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Petitioner: C.I.R., R.T.O., PESHAWAR VS Respondent: SAID MAHMOOD, PROP. HARIS ENTERPRISES, PESHAWAR
Court Name: Appellate Tribunal Inland Revenue Judge(s): Javed Iqbal, Muhammad Pervez Alam Title:C.I.R., R.T.O., PESHAWAR vs SAID MAHMOOD, PROP. HARIS ENTERPRISES,
PESHAWAR Case No.: I.T.As. Nos.280(PB) to 283(PB) of 2013 Date of Judgment:2014-03-25 Reported As: 2015 PTD (Trib.) 487 Result: Order accordingly Judgment ORDER Through these four appeals filed by the department against the Appeal Order Nos.311, 312 and Appeal Order Nos.313, 314 passed by learned CIR(Appeals) Peshawar on the following grounds:-- GROUNDS OF APPEAL IN I.T.AS. NOS.280 AND 281 (1) The LCIR(A) was not justified to vacate the order passed under section 122(5A) for tax year 2010 as the certificate issued by Fecto Cement Ltd. Vide letter No.FCL/Tax/2294 dated 1-6-2012 confirmed that the taxpayer is supplier and the facility of tax exemption to supplier of cement is not available. (2) The CIR(A) was not justified to vacate the order as the taxpayer was dealer in cement and exports the cement from Islamabad to Afghanistan directly and received payment from Karachi and Rawalpindi which are not located in most affected area as per Circular No.14 of 2011 dated 6- 10-2013 Para No.Iii,: The taxpayer is located inside the specified areas but his business is carried out in the specified area is taxable. (3) The CIR(A) was not justified to over look the decision of the Honorable ATIR Peshawar Bench Peshawar in the case of Messrs Inter Construct RTO Peshawar vide I.T.A. No.157(PB) 2012 Tax year 2011 dated 17-12-2012 and FBR's Clarification letter C.No.476224 dated 16-6-2013 while deciding the appeal of the taxpayer. (4) The CIR(A) was not justified to accept any document which is not produced before the taxation officer violation of section 128(5) of Income Tax Ordinance, 2001. GROUNDS OF APPEAL IN I.T.As. Nos.282 and 283 (1) The L/CIR (A) was not justified to vacate the order passed under section 170(4) for tax year, 2010.
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(2) The CIR(A) was not justified to over look the decision of the Honorable ATIR Peshawar Bench Peshawar in the case of Messrs Inter Construct RTO ,Peshawar vide I.T.A. No.I57(PB) 2012 Tax year 2011 dated 17-12-2012 and F.B.R's. Clarification letter C.No.476224 dated 16-6-2013 while deciding the appeal of the taxpayer. 2. Brief facts of the case are that the taxpayer an individual filed returns for tax years 2010 and 2011 declaring commission income with details as under:-- Tax Year Gross Commission receivedTax deducted/ payments 2010 Rs.52,587,500 Rs.15,690,128
2011 Rs.82,500,000 Rs.22,470,211
The return so filed were deemed assessment under section 120(1)(b) of the Income Tax Ordinance, 2001. On the basis of above taxpayer claimed the income exempt under clause 126F of Part-1 of the 2nd Schedule to the Income Tax Ordinance, 2001 with the view that business has been carried out in Peshawar, which is the most affected area prescribed under clause 126F Part-1 of the 2nd Schedule to the Income Tax Ordinance, 2001. On the basis of deemed assessment order taxpayer filed applications for issuance of refunds claimed as per the return of income for both the years under appeal which was rejected by taxation officer of the E&C Wing, then he referred the case to the L/Additional Commissioner Inland Revenue, Audit Division Zone-I, who passed the order under section 122(5A) of the Income Tax Ordinance, 2001 for tax years 2010 and 2011, refusing the exemption under clause 126F of Part-1 of the 2nd Schedule to the Income Tax Ordinance. 3. Being aggrieved from the treatment of additional commissioner taxpayer filed appeals before the Learned CIR(A), who disposed of these appeals .Though separate Orders. Department being unhappy with the orders passed by the L/CIR(A) filed instant appeals before the Tribunal. 4. Learned DR reiterated his contentions as per the grounds of appeals, and relied upon, firstly, that the cement supplies are not exempt under clause 126F of the Part-IV of the 2nd Schedule 2ndly in case of commission receipts the tax deducted at the rate of 10% of the total commission is final tax, liability. The Tribunal in numerous cases of identical nature has held that in cases of presumptive income it falls under the final tax regime and is not exempt under clause 126F. In rebuttal to arguments of the learned AR., it was contended by L/DR that FTO judgment is not binding on ATIR, while against the judgment of Honorable FTO, the representation has already been made before the President of Pakistan which is still pending for adjudication. Copy of FTO, order on complaint and representation made by department have been placed on file and be produced at later part of the order. 5. On his turn L/AR of the taxpayer stated that taxation officer has wrongly declared the taxpayer/respondent as supplier, in fact respondent is a trader. He also referred the judgment of Honorable FTO, whereby making interpretation of Law, it has been held that the judgment of Honorable Supreme Court is distinguishable which the Tribunal has relied upon, at para-6 of the order in complaint. It was also argued by L/AR of the taxpayer that in such like situation in cases of presumptive income, in numerous cases giving exemption under clause I26F presumptive income, refunds have already been issued but department is reluctant to amend the order under the relevant provision of law as have been amended in the case of instant taxpayer. 6. After having heard the arguments of the rival parties and from perusal of relevant orders and the material made available before us, it has been seen that taxpayer is earning its income from the sale of cement, while as per clause 126F supply of cement is excluded from provision of clause 126F
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of the 2nd Schedule to the Income Tax Ordinance, 2001. As per law tax deducted at the rate of 10% of the commission is final tax liability, thus it falls under the PTR. On the identical issue granting exemption to presumptive income by the authority below, the ATIR making its own interpretation and also placing reliance on the judgment of the Apex Court of the country has held that "profit and gains" as used in clause 126F are relevant only to the "head business income" and not to any other class of income as specified in section 11 of the Ordinance, 2001. 7. As far the objection of L/AR that department is reluctant to amend the order in cases of presumptive income, where refunds have been issued, we have no concern with the same, this is the job of Inland Revenue hierarchy. If the L/AR has any observations to this effect he can approach the concerned hierarchy. 8. To clarify the para-6 of the order on complaint by the Hon'ble FTO, the Tribunal vide its order in I.T.A. No.157(PB) 2012 title Messrs Inter Construct (Pvt.) Ltd. Has held that in case of presumptive income turnover is not chargeable to tax under section 113 of the Ordinance. Thus the order of deletion of Min tax was maintained but the reasons other than recorded by L/CIR(A). In case of Shah Zaman bearing I.T.A. No.81(PB) 2012 dated 10-1-2013 return was filed under section 114 of the Ordinance instead of filing of statement under section 115(4). While to this effect law was not amended, for income falling under PTR only the statement under section 115(4) is requirement of the law. 9. In case of Inter Construct issue of charging of minimum tax was agitated by the taxpayer with the plea that his case falls under the final tax regime, therefore minimum tax is not chargeable on its turnover as per definition of section 113. On examination of relevant law and judgments of Honorable Supreme Court wherein it has been held that "profit and gains" are relevant to business income only and not to any other class of income as prescribed in section 11 of the Ordinance. In case of Shah Zaman (Pvt.) Ltd. Its income also falls under the final tax regime, return was filed under normal law which is deemed assessment order under the term of section 120(1)(b) of the Ordinance, 2001. Taxpayer on the basis of this deemed assessment order applied for issuance of refund, it was refused for the reasons recorded in the order passed under section 170 of the Ordinance, 2001. In this case though deemed assessment order was illegal and against the law from its very inception, the return was filed under section 114, whereas the requirement of law was the filing of statement under section 115(4) of the Ordinance. Deemed assessment order was not amended till the hearing and disposal of appeal before the Tribunal which means that deemed assessm ent was in the field till the disposal of appeal by the Tribunal. As per earlier judgments of the ATIR, refund if claimed on the basis of an illegal order could not be refused until the order already in field is amended as per due course of law. In case of Ashraf Match Industries decided vide I.T.A. No.03, taxpayer derived its income from export which under law is final discharge of tax liability, but specific exemption was granted from the withholding tax under clause 10A of Part IV of the 2nd Schedule to the Ordinance, 2001. This issue has been dealt with by this bench of ATIR, in the case of Ashraf Industries vide I.T.A. No.03 (PB) 2012. The relevant portions of the orders vide I.T.A. No.157(PB) of 2012 in the case of Messrs Inter Construct (Pvt.) Ltd. Peshawar v. RTO, Peshawar, I.T.A. No.81(PB) of 2012, RTO v. Messrs Shah Zaman (Pvt.) Ltd., Peshawar, and I.T.A. No.03 (PB) of 2012 RTO v. Messrs Ashraf Match Industries (Pvt.) Ltd. Peshawar are reprOduced as under:-- ' I.T.A. No.157(PB) of 2012 Messrs Inter Construct (Pvt.) Ltd. Peshawar v. RTO, Peshawar:- "4. We have heard the arguments of the parties and have perused the relevant orders. It was argued before the L/CIR(A) that the amendment of order under section 122(5A) of the Ordinance, 2001 is not applicable in the case of taxpayer as neither the deemed assessment order was erroneous nor prejudicial to the interest of justice. The L/CIR(A) turned down the arguments of the L/AR of taxpayer. While on account of levy of minimum tax L/CIR(A) observed that taxpayer derives its income in the most and moderately affected areas, therefore is exempt from the
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operation of section 4(1) of the Income Tax Ordinance, 2001 by virtue of exemption available under' clause 126-F and section 113 are not mutually exclusive. Both these provisions are to be seen together and in harmony and not in isolation as is the settled principle of interpretation of statutes. If read together, there is no conflict between the two provisions. The provisions of section 113 has overriding effect and any other provisions, even clause 126-F is to be, referred to, section 113 and hence governed by section 113 of the Income Tax Ordinance, 2001. Section 113 of the Income Tax Ordinance, 2001 is applicable to cases entitled to exemption under clause 126-F of Part-I of Second Schedule or any other provisions of the Ordinance ibid which has an overriding effect over other provisions of Ordinance ibid. Clause 126-F does not have an overriding effect over other provisions of the Ordinance rather this clause is subservient to section 113 of the ITO, 2001, which has overriding effect over all other provisions of the Ordinance ibid as elaborated. In view of the above discussed facts section 113 of the ITO, 2001 prevails over clause 126-F of the Ordinance ibid and the taxpayer was/is liable to charge of minimum tax which has rightly been charged by the L/taxation officer vide order under section 122(SA) of the ITO, 2001. (1) Appellant through ground of appeal reproduced supra at Serial No.3 has agitated that income of taxpayer is taxable under Presumptive Tax Regime hence turnover does not include the PTR receipts. We are persuaded to agree with the contention of appellant that income of taxpayer falls under the PTR. In such like situation filing of statement under section 115(4) is the requirement of law. The statement filed as such is deemed assessment under the term of section 169(3) as deemed assessment order under section 120(1)(b) of the Ordinance, 2001. The section 11 of the Ordinance ibid prescribed the various heads of income which are as under: "11. Heads of income.---(I) For the purpose of the imposition of tax and the computation of total income, all income shall be classified under the following heads, namely:- (a) Salary; (b) Income from Property; (c) Income from Business; (d) Capital Gains; and (e) Income from Other Sources. For each head of income separate section of law has been allotted. Section 18 of the Ordinance, 2001 prescribes the business income; which is at par with section 22 of the Ordinance, 1979 (repealed). While explaining the "profit and gains" the Hon'ble Supreme Court of Pakistan vide its judgment reported as 2010 SCMR 1236 = 2010 PTD 1809 has held that "profits and gains" are related to business income only. In the case of appellant, the income is assessable under PTR, as per section 169(2) of the Ordinance, 2001. Such income is not taxable under any of the heads of income as envisaged in section 11 of the Income Tax Ordinance, 2001, and no tax under any other provision of Income Tax Ordinance, 2001, except the tax withheld under section 169(2) read as under:-- "169(2) Where this section applies-- (a) the income shall not be chargeable to tax under any head of income in computing the taxable income of the person; (b) no deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the income; (c) the amount of the income shall not be reduced by--- (i) any deductible allowance under Part- IX of Chapter III; or (ii) the set off of any loss; (d) the tax deducted shall not be reduced by any tax credit allowed under this Ordinance; and (e) there shall be no refund of the tax collected or deducted [unless the tax so collected or deducted is in excess of the amount for which the taxpayer is chargeable under this Ordinance]."
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The income of taxpayer 'does not fall under the provision of section 11 of the Ordinance. (2) The above discussion leads us to the conclusion that in case of Presumptive Income no tax under section 113 of the Ordinance is chargeable, therefore it is deleted." I.T.A. No.81 (PB) of 2012 Messrs RTO v. Messrs Shah Zaman (Pvt.) Ltd. Peshawar: "4. We have considered the assistance of the L/DR and perused the relevant orders. It has been observed that taxpayer derives its income from the execution of contract and his income is assessable under the Presumptive Tax Regime. The taxpayer has claimed exemption under the garb of Clause 126-F of the Ordinance with the plea that his income is exempt from taxation. Accordingly, statement under section 115(4) of the Ordinance with claim of refund was filed. Clause 126-F is reproduced as under: - "126F. Profits and gains derived by a taxpayer located in the most affected and moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA for a period of three years starting from the tax year 2010: Provided that this concession shall not be available to the manufacturer and suppliers of cement, sugar, beverages and cigarettes." As per the above clause it is the "profits and gains" which are exempt, from taxation. The phrase 'profit and gains' have been interpreted and explained by the Hon'ble Supreme Court of Pakistan in a case reported as 2010 SCM R 1236 = 2010 PTD 1809. The statement filed under section 115(4) falls under the purview of final taxation and is deemed assessment order under the term of section 120(1)(b) as per section 169(3) of Ordinance, 2001. As per section 169(2); deemed income does dot fall under any of the heath of income as contained in section 11 of the Income Tax Ordinance 2001. On this issue we have already given our mind in the case of Inter Construct (Pvt.) Ltd., Peshawar vide I.T.A. No.157 (PB) of 2012 dated 17-12-2012. 3. In this case statement filed under section 115(4) by the taxpayer, where refund was also claimed. Under the term of section 120(1) (b) of 17'0 2001 ibid. The return/statement filed is deemed assessm ent order, and if any refund is claimed it also deemed to have been created in case when the deemed assessm ent order remain in field being not amended, than the right created through this order also remains in contact. The deemed assessment order is not amended in this case, and as per this order refund was available, subsequently demand created is adjustable. 4. The appeal is disposed of as above" I.T.A. No.03 (PB) of 2013 RTO v. Messrs Ashraf Match (Pvt.) Ltd. Peshawar: 4. Arguments of the parties heard. Relevant orders perused. It reveals that taxpayer has made the export as well as earned his income from local sales. For export sale tax deducted is final discharge of tax liability. However as per clause 10A of Part-IV of 2nd Schedule to the Income Tax Ordinance, 2001 export originating from the most affected area is exempt from withholding tax, while as per clause 126F the exemption to "profit and gains" of taxpayer have been granted. In case of an exporter, the tax withheld falls under the presumptive income, however as per clause 10A it has specifically been provided that no tax should be withheld from the exporters from the exports which originate from the moderately affected areas as specified in Clauses 126F and 10A being relevant to subject under consideration, hence reproduced as under:-- "126F. Profits and gains derived by a taxpayer located in the most affected and moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA for a period of three years starting from the tax year 2010: Provided that this concession shall not be available to the manufacturer and suppliers of cement, sugar, beverages and cigarettes." "10A(i) The provisions of serial No.5 of the Table given in subsection (1) of section 182 and clause (a) of subsection (1) of section 205 shall not apply to business located in the most affected and
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moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA, provided that the principal amount of tax due is paid by the 30th day of June, 2010. (iii) the provisions of section 154, regarding withholding tax on exports, shall not be applicable to the export of goods originating from the most affected and moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA, till the 30th day of June, 2011: Provided that this clause shall only be restricted to the exporters based in the above areas:" Taxpayer derives its income from two sources i.e. From local sale and from exports. In case of local sales his profit and gains are exempt from taxation under clause 126F of the Part-I of 2nd Schedule, while in case of exports exemption from withholding tax has been granted under 10A of Part-IV of the 2nd Schedule. Clause 126F is effective from 1-7-2009 to 30-6-2012, while clause 10A which is purely related to presumptive income against the tax withheld at export stage remained effective from 1-7-2009 to 30-6-2011. However, in case of exports, only those exports are exempt from withholding tax under section clause 10A of Part-IV of 2nd schedule to the Income Tax Ordinance, 2001, which "originate" front most affected and moderately affected areas as specified in the relevant clause, FATA and PATA. The word "Originate" as per Shorter Oxford Dictionary means: "To give origin to; Cause to arise or begin, initiate, To take its origin or rise; Have its beginning; To spring, be derive; To have its origin (locally); To arise (in or from)." From the above meaning of "originate" only those exports are exempted from the withholding tax items of which are manufactured, or naturally produced in the specified area of exemption. While in case where the items of exports are traded from the area other the specified areas, without going change in form, shape and substance if are exported from the exempted area no such exemption from withholding tax is allowable the tax withheld in such cases is discard of final tax liability. In the instant matter in hand, taxpayer has its manufacturing plant at Peshawar which is included in the moderately affected area as specified for the purpose of exemption. So for the levy of minimum tax under section 113 is concerned, its rate is 1%, while tax deductible at export stage is almost 1.25%. The withholding tax at export stage is final tax liability and is assessable under presumptive tax regime. Though the export made by the taxpayer is manufactured by him, but when it is subjected to export, it is then converted in presumptive tax regime. Had the exemption not been granted from withholding tax, tax withheld would have been assessable under PTR, while an income accrued from PTR is deemed income under the fiction of law, while deemed income is excluded from the definition of turnover as contained in section 113 of the Ordinance and for best understanding of the matter is reproduced as under:- 113. Minimum tax on the income of certain persons.--(1) This section shall apply to a resident company, an individual (having turnover of fifty million rupees or above in the tax 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 (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:
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Provided that this subsection 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. (2) Where this section applies: (3) "Turnover" means,- (a) (b)[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.] So in the light of above discussed facts levy of minimum tax subject to presumptive income under clause 10A of Part IV of 2nd Schedule liable to deletion. In this way deletion of levy of minimum tax to the extent of presumptive income is maintained for the reason recorded supra."(/b) 10. The L/AR referred the judgment of Honorable FTO, the relevant part of which is as under:- (b)"2. The complaint was sent for comments to Secretary, Revenue Division, in terms of section 10(4) of the FTO Ordinance, 2000. In response, the FBR submitted its comments vide letter dated 1- 10-2013. 3. The AR claimed that refund application was e-filed on 14-12-2012, but no response was made by the Deptt. Nor any order was passed under section 170(4) of the Income Tax Ordinance, 2001 (the Ordinance) within the prescribed time limit. He submitted that tax deducted in the instant case was refundable as exemption of tax was allowed by the Federal Government to the affected areas of KPK under Clause 126F Part-1 of the Second Schedule to the Ordinance. The AR prayed that the Deptt be directed to issue refund with compensation due without further delay. 4. The DR contended that though refund application was duly filed for the year 2010, the refund order could not be passed as the Appellate Tribunal, Peshawar, had passed an order vide I.T.A. No.I57(PB) of 2012 dated 17-12-2012, which created confusion. The Chief Commissioner, RTO Peshawar, wrote a letter on 11-2-2013, followed by reminders dated 21-2-2013, requesting the FBR to issue clarification, in the matter, but there was no response. However, on the directions of FTO in various cases of identical nature, the FBR has issued clarification, vide letter C. No.4/76224- R dated 7-6-2013, wherein it has been stated that exemption of tax under Clause 126F was not available to the taxpayers…
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