M/s Punjab Flour mills (Pvt) Ltd; Vs Commissioner Inland Revenue, LTO, Islamabad

 

APPELLATE TRIBUNAL INLAND REVENUE, SPECIAL SINGLE BENCH,

ISLAMABAD

 

ITA No.1217/IB/2016

 (Tax Year 2011)

 

******

M/s Punjab Flour Mills (Pvt) Ltd; Westridge-II, Rawalpindi.		Applicant
	Vs
Commissioner Inland Revenue, LTO, Islamabad		Respondent
Appellant By:		Mr. Faisal Latif, FCA
Respondent By:		None
Date of Hearing:		21.10.2025
Date of Order:		21.10.2025

 

ORDER

M. M. AKRAM (Judicial Member): The present appeal has been preferred by the appellant-taxpayer to challenge the impugned Order No. 825/2016 dated July 29, 2016, passed by the learned Commissioner Inland Revenue (Appeals-I), Large Taxpayer Office (LTO), Islamabad, under Section 129 of the Income Tax Ordinance, 2001 (“the Ordinance”), pertaining to the Tax Year 2011. The appeal has been instituted on the grounds set forth in the memorandum of appeal.

2.      The brief facts leading to the present appeal are that the appellant, a company, is engaged in the business of running a flour mill. The taxpayer filed its return of income for the Tax Year 2011, which was deemed to be assessed under Section 120 of the Ordinance. Upon subsequent scrutiny of the assessment record, the Department observed that the deemed assessment order was erroneous and prejudicial to the interest of revenue within the meaning of Section 122(5A) of the Ordinance, as the taxpayer had allegedly failed to discharge its full liability of minimum tax under Section 113 read with Clause (10) of Part III of the Second Schedule to the Ordinance.

3.      Consequently, a show-cause notice was issued to the taxpayer under section 122(9) read with section 122(5A) of the Ordinance. The reply furnished by the taxpayer was considered unsatisfactory, whereupon the Assessing Officer finalized the amended assessment under Section 122(5A) vide order dated April 28, 2016. In doing so, the Assessing Officer charged minimum tax at the rate of 1% on turnover for the period 01.07.2010 to 05.03.2011 and applied a reduction of 80% in the rate of minimum tax as provided under Clause (10) of Part III of the Second Schedule, inserted through SRO No.174(I)/2011 dated 05.03.2011, for the period 06.03.2011 to 30.06.2011, thus effectively applying two different rates within the same tax year on a proportionate basis.

4.      Aggrieved by the said amended order, the taxpayer preferred an appeal before the learned Commissioner Inland Revenue (Appeals-I), LTO, Islamabad. Vide order dated July 29, 2016, the learned CIR(A), after considering the record and submissions, upheld the action of the Assessing Officer in applying proportionate rates of minimum tax under Section 113 of the Ordinance. The CIR(A) observed that SRO No.1086(I)/2010 dated November 31, 2010, had no retrospective effect and, therefore, its benefit could not be extended prior to its promulgation. In doing so, reliance was placed on the judgment of the learned Appellate Tribunal Inland Revenue (ATIR) in Al-Faisal Flour & General Mills, Islamabad (ITA No.821/IB/2015 dated January 20, 2016). Being dissatisfied with the appellate order, the taxpayer has now approached this Tribunal in the present appeal.

5.      The case was fixed for hearing on October 21, 2025. The learned Authorized Representative (AR) appeared on behalf of the appellant and contended that the Assessing Officer had misapplied the provisions of Clause (10) of Part III of the Second Schedule to the Ordinance, as inserted through SRO No.1086(I)/2010 dated November 30, 2010 and subsequently amended by SRO No.174(I)/2011 dated March 5, 2011. He argued that the reduction in the rate of minimum tax was intended to apply to the entire annual turnover of the taxpayer and not on a proportionate basis. The AR submitted that the term “annual turnover” used in the said clause clearly denotes the turnover for the whole tax year, and the legislative intent was to grant uniform relief for the entire period relevant to the tax year. He further contended that the Legislature did not restrict the operation of the SROs to a part of the year, and therefore, the Assessing Officer’s apportionment of turnover for different rates was misconceived and contrary to the scheme of the Ordinance. Despite the due service of notice, none appeared on behalf of the respondent Department.

6.      I have heard the learned AR at length and carefully examined the record on file. The issue requiring adjudication in the instant appeal is: -

whether the reduction in the rate of minimum tax introduced through SRO No.174(I)/2011 dated March 5, 2011, is to be applied on the taxpayer’s entire annual turnover for the Tax Year 2011, or only on a proportionate basis from the date of issuance of the said SRO.

To address this question, reference must first be made to the scheme of Section 113 of the Income Tax Ordinance, 2001, which mandates the payment of minimum tax on the annual turnover of a taxpayer at the rate prescribed by the law. The charge under this section is annual in nature, being computed on the basis of the taxpayer’s total turnover for the relevant tax year, and not on a monthly or part-year basis. The section operates independently of the normal tax computation mechanism and ensures that every taxpayer contributes a minimum quantum of tax, irrespective of the level of taxable income.

7.      Clause (10) of Part III of the Second Schedule to the Ordinance, introduced through SRO No.1086(I)/2010 and later amended by SRO No.174(I)/2011, prescribes a reduced rate of minimum tax for distributors. The operative expression therein, “on the amount representing their annual turnover”, is of fundamental significance. The phrase “annual turnover” is clear and unambiguous, referring to the total turnover of a taxpayer for the entire tax year. There is nothing in the text of the clause, nor in the SRO itself, that suggests that the reduction was intended to operate only from the date of its notification or for any segmented portion of the year.

8.      It is a well-settled principle of fiscal jurisprudence that, unless an enactment or notification expressly provides for retrospective operation, it shall take effect prospectively. However, in cases such as the present, where the charge is on annual turnover under Section 113, the applicable rate of minimum tax is determined at the close of the tax year. Therefore, the rate prevailing as of the end of the tax year governs the entire computation, unless otherwise provided by law. A mid-year bifurcation of rates is inconsistent with the design of Section 113, which envisages a single computation for the tax year as a whole.

9.      The Hon’ble Lahore High Court in the case of M/s Lahore Electric Supply Company (LESCO) vs. Commissioner Inland Revenue (ITR No.02 of 2015, order dated 10.05.2016) addressed a similar issue, wherein it was observed that apportionment of turnover within a tax year for purposes of minimum tax under Section 113 is inconsistent with the legislative scheme. The Court held:

“It is an admitted position between the parties that for charging minimum tax under section 113, the turnover of a tax year is presumed as income... The exemption clause does not suggest any segregation within the tax year for the purpose of allowing exemption. A blanket exemption is given up to tax year 2013 by excluding purchase price of electricity from turnover of a tax year... The action of applying exemption clause only for a period within the year is against the spirit of the exemption granted and inconsistent with section 113.”

The ratio laid down by the Hon’ble Court squarely applies to the present case.

10.    Moreover, the legislative intent underlying SRO No.174(I)/2011 was evidently to extend uniform relief to distributors on their entire annual operations rather than restricting it to a fragmented period. Any interpretation that divides the turnover within a single tax year for applying different rates would result in administrative inconsistency and inequitable treatment among similarly placed taxpayers, contrary to the principles of uniform taxation.

11.    The reliance placed by the lower authorities on Al-Faisal Flour & General Mills, Islamabad (ITA No.821/IB/2015) is misplaced and distinguishable on facts. That judgment dealt with the non-retrospective applicability of SRO No.1086(I)/2010, whereas the present controversy pertains to the scope and application of rate reduction under SRO No.174(I)/2011 in relation to the taxpayer’s annual turnover. The two issues are distinct in both context and implication.

12.    In light of the foregoing analysis, I hold that the benefit of the reduced rate of minimum tax provided under SRO No.174(I)/2011 dated March 5, 2011, being applicable to the annual turnover of distributors, shall apply to the entire tax year 2011. The apportionment of turnover and application of differential rates by the Assessing Officer, as upheld by the learned CIR(A), is contrary to the intent and scheme of Section 113 of the Ordinance.

13.    Consequently, the appeal filed by the taxpayer is allowed. The orders of the lower authorities are set aside to the extent they pertain to the computation of minimum tax under Section 113 of the Ordinance. The Assessing Officer is directed to recompute the taxpayer’s liability for the Tax Year 2011 by applying the reduced rate of minimum tax under SRO No.174(I)/2011 to the entire annual turnover, in accordance with law and the observations made herein. Order accordingly.

 

 

-SD-                                               (M. M. AKRAM)                                            JUDICIAL MEMBER