2010 PTD 2486
ORDER
MUNSIF KHAN MINHAS (JUDICIAL MEMBER).--- The Department has filed these two instant appeals against the combined order dated 24-3-2010 passed by learned CIR(A-II) Islamabad for the tax years 2001-2002 and 2002-2003 on the following common ground:--
"That the learned CIR (A-II) was not justified to direct for imposition of additional tax/default surcharge from the date of issuance of rectification order on 9-6-2008 passed under sections 221/124 and application of rates in 2008 as against the fact that the demand remained outstanding from the due date of payment as a result of original order passed on 6-3-2004 and additional tax/default surcharge was charged on reduced/settled figure of demand " .
2. Brief facts leading to these appeals are that the original assessments under section 63 were framed on 6-3-2004 for the years under appeal and demand of Rs.268,039 and Rs.341,200 was created for the assessment years 2001-2002 and 2002-2003 respectively. Demand notice was served on 10-4-2004. Appeal effect under section 124 was given vide I.T. 30 dated 6-12-2004 reducing tax demand at Rs.363,733 for assessment year 2001-2002 and Rs.329,060 for the assessment year 2002-2003. Later on the case was rectified under section 221/124 vide order dated 9-6-2008 in order to give credit of payments already made by the Taxpayer and tax demand was determined on 9-6-2008 at Rs.221,800 and Rs.276,760 for the assessment years 2001-2002 and 2002-2003. Thereafter, for late payment of tax demand, default surcharge was charged through order under section 205 which is the subject of present appeal. Being dissatisfied with the treatment given by the learned Taxation Officer, the taxpayer challenged the order in first appeal for the years under consideration before the learned Appeal Commissioner who while disposing of' the appeal has observed as under:--
"The arguments presented were considered and order perused. The point raised is in accordance with the legal strength derived from higher courts, hence found- to be tenable. Therefore, the Assessing Officer is directed to impose penalty from the date of issuance of rectification order according to the rates as applicable in 2008 which would be realistic and in the interest of revenue."
3. During arguments learned DR has supported the assessment order passed by the learned Taxation Officer. The learned DR has argued that the learned CIR(A-II) was not justified to direct for imposition of additional tax/default surcharge from the date of issuance of rectification order on 9-6-2008 passed under sections 221/124 and application of rates in 2008 as against the fact that the demand remained outstanding from the due date of payment as a result of original order passed on 6-3-2004 and additional tax/default surcharge was charged on reduced/settled figure of demand. The learned DR has also argued that the Taxation Officer, after perusal of the statement held that since no plausible explanation has been offered and demand for 2001-2002 and 2002-2003 is intact, stands confirmed by CIT(A) and obviously payments have been made at later time, hence default surcharge under section 205 is charged. The learned DR has further argued that the Assessing Officer has rightly passed the order under section 205 for default surcharge which is to be charged on tax determined.
4. On the other hand learned AR of the assessee has contended that learned Taxation Officer has wrongly passed the order under section 205 by ignoring the findings of the honourable Lahore High Court in their case No. (PLD 1976 Lah. 761) dated 19-12-1975. The original order passed on 6-3-2004 merged in order passed under section 221 on 9-6-2008 and notice issued on 9-6-2008 determined due date. The learned AR of the assessee has contended that in this reported judgment, it has been held that:-
"Indeed it is well recognized general principle that on appeal the original order ceases to exist and merges itself in the appellate order of variance. As a corollary, with it all the proceedings taken in pursuance to the original order would be washed away and obliterated".
5. I have heard the arguments and perused the record. As far as the theory of merger is concerned, undoubtedly order passed by Taxation Officer merges into order passed by the Appellate forum. The demand crystallized in final order will be considered as demand against the tax payer from the day one. It is no doubt, true, the foundation of the additional tax is the existing demands that too existing at the time when order under section 205 was passed. Of course if the assessment order raising some demand has been set aside in appeal either by first Appellate Authority or tribunal or other higher pedestal, the period in which no demand was in existence will be deducted. Even if stay is granted by tribunal or any other forum, that will amount to suspension of demand. Taxpayer can reap the benefit of this period also. Suppose, if department raises the demand of Rs. One lac, it is ultimately decided by higher forum at figure of Rs. 50,000, the taxpayer is liable to pay Rs.50,000 tax along with additional tax from the original date of higher demand but at reduced demand from that very date. The above said cited case relates to the provision of Income Tax Act, 1922 which was buried prior to amalgamation of Income Tax Ordinance, 1979. Hence case law being outcome of interpretation of Income Tax Act, 1922 has no relevancy here. Moreso facts do not relate to Additional Tax rather related to penalty. Penalty cannot be equaled with Additional tax. This argument of learned AR does not appeal to my logic that demand note if changes even by giving tax credit will absolve the taxpayers from the payment of additional tax from the date when it was due. The learned AR has argued that the department itself admitted merger theory and it may be directed on the basis of merger theory to calculate additional tax from 8-7-2008 and apply rate @ 12% as was applicable in the relevant period or annul the order. For the sake of argument, if we give due weight to the contention of learned AR; even then appellate order relates to 6-12-2004. Assessee; even on the basis of merger theory can claim relief in the period since 6-12-2004. Order dated 9-6-2008 is nothing except giving the tax credit and does not relate to finding on merits with regard to quantum of income in dispute which was already settled in December, 2004. Hence merger can only be related with reduction of quantum of income in appeal and not with the period of non-payment of finally determined tax liability. Hence additional tax will be on the amount finally determined after giving tax credit in order passed under section 221. It will be payable not from the original date of demand but after the period of time within which payment was asked to be made by the department. For example in demand note assessee is hereby asked to pay the tax within a period of one month. So the default period will start after the expiry of one month given by the department to deposit the tax. Relief can only be given if the date for payment was extended by the department or for the period when demand was stayed by the competent judicial forum or the department itself. With these observations order passed by the learned CIR(A) hereby stands modified accordingly.
C.M.A./134/Tax (Trib.) ??????????????????????????????????????????????????????????????????????? Order accordingly.