Law: Income Tax Ordinance, 1979

Section: 16(2)(a),16(2)(iii),50(1),50(5A),52,52A, 86,139,140,142

Law: Income Tax Act, 1922

Section: 18(7)

ORDER KHAWAJA FAROOQ SAEED (JUDICIAL MEMBER).-This appeal has been filed by the Department against deletion of the tax charged under section 52 of the Income Tax Ordinance, 1979. Brief facts of the case are that Mr. Khurshid Ahmed Soofi, a Director of Messrs Saga Sports (Pvt.) Limited, Sialkot filed his return of income for the assessment year, 2000-2001 declaring net income of Rs.435370 alongwith statement under section 143B showing indenting agent commission at Rs.89,007,730 and claiming tax deducted thereon at Rs.444,998. In the course of wealth tax assessment proceedings in the case of Mr. Khurshid Ahmed Soofi, director of Messrs Saga Sports (Pvt.) Ltd., it was noticed that the assessee had shown an amount of Rs.8,90,07,730 under the head Agency Commission in the reconciliation statement for the assessment year, 2000-2001 attached with the wealth tax return for the said year. Since the commission was paid by the company to its director, therefore, he was treated an employee of the company and commission paid to him by the company was considered as "salary" under section 16(2)(a) of the Income Tax Ordinance, 1979. While making payment of commission income, income-tax under section 50(5A) of the Income Tax Ordinance, 1979 was deducted by the company but the same was considered as short as the amount should have been deducted under section 50(1) by considering the said amount as salary. In view of this situation, the company was declared as an "assessee in default" under section 52 of the Income Tax Ordinance, 1979 vide order, dated 14-5-2001, Resultantly, an amount of Rs.2,68,15,019 + additional tax under section 86 amounting to Rs.77,03,624 became recoverable from the Company. The assessee feeling aggrieved of the above treatment preferred an appeal before the learned CIT(A) on various grounds. However, the learned CIT(A) vide order, dated 6-10-2001 held that commission income of Soofi Khurshid Ahmed is covered under Export Indenting Commission subject to withholding tax under section 50(5A) and the same cannot be considered as salary, hence there is no default on the part of the company in terms of section 50(1) of the Income Tax…