APPELLATE TRIBUNAL
INLAND REVENUE, DIVISIONAL BENCH-I,
ISLAMABAD
ITA
No.1414/IB/2020
(Tax Year 2018)
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M/s Taisei Corporation, Office
A, 5th Floor, Tower A, Saudi Pak Tower, Islamabad. |
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Appellant |
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VS |
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Commissioner Inland Revenue, Corporate
Zone, LTO, Islamabad. |
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Respondent |
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Appellant
by |
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Mr. Waseem Ahmed
Siddiqui, FCA |
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Respondent
by |
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Ms. Nafeesa Bano, DR |
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Date
of hearing |
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16.03.2022 |
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Date
of order |
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16.03.2022 |
M. M.
AKRAM (Judicial Member): The titled appeal has been
filed by the Appellant/taxpayer against an Order No.116/2020 dated 26.10.2020
passed by the learned CIR (Appeals-I), Islamabad for the tax year 2018 on the
grounds as set forth in the memo of appeal.
2. The facts, in brief, are that the Appellant M/s Taisei Corporation is a Permanent Establishment (PE) of a non-resident company, engaged in the business of construction services. The appellant filed its income tax return for the tax year 2018 declaring income of Rs.8,613,777/-. The return so filed by the appellant was treated to be an assessment order under section 120(1)(b) of the Income Tax Ordinance, 2001 (hereinafter referred to as “the Ordinance”). Subsequently, upon examination of the return of income filed by the appellant it transpired that the deemed assessment was erroneous in so far as prejudicial to the interest of revenue, therefore, notice under section 122(9) read with section 122(5A) of the Ordinance dated 07.02.2019 was served upon the appellant. After considering the reply of the appellant amended order under section 122(5A) was passed on 30.12.2019 as under:-
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Tax
deducted under section 152(1A) final tax |
195,918,232 |
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Imputable
income under section 2(28A) |
653,060,773 |
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Super
tax under section 4B @ 3% |
19,591,823 |
Felt aggrieved with the order passed by the assessing
officer, the appellant preferred the appeal before the learned CIR(A) who vide
order dated 26.10.2020 confirmed the treatment in toto accorded by the
assessing officer. Still feeling aggrieved, the appellant has assailed the
impugned appellate order before this Tribunal on a number of grounds.
3. This case
finally came up for hearing on 16.03.2022. The learned AR for the appellant apprised
that the appellant executed a Contract Agreement dated 18th of March
2016 with the National Highway Authority (NHA), Ministry of Communication,
Government of Pakistan for widening and strengthening of National Highway N-70
(Rakhi Gajj – Bewata Section) 33.84 Km of East-West Road Improvement Project
Package-1. He explained that the provisions of the Ordinance shall not apply to
the extent of the work with NHA in terms of Clause 71 of Part-IV of the Second
Schedule to the Ordinance. In addition to the work with NHA, the appellant also
performed on other projects in Pakistan due to which the appellant filed the
income tax return. It has been stated that the tax deduction made under section
152(1A) is a final discharge of tax liability which does not fall within the
definition of income as defined in section 2(29) of the Ordinance meaning
thereby that receipt from NHA does not fall within the definition of imputable
income as defined under section 2(28A) of the Ordinance. Therefore, the learned
AR contended that the super tax is not leviable under section 4B of the
Ordinance on the receipt from NHA. Further argued that the amount of tax
collected under section 148 of the Ordinance at the time of import is an
adjustable tax and not final tax under section 148(7) as no income has arisen
from the import of goods. Therefore, the tax collected is liable to be refunded
by the tax department. In support, he
relied upon the judgment reported as 2013 PTD 1165(Trib).
4. 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 appellate order. She, therefore, pleaded that the
appeal be dismissed.
5. Arguments heard and record of the case was perused. First,
we have to see Clause 71 of Part-IV of the Second Schedule to the Ordinance and
determine whether the appellant qualifies the exemption given in the said
clause concerning the income earned from the receipt from NHA and the
provisions of the Ordinance would not apply to such extent. For ease of
reference, the said clause is being reproduced hereunder: -
“(71)
The provisions of this Ordinance shall not be applicable to the M/s Taisei
Corporation under the agreement between National Highway Authority, GOP, which
falls under the zero-rated regime of sales tax and registered with sales tax in
respect of supply of products, services and equipment.”
The plain reading of the above provision of
law clearly suggests that the provisions of the Ordinance would not apply if
the appellant executes the agreement with NHA or GOP which falls under the
zero-rated regime of sales tax and registered with sales tax in respect of the supply
of products, services, and equipment. In the instant case, the appellant
executed a contract agreement with NHA for
widening and strengthening of National Highway N-70 (Rakhi Gajj – Bewata
Section) 33.84 Km of East-West Road Improvement Project Package-1 but according
to the Punjab Revenue Authority (PRA), the agreement does not fall under the
zero-rated regime of sales tax. The Punjab Revenue Authority has categorically
denied the availability of a zero-rating facility on the ground that NHA is a
body corporate, therefore, the contract undertaken by the NHA is liable to 16%
sales tax under the law. However, we have noted that the stance of the PRA is
not correct as the appellant’s agreement with NHA is funded through foreign loans,
the negotiations were also finalized as of 1st July 2016. Therefore,
the case of the appellant squarely falls under the zero-rated regime of sales
tax at Serial No.14 of the Second Schedule to the Punjab Sales Tax on Services
Act, 2012. The other prerequisite of the said clause for qualifying the
exemption is that the appellant must be registered with sales tax. The perusal
of the record shows that the appellant applied for sales tax registration on 03.12.2020
before the PRA Authority for the rendering of construction services, the copy
whereof is available on page 37 of the appeal booklet. On-line verification of
the said application from the PRA web portal clearly shows that the record was
not found meaning thereby the appellant is still not registered with the sales
tax department. Thus, the aforesaid prerequisite is also missing in the instant
case. For the foregoing reasons, the appellant is not entitled to claim an exemption
under clause (71) of Part-IV of the Second Schedule to the Ordinance.
6. Now we come
to the other contention of the learned AR for the appellant that the tax
deduction made under section 152(1A) is a final discharge of tax liability
under the Ordinance which does not fall within the definition of income as
defined in section 2(29) of the Ordinance meaning thereby that receipt from NHA
does not fall within the definition of imputable income as defined under
section 2(28A) of the Ordinance. Thus, the appellant cannot be charged super-tax
under section 4B of the Ordinance. With respect, the said contention of the
appellant has also been flawed and not tenable. The Ordinance
provides both; the provisions of charging as well as the mechanism for
collection of income tax whereas the word “income” is defined in Section 2(29)
of the Ordinance as: -
"2(29)
"income" includes any amount chargeable to tax under this
Ordinance, any amount subject to collection or deduction of tax under
sections 148, 150, 152(1), 153, 154, 156, 156A, 233, 233A, subsection (5) of
section 234 and any amount treated as income under any provision of this
Ordinance and any loss of income." (Emphasis supplied)
Chapter II of the Ordinance deals with the
charging provisions whereas Part-I of Chapter III explains taxable income,
total income, and heads of income. Chapter-X of the Ordinance envisages the procedure
of filing of return/assessments, adjudication of claims as well as recovery of
the income tax dues. The mechanism for deduction and collection of advance tax
is provided in Part-V of Chapter-X and Chapter-XII of the Ordinance. The
Division IV of the said Chapter relates to the grant of exemption from total
income tax or issuance of lower rate certificate.
Now, we turn to the
contention of the learned AR, we are not inclined to agree with the submissions
made by learned counsel for the appellant. A bare perusal of section 2(29) of
the Ordinance shows that the definition of "income" is inclusive and
not exhaustive. Furthermore, the case law on what is meant by
"income" under the statute, which extends over a period approaching a
century (and indeed emanated under the Income Tax Act, 1922) has established as
a bedrock principle that this term is of the widest connotation, amplitude, and
application. Thus, to take but a few examples, in Kamakshya Narain
Singh v. Commissioner of Income Tax, (1943) 11 ITR 513, the Privy
Council observed that "income is a word difficult and perhaps
impossible to define in any precise general formula" and "is a
word of the broadest connotation", and that "the multiplicity
of forms which 'income' may assume is beyond enumeration". In Gopal
Saran Narain Singh v. Commissioner of Income Tax, (1935) 3 ITR 237,
the Privy Council had earlier also ruled that "anything which can
properly be described as income, is taxable under the Act unless expressly
exempted". And, finally, in what is, without doubt, the leading
treatise on the subject the principle derived from the authorities has been
distilled in the following terms: "The categories of income are never
closed" (Kanga and Palkhivala's The Law and Practice of Income Tax, 8th
ed. (1990), pg. 119). In the case titled M/s Elahi Cotton Mills Ltd,
v. Federation of Pakistan, etc, (PLD 1997 SC 582), it was held that:
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“The word
"income" is susceptible as to include not only what is in ordinary
parlance it conveys or it is understood, but what is deemed to have arisen or
accrued. It is also manifest that income-tax is not only levied in the
conventional manner i.e., by working out the net income after adjusting
admissible expenses and other items but the same may also be levied on the
basis of gross receipts, expenditure etc. There are new species of income-tax,
namely, presumptive tax and minimum tax.”
In view of this long and unbroken chain of
authority, it was impossible to accept the submission made on behalf of the appellant
that the amounts received by it, were not "income" within the meaning
of the statute.
7. There
is another reason to rule against the appellant. The list of income receipts that
are chargeable to tax under the Ordinance given in section 2(29) is only
illustrative and is not exhaustive. This is evident from the word “includes”
used in the said provision which precedes the aforementioned list. In Commissioner
Sales Tax, Rawalpindi Zone, Rawalpindi Vs Abdul Razaq Zia-ul-Qamar,
(1973) 27 Tax 99 (H.C), it was held that “the word including is used for
enlarging the scope and for bringing the species which would otherwise not
cover.” Thus, this ground of the
appellant accordingly failed. As a result, the super tax charged by the
assessing officer and subsequently confirmed by the CIR(A) is in accordance
with law.
8. The
last contention of the learned AR for the appellant was that the subject
company was engaged in the execution of the construction project signed between
the company and the NHA. For the execution of the said project, the appellant
procured certain material from outside Pakistan for use and consumption in the
said project and not for resale purposes. Customs authorities at the time of the
release of the said material collected advance tax under section 148 of the
Ordinance amounting to Rs.96,239,607/- during the tax year under consideration
which is adjustable under the law against the tax liability. The lower
authorities have rejected the contention of the appellant on the sole ground
that in terms of clause (a) of subsection (7) of section 148 of the Ordinance
the tax collected under section 148 of the Ordinance would not constitute final
tax in an instance where raw material, plant, machinery, equipment, and parts
are imported by an industrial undertaking for its own use. Whereas the
appellant does not come within the ambit of the definition of “industrial
undertaking” contemplated in section 2(29C) of the Ordinance. To resolve this
controversy it would be expedient to reproduce below the relevant provision of
section 148 of the Ordinance stood at the relevant time:-
“148. Imports: -
(7) The tax required to be collected under
this section shall be a final tax except as provided under
sub-section (8) on the income of the importer arising from the imports
subject to sub-section (1) and this subsection shall not apply in the case of
import of—
(a) raw material, plant, machinery, equipment
and parts by an industrial undertaking for its own use;
(c) motor
vehicles in CBU condition by manufacturer of motor vehicles;
(d) large import
houses, who,—
(i) have paid-up capital of exceeding Rs.250
million;
(ii) have imports exceeding Rs.500 million
during the tax year;
(iii) own total assets exceeding Rs.350 million
at the close of the tax year;
(iv) is a single object company;
(v) maintain computerized records of imports
and sale of goods;
(vi) maintain a system for issuance of 100%
cash receipts on sales;
(vii) present accounts for tax audit every year;
(viii) is registered under the Sales Tax Act, 1990
and
(ix) make sales of industrial raw material of
manufacturer registered Under the Sales Tax Act,1990; and
(e) a foreign-produced film imported for the purposes of screening and viewing.” (Emphasis supplied)
Undisputedly, the goods imported by the
taxpayer in the instant appeal are not sold in the market to generate income;
the goods imported are used by the appellant for the execution of the contract
made with NHA. Thus, the question before us appears as to whether the tax
collected on such imports is final or adjustable? The department was
specifically asked to produce any evidence as to whether the appellant has
declared or earned any income arising from imports but it could not produce any
evidence. The Hon’ble Supreme Court of Pakistan in the case titled M/s
Elahi Cotton Mills Ltd, v. Federation of Pakistan, etc, (PLD 1997
SC 582), it was held that a presumptive tax can only be imposed on items when
it is regarded as citizen's income; if no income is being derived from the
imports, there can be no question of final tax and any advance payment shall
always remain adjustable. In the instant case, admittedly, no income is
generated from the sale of the imported goods and there is no question of
section 148(7) being applicable; the goods imported by the appellant are
exclusively for self-use in the course of business and not resale, and hence
tax will be separately charged on the income which is generated by the use of
the materials; it is settled law that what cannot in any rational sense be
regarded as income cannot conceivably be taxed as income; the position adopted
by the department is perverse; the quantum of presumptive income can only be
fixed on the basis that the importer is going to earn direct income from the
imports; the presumptive tax i.e. final tax regime was introduced purely to
capture the untaxed income of commercial importers who were in the business of
reselling imported goods; the orders passed by the lower authorities are not
sustainable in law on the issue.
9. Further,
we have noted that nothing on record substantiates that imported items were not
used for the project in question but otherwise sold/disposed of for financial
gains. To attribute finality to tax withheld or collected under section 148(1)
of the Ordinance, the department has to establish that exceptions provided
under section 148(7) of the Ordinance are neither applicable nor available to
the appellant which requires that before treating tax collected or withheld
under section 148 ibid as final tax, it is essential to show/prove that
income of the importer has arisen exclusively from the imports, in the absence
whereof tax would be treated as adjustable tax.
10. To
our mind, the sentence “income of the importer
arising from the imports” used in subsection
(7) of section 148 of the Ordinance is of broad
significance and cannot be lost sight. It provides inter alia that the
tax required to be collected under this section shall be a final tax on the
income of the importer arising from the imports. We
may also observe that the expression “income” has been defined in section 2(29)
of the Ordinance which itself includes the amount subject to collection of tax under
section 148 of the Ordinance but had there been an intention to treat all types
of transactions as income, the legislature could have stated that “the
tax collected under this section shall be a final tax” rather than
using the words “income of the importer arising from imports”.
This unambiguous selection of the words makes it abundantly clear that only
those goods fall in the scope of the final tax regime that is imported for
resale to make profits. For the foregoing reasons, the tax collected by the
Customs Authorities under section 148(1) of the Ordinance is adjustable against
the other tax liability of the appellant. Therefore, the orders passed by the
lower authorities are modified to this extent.
11. For
what has been discussed above, the appeal of the appellant is disposed of in
the manner stated above.
12. This
order consists of (09) pages and each page bears my signature.
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Sd/- (M. M. AKRAM) JUDICIAL
MEMBER |
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Sd/- (MUHAMMAD IMTIAZ) ACCOUNTANT MEMBER |
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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
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