IN THE HIGH COURT OF SINDH, KARACHI
Constitutional Petition No. D –1324 of 2015
PRESENT:
MR. JUSTICE AQEEL AHMED ABBASI.
MR. JUSTICE ARSHAD HUSSAIN KHAN.
Sui Southern Gas Company – LPG (Pvt) Limited.
Vs.
Federation of Pakistan and others
Petitioner: through Mr. Asim Iqbal, Advocate
Respondent No.1: through Mr. Salman Talibuddin, Additional Attorney General for Pakistan.
Respondents No.2 & 3: through Mr. Muhammad Aqeel Qureshi, Advocate.
Date of Hearing: 28.03.2017.
Date of Judgment: 28.03.2017.
JUDGMENT
Aqeel Ahmed Abbasi, J. Through instant petition, the petitioner i.e. Sui Southern Gas Company – LPG (Pvt.) Ltd. has impugned the Show Cause Notices issued under Section 161 read with Sections 205 and 182(2) of the Income Tax Ordinance, 2001, dated 17.11.2014, 18.12.2014, 06.01.2015 and 03.03.2015, by the respondent No.3 i.e. Officer of Inland Revenue, Unit-6, Withholding Zone, RTO, Karachi, for being illegal and without lawful authority, and has sought following relief (s):-
(a) Declare that the impugned show cause notices dated 17.11.2014, 18.12.2014, 06.01.2015 and 03.03.2015 issued by the respondent No.3 are not in accordance with the law, bad in law.
(b) Declare that the High Court of Sindh does not come within the definition of ‘person’ for the purposes of Section 236A of the Income Tax Ordinance, 2001.
(c) Declare that the Petitioner Company is not liable to pay any advance tax as demanded by the Respondent vide impugned show cause notices.
(d) Suspend the operations of the impugned notices till the final disposal of the case.
(e) Restrain the Respondents especially Respondent No.3 or its officials/sub-ordinate/agent/person(s) or anyone acting of their behalf, not to further issue any demand to the Petitioner Company on the basis of advance tax under Section 236A of the Income Tax Ordinance, 2001.
(f) Restrain the Respondent No.3 or its officials/sub-ordinate/agent/person(s) or anyone acting of their behalf, not to take any adverse/coercive action against the Petition Company for the alleged recovery of the advance tax as stated in the impugned show cause notices.
(g) Restrain the Respondents/Respondent No.3 or its officials/sub-ordinate/agent/person(s) or anyone acting on their behalf, not to remit/transfer/withdraw any amount from the bank accounts of the Petitioner Company in the garb of the impugned show cause notices.
(h) Award cost of this petition.
(i) Any other/further relief(s) which this Honourable Court may deem fit under the circumstances of the case.
2. The brief facts giving rise to filing of instant petition, which are common, and have been stated in the Memo of petition, are that petitioner company i.e. Sui Southern Gas Company – LPG (Private) Limited Company, which is a wholly owned subsidiary of the Sui Southern Gas Company Limited, after having complied with all codal formalities, participated alongwith with other bidders in the auction proceedings conducted by the Nazir of this Court (i.e. Sindh High Court), and being the highest bidder, the bid offered by the petitioner was accepted vide Court’s order dated 14.10.2011 passed in Execution No.98/2010 (Suit No.B-128/2009: M/s. Standard & Chartered Bank v. Pro Gas Pakistan Limited and another). The petitioner company deposited the total bid amount with the Nazir of this Court on 15.10.2011, whereafter, vide order dated 17.10.2011 passed by the learned Single Judge of this Court in the above execution proceedings, the sale was confirmed in favour of the petitioner company and the Nazir of this Court was directed to prepare an inventory and thereafter, to handover the possession of the moveable as well as immoveable assets purchased through auction to the petitioner. The Nazir of this Court, accordingly, prepared a detailed inventory of the property auctioned by the Nazir and delivered the possession of all moveable and immoveable assets/articles, including the plot and the plant/machinery situated at Land QP-5, North Western Industrial Zone, Port Qasim, Karachi and Land bearing No.A-4, North Western Industrial Zone, Port Qasim, Karachi vide Possession letter dated 19.10.2011, to the petitioner, hence, the transaction stood completed in all respects. Thereafter, respondent No.3 i.e. Officer of Inland Revenue, Unit-06, Withholding Zone, RTO, Karachi issued a Show Cause Notice dated 17.11.2014 under Section 161 read with Section 205 further read with Section 182(2) of the Income Tax Ordinance, 2001 for the Tax Year 2012 to the petitioner company, stating therein that petitioner company has failed to deduct tax from the gross amount paid to the High Court of Sindh for the purchase of assets sold in pursuance of order passed by this Court in Execution No. 98/2010 and 97/2010. Such Notice was duly replied by the petitioner company through its tax consultant vide letter dated 08.12.2014, wherein, it was submitted that since all the assets had been purchased through auction by the High Court of Sindh, therefore, all the payments in this regard have been paid to the Nazir of High Court of Sindh, whereas, provisions of advance withholding tax are not attracted on the said transaction. Thereafter, another similar Notice dated 18.12.2014 was issued by respondent No.3 which was also duly responded, however, without assigning any reason, a final reminder / Notice was issued on 06.01.2015 by respondent No.3, which was once again responded vide letter dated 13.01.2015 by the petitioner whereby above factual and legal position was reiterated. However, according to petitioner, instead of accepting the contention of the petitioner company, respondent No.3 again issued a Show Cause Notice dated 03.03.2015, wherein, it has been stated that if the impugned demand is not paid then an order under Section 162(1) of the Income Tax Ordinance, 2001 will be passed against the petitioner company and penal action will also be initiated. The petitioner company being aggrieved by such illegal proceedings and the Show Cause Notices issued by the respondent No.3, as referred to hereinabove, has filed instant petition seeking a declaration to the effect that impugned Show Cause Notices may be declared to be illegal and having been issued without lawful authority, whereas, further declaration has been sought to the effect that High Court of Sindh does not come within the definition of “person” for the purposes of Section 236A of the Income Tax Ordinance, 2001, therefore, petitioner company is not liable to pay any advance tax as demanded by the respondent through impugned Show Cause Notices in respect of the amount paid by the petitioner to the High Court towards auction proceeds.
3. Learned counsel for the petitioner has vehemently argued that the entire proceedings initiated by the respondent and the impugned Show Cause Notices under Section 161 read with Section 205 and 236A of the Income Tax Ordinance, 2001 in respect of purchases made by the petitioner through Court Auction, pursuant to orders passed by the learned Judge of High Court of Sindh in Execution No.98/2010 and Execution No.97/2010 (Suit No.B-128/2009), are illegal and have been issued without any lawful authority, hence liable to be set-aside. It has been contented by the learned counsel for the petitioner that the provisions of Section 161 are not attracted to the facts of the instant case as, according to learned counsel, High Court of Sindh does not fall within the definition of “person” as prescribed under Section 236A of the Income Tax Ordinance, 2001. Per learned counsel, without prejudice to hereinabove legal position, the Auction proceedings, through which petitioner has purchased subject assets/articles, in fact, are the continuation of the orders passed by the Hon’ble High Court in Execution Nos. 98/2010 and 97/2010, which otherwise, cannot be subjected to any proceedings, including the proceedings under Section 161 read with Section 205 and 236A of the Income Tax Ordinance, 2001 as according to learned counsel, Court proceedings or the transaction of sale / purchase pursuant to Court’s orders in any case, cannot be subjected to Income Tax proceedings under the Income Tax Ordinance, 2001 either, for the purposes of assessment of income or for the recovery of any advance or withholding tax in respect of transactions made pursuant to Court’s orders. Learned counsel has also referred to the provision of Sub-Article (5) of Article 199 of the Constitution of the Islamic Republic of Pakistan, 1973, whereby, according to learned counsel, the High Court is excluded from the definition of a “person”, whereas, according to learned counsel, in terms of Section 236A of the Income Tax Ordinance, 2001, no liability can be imposed on the petitioner company in respect of assets / articles purchased through Auction by the High Court of Sindh. Per learned counsel for the petitioner, respondents i.e. Authorities of Inland Revenue, are not authorized in law to initiate any proceedings for the recovery of the advance tax / withholding tax on the sales made through Auction by the High Court(s), the Supreme Court or any other Court or tribunal established under the law. It has been prayed by the learned counsel for the petitioner that the Show Cause Notices issued by the respondent No.3 may be declared as illegal without lawful authority, whereas, proceedings initiated against the petitioner by the respondent No.3 to this effect, may be quashed.
4. While concluding his arguments, learned counsel for the petitioner has also drawn the attention of this Court to the orders passed by the respondent No.3 under Section 162 of the Income tax Ordinance, 2001 and has prayed that the same may be declared as illegal and without lawful authority, as, according to the learned Counsel, the same have been passed in violation of Courts orders dated 17.03.2015 in the instant petition, whereby, respondents were restrained from taking any coercive action against the petitioner till next date.
5. Notices of instant petition were issued to the respondents as well as DAG on 17.03.2015. In response to which, comments have been filed on behalf of respondent No.2 and 3, wherein, the contention of the petitioner has been denied. It has been contended by learned counsel for respondent that petitioner is liable to pay the impugned demand and to pay the advance income tax at the rate of 5% on the sale proceeds through Auction under Section 236A of the Income Tax Ordinance, 2001, whereas, according to respondent, such amount is recoverable alongwith additional surcharge / default surcharge at the rate of 18% in terms of sub-section (3) of section 205 of the Income Tax Ordinance, 2001. In the comments filed on behalf of respondents, it has been further stated that in fact, it was the duty of the Nazir of this Court to collect advance withholding income tax at rate of 5% (10% w.e.f. 01.07.2013) as withholding agent from the petitioner, however, since the Nazir has not performed his duty as withholding agent, therefore, the petitioner is liable to pay such amount of tax in terms of Section 162 read with Section 236A of the Income Tax Ordinance, 2001 and also to pay additional surcharge at rate of 18% in terms of sub-section (3) of section 205 of the Income Tax Ordinance, 2001.
6. It is pertinent to note that during pendency of instant petition and after Notice to the respondents vide order dated 17.03.2017, whereby, respondents were restrained from taking any coercive action against the petitioner till next date of hearing, Respondent No.3, i.e. Officer of Inland Revenue, Unit-06, Withholding Zone, RTO, Karachi has passed an order dated 20.03.2015 under Section 162 of the Income Tax Ordinance, 2001, which fact was intimated by the petitioner by filing an urgent application with the request to suspend the operation of the order passed under Section 162 of the Income Tax Ordinance, 2001, and also to initiate contempt of Court proceedings against the respondents/alleged contemnors. On 30.03.2015, 21.04.2015 and 05.05.2015 various orders were passed by this Court after Notice to the respondents and the alleged contemnor, whereby, the operation of the order passed under Section 162 of the Income Tax Ordinance, 2001, in the case of the petitioner, was suspended, and the alleged contemnors were required to Show Cause Notice as to why the contempt of Court proceedings may not be initiated against them under the facts and circumstances of the instant case.
7. On 05.05.2015, when the order was dictated and Show Cause Notice was issued to the alleged contemnors for violating the Courts’ orders, both the officers, namely, S.N.U. Ahmed, Coordinator (Legal), FBR Camp at Karachi and Abdul Wahab Sario, Inland Revenue Officer, Unit-06, Withholding Tax Zone, RTOP, Karachi alongwith departmental counsel Mr. Muhammad Aqeel Qureshi shown appearance and sought permission of the Court to explain their position for alleged violation of Court’s order. Since the order sheet was not signed by that time, urgent permission was granted, pursuant to which both the officers i.e. alleged contemnors, extended their unconditional apology by submitting that due to some confusion and misinterpretation of Courts’ orders dated 17.3.2017, an order under Section 162 of the Income Tax Ordinance, 2001 was passed due to inadvertence. The learned counsel for the petitioner was also called in chambers to attend such proceedings, who has candidly submitted that since both the officers have tendered their unconditional apology, which reflects that due to inadvertence and misinterpretation of Court’s order, order under section 162 of the Income Tax Ordinance, 2001, was passed by the alleged contemnors, therefore, this Court may pass appropriate orders by recalling the earlier order for issuing Show Cause Notice for Contempt of Court against the alleged contemnors. In view of unconditional apology tendered by both the officers of Inland Revenue, and the no objection by learned counsel for the petitioner, the order for issuing Show Cause Notice for Contempt of Court was recalled, and both the officers were directed to be careful in future while dealing with Courts’ matters. It was further ordered that the order under Section 162 of the Income Tax Ordinance, 2001 passed by the Inland Revenue Officers in the instant matter, shall remain suspended till further orders of this Court and the matter was adjourned for 21.05.2015.
8. Today, we have heard the learned counsel for the petitioner and also the learned counsel for the respondents duly assisted by the Officers of the Inland Revenue, perused the record and the relevant provisions of the Income Tax Ordinance 2001, as well as the provisions of sub-Article (5) of Article 199 read with Article 260 of the Constitution of the Islamic Republic of Pakistan, 1973 with their assistance. The precise controversy, which has emerged in the instant petition after hearing the learned counsel, revolves around determination of legal position to the effect as to whether the High Court of Sindh or the Hon’ble Supreme Court, or any other Court established under law, can be treated as a “person” in terms of Income Tax Ordinance, 2001 or can be treated as withholding agent for the purposes of collecting/withholding any advance tax under Section 161 read with Section 236A of the Income Tax Ordinance, 2001. It is to be further examined as to whether sales through Court’s Auction or purchases made by any person in the Auction proceedings, pursuant to an order passed by this Court in some judicial proceedings, through Nazir of the Court, can be subjected to withholding tax / advance tax under Sections 161/162 of the Income Tax Ordinance, 2001. Admittedly, in the instant case, the auction proceedings for the sale of assets/articles of a company were initiated pursuant to order passed by a learned single Judge this Court in Execution No.98/2010 (Suit No.B-128/2009), wherein, the petitioner being the highest bidder, deposited the entire auction amount, whereafter, sale was confirmed by the orders of the Court in the aforesaid proceedings whereas, the delivery and possession of the assets/articles was given to the petitioner company by the Nazir of this Court, however, no amount of advance tax was demanded from the petitioner by the Nazir of this Court on such sale / auction proceeds, nor the petitioner company has withheld any advance tax from the payments made to the Nazir of this Court in respect of sale proceeds.
9. It will be advantageous to reproduce and examine the provisions of Section 2(42), Sections 80, section 161, and section 236A of the Income Tax Ordinance, 2001, which reads as follows:-
2(42): "person" means a person as defined in section 80;
80. Person. — (1) The following shall be treated as persons for the purposes of this Ordinance, namely: —
(a) An individual;
(b) a company or association of persons incorporated, formed, organised or established in Pakistan or elsewhere;
(c) the Federal Government, a foreign government, a political sub-Division of a foreign government, or public international organisation.
(2) For the purposes of this Ordinance —
(a) "association of persons" includes a firm, a Hindu undivided family, any artificial juridical person and any body of persons formed under a foreign law, but does not include a company;
(b) "company" means —
(i) a company as defined in the Companies Ordinance, 1984 (XLVII of 1984);
(ii) a body corporate formed by or under any law in force in Pakistan;
(iii) a modaraba;
(iv) a body incorporated by or under the law of a country outside Pakistan relating to incorporation of companies;
1[(v) a co-operative society, a finance society or any other society;]
1[(va) a non-profit organization;]
2[(vb) a trust, an entity or a body of persons established or constituted by or under any law for the time being in force;]
(vi) a foreign association, whether incorporated or not, which the 3[Board] has, by general or special order, declared to be a company for the purposes of this Ordinance;
(vii) a Provincial Government; 4[ ]
(viii) a 5[Local Government] in Pakistan; 6[or] 7[(ix) a Small Company as defined in section 2;]
(c) "firm" means the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all;
(d) "trust" means an obligation annexed to the ownership of property and arising out of the confidence reposed in and accepted by the owner, or declared and accepted by the owner for the benefit of another, or of another and the owner, and includes a unit trust; and
(e) "unit trust" means any trust under which beneficial interests are divided into units such that the entitlements of the beneficiaries to income or capital are determined by the number of units held.
161. Failure to pay tax collected or deducted.— (1) Where a person –
(a) fails
to collect tax as required under Division II of this Part 5[or
Chapter XII] or deduct tax from a payment as required under Division III of
this Part 6[or Chapter XII] 7[or as required under
section 50 of the repealed Ordinance]; or having collected tax under Division
II of this Part 8[or Chapter
XII] or deducted tax under Division III of this Part 9[or Chapter
XII] fails to pay the tax to the Commissioner as required under section 160, 10[or
having collected tax under section 50 of the repealed Ordinance pay to the
credit of the Federal Government as required under sub-section (8) of section
50 of the repethe person shall be personally
liable to pay the amount of tax to the Commissioner 1[who may 2[pass
an order to that effect and] proceed to recover the same.] of section 50
of the repealed Ordinance,]
[(1A) No recovery under sub-section (1) shall be made unless the person person referred to in sub-section (1) has been provided with an opportunity of being heard.
(1B) Where at the time of recovery of tax under sub-section (1) it is established that the tax that was to be deducted from the payment made to a person or collected from a person has meanwhile been paid by that person, no recovery shall be made from the person who had failed to collect or deduct the tax but the said person shall be liable to pay 4[default surcharge]at the rate of 5["twelve"] per cent per annum from the date he failed to collect or deduct the tax to the date the tax was paid.]
(2) A person personally liable for an amount of tax under sub-section (1) as a result of failing to collect or deduct the tax shall be entitled to recover the tax from the person from whom the tax should have been collected or deducted.
236A. Advance tax at the time of sale by auction.— (1) Any person making sale by public auction3[or auction by a tender], of any property or goods 4[(including property or goods confiscated or attached)] either belonging to or not belonging to the Government, local Government, any authority, a company, a foreign association declared to be a company under sub-clause (vi) of clause (b) of sub-section (2) of section 80, or a foreign contractor or a consultant or a consortium or Collector of Customs or Commissioner of 5[Inland Revenue] or any other authority, shall collect advance tax, computed on the basis of sale price of such property and at the rate specified in Division VIII of Part IV of the First Schedule, from the person to whom such property or goods are being sold.
(2) The credit for the tax collected under sub-section (1) in that tax year shall, subject to the provisions of section 147, be given in computing the tax payable by the person purchasing such property in the relevant tax year or in the case of a taxpayer to whom section 98B or section 145 applies, the tax year, in which the ―said date" as referred to in that section, falls or whichever is later.
Explanation.- For the purposes of this section, sale of any property includes the awarding of any lease to any person, including a lease of the right to collect tolls, fees or other levies, by whatever name called.]
10. The term “person” has also been defined in Article 260 of the Constitution of Islamic Republic of Pakistan, 1973, according to which “person includes any body politic or corporals, whereas, under sub-Article (5) of Article 199 of the Constitution, the term person has been defined in the following terms:-
“(5) In this Article, unless the context otherwise requires, “person includes any body politic or corporate, any authority of or under the control of the Federal Government or of a Provincial Government, and any Court or tribunal, other than the Supreme Court, a High Court or a Court or tribunal established under a law relating to the Armed Forces of Pakistan; and”
11. From perusal of hereinabove provisions of Income Tax Ordinance, 2001, and the relevant provisions of the Constitution, it is clear that neither under the Income Tax Ordinance, 2001, in terms of Section 2(42), Sections 80, Section 161, and Section 236A of the Income Tax Ordinance, 2001, nor in terms of sub-Article (5) of Article 199 of the Constitution, and the definition of a person as given under Article 260 of the Constitution of the Islamic Republic of Pakistan, 1973, the Supreme Court, High Court(s) or any tribunal constituted under the law, falls within the definition of a person, who may be considered as person liable to collect or withhold advance income tax in respect of any transaction, including the transaction of sale through auction under Section 236A of the Income Tax Ordinance, 2001. It is pertinent to note that High Court of Sindh is established under Article 192 of the Constitution of the Islamic Republic of Pakistan, 1973, as a separate Constitutional establishment, which cannot be termed or equated with a person, as visualizes under the Income Tax Ordinance, 2001, nor can in any manner be treated as an assesse or withholding agent under the Income Tax Ordinance, 2001. Under Article 260 of the Constitution, the term “person” has been defined to include any body politic or corporate, whereas, in terms of sub-Article (5) of Article 199 of the Constitution, the term person has been defined to include any body politic or corporate, any authority of or under the control of the Federal Government or of a Provincial Government, and any Court or tribunal, however the Supreme Court, a High Court or a Court or tribunal established under a law relating to the Armed Forces of Pakistan, has been excluded from the purview of the term “person”. Such exclusion is deliberate and has consciously been made under the Constitution and legal provisions, so that superior Courts may not be subjected to taxing statutes or proceedings under such laws, including Income Tax Ordinance, 2001, Sales Tax Act, 1990, Customs Act, 1969 etc. etc.
12. From perusal of hereinabove constitutional and legal provisions, it is clear that the High Court of Sindh and, for that purpose, the Hon’ble Supreme Court established under the constitutional provisions, are entirely separate and independent establishments, which cannot be subjected to provisions of Income Tax Ordinance, 2001 (or any other taxing statute as referred above) as neither any of the High Court(s) established under Article 192 of the Constitution or the Hon’ble Supreme Court, established under Article 176 of the Constitution, can be treated as an assesse or subject to assessment proceedings under Income Tax Ordinance, 2001. Learned counsel for the respondents was specifically confronted to refer to any of the provision of Income Tax Ordinance, 2001, with particular reference to provisions of Section 2(42), sections 161/162 read with Section 236A of the Income Tax Ordinance, 2001, whereby, the High Court or the Nazir of this Court, which is performing his duty pursuant to Courts’ orders, could be treated as a “person”, however, learned counsel for the respondents could not refer to any such provision of the Income Tax Ordinance, 2001, nor could assist this Court as to how the establishment of the High Court could, in any manner, be treated as a “person” under the Income Tax Ordinance, 2001.
13. In view of hereinabove facts and circumstances of the case, we are of the considered opinion that the proceedings initiated against the petitioner company under Sections 161, 205 and 236A of the Income Tax Ordinance, 2001 for the recovery of advance tax in respect of auction proceeds through Nazir of this Court, are void ab-initio and without lawful authority, whereas, the orders passed under Section 162 of the Income Tax Ordinance, 2001, in violation of Courts’ restraining order in this regard, are equally illegal and without lawful authority. Accordingly, instant petition was allowed vide our short order dated 28.03.2017, whereby, the impugned Notices issued to the petitioner under Sections 161, 205 read with section 236A were declared to be illegal and without lawful authority, and above are the reasons of such short order.
JUDGE
Dated:14.07.2017 JUDGE