APPELATE
TRIBUNAL INLAND REVENUE,KARACHI BENCH, KARACHI
ITA No.953/KB/2018 (Tax
Year 2015)
M/s Nutrico Pakistan
(Pvt) Ltd.,
34-A-1, P.E.C.H.S.
Shahrah-e-Faisal
Block-6, Karachi …..…Appellant
VersusCIR, Zone-I, LTU-II,
Karachi. …Respondent
Appellant by: Mrs. Asra Rauf, FCA
Respondent by: Mr. Tariq Tunio, DR
Date of
hearing: 02.06.2021
Date of order: 02.06.2021
O R D E R
M. M. AKRAM (Judicial
Member): We intend to dispose of the titled
appeal which has been filed by the appellant taxpayer against the Order No.07 dated
08.06.2018 passed by the learned CIR(Appeals-IV), Karachi for the tax year 2015
on the grounds as set forth in the memos of appeal.
2. Brief facts of the case are that the
taxpayer is a Private Limited Company. The principal business of the company is
the trading of infant milk and related products. The taxpayer is a prescribed
person within the meaning of section 153(7) and other provisions of the Income
Tax Ordinance, 2001 (“the Ordinance”) was
bound by law to deduct tax while making payments under different heads as
provided by Division-II of Chapter-X or under Chapter-XII of the Ordinance. The
tax so deducted was required to be deposited in the Government Treasury as
provided by Rules and monthly/annual statements are required to be e-filed as
provided in section 165(2) and 165(6) of the Ordinance. In order to examine the
compliance of the above provisions of law, a notice was issued through IRIS for
obtaining relevant details/documents/bank statements and reconciliation of
expenses under Rules 44(4) of the Income Tax Rules, 2002. In response, the
appellant taxpayer submitted its replies which were considered and found
unsatisfactory by the assessing officer. Accordingly, the assessing officer
passed an order dated 30.01.2018 under section 161/205 of the Ordinance by
creating a tax demand of Rs.215,244,976/-.
3. Being aggrieved, the taxpayer filed the first
appeal before the learned CIR(A) which was disposed of vide impugned appellate
order No.07 dated 08.06.2018. The learned CIR(A) confirmed the treatment
accorded by the assessing officer on account of non-deduction of tax under section
153(1)(a) of the Ordinance on the amount of Rs.2,400,000,000/- allegedly paid
to M/s Unibrands (Pvt) Ltd in respect of the purchase of distribution rights
from them and all the remaining issues were remanded back to the assessing
officer with the direction to the appellant to submit all the details with
names of the payee with detail of payments and tax deduction on it or reason of
non-deduction. Still dissatisfied with the order of the learned CIR(A), the appellant
taxpayer has come up in the second appeal under section 131 of the Ordinance
before this Tribunal and assailed the impugned order of the learned CIR(A) on several
grounds.
4. This
case came up for hearing on 02.06.2021. Learned AR contended that the purchase
of “Distribution Rights” represents the purchase of an “intangible asset” and
as such the provisions of section 153(1)(a) which relates to “sale of goods”
did not apply to the subject transaction. She submitted that under the said
provisions there should be the transfer of goods. In the present case, there is
only an agreement by which, only the right to exploit was transferred, but
there is no sale of goods. It is also further submitted that Section 153(1)(a)
of the Ordinance, clearly stipulates that while making a payment in full or
part including payment by way of advance to a resident person for the sale of
goods shall deduct tax. The word "sale of goods" means, there should
be the only actual sale. In this case, there was no sale of goods and hence the
appellant was not obliged to deduct tax. Notwithstanding the aforesaid, the
learned AR apprised that out of the total amount of Rs.2.4 billion, an amount
of Rs.240 million remained unpaid as of June, 2015. Thus, the default
determined by the assessing officer and confirmed by the CIR(A) is actually in
excess of Rs.10,800,000 (Rs.240,000,000 x 4.5%). In support, she placed on
record the Financial Statements. Further argued that the rate of withholding
tax under section 153(1)(a) of the Ordinance is 4% in the case of the companies
as mentioned under Division III, Part III, of First Schedule to the Ordinance.
However, the assessing officer applied the rate of tax of 4.5%, resulting in
excess tax recoverable of Rs.12,000,000. While concluding her arguments, it has
been stated that both the authorities below have not looked into the matter in
the perspective of the provision of section 161(1B) of the Ordinance which
provides that if the recipient has paid the liability then the withholding
agent would only be liable to pay default surcharge. She contended that the
recipient M/s Unibrands (Pvt) Ltd is an active taxpayer and the department has
taxed the subject amount by passing an amended order dated 06.11.2018 under
section 122(1)/(5) of the Ordinance for the tax year 2014. She, therefore,
pleaded that the appeal be accepted.
5. On the contrary, the learned DR has
supported the orders of the lower authorities and contended that the learned
CIR(A) has passed a speaking order and there is no infirmity in the impugned order.
He, therefore, pleaded that the appeal be dismissed.
6 We
have heard both the parties and perused the available record. The substantial question
for determination, in a narrow compass, on rival contentions as between the
parties canvassing rival views, on the facts and circumstances of the case, is
as under:
"Whether in the facts and circumstances
of the case, the lower authorities were right in treating the “Distribution
Rights”, as a sale of goods for the purpose of deduction of tax in advance
under section 153(1)(b) of the Ordinance?
Before dilating upon the question, it would be beneficial to first
reproduce hereunder the relevant provisions of law which are applicable to the
issue:-
Section 153. Payments for goods, services and contracts.—(1) Every prescribed person making a payment in full
or part including a payment by way of advance to a resident person—
(a)
for the
sale of goods
(b)
………………………
The expression “sale of goods” is defined under section
153(7)(iii) as under:-
(iii) “sales of goods” includes a sale of
goods for cash or on credit, whether under written contract or not.
The term ‘Goods” has not been defined under the Ordinance.
However, as per the Sales of Goods Act, 1930 ‘goods” is defined as under:-
“Goods”
means every kind of movable property other than actionable claims and money;
and includes stock and shares, growing crops, grass, and things attached to or
forming part of the land which are agreed to be severed before sale or under
the contract of sale.
Section
2(30) of the Ordinance specifically defines “Intangible” as under;-
2(30) “intangible” means an intangible as defined in section 24;
Section
24(11): “intangible” means any patent,
invention, design or model, secret formula or process, copyright, trademark,
scientific or technical knowledge, computer software, motion picture film,
export quotas, franchise, license, intellectual property, or other like
property or right, contractual rights
and any expenditure that provides an advantage or benefit for a period of more
than one year (other than expenditure incurred to acquire a depreciable asset
or unimproved land, but shall not include self-generated goodwill or any
adjustment arising on account of accounting treatment in the manner as may be
prescribed.
A question could legitimately be asked
whether the receipt of the transaction under consideration comes within the
ambit of revenue or capital receipt under the Ordinance. However, that question
was neither raised nor forms the subject matter of appeal in this case. We
shall therefore restrain ourselves from entering the thicket. Chief Justice
John Roberts (of US Supreme Court) said:
“If it is not necessary to decide more,
it is necessary not to decide more.”
But in putting construction on clause (a) of sub-section (1) of
Section 153 of the Ordinance, we shall be guided by the well-worn principle
that such provisions are to be strictly construed with a leaning in favour of
the taxpayer in case of ambiguity. Reliance may be placed on Pakistan
v. Kohat Cement Company (PLD 1995 SC 659)
wherein it observed:
“…The rule of law, and it is
a Constitutional rule, “that no pecuniary burden can be imposed upon the
subjects of this country, by whatever name it may be called, whether tax, due,
rate, or toll, except under clear and distinct legal authority, established by
those who seek to impose the burden, has so often been the subject of legal
decisions that it may be deemed a legal axiom … ” (Wilde C.J. in Goshing v. Velry
(1850) 12 QB 328, 407. The rule is “that a charge cannot be made unless the
power to charge is given by express words or by necessary implication. These
last words impose a rigorous test going far beyond the proposition that it
would be reasonable or even conducive or incidental to charge for the provision
of a service … ” Reg v. Richmond (1992) 2 AC 48, 67.”
According to Maxwell: -
“It is
well-settled rule of law that all charges upon the subject must be imposed by
clear and unambiguous language because in some degree they operate as
penalties: the subject is not to be taxed unless the language of the statute
clearly imposes the obligation and language must not be strained in order to
tax a transaction which, had the legislature thought of it, would have been
covered by appropriate words.”
(See Maxwell on the Interpretation of Statutes, Twelfth Edition,
p.256).
7. The term “sale” has not been defined in the
Ordinance and by section 153(1)(a), tax has to be deducted while making payment
in full or part including a payment by way of advance to a resident person for
the sale of goods. Since the word ‘sale’ has not been defined in the Ordinance,
we will have to fall back on the meaning of this word for its semantic nuances
in the judicial dictionaries:
STROUD’S Judicial Dictionary of Words and
Phrases:
Sale; Sell; Sold. “
‘Sale’ undoubtedly, in general, implies an exchange for money; and is so
defined in Benjamin on Sale”. “A “sale” means the exchanging of property for
money and applies to a sale of land and to a sale of chattels equally. An
agreement to extinguish an existing debt if the land is transferred is not a
contract for the sale of land (Simpson v Connolly [1953] 1 W.L.R. 911.”
Merriam – Webster’s Dictionary of Law:
Sale: n 1 a : the transfer of
title to property from one party to another for a price; also: the contract of
such a transaction –.”
Black’s Law Dictionary, Ninth edition:
Sale: n (bef. 12c) 1. The
transfer of property or title for a price. See UCC 2-106(1). [Cases: Sales 1;
Vendor and Purchaser 1.] 2. The agreement by which such a transfer takes place.
The four elements are (1) parties competent to contract, (2) mutual assent, (3)
a thing capable of being transferred, and (4) a price in money paid or
promised.”
With
this background in mind, we can now analyse the definition of the term “sale”
used in the Ordinance. “Sale”, it will be recalled, is the transfer of property
or title for a price. It connotes a parting of possession to pass to the buyer
and does not envisage a reversion of that title or retention of any right in
the property transferred. Against price in money paid, the seller passes on the
title, absolutely and unconditionally. The words “transfer of the right to dispose of goods as owner” when weighed
on this scale, merely convey the concept of the sale in fact, though by using
different semantics. The crucial words are “transfer of the right” and “as
owner”. Thus the act must result in the transfer of the right to dispose of
goods as owner. In other words, what is being transferred is the ownership
right to deal with the goods (by the vendee) and to dispose of them at will.
When a sale is made, the vendee shall become the new owner as transferee of
that right as such and may dispose of those goods. We have no doubt in our mind
that the transfer of the right of ownership is at the heart of the expression
when read in its entirety. The act to dispose of is associated with the new
owner. However, prior to that, the crucial step is the transfer of all rights
and the property in the goods which includes the right to dispose of those
goods as the subsequent owner. In pith and substance, therefore, this too
constitutes a sale.
8. An analysis of the legal landscape will be
incomplete without referring to Halsbury’s Laws of England (Volume 91), Fifth
Edition, and the construction which has been put on these terms. The meaning of
sale has been described as: -
“Sale is the transfer by
mutual asset of the ownership of a thing from one person to another for a money
price. Where the consideration for the transfer consists of other goods or some
other valuable consideration (not being money), the transaction is called
exchange or barter, although in certain circumstances it may be treated as one
of sale. It is clear that statutes relating to the sale of goods do not, as
such, apply to transactions by way of barter, where the consideration for the
thing does not consist in money, or by way of hire, where ownership in the
thing is not transferred. The terms implied in contracts for the sale of goods
by the Sale of Goods Act 1979 are, however, similarly implied in contracts for
the supply of goods by the Supply of Goods and Services Act 1982, which applies
to contracts for the transfer of goods, other than (inter alia) contracts for
the sale of goods, and to contracts for the hire of goods, other than a
hire-purchase agreement. Contracts of exchange or barter and contracts for the
hire of goods would consequently be covered by the terms implied by the Supply
of Goods and Services Act, 1982 and this would be the case whether or not
either type of contract also provides for the carrying out of service and, in
either type of contract, whatever the nature of the consideration.”
So
the essence of sale consists in the transfer of ownership for a money price.
Where the consideration does not consist in money, it may be barter or exchange
but not a sale. As to the meaning of “contract for the transfer of goods”, it
says that:-
“A ‘contract for the transfer
of goods’ means a contract under which one person transfers or agrees to
transfer to another the property in goods.”
Thus the
transfer of goods envisages a transfer of property in goods and to reiterate,
property here means general property and not merely a special property like
“distribution rights”. Terms about title etc. transfer by description, quality
or fitness are implied in contracts for the transfer of goods and an
elaboration of the concept has been referred to in the following words:-
“71. Title, quiet possession,
and freedom from charges in contracts for the transfer of goods. In a contract
for the transfer of goods, other than one in the case of which there appears
from the contract or is to be inferred from its circumstances an intention that
the transferor should transfer only such title as he or a third person may
have, there is: 1) an implied condition on the part of the transferor that, in
the case of a transfer of the property in the goods, he has a right to transfer
the property and, in the case of an agreement to transfer the property in the
goods, he will have such a right at the time when the property is to be
transferred; 2) an implied warranty that the goods are free, and will remain
free until the time when the property is to be transferred, from any charge or
encumbrance not disclosed or known to the transferee before the contract is
made, and 3) an implied warranty that the transferee will enjoy quiet
possession of the good, except so far as it may be disturbed by the owner or
other person entitled to the benefit of any charge or encumbrance so disclosed
or known.”
9. Thus the foundational element in any
transfer, in the given paradigm, seems to be a sale of property in the goods so
as to pass the title in the goods. Whether it is an executory contract of sale
(Agreement to sell) or an executed contract of sale plus a conveyance is to be
determined by the intention of the parties.
10. The above discussion forms the backcloth of
the analysis of the term “sale” and the combined
readings of the above provisions of law that the Ordinance ordains that transfer of property in goods for
valuable consideration must be "in the course of trade or business".
This is so because the incidence of the tax falls on a recipient who
"carries on the business of buying, selling supplying or distributing
goods". A sale by a person who carries on the business of buying, selling,
etc., and a sale in the course of business are the twin indispensable
requirements to attract the charge of tax under the provision of section
153(1)(a) of the Ordinance. The crucial question then is whether these
requirements are satisfied in the instant case. In the instant case, the
agreement shows that it has not been executed for the sale of goods. The word
"sale" has both a legal and popular meaning. In the legal sense, it
imports the passing of property in the goods and it is in this sense that the
word is used in the Sales of Goods Act, 1930. In the popular sense,
however, it signifies the transaction itself which results in the passing of
property. As the object of the Legislature in the Ordinance under
section 153(1)(a) is to deduct tax on the occasion of the sale. According,
to Blackstone, "sale or exchange is a transmutation of property from one man to
another, in consideration of some price or recompense in value."
This passage has, however, to be read distributively and so read, the sale
would mean the transfer of property for the price. The expression "sale of goods" used in clause (a) of
sub-section (1) of section 153 ibid is
a composite expression consisting of various ingredients or elements. Thus,
there are the elements of a bargain or contract of sale, the payment or promise
of payment of the price, the delivery of goods, and the actual passing of
title, and each one of them is essential to a transaction of sale though the
sale is not completed or concluded unless the purchaser becomes the owner of
the property.
11. Looking
the matter from another angle, undisputedly, the
appellant in the instant case acquired the “distribution rights” from M/s
Unibrands (Pvt) Ltd which represents the purchase of an
“intangible asset” and squarely falls within the definition contemplated in
section 2(30) read with section 24(11) of Ordinance. Similarly “royalty” is
also included in the definition of “Intangible” under the aforesaid provisions
of law. However, for the purpose of collection of advance tax on account of
royalty a specific provision of section 153B was inserted through the Finance
Act, 2019. Had it been the intention of the legislature to deduct/withhold the
advance tax on all the intangibles then a similar provision like section 153B
would have been inserted in the Ordinance.
12. For what has been
discussed above and the facts of the case clearly and expressly provides
undisputedly that the appellant in the instant case acquired the “distribution
rights” from M/s Unibrands (Pvt) Ltd which represents the purchase of an
“intangible asset” and as such the provisions of section 153(1)(a) which
relates to “sale of goods” did not apply to the subject transaction. Admittedly,
in the present case, there is only an agreement by which, only the right to
exploit was transferred, but there is no sale of goods. Therefore, the
transaction of the appellant does not come within the ambit of the provisions
of section 153(1)(a) of the Ordinance, and accordingly, the appellant was not
obliged to deduct the tax under the said provision. So, the answer to the
proposed question is decided in the negative against the department and in
favour of the appellant.
13. For complete justice,
now we revert to the other contentions of the learned AR. the learned AR
apprised that out of the total amount of Rs.2.4 billion, an amount of Rs.240
million remained unpaid as of June, 2015. Thus, the default determined by the
assessing officer and confirmed by the CIR(A) is actually in excess of Rs.10,800,000
(Rs.240,000,000 x 4.5%). In support, she placed on record the Financial
Statements of both parties. This contention of the appellant is well-founded
and in accordance with law. Under section 153 read with section 158 of the
Ordinance, the appellant is required to deduct tax at the time of making
payment to the recipient. If the amount is not paid, the question of deduction
of tax does not arise. Further, the rate of withholding tax under section
153(1)(a) of the Ordinance is 4% in the case of the companies as mentioned
under Division III, Part III, of First Schedule to the Ordinance is also
tenable. However, the assessing officer applied the rate of tax of 4.5%,
resulting in excess tax recoverable of Rs.12,000,000.
14. The
submission of the learned AR that both the authorities below have not looked
into the matter in the perspective of the provision of section 161(1B) of the
Ordinance which provides that if the recipient has paid the liability then the
withholding agent would only be liable to pay default surcharge. This
contention of the AR has also a substance. The recipient M/s Unibrands (Pvt)
Ltd is an active taxpayer and the department has taxed the subject amount under
consideration by passing an amended order dated 06.11.2018 under section 122(1)/(5)
of the Ordinance for the tax year 2014. Thus, in the present case, the
appellant is only liable to pay default surcharge but not for the amount of tax
as the principal amount of tax has been paid by the principal company
(payee/deductee). The department in the
light of the judgment of the Hon'ble High Court titled as M/s Riaz Bottlers (Pvt.) Ltd
Vs LESCO and others (2010 PTD 1295) is entitled only to charge
default surcharge under section 161(1B) of the Ordinance. Further reliance may
be placed on the judgment titled Sui Northern Gas Pipelines Vs Deputy
Commissioner Inland Revenue and others (2014 PTD 1939) wherein it
has been held that:
“If it is established that the tax that was to be deducted from the payment to the payee/deductee and was in the meanwhile paid by that person (payee/deductee), no recovery shall be made from SNGPL (deductor-assessee) who failed to deduct the tax. The deductor shall, however, be liable to pay default surcharge at the rate of 18% per annum from the date he failed to collect or deduct the tax to the date the tax was paid.”
As
discussed above, once the payment has been made by the payee, the amount of tax
that the appellant failed to deduct cannot be recovered from the appellant,
except the imposition of default surcharge under section 161(1B) of the
Ordinance but the case of the appellant is quite a different form the one
comprehended by the assessing officer who has totally gone astray and learned
Commissioner Appeals has also erred in understanding the nature of the transaction.
In our view, the law of withholding does not apply at all in this case. Thus,
We hold that the transaction made by the appellant by way of agreement to sell
the distribution rights does not fall in the definition of sale of goods for
the purpose of withholding tax in terms of section 153(1)(a) ibid. Therefore, no question of
withholding of tax arose from the transaction involved. Neither there was any
default to invoke the provisions of section 161 nor the question of charging of
default surcharge under section 205 of the Ordinance arises.
15. In view of the above,
the orders passed by the lower authorities to the extent of the subject matter
of this appeal are vacated and the appeal of the appellant is accepted.
16. This order consists of
(13) pages and each page bears my signature.
|
|
Sd/- (M. M. AKRAM) Judicial Member |
|
Sd/- (DR. TAUQEER IRTIZA) Accountant Member |
|
CERTIFICATE
U/S 5 OF THE LAW REPORT ACT
This case is fit for reporting
as it settles the principles highlighted above.
(M. M. AKRAM)
JUDICIAL
MEMBER
No comments:
Post a Comment