MMISSIONER OF INCOME-TAX, COMPANIES-I, KARACHI vs NATIONAL

1. ' MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---In these applications under section 136(2) of the Income Tax Ordinance, 1979, the Commissioner of Income Tax, Companies-I, Karachi has proposed the following question for our opinion:--- "(1) Whether on the facts and in the circumstances of the case, the learned ITAT was justified in deleting the additional tax under section 86 of the Income Tax Ordinance, 1979, with the observation that tax under section 50(6A) is deductible at the time of actual payment of dividend and not at the time of mere declaration of dividend, despite the fact that the assessee follows mercantile system of accounting which requires deduction of tax at the time of debiting the amount."

2. ' The relevant facts giving rise to these Direct Reference applications in this Court are that the respondent a Public Limited Company is withholding agent under various provisions of section 50 of the Income Tax Ordinance, 1979. During the assessment years 1997-98 and 1998-99, the respondent declared dividend for distribution to the shareholders. The respondent did not deduct the tax under section 50(6A) of the Income Tax Ordinance, within 7 days of the declaration of dividend and therefore, additional tax was levied under section 86 of the Income Tax Ordinance, 1979. The respondent preferred first appeal which was dismissed, where after the respondent preferred second appeal before the Income Tax Appellate Tribunal, assailing the levy of additional tax under section 86 of the Income Tax Ordinance. It was contended before the ITAT, that the respondent was maintaining accounts on mercantile basis and the payment of dividend to the Secretary Zakat and Usher was shown in the books on accrual basis which was subsequently, actually paid and at the time of actual payment the tax on such payments was deducted and paid in accordance with the provisions of law as contained in section 50(6A) of the Income Tax Ordinance, 1979, which reads as follows:--- "The principal officer of a company shall at the time of making payment to a shareholder, not being a company, on account of dividends, deduct tax at the rate specified in the First Schedule."

3. ' It was contended that on plain reading of the above provision, it was obvious that the tax was required to be deducted at the time of payment and not at the time of accrual. It was further contended that since the obligation of deduction of tax under section 50(6A) was fulfilled as required under the law, therefore, the charge of additional tax for the reason that it was not deducted at the time of accrual was liable to be cancelled.

4. ' The learned ITAT accepted the contention holding that the respondent was not liable to deduct the tax at the time of accrual but was required to deduct the tax at the time of making the payment to the shareholders and thus the levy of additional tax was not justified which was cancelled.

5. ' The department feeling aggrieved submitted reference application under section 136(1) of the Income Tax Ordinance, praying to refer the question reproduced in the earlier part of this order for the opinion of this Court but the application was rejected for the reason that the provision of law was crystal clear.

6. ' Being still dissatisfied, the department has preferred this direct reference application under section 136(2) of the Income Tax Ordinance, 1979.

7. ' Mr. Aqeel Ahmed Abbasi, learned counsel for the department has submitted that since the respondent is maintaining accounts on accrual basis having employed mercantile system of accounting, therefore, the deduction required to be made under section 50(6A) of the Income Tax Ordinance, ought to have been made at the time of declaration of the dividend and not at the time of actual payment.

8. ' He contended that although it is stated in section 50(6A) of the Income Tax Ordinance, that the deduction at source shall be made at the time of making payment to the shareholders but the expression payment should be interpreted to be incurring of liability to the shareholders in consonance with the mercantile system of accounting.

9. ' The attention of learned counsel was drawn to the Explanation (b) of section 23(1) of the Income Tax Ordinance, which reads as follows:- "(b) the expression paid, as used in this section and sections 18, 24 and 31, means actually paid or incurred according to the method of accounting upon the basis of which the income is computed."

10. The learned counsel has conceded that while interpreting a fiscal statute there is no room for any intendment, inference or presumption and the plain words used by the Legislature are to be looked only, for application of a particular provision. He has, however, insisted that income, profits and gains are to be computed for the purpose of Income Tax Ordinance, 1979 in accordance with the method of accounting regularly employed by the assessee.

11. It is provided in section 32 of the Income Tax Ordinance, that income, profits and gains except income from dividend, shall be computed for purposes of sections 17, 19, 22, 27 and 30 in accordance with the method of accounting regularly employed by the assessee. Thus, the Legislature has provided an exception to the income from dividend and when it is read with the provisions contained in section 50(6A) of the Income Tax Ordinance, no doubt is left that the deduction at source in respect of dividend is to be made at the time of making payment to a shareholder not being a company and not at the time of declaration of dividend. The Explanation

(b) to section 23(1) of the Income Tax Ordinance, reproduced earlier shows that the expression 'paid' means actually paid or incurred according to the method of accounting on the basis of which the income is computed but it is restricted to sections 18, 24 and 31 only. The Explanation is not general in terms and shall not be applied to other sections of Income Tax Ordinance, on the basis of the principle that a fiction of law is restricted to the extent specified in the statute and its scope is not to be extended. The intention of the Legislature is clear from the fact that no such Explanation has been inserted in section 50(6A) of the Income Tax Ordinance, 1979.

12. For the foregoing reason, we are of the opinion that the proposition of law' is very clear and consequently the Income Tax Appellate Tribunal rightly rejected the reference application under section 136(1) of the Income Tax Ordinance, 1979. Every question of law should not be referred to the High Court for its opinion. Substantial E question of law only should be referred to the High Court. If the law is very clear and no ambiguity is to be resolved or no interpretation is required, the question of law is not to be referred to the High Court. We are, satisfied with the correctness of the decision of the Appellate Tribunal and consequently, the reference, applications under section 136(2) of the Income Tax Ordinance, 1979, stand dismissed in limine.