of the tax payable by him and thereafter pay such estimated amount. A comprehensive reading of subsection (6) also leads to the conclusion that all taxpayers who are liable to pay advance tax under subsection (1), are entitled to the benefit provided in this section and companies and association of persons have not been excluded from the benefit given to the taxpayers under this subsection. What the Assessing Officer has done is that he wants to get the benefit of the subsection (4-A) if taxpayer estimates that his tax is likely to be more than the tax payable under subsection (4) but does not want to give benefit to the corporate taxpayer if he estimates that the tax payable by him for the relevant tax year is estimated to be less than the tax payable by him. We may also refer to subsection (7) of section 147 and section 205 of this Ordinance which provide deterrents to the taxpayers for filing a wrong estimate under subsection (6) as subsection (7) of section 147 provides that if there is any shortfall the same may be recovered from the taxpayer as if it was a tax due under an assessment order and subsection (1B) of section 205 provides if the taxpayer fails to pay advance tax under subsection (4A) or subsection (6) of section 147 or the tax paid is less than ninety percent of the tax chargeable for the relevant tax year, he shall be liable to pay default surcharge at the rate of KIBOR plus three percent per quarter.

Similarly, in case titled "Karachi Port Trust, Karachi v. Commissioner Inland Revenue, Karachi" (2011 PTD 1996) the Hon'ble Division Bench of Sindh High held as follows:--

11. A bare reading of subsection (6) of section 147 leads to the conclusion that a taxpayer who is required to make payment of advance tax under subsection (1), if he estimates that the tax due for the relevant tax year is likely to be less than the amount he is required to pay under subsection (1), he may file an estimate of the amount of tax payable by him and thereafter pay such estimated amount. From a perusal of this subsection it is clear that this subsection is only applicable to a person who is required to pay tax under subsection (1) and the applicant before us fulfills that condition. We have been unable to understand the logic of the argument of the learned counsel for the respondent that subsection (6) has to be read with subsection (1) and since subsection (1) does not apply to the applicant's case, therefore, subsection (6) will not apply and he cannot file an estimate. We are clear in our minds that the only condition to file an estimate under subsection (6) is that subsection (1) should apply and the taxpayer estimates that the tax Payable by him is likely to be less than the amount payable by him under subsection (1), and once these two conditions are fulfilled then estimate can be filed and they apply in the applicant's case, so the estimate has been rightly filed.

12. Now we come to the contention of the learned counsel for the respondent and the decision given by the Tribunal that the NIL estimate cannot be filed under subsection (6). From a perusal of the order of the Tribunal it is seen that the reasons given by the Tribunal are that subsection (6) of section 147 does not envisage filing of a NIL estimate because it clearly provides that the taxpayer may furnish to the Commissioner an estimate of the amount of the tax payable by him and thereafter pay such estimated amount, as reduced by the amount, if any, already paid under subsection (1), in equal installments, therefore, estimate has to be in respect of reduced amount of tax payable by the taxpayer and not NIL amount of tax because according to the learned Tribunal this section does not envisage a situation where a taxpayer estimates that no advance tax is likely to be payable; therefore, according to the Tribunal, the estimate of NIL advance tax payment filed by the applicant was not in consonance with the provision of subsection (6) of section 147 and hence cannot be termed as a valid estimate within the meaning of section 147(6). We fail to see any logic in this contention because what subsection (6) requires is that the tax will become payable on the basis of the estimate filed and if no tax is payable then it will not mean that such estimate cannot be filed as there is no provision in subsection (6) prohibiting that an estimate cannot be filed under which no tax is payable. We will substantiate this point by drawing an analogy that if it was not the first installment due but the third installment and the tax had already been paid under the first and second installment which was enough to cater to the entire four tax installments in accordance with the estimate the taxpayer would not be required to pay any further tax but that does not mean that he cannot file such estimate. This contention of the learned counsel and the Tribunal is not backed by any statutory provision and is hereby rejected, Our view is also supported by the judgment of Delhi High Court in the case of J.K. Synthetics Ltd., quoted supra.

13. Now we will examine if a wrong estimate is filed then what are the options available to the Taxation Authorities to take action for filing such wrong estimate. A perusal of section 147 leads to the conclusion than once such estimate is filed whether right or wrong, there is no provision which provides any authority to the Taxation Officer to discard this estimate and ask the taxpayer to continue paying the tax in accordance with the provision of subsection (1) of section 147 read with subsection (4) of section 147. The learned counsel for the respondent has also not been able to point out any provision of law which provides such authority and therefore we are of the considered opinion that once an estimate is filed the only option available to the Taxation Authority is to levy default surcharge under subsection (1B) of section 205 after completing the assessment, if such default surcharge is leviable on the basis of the assessment. The language of subsection (7) of section 147 is also clear which provides an authority to the Taxation Authorities to recover advance tax not paid as if it was a tax due under an assessment order so that provisions of section 137(2) are not violated. However, we are inclined to agree with the learned counsel for the applicant that it does not provide them an authority and jurisdiction to pass any order for the recovery of such tax and therefore we are of the considered opinion that the order passed by the Taxation Officer is without proper jurisdiction and authority and cannot be sustained.

The Hon'ble Supreme Court of Pakistan in case titled "Commissioner of Income Tax and another v. Dawood Hercules Chemicals Ltd." (2007 SCMR 227 = 2006 PTD 2498) held that where estimation was filed after due date on which the last installment was to be paid the same was not valid.

It was further observed by this Court as follows:--

"There is no provision in law which empowers the Tax Authorities to question the correctness of the estimates filed by the Tax Payer and only recourse is when the tax returns are filed and in the same it is found that the estimate is incorrect then additional surcharge under section 205 of the Ordinance can be imposed by the Department.

Since in the instant petition as well as Writ Petitions Nos.2538/ 2016 and 2447/2016 estimate was filed before the payment of last installment due, therefore, the same are in accordance with law. There is no prescribed way of filing estimates in the Ordinance. As stated above, there is no provision in the Ordinance for the tax department to question veracity of the estimate, therefore, petitioners in the said petitions are to pay 4th installment in accordance with the estimate and in case they have worked out that nothing is outstanding then not to pay any amount. However, as mentioned above, in case when the tax returns are filed by the petitioners in the referred petitions and the estimate turns out to be incorrect the respondent department shall be entitled to impose additional surcharge as provided in section 205 of the Ordinance. The recovery notices and demand for payment of the 4th quarterly, installment of advance tax in the referred petitions are not sustainable".

6.In view of the above decision of this court, if the estimation filed by the petitioner is incorrect, the respondent department may proceed against the petitioner under section 205 of the Ordinance when the tax returns are filed by it. However, at this stage, if the estimation has been filed within the prescribed time period and installments are being paid, no action can be initiated by the department against the petitioners with respect to the referred issue.

7.For the foregoing reasons, the instant petition as well as W.P. No. 4803 of 2016 is allowed; consequently, notices dated 27.12.2016 and 27.09.2017, are set aside being illegal and without lawful authority.

MWA/27/Isl. Petitions allowed.