(a) Income 'fax Ordinance (XXXI of 1979)---

----Ss. 50(5) & 80-C (1)---Assessee a multinational company was operating a duty-free shop on the basis of licence agreement with the Civil Aviation

Authority---Under such agreement all goods purchased locally or imported from abroad were to be exempted from all duties, taxes and import levies-- Had the exemption not granted by the Authorities, the agreement could not have come into effect---Central Board of Revenue subsequently issued a notification exempting the goods from the provisions of withholding tax under S.50 (5) but making income-tax payable on .the income/profits of assessee---Assessing Officer made assessment under S.80-C and computed tax to be collected under S.50(5) on the basis of declared value of goods imported ---Assessment was set aside in appeal for de novo assessment proceedings under the normal provisions of law---Validity---Held, under the licence agreement the Civil Aviation Authority had undertaken to get from the Government of Pakistan exemption from all duties, taxes and import levies on all goods for the duty-free shop but there was no commitment under the agreement for any exemption from tax on income---Order of C.I.T. (A) was vacated and Assessing Officer's order was restored by the Tribunal.

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

----S.8---Central Board of Revenue---All persons working under the Central Board of Revenue are bound to comply with the notifications issued by the C.B.R.

(c) Words and phrases--

----"Import"---Meaning.

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

----S.50 (5)(b)---Clause (b) of subsection (5) of S.50 provides in absolute terms that tax under cl. (a) of subsection (5) of S.50 shall be collected in the same manner and at the same time as the Customs duty, as if such goods (even though exempt from such duty) were liable to such duty---Words "at the same time" used in cl. (b) of S.50 (5) refer to the time such goods are assessed under S.80 of the Ordinance before leave to deposit such goods in the licensed private warehouse is granted.

Amjad Jamshed, D.R. for Appellant.

A. Bilwani, F.C.A. for Respondent.

Date of hearing: 5th March, 1998.

ORDER

S. M. SIBTAIN (ACCOUNTANT MEMBER). ---The objections taken, in this appeal, on behalf of the Department, to the order of the learned C.I.T.(A) are for holding that on the basis of the clarification issued by the C.B.R. vide Letters C. No.6(20)-CB/88, dated 29-7-1992 and C. No. IT JI-1 (8)/84, dated 29-7-1992 the "purchases" of the respondent would not be considered imports based on which the collection of tax under section 50(5), on the bringing goods into Pakistan, has been waived; that provisions of section 80-C, therefore, are inapplicable to the respondent's case; that the impugned assessments for the assessment years 1993-94, 1994-95 and 1995-96, consequently, are to be set aside; and that the incomes of the respondent for each of the assessment years (supra) are to be assessed under the normal provisions of law. We have heard Mr. Amjad Jamshed, the learned Representative of the Department and Mr. A. Bilwani, the learned A.R. of the respondent. Briefly, the facts are that the respondent is a multinational Company, incorporated in Pakistan as a Private Ltd. Liability Company. It is operating a Duty Free Shop at the Quid-e-Azam International Airport, Karachi on the basis of a "Licence Agreement" between the Civil Aviation Authority and the respondent, dated July 25, 1992 and a Private Warehouse License issued by the Collector of Custom under section 13 of the Customs Act (IV of 1969) for storage of internationally brand duty free products without payment of duty on the first importation thereof subject to the conditions specified therein. The agreement, inter alia, provides:

"Whereas the licensee has applied to the licensor for grant of the sole and exclusive licence to establish and run Duty Free Shops at the existing Jinnah Terminal Complex, Quaid-e-Azam Inter-national Airport, Karachi, P4kistan (hereinafter called the 'Premises' and more specifically described hereinafter) on yearly licence fee amounting to US $ One Million, during the period of licence, plus 5% (Five Per cent.) increase annually after the initial 3 (three) years. In addition the licensee shall pay to the licensor the following percentage of annual gross turnover gross sales) on monthly basis---

to First US $ 35 Million per annum- 3.2% per annum

Next US $ 15 Million per annum - 4.2% p.a.

Next US $ 10 Million per annum - 6.2% p.a.

Over US $ 60 Million per annum - 8.2% p.a.

'Licensee shall have the status of an independent contractor and shall not be considered to be a servant or agent of the licensor.'

'The Licensee shall have the sole and exclusive rights to sell advertisement sites within the premises and the proceeds of such sale shall be considered part of the gross turnover.'

'Part of the business may be sub-let under licensee's own arrangement to another party but the licensee shall remain solely and unreservedly responsible for discharging all the obligations under this Agreement, as if he were the sole-licensee."

Payment of taxes etc.

26(a). All goods for the Duty Free Shops at the Premises whether procured locally or imported from abroad shall be purchased by the licensee in Foreign Currency from a Foreign Currency Account maintained by the licensee in Pakistan. These goods will be exempted from all duties, taxes and import levies.

(b) It is clearly understood by the parties that if the exemptions mentioned in clause (a) are not granted by the authorities concerned, work under this Agreement shall not commence and this Agreement shall not into effect and be rendered null and void without any obligation on either party.

APPENDIX-D

12(C).---The licensor shall assist the licensee in all its dealings with the Pakistan Customs Authorities, as and when required.

13.The licensee shall have the exclusive right to sell the duty and tax free items at the Jinnah Terminal Complex, that is to say that no other shop will be allowed to sell the duty and tax free items at the Complex. "

The Aviation Division of the Ministry of Defence, vide Letter AVI. DIV. A.P. No.3418/JSA-II/92, dated 19-7-1992, circulated to Ministry of Commerce, Secretary, Revenue Division/Chairman, C.B.R. C. S., Government of Sindh and Chairman, K.P.T. has forwarded the request of the licensee for various Government exemptions and permissions required to proceed with the establishment of Duty Free Shops with the request that the same may be dealt with on top priority.

The Ministry of Commerce, responding to respondent's application dated 26-7-1992 for exemption of Import License/Import Permit Fee for goods to be brought into Pakistan for setting up the Duty Free Shop has informed the respondent vide Letter No.1(2)/92-Imp.IV, dated 30-7-1992 that in view of the provisions of the License Agreement and as advised by Aviation Division (supra) that the Ministry of Commerce is not further involved and as such has nothing to add.

The C.B.R. vide C. No C-No. (20) CB/88, dated 29-7-1992 has advised the Collectors of Customs (Preventive)/(Appraisment) Karachi to issue the licence and allow the clearance of all goods/fixtures imported for the Duty Free Shops without duties, taxes, import levies and warehousing fee/surcharge, on the one hand and vide C. No. ITJI-:(8)/84 of even date, on the other hand, has written to the respondent.

"I am directed to refer to your letter dated 28th July, 1992 on the above subject and to say that since statedly the goods are not being technically imported into Pakistan and are being placed only in the Bonded area the provisions of withholding under section 50(5) will obviously not apply as is the existing practice in case of goods placed in the Bonds. Income-tax will, however, be payable on the income/profits earned during the year.

(Sd.)

For (MUHAMMAD MAJID QURESHI),

Second Secretary.

5. Returns of income based on audited accounts, the statements whereof are enclosed therewith, have been filed declaring net losses of Rs.11,808,997, Rs. 68,768,889 and Rs.94,730,513 as on 31-12-1992, 31-12-1993 and 31-12-1994 respectively. The last return has been revised in pursuance of amendment made by Finance Act, 1995 in the definition of income Year under section 2(26) requiring every assessee to adopt the financial year next preceding the assessment year. Thus the revised return for the assessment year 1995-96 has been filed for the period commencing January 1, 1994 and ending June 30, 1995, declaring loss of Rs.127,108,651.

6. Sales have been declared at Rs.72,074,125, Rs.157,345,872 and Rs.176,181,645 for the three respective assessment years and tax under section 80-D @ 0.5 % of the declared sales amounting to Rs.109,773, Rs.1,068,613 and Rs.1,329,475 has been paid under section 54 for each of the three respective assessment years. Besides, exchange gain of Rs.423,884 is declared in the assessment years 1993-94, Rs.1,69.359 in 1994-95 and Rs.3,504,754 in 1995-96.

7. Thus, when the learned D.C.I.T. during the course of assessment proceedings, has asked the respondent to explain (1) why tax has not been collected under subsection (5) of section 50 by the Collector of Customs, computed on the basis of value of the goods imported by it, as increased by the customs duty and sales, if any leviable thereon, at the rate specified to the First Schedule and (2) why it has filed returns of income under section 55 instead of filing statements under section 143-B because the amount as computed for the purposes of collection of tax under subsection (5) of section 50 in respect of goods imported by it, not being goods imported by an industrial undertaking as raw material for its own consumption, is deemed to be respondent's income as it is deemed to accrue or arise to it under subsection (I) of section 80-C, the respondent has submitted:---

"That 'purchases' of the assessee, as per directions of the C.B.R. (ibid) are not imports;

That, the Bill of Entry is for bonded area

That Custom duty and other import levies are payable by the customers of the assessee;

That purchases of the assessee from domestic suppliers are treated as exports by the vendors; and

That, therefore, there is no amount which can be said (deemed) to have arisen which attracts collection of tax under subsection (5) of section 50 which, in turn, can attract provisions of subsection (1) of section 80-C of the Income Tax Ordinance, 1979."

8. The learned D.C.I.T., however, has held that the respondent is a commercial importer; hence liable to tax under section 80-C of the Income Tax Ordinance. The plea taken on behalf of the respondent supra has been found unconvincing by the learned D.C.I.T. He, therefore, has computed tax to be collected under subsection (5) of section 50 on the basis of the declared value of goods imported, for each of the three assessment years besides subjecting other income, after allowing overhead expenses on pro rata basis, at normal rate.

9. The assessment orders supra have been impugned in appeals instituted before the learned C.I.T. (A) who has held: ---

"Considering the facts and circumstances of the case; and giving due consideration to the submissions of A/R I observe that the letter Nos. C. No. 6(20)-CB/88, dated 29-7-1992 and C. No. ITJI-1 (8), dated 29-7-1992 issued by C.B.R. clarify the status of the purchases, of the appellant, in that these would not be considered imports based on which the collection of tax under section 50(5) on bringing goods in the territorial boundaries of Pakistan has been waived. Since it has been accepted that purchases of the appellant t are not imports under this particular situation, therefore, these purchases would not attract the mischief of the provisions of section 80-C of the Ordinance. The-assessments are accordingly set aside for de novo proceedings and the learned D.C.I.T. is directed to assess the income of the appellant under the normal provisions of law.

10. Mr. Amjad Jamshed the learned representative of the Department has submitted that neither the Collector of Customs nor the learned C.I.T. (A) is expected, under the law, to entertain a letter purported to be issued on the authority of the C.B.R. but signed by someone for a Second Secretary of the C.B.R., addressed to the respondent.

11. Mr. Amjad Jamshed the learned D.R. has submitted that the provisions of subsection (5) of section 50 are attracted by each importer of goods, on the basis of the value of imported good determined in accordance with law, irrespective of the fact that any custom duty and sales tax thereon are leviable/levied or not. He has submitted that in the instant case the letters of credit are opened by the respondent; goods have arrived in "customs area" in its name; Bills of Entry thereof have been delivered on behalf of the respondent to the appropriate officer and goods have been examined and assessed to duty and the respondent as owner of such goods, has proceeded, through an application, to clear the same to warehouse them by executing the necessary bond, where the respondent is showing the goods for sale without payment of duty, for use on board any convenyance proceeding to a foreign territory or to the incoming passengers entitled under the Baggage Rules to carry such goods for home consumption duty free.

12. The learned D.R. has submitted that a reference to the provision of subsection (5) of section 50 is appropriate at this juncture: ---

Subsection (5) of section 50:

"Notwithstanding anything contained in any law for the time being in force---

(a) the Collector of Customs shall, in the case of every importer of goods, collect advance tax computed, on the basis of the value of such goods as increased by the customs duty and sales-tax, if any, leviable thereon, at the rates specified in the First Schedule, and credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by such importer for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, in which the said date', as referred to therein, falls, whichever is the later;

(b) the tax under clause (a) shall be collected in the same manner and at the same time as the customs duty, as if such goods (even though exempt from such duty) were liable to such duty, and all the provisions of the Customs Act, 1969 (IV of 1969) shall, so far as may be, apply accordingly:

Provided that nothing contained in clause (a) or clause (b) shall apply to any goods or class of goods or persons or class of persons importing such goods or class of goods as may be specified in this behalf by the Central Board of Revenue by notification in the official Gazette.

Explanation.---As used in this subsection,---

(i) 'Value', in relation to any goods, means the value as determined under section 25 of the Customs Act, 1969 (IV of 1969), as if the goods were subject to ad valorem duty; and

(ii) 'Collector of Customs' means a person appointed as Collector of Customs under section 3 of the Customs Act, 1969 (IV of 1969) and includes a Deputy Collector of Customs, an Assistant Collector of Customs or an officer of Customs appointed as such under the aforesaid section. "

13. Further, he has submitted that the goods or class of goods or persons or class of persons have been specified by the C.B.R. in exercise of its power under the proviso (ibid) by Notification NO.S.R.O.593 (I)/91, dated June 30, 1991 in the official Gazette but the respondent does not fall into any of' the clauses from (i) to (viii) specified therein.

14. The learned counsel of the respondent is supporting the impugned order of the learned C.I.T.(A) by placing reliance upon the letters of the Aviation Divisions and C.B.R. (ibid.). He has submitted that "as per section 8 of Income Tax Ordinance, 1979 all C.B.R. Notifications are binding on all persons working under the Central Board of Revenue.

15. Regarding the reference made to the case N4/s. Duty Free Shops Ltd. by the learned D.R., Mr. Bilawani has submitted that tax is being collected from them under section 50(5) because they are not granted exemption by the C.B.R., which is granted to the respondent by the C.B.R. under agreement with Ministry of Defence.

16. We have given our careful consideration to the facts and circumstances of the case (supra). We find that under sub-paragraph (a) of paragraph 26 of the "Licence Agreement" the Civil Aviation Authority has undertaken to get from the Government of Pakistan exemption from all duties, taxes and import levies on all goods for the duty free shops but there is no commitment under the Agreement for any exemption from taxes on the Income of Messrs Aer Rianta International Pakistan (Pvt.) Ltd. We, therefore, find that the Federal Government has neither added any clause to the Second Schedule to exempt respondent's income from charge of tax under the Ordinance nor the C.B.R. has specified either the goods purchased by the respondent on the respondent itself under proviso to subsection (5) of section 50 to exclude either of .the two from the application of the provisions of clause (a) and clause (b) of subsection (5) of section 50 by Notification under the official gazetter. We, therefore, find no substance in the submissions of Mr. Bilwani that the C.B.R. has granted exemption from applications of the provisions of clause (a) and clause (b) of subsection (5) of section 50 to the respondent in pursuance of the agreement with Ministry of Defence (The Civil Aviation Division) and that the C.B.R. Notification is binding on all persons working under the Central Board of Revenue. The C.B.R. C. No.ITJI-1/(8)/84, dated 29-7-1992, addressed to the respondent, in our view, is an interpretation of law on the subject having no binding force because it is not even endorsed to any official working under the Central Board of Revenue.

17. We, therefore, have given careful consideration to the view expressed in the C.B.R. letter ibid (paragraph supra). We find that the Second Secretary, C.B.R. has been directed to say that since the respondent in its letter, dated July 28, 1992 has stated that the goods purchased for duty free shop" are not being technically imported into Pakistan and are being placed only in the Bonded area" the provisions of withholding under section 50(5) will obviously not apply as is the existing practice in case of goods placed in the Bonds". Thus, whatever the Second Secretary has been directed to say by the C.B.R. is strictly on the basis of the facts of the case stated by the respondent itself and the onus to prove the stated facts, with documentary evidence required under the law, is to be discharged by the assessee/respondent.

18. We, therefore, shall have to consider and determine the validity of the facts stated by the respondent before the C.B.R. First we have to find what is "the Bonded Area" and how are the goods placed therein?

19. We have already noted supra that the respondent is operating the Duty Free Shop at the Quaid-e-Azam Airport, Karachi under a Private Warehouse Licence issued by the Collector of Custom under section 13 of the Customs Act (IV of 1969). The space leased out by the Civil Aviation Authority to the respondent in pursuance of "Licence Agreement, called in the private Warehouse License the godown being the property of the respondent, has been licensed as the Private Bonded Warehouse for the storage of Internationally brand duty free products without payment of duty on the first importation thereof. The licence is renewable every year subject to the condition specified therein. Thus, we find that the "Bonded Area" referred to in the letter (supra) is the warehouse licensed under section 13 of the Customs Act, 1969 for the storage of goods without payment of duty on the first importation.

20. The normal course of storage of the imported goods in the licensed warehouse, under the Customs Act, is provided under sections 75, 79, 80, 84 and 85 that read as under:

"75. Imported goods not to be unloaded unless entered in the import manifest:

(1) No imported goods required to be shown in the import manifest shall, except with the permission of the appropriate officer, be unloaded from any conveyance at any customs-station unless they are specified in the import manifest or amended or supplementary import manifest for being unloaded at the customs station.

(2) Nothing in this section shall apply to the unloading ofbaggage accompanying a passenger or a member of, a crew or mail bags.

(3) Entry for home-consumption or warehousing.---(1) The owner of any imported goods shall make .entry of such goods for home- consumption or warehousing or for any other approved purpose by delivering to the appropriate officer a bill of entry thereof in such form and manner and containing such particulars as the board may direct."

80. Assessment of duty.---(1) On the delivery of such bill the goods or such part thereof as may be necessary may, without undue delay, be examined or tested, and thereafter the goods shall be assessed to duty, if any, and the owner of such goods may then proceed to clear the same for home-consumption or warehouse them subject to the -provisions hereinafter contained.

84. Application to warehouse. ---When any dutiable goods have been entered for warehousing and assessed under section 80, the owner of such goods may apply for leave to deposit the same in any warehouse appointed or licensed under this Act.

85. Form of application. ---Every such application shall be in writing signed by the applicant, and shall be in such form as may be prescribed by the Board.

21. Section 86 of the Customs Act reproduced hereunder reveals why it is called Bonded-Area or Bonded-Warehouse: ---

86.Warehousing bond. ---(1) When any such application has been made in respect of any goods, the owner of the goods to which it relates shall execute a bond, binding himself in penalty to twice the amount of the duty assessed under section 80 or section 81 or reassessed under section 109 on such goods---

(a) to observe all the provisions of this Act and the rules in respect of goods;

(b) to pay on or before a date specified in a notice of demand all duties, rent and charges payable, in respect of goods together with surcharge on the same from the date so specified at the rate of two per cent per month or such other rate as is for the time being fixed by the Board; and

(c) to discharge all penalties incurred for violation of the provisions of this Act and the rules in respect of such goods.

(2) Every such bond shall be in such form as is from time to time prescribed by the Board, and shall relate to the goods or portion of the goods of one conveyance only.

(3) Notwithstanding anything in subsection (2) for the purposes of subsection (1), the Collector of Customs may permit any importer to enter into a general bond in such amount and subject to such conditions, limitations or restrictions as the Collector of Customs may determine in respect of the warehousing of goods to be imported by such importer within a specified period.

(4) A bond executed under this section by an importer in respect of any goods shall continue in force notwithstanding the transfer of the goods to any other person or to the removal of the goods to another warehouse or warehousing station:

Provided that, where the whole of the goods or any part thereof are transferred to another person, the appropriate officer may accept a fresh bond from the transferee in a sum equal to twice the amount of duty assessed on the goods transferred and thereupon the bond executed by the transfer shall be deemed to be discharged to the extent to which the fresh bond has been executed by the transferee."

22.Sections 87 to 119 deal with forwarding of goods to warehouse, receipt of goods at warehouse, warehousing rules and procedures and clearance of goods out of warehouse etc. Sections 97 and 107 being relevant to the impugned issue are also reproduced hereunder: ---

"97. Goods not to be taken out of washhouse except as provided by this Act.---No warehoused goods shall be taken out of any warehouse, except to clearance for home-consumption or export, or for removal to another warehouse, or as otherwise provided in this Act.

107 Application for clearance of goods.---An application to clear goods from any warehouse for home-consumption or for export shall be made in such form as the Board may prescribe.

(2) Such application shall ordinarily be male to the appropriate officer at least twenty-four hours before it is intended to clear such goods."

23. The term "Import" has not been defined in the Customs Act (IV of 1969). However, on a reference to the standard dictionaries of the English language as well as the Dictionaries of Law and Law Lexicons alongwith the provisions of the Customs Act (IV of 1969), we find that in the context of Customs law "Import" with its grammatical variations and cognate expression, means bringing into the country merchandise from abroad. Thus, any goods brought into Pakistan from any place outside Pakistan are imported goods and the person who owns such goods is the importer. They cease to be 'imported goods' only on clearance for home consumption.

24. Admittedly the respondent has brought goods from abroad into Pakistan and has made entry of such goods for warehousing, and ultimate sale, by delivering to the appropriate officer a bill of entry thereof in the prescribed form. The respondent, admittedly, has applied for leave to deposit the same in its licensed Private Warehouse, after such goods are assessed under section 80 of the Customs Act and a bond is executed by the owner/respondent under section 86 of the Act.

25. Thus, it is evident beyond any doubt from the unambiguous language employed in the prescribed "Private Warehouse License" as well as in sections 75 and 79 of the Customs Act that the goods cleared for storage in the Bonded Warehouse are nothing but imported goods and the respondent is the importer. The fact that the domestically produced good purchased by the respondent for a storage and sale in its Licensed Private Warehouse are treated as exports of the vendors is a special concession to enable the respondent to purchase such goods at a price exclusive of excise duty and sales tax.

26. We have asked the learned counsel of the respondent to produce before us any basis for the statement made in its letter, dated 28-7-1992 addressed to the Central Board of Revenue that such goods "are not being technically imported into Pakistan but the only basis he has been able to submit before us is the reply of C.B.R. Vide C. No.ITJI-1(8)/84, dated 29-7-1992 (supra). We further find that no evidence has been submitted at any stage of proceedings under the Income Tax Ordinance, on behalf of the respondent, in support of the stated position vide its letter to C.B.R. dated 28-7-1992 (supra). On the contrary respondent's own contention, reproduced in the C.B.R. letter (supra), has been presented all along to mislead the Collector Customs so as to escape the application of clauses (a) and (b) of subsection (5) of section 50 of the Income Tax Ordinance.

27. We find that clause (b) of subsection (5) of section 50 provides in absolutely unambiguous terms that tax under clause (a) of subsection (5) of section 50 shall be collected in the same manner and at the same time as the customs duty, as if such goods (even though exempt from such duty) were liable to such duty. The words "at the same time" used in clause (b) (ibid) refer to the time such goods are assessed under section 80 of the Act, before leave to deposit such goods in the licensed private warehouse is granted.

28. Thus, on the foregoing facts and circumstances we find no basis in lave for the learned C.IT. (A) to hold "that the Letter Nos. C. No.6(20) CB/88, dated 29 i r992 and C. No. ITJI-1 (8), dated 29-7-1992 issued by C.B.R. clarify the status of the purchases, of the appellant, in that these would not be considered imports based on which the collection of tax under section 50(5) on bringing goods in the territorial boundaries of Pakistan has been waived. Since it has been accepted that purchases of the appellant are not imports under this particular situation, therefore, these purchases would not attract the mischief of the provisions of section 80-C of the Ordinance. The assessments are accordingly set aside for de novo proceedings and the learned D.C.I.T. is directed to assess the income of the appellant under the normal provisions of law".

29. Accordingly, the impugned orders of the learned C.I.T.A (A) are hereby vacated and the assessment orders for each of the three assessment years under instant appeals are restored and the appeals are allowed.

M.B.A./540/Trib. Appeals allowed.