1. Through instant reference application under Section 133 of the Income Tax Ordinance, 2001 (“Ordinance”), following questions of law, asserted to have arisen out of order dated 11.06.2014, passed by the Appellate Tribunal Inland Revenue, Camp at Multan (“Appellate Tribunal”), have been proposed and pressed for our opinion:
i. Whether under the facts and circumstances of the case, the learned ATIR failed to appreciate the fact that Advance Income Tax under Section 235 was deductible on the electricity under Subsection (2) and not on gross amount of electricity bill as contemplated in Subsection (1) of Section 235 of the Ordinance, 2001?
ii. Whether learned ATIR and AITR has erred at law and give effect to interpretation of section 235 of the Income Tax Ordinance, 2001 made in the judgment rendered by the Hon’ble Division Bench of Sind High Court is similar matter of “Commissioner Inland Revenue Zone-I RTO Vs. Hyderabad Electric Supply Co. (HESCO)” in ITRA No.68/2012 wherein it has been ruled out that “there is distinction between electricity consumption bill and the gross electricity bill, whereas, the advance tax is required to be charged on the basis of electricity consumption only, and in the manner electricity consumption charges are charged, therefore, the gross electricity bill, which includes excise duty, income tax, G.S.T. and N.J., is not relevant for the purposes of charging advance tax at the rates specified in Part-IV of the First Schedule. Court do not see any ambiguity or conflict between the two provisions of sub-section (1) and sub-section (2) of section 235 of the Income Tax Ordinance, 2001, which otherwise, are to be read in harmony and not in isolation.”?
iii. Whether the clarification of FBR dated 8th June 2013 regarding charging of Income Tax u/s 235 of the Income Tax Ordinance, 2001, on electricity bill has prospective effect and the learned CIRA has erred at law while holding otherwise that such clarification has the retrospective effect, which is against the dictums of Superior Courts of Pakistan?
2. Brief facts of the case are that respondent department issued a Show Cause Notice (“SCN”) dated 09.05.2013, contending that the applicant being a “prescribed person” in terms of Section 153 (7) of the Ordinance, has made various payments against purchase / supplies to various parties, which were liable to tax deduction and certain discrepancies of tax deductions under various heads were also pointed out. The notice was replied by the applicant company. Being dissatisfied with the aforesaid reply, the Inland Revenue Audit Officer/Assessing Officer passed an order No.161 of 2005 dated 21.10.2013 against the applicant under Sections 161/205 of the Ordinance. Feeling aggrieved, applicant preferred an appeal before Commissioner Inland Revenue (Appeals), who partially confirmed the order of the assessing officer, vide order dated 24.02.2014. Applicant challenged said order by way of filing an appeal before learned Appellate Tribunal, but the same was also dismissed vide order dated 11.06.2014, which has been assailed through instant reference application.
3. Learned counsel for applicant submits that learned Appellate Tribunal failed to appreciate the fact that advance income tax under Section 235 of the Ordinance, was deductible under Subsection (2) on the electricity consumed and not on gross amount of electricity bill as contemplated in Subsection (1) of Section 235 of the Ordinance. In support of his contentions, he has placed reliance upon Commissioner Inland Revenue Zone-I RTO v. Hyderabad Electric Supply Co. (HESCO) in ITRA No.68 of 2012. He further submits that clarification of FBR dated 08.06.2013 regarding charging of income tax under Section 235 of the Ordinance, on electricity bill has prospective effect and the learned CIR (A) has erred in law while holding otherwise that such clarification has the retrospective effect, which is against the dictum of superior Courts of Pakistan. In this regard, he has placed reliance upon Messrs Fazal Textile Mills Limited, Karachi v. Secretary, Revenue Division, Islamabad (2009 PTD 1983), Messrs A. A. Brothers through Proprietor v. Federation of Pakistan through Secretary, Ministry of Finance (Revenue Division), Islamabad and 3 others (2010 PTD 2101) and Messrs Maverick Petrogas (Pvt.) Limited, Lahore v. A.C.I.R., MAC-01, RTO-II, Lahore (2013 PTD (Trib.) 595).
4. On the other hand, learned counsel for respondents defends the impugned order passed by learned Appellate Tribunal and submits that applicant failed to point out any illegality or legal infirmity in the impugned order, therefore, same may be upheld in the interest of justice.
5. Arguments heard. Available record perused.
6. In order to better appreciate the contentions of learned counsel for the parties, it would be appropriate to reproduce the operative part of impugned order dated 11.06.2014, which is reproduced here under:
“7. After having considered the orders of the lower fora and explanations submitted by the taxpayer during the course of proceedings, we are of the opinion that the crucial issue in this appeal is inclusion of sales tax amount before calculation of advance income tax liability by the Inland Revenue. The learned CIR (A) has dealt with this issue in detail taking into account the nature of transaction, explanation offered / submitted as well as the issue of applicability of the SRO which is of clarificatory in nature, therefore, we do not find any necessity to dilate upon. The appellant has also adopted the practice of charging Withholding Tax after including the sales tax, therefore, we find no interference with the order of learned CIR (A) which is maintained and the appeal filed by the Taxpayer is hereby dismissed.”
7. Perusal of the above reproduced operative part of impugned order shows that learned Appellate Tribunal has agreed with the findings rendered by CIR (A), holding that the practice of charging withholding tax after including the sales tax, is justified and consequently, findings of CIR (A) were upheld. For facility of reference, Section 235 of the Ordinance is reproduced here under:
“235. Electricity consumption.—(1) There shall be collected advance tax at the rates specified in Part-IV of the First Schedule on the amount of electricity bill of a commercial or industrial consumer.
(2) The person preparing electricity consumption bill shall charge advance tax under sub-section (1) in the manner electricity consumption charges are charged.
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