APPELLATE TRIBUNAL INLAND REVENUE ISLAMABAD DIVISIONAL BENCH-1
ITA No.332/IB/2018
(Tax Year 2012)
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M/s Toyota Sargodha Motors, 5-KM, Lahore Road, Sargodha. | Appellant | |
Vs | ||
The Commissioner Inland Revenue, Zone-1, RTO, Sargodha. | Respondent | |
Appellant by | Mr. Tariq Maqbool Khakwani, ITP. | |
Respondent by | Mr. Zaheer Qureshi, DR | |
Date of hearing | 27.08.2019 | |
Date of order | 27.08.2019 |
M. M. AKRAM (Judicial Member): The titled appeal has been filed by the appellant/taxpayer against an Order No.0765 dated 06.12.2017 passed by the learned Commissioner Inland Revenue (Appeals), Sargodha for tax year 2012 on the grounds as set forth in the memo of appeal.
2. Briefly stated, the relevant facts for disposal of the appeal are that the appellant is an individual who filed return for the tax year 2012 declaring the following results:-
Net Sales | Rs.363,037,425/- |
Gross Profit | Rs.42,813,250/- |
P & L Expenses | Rs.34,299,558/- |
Total Income | Rs.1,136,857/- |
The return so filed by the appellant was deemed to be considered as an assessment order under section 120 of the Income Tax Ordinance, 2001 (“the Ordinance”). As per amendment made in section 113 of the Ordinance through Finance Act, 2009, the appellant was liable to pay minimum tax @ 1% of the declared turnover but he failed to discharge his liability regarding minimum tax. In consequence thereof, the deemed order under section 120(1) of the Ordinance was found to be erroneous as well as prejudicial to the interest of revenue warranting amendment of assessment under section 122(5A) of the Ordinance by charging of minimum tax @ 1%. A show cause notice dated 24.05.2014 was issued and the taxpayer submitted its written reply stating therein that the appellant is a distributor/commission agent of M/s Indus Motors Company Limited and receiving commission on sales of vehicles which is subject to final taxation. As per requirement of the company M/s Indus Motor, the appellant declared the sales and purchases in its income tax return in accordance with sales tax returns and only sales of spare parts and services falls under the definition of turnover. The assessing officer did not accept the explanation tendered by the appellant and ultimately passed an order dated 27.04.2017 under section 122(5A) of the Ordinance by creating demand of tax on account of minimum tax @ 1% amounting to Rs.3,221,236/-.Being aggrieved of, the appellant/taxpayer went in appeal before the learned CIR (A) and assailed the order on various grounds. The learned CIR (A) declined the relief sought by the taxpayer/appellant by passing the impugned order dated 06.12.2017. The appellant has now assailed the said order on number of grounds.
3. The titled appeal came up for hearing on 27.08.2019. The learned AR of the appellant vehemently argued that the appellant is a distributor of M/s Indus Motors Company Limited and earning mainly commission on sales of vehicles which is subject to final discharge of tax liability. He further submits that only sales of spare parts of the vehicles and maintenance services are come within the ambit of turnover. To substantiate his declared version, the AR has placed on record the copy of the Authorized Dealer Agreement. Lastly, the learned AR submits that the appellant being a distributor of M/s Indus Motor Company LTD, he is entitled to the reduction in tax liability in terms of clause (8) of Part-III of Second Schedule to the Ordinance which provides that the distributor of pharmaceutical products, fertilizers, consumers goods including fast moving consumers goods, the rate of minimum tax on the amount representing their annual turnover under section 113 shall be reduced by eighty percent. He placed reliance on the judgment reported as 2018 PLJ 1147.
4. On the other hand, the learned DR appearing on behalf of the department has fully supported the impugned orders. He has contended that prior to passing of the impugned orders, sufficient opportunity was given to the appellant but he failed to substantiate his stance with documentary evidence.
5. Arguments heard and relevant record available on file carefully perused. The submissions made on behalf of the appellant have substance. The perusal of the Authorized Dealer Agreement executed between the appellant and M/s Indus Motor Company Ltd clearly suggests that the appellant is a dealer of M/s Indus Motor (“the Company). According to the agreement, the appellant is obliged to sale Toyota brand motor vehicles, and spare parts, accessories, oils, chemicals and tools for use in repair or maintenance service of the Toyota vehicles supplied by the Company. The Company has paid the commission to the appellant against the sale of motor vehicles and has deducted the tax thereon under section 233 of the Ordinance which is a final discharge of tax liability under the said head. The appellant had wrongly filed its income tax return by declaring the gross sales without segregating the commission receipt/FTR sales and the sales/receipts on account of spare parts and repair maintenance services which under the law only come within the definition of turnover and are liable to minimum tax under section 113 of the Ordinance. The appellant had to file the return under normal law alongwith the statement as required under section 115(4) of the Ordinance for the purpose of declaring sales on account of spare parts and repair maintenance service and commission receipt respectively. The assessing officer is under a duty to apply the correct law notwithstanding the claim of the appellant, even if the result would be favorable to the appellant. The declaring of gross sales in the income tax return being against the provisions of law would not serve as estoppel against the appellant. It is well entrenched rule that there can be no estoppel against law. Reliance may be placed on the judgment titled as Pir Sabir Shah v. Shah Muhammad Khan(PLD 1995 SC 66) and CIT v. Ghazi Barotha Construction ( 2004 PTD 1994). Resultantly, the sales on account of motor vehicles against which the appellant received the commission from the company and paid tax thereon under section 233 of the Ordinance would be excluded from the gross sales declared by the appellant in its income tax return for the tax year under consideration. The minimum tax @ 1% would only be charged on the sales/receipts of spare parts and repair of maintenance services. As far as the other contention of the learned AR that the appellant being a distributor of the Company it is entitled to the reduction in tax liability in terms of clause (8) of Part-III of Second Schedule to the Ordinance is misconceived and not tenable. The agreement furnished by the learned AR of the appellant clearly provides that the appellant is a dealer of M/s Indus Motor Company Ltd. There is a marked distinction between dealer and distributor. Both the connotations have distinctly been used in the Ordinance for instance sections 236G, 236H etc. The appellant is not a distributor, therefore, does not come within the ambit of clause (8) of Part-III of Second Schedule to the Ordinance. In M/s Humayun Ltd. v. Pakistan and others (PLD 1991 SC 963), the basic principles and rational of exemption clause is emphasis by reproducing an excerpt from the case Bank of Commerce v. Tennessee (161 US 134), which is as under:-
"Taxes being the sole means by which sovereignties can maintain their existence, any claim on the part of anyone to be exempt from the full payment of his share of taxes on any portion of his property must on that account be clearly defined and founded on plain language. There must be no doubt or ambiguity in the language used upon which the claim to the exemption is founded. It has been said that a well-founded doubt is fatal to the claim; no implication will be indulged in for the purpose of construing the language used as giving the claim for the exemption, where such claim is not founded upon the plain and clearly expressed intention of the taxing power".
In Karachi Development Authority v. Central Board of Revenue through Members Central Excise and Land Customs, Islamabad and others (2005 PTD 2131), the Hon'ble Apex Court held,
"Taxing statutes were construed strictly in favour of subjects whereas the provisions relating to exemptions were construed in favour of Government as Taxing authority and the Government, while exercising the power of exemption of duty on a particular article, might impose such condition, limitation and restriction as it deemed fit."
Necessary corollary is that while interpreting an exemption clause, plain language is to be considered; implications are not allowed; conditions stipulated in the exemption clause must be fulfilled; and in case of any doubt or two possible interpretations, the one favouring chargeability of tax is to be employed. It is also principle that exemption presupposes the chargeability, the judgment in Collector of Customs and others v. Ravi Spinning Ltd. and others (1999 SCMR 412)can be referred.
6. For the foregoing reason, we have set-aside both the orders passed by the lower authorities and the case is remanded back to the assessing officer with the direction to pass a fresh order in accordance with law after due consideration of the observations given in para 5 above. The appellant be given a reasonable opportunity of being heard before passing an order.
7. The appeal of the appellant is disposed of in the manner as stated above. This order consists of (05) pages and each page bears my signature.
Sd/-
(M. M. AKRAM)
Sd/- JUDICIAL MEMBER
(NADIR MUMTAZ WARRAICH)
ACCOUNTANT MEMBER
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