Law: Income Tax Ordinance, 2001

Section: 153,153(1)(b),161,177,Second Schedule-Part(IV)-Clause46AA

Law: Constitution of Pakistan, 1973

Section: 4

INCOME TAX ORDINANCE, 2001 (XLIX OF 2001) Section 153 The payments relating to use of system charges (“UoSC”) are made for the supply of electricity by the NTDC and is exempt from deduction of withholding tax and where no income tax can be legally withheld there is no question of delayed payment or default surcharge relating thereto.- Deputy Commissioner, IR issued four Show Cause Notices to the appellant. It was alleged in the show cause notices that no deduction of withholding Income Tax was made u/s 153(1)(b) of the Income Tax Ordinance, 2001 on payment of “Use of system charges” to National Transmission and Dispatch Company (the “ATDC”). This case relates to failure to withhold income tax from payments made for Use of System Charges (“UoSC”) to NTDC.  The payments relating to “use of system charges” are in fact made for the supply of electricity and taking into consideration the nature/definition/explanation of UoSC, it can be construed that “UoSC” is part and parcel of the process for electricity supply and cannot be separated from supply of electricity. As such, exempt from deduction of income tax as per Clause 46AA and SRO 586(I)/91. In addition, this issue has now been settled by this Tribunal Bench at Lahore in ITA No. 1687/LB/2019 - M/s Multan Electric Power Company, Multan Vs. The CIR. RTO. Multan wherein it has been held that these charges (UoSC) are not liable to deduction of with-holding tax under Section 153 of the Income Tax Ordinance, 2001 in view of Clause 46AA of the 2nd Schedule to the Part-IV of the Ordinance and SRO 586(I)/91 dated 30.06.1991. The payments relating to “Use of system charges” are in fact made for the supply of electricity by the NTDC and hence exempt from deduction of withholding tax and where no income tax can be legally withheld, there is no question of delayed payment or default surcharge relating thereto. Sections 161, 177 Direct invoking of Section 161 without recourse to audit under Section 177 is bad in law.-We are also inclined to agree to the argument of the learned A.R that the direct invoking of Section 161 without recourse to audit u/s 177 of the Income Tax Ordinance, 2001 is bad in law. Second…

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