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Petitioner: Airblue Limited VS Respondent: Commissioner Inland Revenue, Islamabad
Court Name: Appellate Tribunal Inland Revenue Judge(s): Shahid Masood Manzar, Muhammad Riaz Title: Airblue Limited vs Commissioner Inland Revenue, Islamabad Case No.: I.T.A. Nos, 572/IB of 2016, 794/IB and 795/IB of 2015 Date of Judgment:2017-03-08 Reported As: 2019 PTD (Trib.) 416, 2018 P.C.T.L.R. 951 Result: Ordered accordingly
Judgment ORDER SHAHID MASOOD MANZAR, JUDICIAL MEMBER - -- These three appeals have been preferred by the tax-payer against impugned appellate orders dated 26-06-2015 (for Tax Years 2010 and 2012) and 10-03-2016 (for Tax Year 2014) passed by learned Commissioner Inland Revenue (Appeals-I), Islamabad under Section 129 of the Income Tax Ordinance, 2001 (hereinafter referred to as 'Ordinance'). The said order was passed in consequence of the appeal lodged by the appellant against the amended assessm ent orders dated 28-04-2015 (for Tax Years 2010 and 2012) and 31- 072015 (for Tax Year 2014) issued under Section 122(5A) of the Ordinance passed by same Additional Commissioner Inland Revenue. 2. The appeal for the Tax Year 2014 is contested on the following grounds:--- (1) That the Order passed by learned Commissioner Inland Revenue (Appeals-I), Islamabad (hereinafter referred to "CIR(A)" is bad in law and opposite to facts and circumstances of the case. (2) That the learned CIR(A) was not justified in remanding back the case after recording the reasons in favour of tax-payer which requiring the quashment or annulment of the proceedings. (3) That the learned CIR(A) erred in remanding the case to ACIR who had erred in levying minimum tax on fare and freights receipts from passengers and cargo and treating them as "fee" for the purposes of sub-Section (3) of Section 113 of the Income Tax Ordinance, 2001. The chargeability of minimum tax is subject to the items which are exclusively included in the definition of "turnover". The receipts of the appellant not being "fee" are outside the ambit of minimum tax under Section 113. (4) That the learned CIR(A) was wrong in assigning illegal and un-harmonized meaning from the material which inadmissible under the law. The context and reference of "fare and freight" from
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carriage by air as mentioned in the Constitution in Entry No, 53 of the Part-I of Fourth Schedule has been ignored, intentionally and with male fide intent. This matter was confirmed by Zonal Commissioner in a letter to Provincial Revenue Authority which run as estoppel. (5) That the learned CIR(A) was not justified that learned ACIR was patently ignored about the difference between "fare and freight" and "fee". The reference relied upon also support the contention of the appellant that "fee" does not include "fare and freight". (6) That 'fare' and 'fee' are two different paradigms. Airline is receiving "fare" from passengers. It is not equivalent to "fee" from the passengers by any means of extended definition. Moreover, there is no deeming provision in Income Tax Ordinance, 2001 where it can be construed that the "fare" is equivalent to deemed as "fee". Even under Carriage by Air Act, 2012 do not refer any expression with reference to 'fee'. Order was passed u/s. 122(5A) is perverse and arbitrary. (7) That the appellant craves leave to add, remove, modify, withdraw, amend, alter any or all grounds of appeal before and at the time of hearing. The appellant has also impugned the levy of minimum tax under Section 113 of the Ordinance, through identical additional grounds for the Tax Years 2010 and 2012 in ITA Nos, 794 and 795/IB/2015. Whereas the Appeals for Tax Years 2010 and 2012 has been urged on following grounds:--- Tax Year 2010 (1) That the Order passed by learned Commissioner of Inland Revenue (Appeals-I), Islamabad [hereinafter referred to "CIR(A)" is bad in law and opposite to the facts and circumstances of the case. (2) That the learned CIR(A) was not justified in setting aside the case after recording the reasons in favour of tax-payer which requiring the quashment or annulment of the proceedings. (3) That no case under Section 122(5A) can be subject to revision on account of change of opinion. Same issue was freshly decided without any application of conscious mind whereas previous officer has correctly applied his mind. (4) That it is clear case of change of opinion because previous learned Additional Commissioner Inland Revenue had allowed the relief. (5) That the learned CIR(A) was not justified invoking Section 122(5A) of the Income Tax Ordinance, 2001 as there is no point/element in the assessment under Section 120 of Income Tax Ordinance being erroneous so far as prejudicial to the interest of revenue. (6) That the learned CIR(A) was not justified the action of ACIR in disallowing the tax credit where the entire amount was paid under Section 133(2) (c) of Income Tax Ordinance, 2001. (7) That learned CIR(A) was not justified in the action of ACIR disallowing the tax credit of Rs. 42.334,339 for the Tax Year 2008 by placing reliance on irrelevant judgment of Karachi High Court which is absolutely not applicable in the facts and circumstances of the appellant. (8) That the appellant craves leave to add, remove, modify, withdraw, amend, alter any or all grounds of appeal before and at the time of hearing. Tax Year 2012 (1) That the Order passed by learned Commissioner of Inland Revenue (Appeals-I), Islamabad [hereinafter referred to "CIR(A)]" is bad in law and opposite to the facts and circumstances of the case. (2) That the learned CIR(A) was not justified in setting aside the case after recording the reasons in favour of tax-payer which requiring the quashment or annulment of the proceedings. (3) That the learned CIR(A) was not justified the action of learned ACIR in invoking Section 122(5A) of the Income Tax Ordinance, 2001 as there is no point/element in the assessment under Section 120 of Income Tax Ordinance being erroneous so for as prejudicial to the interest of revenue. (4) That the learned CIR(A) was not justified was not justified the action of learned ACIR in levy of
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WWF of Rs. 8,397,220 as the majority of High Courts in Pakistan have ruled the provisions of WWF Ordinance, 1971 as "unconstitutional" and "illegal". (5) That the learned CIR(A) was not justified the action of learned ACIR in which he was not justified to disallowing the tax credit/tax refunds for the tax paid under Section 113(2)(c) of the Income Tax Ordinance, 2001 arising of Tax Years 2006, 2009, 2010 and 2011 to the tune of Rs. 137,255,721. (6) That the learned CIR(A) was not justified the action of learned ACIR has merely attempted to create colossal tax liability without allowing the tax credit which were legally admissible under the law. (7) That the appellant craves leave to add, remove, modify, withdraw, amend, alter any or all grounds of appeal before and at the time of hearing. 3. From the above grounds of appeal, the following issues were agreed to be adjudicated from both sides: (i) Whether gross amount received by the airline under the head 'fare from passengers 'cargo freight, and "excess luggage" fall within the ambit of 'gross fee' for rendering of services for giving benefits including commission as postulated in the definition of 'turnover' under clause (b) of sub- section (3) of Section 113 of the Income Tax Ordinance, 2001? (in all tax years) (ii) Whether the ACIR was justified in disallowing the carried forward of excess tax paid under sub- section (1) of Section 113 against the adjustment of tax liability in subsequent years by having change of opinion from her predecessor? (in Tax Years 2010 and 2012) (iii) Whether appellant is liable to pay Workers Welfare Fund under Section 2(t) of the Workers Welfare Fund? (in Tax Year 2012). 4. Facts for the purpose of disposal of these appeals, in brief, are that the tax-payer is a public limited company engaged in the business of airline under the name and style of "Airblue Limited". The tax-payer filed the return of income tax for the Tax Year 2014 on the due date and declared a loss of Rs. 639,238,125. Subsequently, the department initiated proceeding under Section 122(5A) of the Ordinance by the concerned Additional Commissioner IR (for short, 'ACIR') and a show-cause notice was issued to the company that no minimum tax under Section 113 of the Ordinance has not been charged on the 'turnover', which render the self-assessment of the appellant erroneous insofar as prejudicial to the interest of revenue. The ACIR not feeling convinced by the reply submitted by the tax-payer proceeded to amend the assessment order under Section 122(5A) of the Ordinance and raised a demand of Rs. 166,184,250 against the company. The said order was contested by the tax-payer in appeal before the first appellate authority which remanded the matter to ACIR for de novo consideration. The tax-payer still feeling dissatisfied with Order of the CIR (Appeals), has preferred this appeal before us. There are similar facts in the Tax Years 2010 and 2012. 5. Since the matter in hand is relating to interpretation of Section 113, minimum tax on the income of certain persons, it is appropriate to reproduce this Section as appearing in the Ordinance at the relevant point of time:--- Section 113 This Section shall apply to a resident company, an individual (having turnover of fifty million rupees or above in the lax year 2009 or in any subsequent tax year) and an association of persons (having turnover of fifty million rupees or above in the tax year 2007 or in any subsequent tax year) where, for any reason whatsoever allowed under this Ordinance, including any other law for the time being in force--- (a) loss for the year; (b) the setting. off of a loss of an earlier year,. (c) exemption from tax; (d) the application of credits or rebates; or
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(e) the claiming of allowances or deductions (including depreciation and amortization deductions) no tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a tax year is less than one per cent of the amount representing the person's turnover from all sources for that year: Provided that this sub-section shall not apply in the case of a company, which has declared gross loss before set off of depreciation and other inadmissible expenses under the Ordinance. If the loss is arrived at by setting off the aforesaid or changing accounting pattern, the Commissioner may ignore such claim and proceed to compute the tax as per historical accounting pattern and provision of this Ordinance and all other provisions of the Ordinance shall apply accordingly. Explanation.---For the purpose of this subsection, the expression "tax payable or paid" does not include tax already paid or payable in respect of deemed income which is assessed as final discharge of the tax liability under Section 169 or under any other provision of this Ordinance. (1) Where this Section applies: (a) the aggregate of the person's turnover as defined in subsection (3) for the tax year shall be treated as the income of the person for the year chargeable to tax; (b) the person shall pay as income tax for the tax year (instead of the actual tax payable under this Ordinance), an amount equal to one per cent of the person's turnover for the year; (c) where tax paid under sub-section (1) exceeds the actual tax payable under Part I, clause (1) of Division I, or Division II of the First Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under the aforesaid Part of the subsequent tax year Provided that the amount under this clause shall be carried forward and adjusted against tax liability for five tax years immediately succeeding the tax year for which the amount was paid. (3) "turnover" means,--- (a) the gross sales or gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods, and also excluding any amount taken as deemed income and is assessed as final discharge of the tax liability for which tax is already paid or payable; (b) the gross fees for the rendering of services for giving benefits including commissions; except covered by final discharge of tax liability for which tax is separately paid or payable; (c) the gross receipts from the execution of contracts; except covered by final discharge of tax liability for which tax is separately paid or payable; and (d) the company's share of the amounts stated above of any association of persons of which the company is a member. 6. The learned AR of the appellant has initiated the arguments and at the very outset submitted that the appellant is not subject to minimum tax under Section 113 of the Ordinance because the definition of 'turnover' in the aforesaid Section clearly excludes the 'fares and freights' from passengers, cargo and excess baggage and such receipts do not fall in the definition of 'fee'. He stated that in the recent judgment of the Hon'ble Supreme Court in the case of CIT v. Khurshid Ahmad reported as [(2016) 113 TAX 369 (S.C. Pak.)] has very clearly stated that:-- "....The meaning in the said sub-section has assigned to the word 'turnover' used in the Section 113 and therefore the phrase 'turnover from all sources' in sub-section (1) is to be read in conjunction with such definition which is exhaustive in nature and nothing can be added thereto, thus the argument of the appellant/petitioners' that 'turnover' cover all sources under various heads of income is not tenable in law." The appellant had declared a net turnover of Rs. 16,618.425 million in its audited accounts relating to Tax Year 2014 on account of passengers, cargo and excess baggage. He submitted that the above proposition of law is based on the above dictum of the apex Court of the country according
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to which the minimum tax can only be charged or levied on the turnover under Section 113(3) of the Ordinance. Any item not covered in the definition of turnover shall be outside the ambit of minimum tax under Section 113 because the legislature has enacted the provision with restrictive meaning. He submitted that the appellant is not subject to minimum tax under Section 113(1) because the fare and freight received by the appellant fall outside the definition of 'turnover' as postulated in Section 113(3) of the Ordinance. He submitted that the case of the appellant does not fall within the ambit of the definition of turnover in terms of clauses (a), (c) and (d) of sub-clause (3) of Section 113 of the Ordinance, respectively as it is not involved in the case of sale of goods, execution of contracts and is not a member of AOP. There is only possibility where the matter can come under the ambit of minimum is relating to services but in clause (b) of the aforesaid Section has not extended the minimum tax to all services but restricted this to "the gross fees for the rendering of services for giving benefits including commissions" only. This means turnover can only be applicable where the 'gross fees' is for the rendering of services and used in a very restricted manner. All such receipt which do not fall within the meaning or ambit of "gross fees" or "fees" are not subject to minimum tax under Section 113. Therefore, the appellant is not chargeable to minimum tax on the fare and freight received, however, if other services fall within the ambit of 'fee' or 'fees', then it is eligible to minimum tax. 7. The learned AR in this respect referred the Entry No, 53 to the Fourth Schedule (Federal Legislative List) to the Constitution of Pakistan, 1973 which read as under:--- "53. Terminal taxes on goods or passengers carried by railway, sea or air; taxes in their fares and freights." From the perusal of above entry it is candidly clear that the Legislators were clearly aware of the distinction between 'fares and freights' and 'fee or fees'. This distinction can be further explored once we look into the meaning of above words from the legal literature. 7.1 'Fare' has been defined in various cases and legal dictionaries as follows:-- p. 346, Mitra's Legal and Commercial Dictionary (Eastern Law House) 'Fare' ..............Charges for carriage of passengers, charge for conveyance of a person; cost of communication; cost of transportation; money paid for passage; payment for the right of carriage; money paid for passage by land, air or water 'Fare' means the total amount of all charges of whatever nature (including charges, if any, for the provisions of food or accommodation) payable to the carrier by or on behalf of a passenger in respect of his inland journey. p. 961, Stroud's Judicial Dictionary of Words and Phrases, 7th Ed. (Vol. 2). 'Fare' includes all sums received or charged for the hire, fare, or conveyance of the passengers...... Payment for extra comfort in "reserved" carriage was part of the 'fare'. [1899] 2 Q.B. 267 'Fare' means, in the case of a person who decides to continue a journey beyond the point originally paid to, the full fare for the total journey less what has already been paid. [1963] 2 Q.B. 469 p. 606, Black's Law Dictionary, 6th Ed. Fare. A voyage, journey, or _passage: The transportation charge paid by passenger. A paying passenger As used in connection with Interstate transportation means a rate of charge for the carriage of passengers, as approved by the proper governmental agency. Krause v. Pacific Mat. Life Ins. Co. of California, 141 Neb. 5 N.W 2D 229, 232. p. 388, Words and Phrases - Permanent Edition, Volume 16 "Fare is a rate of charge for the carriage of passengers." McNeal Pipe & Foundry Co. v. Howland, 16 S.E. 857, 860. 111 N.C. 615, 20 L.R.A. 743: Chase v. New York Cent. R. Co., 26 N. Y. 523, 526. In common acceptance, when used in relation to common carriers "fare" relates to the passengers, and not to freight, while compensation embraces both, so that a statute authorizing
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street surface railroads to convey persons and property in cars for compensation signifies an intention to authorize the carriage of freight. De Grauw v. Long Island Electric Ry. Co., 60 N. Y.S. 163, 167, 43 App. Div. 502. A charge to a passenger of 10 cents in addition to the usual fare, making the total 3 cents over the lawful rate of fare, is "fare," within Railroad Law, providing a penalty for asking and receiving more than the lawful rate of fare, though the amount was repayable on presentation by the passenger of a slip given him on making the payment. Hogan v. Long Island R. Co., 12G WY S. 449; 450, 142 App. Div. 29. The purchase of a ticket by a passenger is not the payment of a fare. Payment of fares is made to the conductor alone, whether such fare be paid by cash or by ticket. A fare is a payment that is made when the right of carriage is claimed. As defined by Webster's International Dictionary the word "fare" originally meant "journey," and such is still its connotation. When a ticket is accepted by the conductor, it becomes a fare, but not before. Shelton v. Erie R. Co., 66 A. 403, 407, 73 NJ. L, 538, 9 L.R.A., N.S., 727, 118 Am.St.Rep. 704, 9 Ann. Cas. 883. 7.2 'Freight' has been defined in legal dictionaries as follows:--- 'Freight' defined in p. 374, Mitra's Legal and Commercial Dictionary (Eastern Law House) 'Freight' in the ordinary mercantile sense means the reward payable to a carrier for the carriage of the goods. [Lime Leitao v. Union of India, AIR 1968 Goa 29]. 'Freight' includes the profit derivable by shipowner from the employment of his ship to carry his own goods or other movables, as well as freight payable by a third party, but does not include passage money. It signifies the earnings or profits derived by the shipowner or hirer of the ship from the use of it himself or by letting it to others to be used or for carrying goods for others [Allison v. Bristol Marine Insurance Co. (1876) 1 App Cas 209] p. 438, Wharton Law Dictionary Freight. The sum paid by a merchant or other person chartering a ship or part of a ship, or sending goods in a general ship, for the use of such ship or part, or the conveyance of such goods during a specified voyage or for a specified time, the freight is most commonly fixed by the charter-party, or bill of lading, but in the absence of any formal stipulation on the subject it would be due according to the custom or usage of trade. In the absence of an express contract to the contrary, the entire freight is not earned until the whole cargo be ready for delivery, or has been delivered to the consignee, according to the contract for its conveyance. p. 1931, Advanced Law Lexicon P Ramanatha Aiyar 3rd Edition 2005 Any transported goods, alternatively known as cargo. 2. A charge for transportation of goods or for the hire of a ship, aircraft, etc. for transporting goods. 3. The transportation of goods more slowly and cheaply than by express delivery. (Trade Finance) Goods being carried (cargo); or money paid to a carrier for carrying goods or by a charterer to a shipowner for the use of cargo space yon a vessel. The latter is also called freightage. (Business Term) Expenses incurred in transporting cargo. (Insurance) Freight in marine insurance denotes the cost of transporting goods or the hire charges of the vessel. If freight is paid in advance, it is usually merged. in the value of the goods being carried and insured under the cargo policy. Freight may also be insured separately where it is not paid in advance. It is at risk because if the ship fails to reach the destination, freight is wholly or partially lost and hence has to be insured. (Marine Insurance) If a sum paid by a person chartering a ship or part thereof to the carrier under a contract of affreightment for the carriage and delivery of goods. (Carriage of Goods by Sea and Air)
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Freight is a payment to be made to the ship for carriage and delivery, and until there has been carriage and delivery, the shipowner is not under ordinary circumstances entitled to demand freight at all Weir and Co. v. Girvin and C., (1899) 1 QB 193, p. 196. p. 666, Black's Law Dictionary, 6th Ed. Freight. The price or compensation paid for the transportation of goods by carrier. p. 691, Black's Law Dictionary, 8th Ed. Freight. 1. Goods transported by water, land or air; 2. Compensation paid to a carrier for transporting goods. The price or compensation paid for the transportation of goods by carrier. "Freight in common acceptation of the term, mean the price for actual transportation of goods by sea from one place to another; but, in its more extensive sense, it is applied to all rewards or compensation paid for the use of ship, including transportation of passengers. Commentaries on American Law. * 219. P. 329-330, Words and Phrases Legally Defined, Vol. I, 4th Ed. 'The words "cargo" and "freight" do, prima facie, and in their natural and ordinary meaning, refer to goods only; and where, in the same document, occur the words "cabin passengers" and "passage.- money", and a contract is made between the same parties as to such latter mentioned subject- matter, the inference is almost irresistible, that the former words were not intended, within the meaning of the contracting parties, to comprise passengers and passage-money of any description; the parties showing themselves capable of making a contract as to passengers by their proper and specific name.' Lewis v. Marshall (1844) 7 Man & G 729 at 744-745, per cur 'What ... does the word "cargo" mean? It means the cargo of the ship, that is what is put on board the ship, or what the ship carries.... I find in Webster's Dictionary cargo defined as "the lading of freight of a ship, the goods, merchandise, or whatever is conveyed in a ship or other merchant vessel"; and Richardson gives its meaning as "the freight or lading of a ship". The question as to the meaning of the same word arose also in the case of Sargent v. Reed [(1745) 2 Stra 1228]'.... 'What ... is a cargo? That is a question of fact. A very small quantity of goods in proportion to the carrying capacity of the ship could not be called a cargo. It must, to some extent, approach the carrying capacity.' Miller v. Bogner & Co. [1900] 1 QB 691 at 692-693, per Channell, J. 'In my opinion, goods which had been brought in a ship to a port would still be properly described and referred to as cargo while being unloaded, moved and, if the goods are stored after being unloaded, while being stored.' National Dock Labour Board v. John Bland & Co, Ltd. [1971] 2 All ER 779 at 789, HL, per Viscount Dilhorne 7.3 'Fee' has been defined in various cases and dictionaries as follows:--- 'Fee' or 'Fees' defined p. 614, Black's Law Dictionary, 6th Ed. Fee. A charge fixed by law for services of public officers or for use of a privilege under control of government. Fort Smith Gas Co. v. Wiseman, 189 Ark. 675, 74 S.W. 2d 789, 790. A fixed charge or perquisite charged as recompense for labor; reward,…
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