(a) Income Tax Ordinance (XXXI of 1979)--

----S.80-D---"Turnover"---Connotation---Turnover of a travelling agent---Levy of tax under S.80-D, Income Tax Ordinance 1979---Held, for the purpose of levying tax under S.80-D of the Income Tax Ordinance, 1979 the turnover of a travel agent is to be taken as commission income only and not the entire payments received by the travel agent on behalf of principal/carriers.

While considering the connotation of expression "turnover" the entire section 80-D is to be read together and not mere explanation of subsection (2). In explanation to subsection (2) the turnover has been defined to mean the gross receipts but these gross receipts should be derived by a company or registered firm from the sale of goods or from rendering, giving or supplying services or benefits or from executing of contracts. In the case of a travel agent the gross receipt which is derived by it is the agency commission on supplying services on behalf of principal. The entire amount received on issuance of traffic documents is not derived by the travel agent. The travel agent only derives agency commission and the remaining amount is passed on to the principal which is derived by the principal and not by the travel agent. It is provided in subsection (1) of section 80-D that where no tax is payable or paid by a company or a registered firm resident in Pakistan or the tax payable or paid is less than 1/2% of the amount representing its turnover from all sources the aggregate of the turnover shall be deemed to be income of the said company or a registered firm. Thus subsection (1) of section 80-D speaks of its turnover and not mere turnover and, therefore, it is very important to keep in mind that the amount representing, "its turnover" would mean the amount which actually comes to the coffer of a travel agent and not the amount passed on to the principal which will represent the turnover of principal and not the agent. A perusal of section 80-D shows that subsection (1) thereof is a deeming provision whereby the amount representing turnover of a company or a registered firm has been deemed to be income and in subsection (2) the rate of tax has been prescribed. Thus first the income is to be deemed under subsection (1) and thereafter tax is to be levied on the rate prescribed in subsection (2). All the deeming provisions are to be applied strictly in accordance with the law as the deeming provisions are the fiction of law and all fictions of law are to be interpreted and applied strictly and the doubt if any is to be resolved in favour of assessee. When the legislature has provided in subsection (1) of section 80-D that the amount representing its turnover from all sources shall be deemed to be the income of the company or registered firm, it should mean that the amount should represent the income actually received by the company as its own income and it shall not include any amount received on behalf of principal.

Held, for the purpose of levying tax under section 80-D of the Income Tax Ordinance, 1979 the turnover of a travel agent is to be taken as commission income only and not the entire payments received by the agents on behalf of principal/carriers.

(b) Interpretation of statutes----

---- Deeming provisions---Construction---All the deeming provisions in a fiscal statute have to be applied strictly in accordance with the law as the deeming provisions are the fictions of law and all fictions of law are to be interpreted and applied strictly and the doubt, if any, is to be resolved in favour of assessee.

Muhammad Nawaz, D.R. for Appellant.

Mazharuddin for Respondent.

Date of hearing: 28th February, 1993.

ORDER

The above appeal at the instance of department is directed against the order, dated 12-8-1992 by the learned C.I.T. (A) in ITA No. CIT (A-1)/1046/92 relating to the assessment year 1991-92.

2. The sole objection raised by the department is that the learned CIT (A) was not justified in directing to levy minimum tax under section 80-D of the Income Tax Ordinance, 1979 at 0.5% on commission earned by the assessee instead of on gross sales.

3. Briefly stated the relevant facts are that the assessee (hereinafter referred to as the respondent) is a private limited company deriving commission income from travelling business as an IATA agent. In the assessment year 1991-92 the respondent declared agency commission at Rs.19, 12, 364. The appellant declared loss of Rs.1, 20, 470. The assessing officer did not accept the declared version and worked out income at Rs.63, 068 and after adjustment of carry forward loss from the assessment year 1990-91 determined loss at Rs.51,586. The assessing officer thereafter levied tax on turnover under section 80-D of the Income Tax Ordinance. In doing so the income Tax Officer worked out the gross sale at Rs.2,73,19,529 and levied 0.5% tax on this amount which worked out to Rs.1,36,598. It appears that the assessing officer was not certain in his mind, if the turnover tax is to be levied on the declared commission income or on the turnover of airline and, therefore, appended following office note to the assessment order:

"Office note:

This is a case of travel agent and the tax has been levied at 0.5% of the turnover or services rendered. The issue whether turnover tax is to be levied on declared commission or on the turnover of airline would be given effect if and when decided accordingly."

4. The assessing officer did not state as to who had to decide the issue. However, the respondent preferred first appeal before the learned C.I.T. (A) contending that the I.T.O. has erred in considering the amount received by the respondent for issuance of traffic documents on behalf of carriers as turnover for purposes of section 80-D of the Income Tax Ordinance, 1979. It was further urged that the turnover of the respondent is agency commission which is earned for services provided to the carriers for issuance of traffic documents .on behalf of the carriers. Reliance was placed on behalf of the respondent on C.B.R. Circulars No. 25 of 1980 and 11 of 1991. The learned C.I.T. (A) accepted the contentions raised on behalf of respondent and held that the travel agents are working on fixed commission basis and are receiving the payments on behalf of the carriers which is neither their money nor they are party of the traffic documents issued by them on behalf of the carriers. The learned C.I.T (A) further observed that keeping in view the facts. Central Board of Revenue had directed to deduct tax on commission which is earned by them and the principal has been clarified by Circular No. 11 of 1991. The learned C.I.T (A) ultimately gave finding that the turnover constitute only the agency commission which is earned by the travel agents and not the payments received by them on behalf of the carriers. The learned C.I.T (A) directed the assessing officer to levy turnover tax under section 80-D on commission income of the appellant.

5. Being aggrieved with the above finding the Department has preferred this second appeal.

6. I have heard Mr. Muhammad Nawaz, learned representative for the Department and Mr. Mazharuddin, Advocate for the respondent. The point for determination is as to what is the connotation of expression "turnover" as used in section 80-D with regard to a travel agent. Mr. Muhammad Nawaz, the learned D.R. has submitted that the expression "turnover" has been explained in subsection (2) of section 80-D as follows:

"Explanation.--For the removal of doubt it is declared that turnover means the gross receipts, exclusive of trade discount shown on invoices or bills derived from the sale of goods or from rendering, giving or supplying services or benefits or from execution of contracts."

He has submitted that the above explanation is very dear on the point that the expression "turnover" means the gross receipts and, therefore, whatever amount is received by a travel agent on sale of travel documents would be deemed to be turnover irrespective of the fact as to how much amount a travel agent is entitled to retain as commission and how much is to be passed on to the principal. On the other hand, Mr. Mazharuddin has fully supported the impugned finding of learned C.I.T (A). He has contended that the position in this regard has been clarified by the Central Board of Revenue in Circular No.25 of 1980 and subsequently in Circular No. 11 of 1991. He has drawn my attention to the following passage from Circular No. 25 of 1980.

"Under the present scheme the agents although working on fixed commission have to bear burden of entire tax on the payments received by them, which primarily, consist of payments received on behalf of their principals, furthermore such payments when remitted to the principles are once again subjected to deduction of tax at source thus involving deduction at two stages."

In order to eliminate this hardship it has been decided that the payers making payments to the following agents, who work on fixed commission basis but receive such payments on behalf of their principals a$ well, shall bifurcate, the payments between the agents and principals in the ratio mentioned against each of the aforesaid agents and deduct tax accordingly under intimation to the concerned parties:

Each recipient would in turn claim credit/refund in respect of its share deduction.

7. Mr. Mazharuddin has further placed reliance on Board's Circular No.11 of 1991. The relevant part whereof reads as follows:

"In case of travel agents and advertising agents the tax shall be deducted on the commission received by them and the instructions already issued vide Board Circular No.25 of 1980 dated September 23, 1980 shall remain valid."

8. Mr. Mazharuddin has thus contended that the C.B.R. has already clarified that for the purpose of deduction of tax at source the amount of commission received by travelling agents shall be deemed to be its receipt and not the total amount of sale received by it which is remitted to the principal. Mr. Mazharuddin has urged that the travel agent receives amount for issuance of travel documents on behalf of principal which is remitted to the principal after retaining the commission and as such the gross receipt of the travel agent is their agency commission and the remaining amount is the gross receipt of the principal and the travel agent merely serves as a post office.

9. I have carefully considered the contentions raised by the learned representatives for the parties and I am persuaded to agree with the submissions of Mr. Mazharuddin. While considering the connotation of expression turnover the entire section 80-D is to be read together and not mere explanation of subsection (2) as the learned D.R. has attempted to do. In explanation to subsection (2) the turnover has been defined to mean that gross receipts but the learned D.R. omitted the fact that these gross receipts should be derived by a company or registered firm from the sale of goods or from rendering, giving or supplying services or benefits or from exercising of contracts. In the case of a travel agent the gross receipt which is derived by it is the agency commission on supplying services on behalf of principal. The entire amount received on issuance of traffic documents is not derived by the travel agent. The turnover agent only derives agency commission and the remaining amount is passed on to the principal which is derived by the principal and not by the travel agent. In addition to the above reason it is provided in subsection (1) of section 80-D that where do tax is payable or paid by a company or a registered firm resident in Pakistan or the tax payable or paid is less than 1/2% of the amount representing its turnover (underlining is mine) from all sources the aggregate of the declared turnover shall be deemed to be income of the said company or a registered firm. Thus, subsection (1) of section 80-D speaks of its turnover and not mere turnover and, therefore, it is very important to keep in mind that the amount representing, "its turnover" would mean the amount which actually comes to the coffer of a travel agent and not the amount passed on to the principal which will represent the turnover of principal and not the agent. A perusal of section 80-D shows that subsection (1) thereof is a deeming provision whereby the amount representing turnover of a company or a registered firm has been deemed to be income and in subsection (2) the rate of tax has been prescribed. Thus first the income is to be deemed under subsection (1) and thereafter tax is to be levied on the rate prescribed in subsection (2). All the deeming provisions are to be applied strictly in accordance with the law as the deeming provisions are the fiction of law and all fictions of law are to be interpreted and applied strictly and the doubt if any is to be resolved in favour of assessee. Keeping this principal in view I am of the considered opinion that when the legislature has provided in subsection (1) of section 80-D that the amount representing its turnover from all sources shall be deemed to be the income of the company or registered firm, it should mean that the amount should represent the income actually received by the company as its own income and it shall not include any amount received on behalf of principal.

10. For the foregoing reasons it is held that the learned C.I.T.(A) rightly I came to the conclusion that purpose of levying tax under section 80-D of the income Tax Ordinance,1979, the turnover of a travel agent is to be taken as commission income only and not the entire payments received by the agents on behalf of principal/carriers. The impugned finding of learned C.I.T(A) is hereby maintained and the appeal at the instance of department stands dismissed.????

M.BA./25/T.T.

Appeal dismissed.