AOP INCOME TAX DEDUCTION - Printable Version

AOP INCOME TAX DEDUCTION - Printable Version

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AOP INCOME TAX DEDUCTION - [email protected] - 09-29-2011

I know this topic might be repeated again but please this is important for me to clear everything as I am very young and these tax rules are very confusing for me. I will really appreciate if you can give references of statement from Tax Ordinance or any other legal book.

1) We are an AOP firm, who are unregistered but have a NTN and GST registration. We are registered as suppliers and whole sellers.

2) This is our first year of filling tax returns and according to our lawyer when we purchase goods from the market and it exceeds Rs 25000 than we have to deduct 3.5% Income tax from the payment regardless that the seller is registered(NTN) or not.

3) We have never deducted any taxes while purchasing good from unregistered sellers and have ALWAYS deducted tax while purchasing from registered sellers.

4) Our yearly turnover was around Rs 4.5m

5) Is there really any such regulation and if there is than what should we do with the taxes that we have not deducted before

Please help me with this matter, I would be grateful.

- student_of_law - 09-29-2011

If your annual turnover is 4.5 million rupees then relax, you were not bound to deduct tax while making payments.

Relevant s.153.
153(1) says, Every prescribed person making a payment for the sale of goods shall deduct tax.

Who are prescribed persons? Section 153(7) answers this.

clause (h) of s.153(7) Prescribed person means an association of persons having turnover of fifty million rupees.

So any association of person having turnover less than fifty million rupees is not bound to deduct tax at the rate of 3.5%.

- [email protected] - 09-30-2011

Thanks alot Student_of_law, I am referring to Tax Ordinance 2001 but I cannot find clause h of s.153(7). In fact there are no clauses under s.153(7). Is the ordinance updated as i read somewhere "Sub section 7 is omitted by Finance Bill 2006" or am I looking it the wrong way.

- student_of_law - 09-30-2011

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by [email protected]
 Thanks alot Student_of_law, I am referring to Tax Ordinance 2001 but I cannot find clause h of s.153(7). In fact there are no clauses under s.153(7). Is the ordinance updated as i read somewhere "Sub section 7 is omitted by Finance Bill 2006" or am I looking it the wrong way.
<hr height="1" noshade id="quote"></blockquote id="quote">

You are looking at the repealed s.153. This section has been substituted by Finance Act, 2011. You will find it in updated version of Income Tax Ordinance, 2011. I don't know whether FBR has updated it on its site or not.

Anyway, the law was same even under the old/ repealed section 153. You may look at S.153(9). Clause (g) of s.153(9) says that AOP with turnover of fifty million rupees is a Prescribed Person.

- [email protected] - 10-01-2011

I discussed this issue with 3 to 4 lawyers ans they are all convinced that according to the 2010 amendments every kind of AOP registered or unregistered have to deduct income tax regardless of the turnover.
This can be seen under s.152(9) clause,
"an association of persons2[constituted by, or under,] law."

2
Substituted for the words #8213;registered under#8214; by the Finance Act, 2002.

Hence registered or unregistered every AOP has to deduct tax while paying for purchase of good or services above Rs 25000

- student_of_law - 10-01-2011

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by [email protected]
 I discussed this issue with 3 to 4 lawyers ans they are all convinced that according to the 2010 amendments every kind of AOP registered or unregistered have to deduct income tax regardless of the turnover.
This can be seen under s.152(9) clause,
"an association of persons2[constituted by, or under,] law."

2
Substituted for the words #8213;registered under#8214; by the Finance Act, 2002.

Hence registered or unregistered every AOP has to deduct tax while paying for purchase of good or services above Rs 25000
<hr height="1" noshade id="quote"></blockquote id="quote">

I have never said that there is any distinction between registered and unregistered AOP, under Income Tax Ordinance, 2001. I also agree that registered and unregistered both shall deduct tax on payment for supplies @ 3.5% if and only if, their turnover exceeds fifty million rupees .

I have already told you that s.153(1) says that Every prescribed person has to deduct withholding tax on payment for sale of goods.

Now the question is who are Prescribed Persons?

Prescribed persons are mentioned is given in s.153(7) of New s.153 and s.153(9) of old s.153

These subsection clearly says AOP having turnover exceeding Rs.50 million, is a prescribed person.

If you look at the list of Prescribed persons, you will also find individual having turnover of fifty million. No one says every individual is liable to deduct tax.

If your annual turnover is below Rs. fifty million you are not liable to deduct withholding tax on supplies. Law is very clear on that.

- LapTop - 10-01-2011

Registered or unregistered AOP may farak hay,

Registered AOP k liye turnover ki shart nahi hay, usy har hal may tax withheld karna hota hay chahy turnover kitna hi kyon na ho us ka, Registered AOP âassociation of persons constituted by, or under, lawâ k zamry may aati hay.

Unregistered AOP k liye turnover ki shart hay k us ka turn over tax year 2007 ya us k bad jis sal bhi Fifty million ko cross kary ga to wo withholding agent ho jaye gi.â an association of persons, having turnover of fifty million rupees or above in tax year 2007 or in any subsequent tax yearâ

- student_of_law - 10-01-2011

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by LapTop
 Registered or unregistered AOP may farak hay,

Registered AOP k liye turnover ki shart nahi hay, usy har hal may tax withheld karna hota hay chahy turnover kitna hi kyon na ho us ka, Registered AOP âassociation of persons constituted by, or under, lawâ k zamry may aati hay.

Unregistered AOP k liye turnover ki shart hay k us ka turn over tax year 2007 ya us k bad jis sal bhi Fifty million ko cross kary ga to wo withholding agent ho jaye gi.â an association of persons, having turnover of fifty million rupees or above in tax year 2007 or in any subsequent tax yearâ

<hr height="1" noshade id="quote"></blockquote id="quote">

Dear Laptop,

Thanks a lot. I mistakenly ignored clause (c ) of Section 153(7). So there are two types of Association of Persons. One constituted by or under law. While the other not so constituted. Former is absolute withholding agent u/s 153 but latter is subject to turnover of Rs.50 million.

First to solve the problem of the author, from your post also it is clear that author was not liable to deduct tax, as his firm was not registered and its turnover was below fifty million rupees.

Moving ahead, on one point I have reservation. According to you, Registered AOP is similar to AOP "constituted under or by law". I disagree with that.

FBR is a body formed by law as it was constituted by FBR Act, 2007. Its s.3 says "hereby established a Board to be called the FBR" Similarly, s.3 SECP Act, 1997 says "hereby established a Commission to be called SECP". These are the examples of bodies constituted by law.

Some bodies are not directly constituted by Act but act says that Government will form that . For example HBFC Act, 1952 says that Federal Government will establish HBFC. s.3 of State Bank Act, 1956, says steps shall be taken to establish SBP. Similar is the case of NBP. These are the bodies constituted under law

Now take the example of Allied Bank Limited, or Engro Corporation Ltd. These are also registered with SECP and formed in accordance with the procedure prescribed by Companies Ordinance, 1984. They are governed by the Companies Ordinance, But not constituted by the Companies Ordinance.

Same is the case with AOP.

If law establishes particular AOP or directs government to establish certain AOP, then only that AOP will be called AOP constituted by or under law.

Otherwise partnerships merely registered under Partnership Act, are not at all bodies formed or constituted by or under law.

In this regard I rely on the judgment of Supreme Court. Where the question was whether a society registered under Co-operative Societies Act, 1925 is a body constituted by or under law. Supreme Cour said that "Only those bodies corporate were covered under S.2 (16)(b) of Income Tax Ordinance, 1979, which were created by some law for the time being in force---Such were only those Societies which were directly established, constituted and created by relevant statue itself---Body formed by private individuals and subsequently registered under some law was not a body formed under that law, rather it was a body formed otherwise but registered under law---Formation, creation and constitution of a body under law was therefore, altogether different from a body required merely to be registered under some law---Respondent-Societies were not creation of any law but whatever be their mode of creation, they were required to he registered with Registrar of Cooperative Societies under Cooperative Societies Act, 1925--" [2009 PTD 799 = 2009 SCMR 715 ]

Above opinion is based on my understanding. It is a little complicated issue and the right legal situation may be different. Valuable input is welcome. But I humbly request, please give reference of section, SRO, case law, on which you base your opinions.

- amerrafique - 10-04-2011

your reply is really very informative student of law and the citation from the relevent case law has increased its worth.