I.T.R. A. No. 80 of 2015
Present
Mr. Justice Aqeel Ahmed Abbasi
Mr. Justice Arshad Hussain Khan
Date of hearing : 07.12.2017
Date of order : 07.12.2017
Applicant : The Commissioner Inland Revenue,
WHT Zone, RTO-II, Karachi, through
Mr. Muhammad Aqeel Qureshi, Advocate.
a/w. Abdul Wahid Shar, Additional Commissioner IR, LTU-II, Karachi.
Respondent : M/s. Tianshi International Pakistan
Co. (Pvt) Ltd. Karachi
through
M/s. Hazrat Wali Khattak & Habib Ahmed, Advocates.
O R D E R
AQEEL AHMED ABBASI, J.: Instant Reference Application arise from the impugned order dated 10.02.2015 passed by the Appellate Tribunal Inland Revenue Pakistan Karachi, in ITA No. 731/KB/2014 (Tax Year 2013), for the opinion of this Court, whereby, four questions were proposed and said to have arisen from the impugned order of the Appellate Tribunal, however, when the matter was taken up for hearing after Notice to the respondent, learned counsel for the applicant submitted that applicant would propose only one question duly modified in the following in the following manner:-
“Whether in the facts and in the circumstances of the case, the learned ATIR was justified to order deletion of the default surcharge under Section 161/205 of the Income Tax Ordinance, 2001?”
2. Learned counsel for the applicant after having readout the impugned order passed by the Appellate Tribunal in the instant case as well as the order of the Commissioner (Appeals) and the order passed under Section 161/205 of the Income Tax Ordinance, 2001 by the Deputy Commissioner Inland Revenue, Unit – 04, Withholding Taxes Zone, Regional Tax Office – II, Karachi, submitted that the Appellate Tribunal was not justified to delete the amount of default surcharge amounting to Rs.5,04,142/-, which was liable to be recovered at rate of 18% for the period of default of 304 days. It was further argued by the learned counsel for the applicant that the Commissioner (Appeals) has rightly upheld the order of the Deputy Commissioner relating to imposition of default surcharge, whereas, Appellate Tribunal was not justified to set-aside both the orders and to delete the amount of default surcharge in the instant case. It was prayed that impugned order passed by the Appellate Tribunal may be set-aside and the question reformulated hereinabove may be answered in ‘Negative’ in favour of the applicant and against the respondent.
3. Conversely, learned counsel for the respondent has vehemently opposed the contention of learned counsel for the applicant and submitted that the order passed by the Appellate Tribunal in the instant case does not suffer from any factual error or legal infirmity, whereas, finding of Appellate Tribunal is based on finding of facts, therefore, no question of law arises from the order passed by the Appellate Tribunal in the instant case, hence instant Reference Application is liable to be dismissed in limine. Without prejudice hereinabove submission, learned counsel for the respondent has further argued that the Deputy Commissioner did not assign any valid reasons, nor appreciated the legal implications of imposition of default surcharge under Section 161/205 of the Income Tax Ordinance, 2001. Per learned counsel, respondent was never confronted with the opening and the ending dates for which, according to the Deputy Commissioner, respondent committed willful default. It has been further contended by learned counsel for the respondent that the order passed by the Deputy Commissioner is silent about the calculation of the period for which the default surcharge has been calculated, whereas, there is no finding recorded to the effect. It has been further contended that there was no element of mensrea or willful default on the part of the taxpayer in the instant case, which is necessary to attract the provisions of Section 161/205 of the Income Tax Ordinance, 2001. Moreover, according to the learned counsel for the respondent, the amount of alleged short payment of tax for which the default surcharge has been calculated, has already been deleted by the Appellate Tribunal Inland Revenue in the case of the present respondent, therefore, the amount of default surcharge is also liable to be deleted otherwise. It has been further argued by the learned counsel for the respondent that the order passed by the Appellate Tribunal in the instant case on the subject controversy is based on the ratio of decisions of the Appellate Tribunal Inland Revenue, Sindh High Court as well as by the Hon’ble Supreme Court, whereas, the ratio of such judgments is squarely applicable to the facts of the instant case. It has been prayed that either instant Reference Application may be dismissed in limine or alternatively, the aforesaid proposed question of law may answered in “Affirmative’ against the applicant and in favour of the respondent.
4. We have heard both the learned counsel for the parties, perused the record with their assistance and the case law relied upon by the learned counsel in support of their contention. During the course of arguments, at the request of the learned counsel for the applicant, following question was proposed, said to have arisen from the impugned order passed by the Appellate Tribunal Inland Revenue Pakistan Karachi, in ITA No. 731/KB/2014 (Tax Year 2013) under Section 161/205 of the Income Tax Ordinance, 2001, which needs to be answered in the instant Reference Application:-
“Whether in the facts and in the circumstances of the case, the learned ATIR was justified to order deletion of the default surcharge under Section 161/205 of the Income Tax Ordinance, 2001?”
5. From perusal of the impugned order passed by the Appellate Tribunal in the instant case, it is observed that the question proposed hereinabove arises from the impugned order passed by the Appellate Tribunal, after examination of the record, while placing reliance on the judgments of the Hon’ble Supreme Court on the subject controversy in the following terms:-
“15. We have considered the arguments of both parties on this point. In our humble opinion the calculation of default surcharge is conjunctively linked with fixation of time span. The order in original dated 30.04.2014 simply shows the default surcharge for 304 days up to 25.04.2014, without justifying the starting and ending points. Therefore, we find force in the plea of the appellant that in the absence of opening date and terminal end and without determination of the default period the levy of default surcharge is not possible as both opening deductible event and terminal end are missing in the instant case. The levy of default surcharge on hypothetical basis and without establishing willful default on the part of taxpayer is illegal and nullity in the eye of law as held in reported cases cited as 109 tax 385 (ATIR); 1992 PTD 342 (SHC) and 2006 SCMR 626 (SC). Accordingly, following the ratio of cited cases, the amount of default surcharge calculated at Rs.5,047,162/- is ordered to be deleted.”
6. It will be advantageous to reproduce herein-under the relevant finding of the Hon’ble Supreme Court on the subject controversy, in the case of Deputy Collector, Central Excise and Sales Tax v. Messrs ICI Pakistan Limited [2006 SCMR 626], which reads as follows:-
“7. The provisions of section 34 of the Act, (as it-stood at the relevant time) read as under:
"Additional tax.--- Notwithstanding the provisions of section 11, if a registered person fails to pay the tax within the time specified in section 6, he shall, in addition to the tax due, be liable to pay additional tax and surcharge at the following rates:--
(a) 5 per cent of the tax due during the first month or part thereof;
(b) 10 per cent of the tax due for the next month or part thereof;
(c) 100 per cent of tax due for the succeeding period;
(d) surcharge at the rate of 1 per cent for every month or part thereof on the total accumulated amount that remains unpaid after the expiry of three months...."
The above provisions would clearly indicate that in case of failure of a registered person to pay the sales tax within time, he shall also be liable to pay additional tax and surcharge. The liability being not automatic B would be determined by the appropriate authority as to whether or not there was any reasonable ground for default in payment of sales tax which could be considered to be willful and deliberate. Shamroz Khan and another v. Muhammad Amin and others PLD 1978 SC 89, it was held that the expression "he shall be liable to have his defence, if any, struck off" used in Order XII, rule 8, C.P.C., would mean that the Court might strike off defence in an appropriate case and it was not incumbent upon the Court to strike off the defence on failure to supply address. In Haji Abdul Razzak v. Pakistan through Secretary, Ministry of Finance, Islamabad and another PLD 1974 SC 5 by section 168 of the Sea Customs Act No.VIII of 1878, it was provided that conveyance used in removal of contrabands would be liable to be confiscated. It was held that the provision still gave a discretion to the authorities to confiscate the conveyance and that discretion had to be exercised on sound judicial principles. In Muhammad Musa v. Settlement and Rehabilitation Commissioner and 2 others 1974 SCMR 352, the expression "shall be liable to cancellation" was examined. It was held that expression envisaged application of mind by appropriate authority and that failure of auction-purchaser to pay price or installment did not operate as automatic cancellation of auction sale. In the case of D.G. Khan Cement Factory (supra), it was observed by reference to section 34 of the Act that each and every case had to be decided on its merits as to whether the evasion or non-payment of tax was willful or mala fide, decision of which would depend upon the question of recovery of additional tax. There is no material available on record that the short payment of sales tax was mala fide or wilful act of omission the respondent-Company. In the facts and circumstances of the case, the High Court had justifiably allowed the writ petition of the respondent-Company by the impugned judgment dated 6-8-2001 to which no exception could be taken.”
7. Learned counsel for the applicant was confronted to assist the Court as to whether the provisions of Section 34 of the Sales Tax Act, 1990 in its scope, are materially different from the provisions of Section 161/205 of the Income Tax Ordinance, 2001 relating to the terms “default, and willful default”, in response to which, learned counsel for the applicant could not point out any material different in the scope and application of the aforesaid provisions, nor could assist the Court as to how the ratio of the aforesaid judgment of the Supreme Court would not apply to the facts of the instant case. Accordingly, we are of the considered opinion that the order passed by the Appellate Tribunal to this effect does not suffer from any factual error or legal infirmity, on the contrary, the same depicts correct legal position, which is duly supported by the judgment of the High Court and the Hon’ble Supreme Court, as referred to hereinabove.
7. In view of hereinabove facts and circumstances of the case, the question proposed hereinabove, was answered in AFFIRMATIVE vide our short order dated 07.12.2017 and these are the reasons of such short order.
J U D G E
J U D G E
A.S.