I. T. A. NO. 1993/KB OF 1997-98, DECIDED ON 21ST OCTOBER, 1998. VS I. T. A. NO. 1993/KB OF 1997-98, DECIDED ON 21ST OCTOBER, 1998.
1999 P T D (Trib.) 726
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqui, Chairman and Muhammad Mahboob Alam, Accountant Member
I. T. A. No. 1993/KB of 1997-98, decided on 21/10/1998.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.80-A---Air transport business of non-residents---"Principal"-- Connotation---Person receiving amount for carriage of passengers, livestock, mail or goods from any place in Pakistan for being carried on by the aircrafts of which he is not owner or charterer shall not be deemed a principal.
(b) Income Tax Ordinance (XXXI of 1979)--
----S.80-A(1-A)---Air transport business of non-residents---"Receipts" Definition of---Amount shown in Form F.P. for submission to State Bank of Pakistan was not to be taken as receipts defined in subsection (1-A) of S.80-A of the Income Tax Ordinance, 1979 for the purpose of treating the same as deemed income under subsection (1) of S.80-A.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.80-A(1-A)---Circular No.26 of 1980, dated 12-10-1980---Air Transport business of non-residents ---Assessee a non-resident running business of an air line---Assessee was an OFF LINE airline---Net receipts were declared by the assessee after deducting the amounts paid to various other link carrying airlines on account of transportation charges for carriage of passengers, livestock, mail or goods in their aircrafts from the airports in Pakistan to the air ports outside Pakistan under multi-lateral agreement with International Air Traffic Agency (IATA)---Assessing Officer charged tax on gross receipts as declared in F.P. Form/Statement submitted to the State Bank of Pakistan---First Appellate Authority confirmed the order of the Assessing Officer---Validity---Appeal was allowed by the Appellate Tribunal on the ground that the assessee was required to pay tax on its actual share received on account of carriage of passengers, livestock, mail or goods out of the total receipts and remaining amount paid to the carrying airlines on account of transportation charges for carriage of passengers, livestock, mail or goods by the assessee was to be subjected to tax in the hands of carrying airlines in accordance with law.
Salman Pasha for Appellant.
Ansar Ahmed, D. R. for Respondent.
Date of hearing: 20th October, 1998.
ORDER
MUHAMMAD MUJIBULLAH SIDDIQUI (CHAIRMAN). ---This appeal is directed against the order, dated 29-4-1998 by the learned CIT(A) Zone-V, Karachi in ITA No. 165/V relating to the assessment year 1997-98.
2. Heard Mr. Salman Pasha, learned counsel for the appellant and Mr. Ansar Ahmed, learned representative for the department.
3. The grievance of the appellant a non-resident Airline, is that the learned two officers below were not justified in subjecting to tax, the gross receipts at Rs.15,88,73,796 under section 80-A of the Income Tax Ordinance, 1979 instead of charging tax, against the net declared receipts at Rs.8,93,15,645.
4. Briefly stated that the relevant facts are that the appellant in F.P. Form/statement declared revenue receipts at Rs.15,88,75,799 while in the four quarterly returns the receipts were declared at Rs.8,93,15,645. The assessee was called upon to explain the discrepancy and the explanation was furnished as follows:---
"In the quarterly returns, only the net receipts, after deduction of payments made to other Airline as per interline billings, were offered to tax under section 80-A. Therefore, the difference in receipts, namely those as per F.P. Forms and those as per the quarterly returns, in an account of other Airline's share, which has been deducted in quarterly returns as Cathay Pacific Airways is not liable to pay 3% tax on account of other airlines."
5. The assessing officer observed that the contention was not acceptable for the reason that interline billing has not been authenticated by IATA and, therefore, it is not acceptable. He further referred to provision contained in section 80-A of the Income Tax Ordinance, 1979 which reads as follows: ---
"80-A. Air transport business of non residents.---(1) Notwithstanding anything contained in this Ordinance, where a non -resident person carries on the business of operation of aircrafts, as the owner or charterer thereof (hereafter in this section referred to as the 'principal'), the aggregate of the receipts specified in sub section (I-A) shall be deemed to be income received in Pakistan by the principal from the said business chargeable to tax under the head 'Income from business or profession' and tax thereon shall be charged at the rate of three per cent. of such income.
(1-A) The receipts, referred to in subsection (1), shall be the following namely:---
(a) the amount paid or payable (whether in or out of Pakistan) to the principal or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods loaded from any place in Pakistan; and
(b) the amount received or deemed to be received in Pakistan by or on behalf of the principal account of the carriage of passengers, livestock, mail or goods from any place outside Pakistan. "
6. The assessing officer further observed that the tax was to be levied on aggregate amount submitted to the State Bank of Pakistan. It was further held that the returns prescribed vide CBR Circular No.26 of 1980 also does not give any indication of subtracting any amount of the receipts from the aggregate. The assessing officer was further of the view that under section 80-A(5) no expenses are to be allowed and the interline billing is not even an expense of the assessee, nor it carries any authentication, therefore, the income was to be assessed on the basis of receipts submitted vide F.P. Forms to the State Bank of Pakistan. The assessment was completed accordingly.
7. Being aggrieved the appellant preferred first appeal contending that the appellant was an 'OFF LINE' Airline as it does not touch any port in Pakistan. It was urged that the appellant was to be taxed on the net amount actually received and paid to its principal and not on the gross receipts shown in the F.P. Forms statement because out of the gross receipts the portion of fares which were payable to other link airlines were not the receipts of appellant. The learned CIT(A) did not accept the contention by placing reliance on his own decision in the case of another airline. The learned CIT(A) further referred to a decision of this Tribunal, dated 8-10-1991 in ITA No.15/HQ of 1991-92 wherein it was directed that the assessee was required to supply all the necessary details to the assessing officer regarding the alleged payment made by it to the other airlines. It was further directed that the assessee should produce certificates from the International Air Traffic Agency (IATA) regarding payment to the various airlines. According to learned CIT(A) since the aforementioned documents/details were not furnished to the assessing officer, therefore, no interference was warranted. The appeal was dismissed accordingly.
8. Being still dissatisfied the appellant has preferred this second appeal before us.
9. Mr. Salman Pasha, learned counsel for the appellant has contended before us that the appellant is an 'OFF LINE' Airline in Pakistan. He has further explained the working of appellant in Pakistan. According to Mr. Pasha the appellant is working in Pakistan through GSA by whom tickets are issued in Pakistan for International Traffic. The appellant receives entire passage money for the International. Traffic Form airports in Pakistan to final destiny of passengers. However, the appellant being 'OFF LINE' Airline, meaning that none of its aircrafts touches any port in Pakistan as certified by Civil Aviation Authority, the passengers have to travel on the aircrafts of the link airlines from the airports in Pakistan to the airports from where the service of appellant's aircrafts is available. The airlines in whose aircrafts passengers travelled from the ports in Pakistan to the other ports outside Pakistan from where appellant's own service is available are PIA, Air France, Thai Airways, Air Lanka, Indian Airlines and Philpine Airline. Likewise on return journey the passengers travelled from the specified airports to Pakistan in the aircrafts of the above airlines. The appellant out of the total receipts makes payment to the link airlines on account of travel of passengers in their aircrafts from the airports in Pakistan to the airports outside Pakistan. For this purpose there is provision in the IATA Rules which are contained in IATA Passenger Service Conference Resolutions Manual. The relevant rules are as follows:---
"Article 8.---Interline Billing and Settlement.
8.1. PAYMENT OF TRANSPORTATION CHARGES
Each issuing airline agrees to pay to each carrying air line the transportation charges applicable to the transportation performed by such carrying airline and any additional transportation or non -transportation charges collected by the issuing airline for the payment of which the carrying airline is responsible, in accordance with applicable regulations and current clearance procedures of the IATA Clearing House, unless otherwise agreed by the issuing airline and the carrying airline.
8.2. BILLING AND SETTLEMENT
8.2.1.,Billing of amounts payable pursuant to the Agreement shall be in accordance with the rules contained in the IATA Revenue Accounting Manual as amended from time to time.
8.2.2. Unless otherwise agreed settlements of amounts payable pursuant to this Agreement between parties that are members of the IATA Clearing House shall be in accordance with the Manual of Regulations and Procedures of the IA'TA Clearing House.
8.2.3. Except as may otherwise be provided in other agreements, rules or regulations, the right to payment hereunder arises at the time such services are rendered by a party hereto or its agent.
8.2.4. Except as provided in 8.2.5, settlements of transactions arising-under the terms of this Agreement involving one or more parties that are not members of the IATA Clearing House shall be in accordance with the following procedures.
8.2.4.1. Settlements shall be made monthly.
8.2.4.2. Each party shall issue a monthly statement of Invoice and credit notes rendered by, it. The monthly statements shall be dispatched promptly put in any case not later than the 30th day of the month following that of the billing month, e.g. for billing month January, not later than the last day of February.
8.2.4.3. Settlement shall be effected promptly after the monthly statements are exchanged by offset of balances and cash payment of the net balance in the national currency of the net creditor.
8.2.5. Parties may expressly agree to settle transactions in a manner other than the procedure described in 8.2.4.1. - 8.2.4.3. "
10. He has further explained that in accordance with the above rules, on 24th of each month all such tickets are tabulated by all the concerned carriers accounting department and submitted to the IATA Clearing House in Montreal, alongwith the value of that sector of issuing airline tickets which is due to carrying airline of the carriage of passengers. 'The carrying airline submits its claim to the Clearing House against all those members whose tickets have been used by the carrying airline. The clearing house then valuates the amount for that month which the issuing airline (in this case Cathay Pacific) owes to the clearing house. The amount as valuated is then paid by the issuing airline to the clearing house for onward settlement to various carrying airlines as their share for uplifting issuing airline passengers. There are no individual agreement, between the issuing airline and carrying airlines, but all of them are members of Multi-lateral agreement with IATA which is binding on all members airlines.
11. Mr. Salman Pasha has thus, explained that in accordance with the above rules and procedure the issuing airline makes payment to the carrying airlines which is called interline billing and settlement. In the case of appellant out of total receipts for the tickets issued by the appellant in Pakistan for International Traffic at Rs.15,88,75,799 an amount .of Rs.6,95,60,154 has been paid to the carrying airlines. It means that the appellant has received an amount of Rs.8,93,15,645 on account of carriage of passengers in the aircrafts owned by the appellant while the amount of Rs.6,95,60,154 has been paid to the carrying airlines for carriage of passengers in their aircrafts. Mr. Salman Pasha has produced details of the tickets issued by the appellant airline on which passengers have been up lifted from Pakistan by the carrying airlines. He has submitted that in accordance with the above procedure the total amount of Rs.15,88,75,799 received by the agent of appellant airline in the capacity of issuing airline has been bifurcated in the receipts retained by the appellant on account of carrying passengers in its own aircrafts which is to the tune of Rs.8,93,15,645 and the remaining amount of Rs.6,95,60,154 has been paid to the other carrying airlines on account of carriage of passengers by the said airline from the airports in Pakistan to the airports outside Pakistan, from where appellant's own service is available. Thus, the actual receipts of the appellant is Rs.8,93,15,645 which is liable to be subjected to tax under section 80-A of the Income Tax Ordinance, 1979 and the remaining amount of Rs.6,95,60,154 has been passed on to the other carrying airlines and form part of their receipts which can be subjected to tax in the hands of respective carrying airlines in accordance with the law prevailing for the time being in force. He has further submitted that so far the statement submitted to the State Bank of Pakistan in F.P. Forms referred to by the assessing officer is concerned it is not relevant for the purpose of levy of income-tax. The information in Form F.P. is to be furnished to the State Bank of Pakistan on monthly basis indicating monthly collection by the airlines on account of passage and freight, further indicating disbursement made in Pakistan and net amount applied for remittance outside Pakistan. He has explained that after disbursement made locally the remaining amount is to be remitted outside Pakistan with the permission of State Bank of Pakistan because the Head Office of the appellant airline is outside Pakistan and in accordance with the interline billing system the settlement between the issuing airline and carrying airlines is to be made through clearing house of IATA situated at Montreal and, therefore, the payment is to be made first to the IATA through which the amount is ultimately paid to the carrying airlines. In support of his contention Mr. Salman Pasha has produced a letter from Manager, Interline Revenue, PIA confirming that PIA and Cathay Pacific Airways are both members of IATA Clearing House and' PIA settles all billings on coupons uplifted by PIA through IATA Clearing House. It has been further confirmed that nothing was outstanding against Cathay Pacific Airways as on 30-6-1997, as per their interline record.
12. Mr. Salman Pasha has further submitted that the learned two officers below have not fully appreciated the above facts and have failed to appreciate the facts that the amount of Rs.6,95,60,154 has been passed on to other airlines which form part of their receipts, therefore, tax if any on the said amount is to be levied in their hands. He has further submitted that the PIA has certified that they have received passage money from the appellant's airline for uplifting appellant passengers in PIA flights and thus, according to Mr. Pasha such amount shall form part of receipts of PIA and is liable to be taxed in the hands of PIA. If the amount of Rs.1,07,78,311 passed on to the PIA through interline billing system for the period from July, 1996 to June, 1907 is taxed in the hands of PIA and the same amounttaxed in the hands of appellant also it would be a case of double taxation of the same amount. He has, therefore, submitted that the orders of the learned two officers below may be modified and it may be held that the appellant is liable for payment of tax on its actual share out of the total receipts, which comes to Rs.8,93,15,645.
13. On the other hand the learned DR has supported the orders of the learned two officers below. He has submitted that the non-resident airlines are to be taxed in accordance with the provisions contained in section 80-A, which provides that the aggregate of the receipts specified in subsection (1-A) of section 80-A shall be deemed to be income received in Pakistan by principal from the said business chargeable to tax, which means that the entire receipts of the appellant a non-resident airline is to be taxed in its hands irrespective of the fact whether any amount out .of it has been transferred to any other airline or not.
14. We have carefully considered the contentions raised by the learned representative for the parties. We are persuaded to agree with the contention of learned counsel for the appellant. On a careful reading of section 80-A and the facts which are not denied by the learned representative for the department we are of the opinion that the law hob not been appreciated and applied correctly. The facts which have not been denied are that the appellant is 'OFF LINE' Airline, meaning thereby that the aircrafts operated by the appellant as its owner and charterer do not touch any airport in Pakistan. Under the IATA Rules the appellant company issues tickets to the passengers for travelling from the airports in Pakistan to the airports of the destiny outside Pakistan under the interline billing arrangements in accordance with the IATA Rules. The PIA and other airlines (hereinafter referred to as the carrying airlines) uplift the passengers from the airports in Pakistan to the airports from where service of the appellant aircrafts is available and the transportation charges for carrying such passengers are paid by the appellant as issuing airline to the carrying airlines out of the charges collected by the issuing airline. The transportation charges which are paid by the appellant (issuing airline) to the carrying airlines pertain to the carriage of passengers in the aircrafts operated by carrying airlines. The remaining transportation charges are retained by the appellant (issuing airline) for carriage of passengers in its own aircrafts. A careful reading of section 80-A shows that according to the provisions contained in subsection (1) where a non-resident person carries on the business of operation of aircrafts, as the owner or charterer thereof, he shall be referred as the principal and aggregate of the receipts specified in subsection (1-A) shall be deemed to be income received in Pakistan by the principal from said business. Such income shall be chargeable to tax at the rate of 3%. Clause (a) of subsection (1-A) contains that the amount paid or payable whether in or out of Pakistan to the principal or to any person on his behalf on account of carriage of passengers, livestock, mail or goods loaded from in place in Pakistan and according to clause (b) of subsection (1-A) the amount received or deemed to be received in Pakistan by or on behalf of the principal on account of the carriage of passengers, livestock, mail or goods from any place outside Pakistan shall be treated as receipts for the purpose of subsection (1) of section 80-A. A combined reading of these provisions makes it clear that the amount paid or payable, received or deemed to be received by the principal is to be treated as receipts, and the principal has been defined to be non-resident person carrying on the business of operation of aircrafts as owner and charterer thereof. Thus, if any amount is received for carriage of passengers, livestock, mail or goods from any place in Pakistan by any person for being carried by the aircrafts of which that person is not owner or charterer he shall not be deemed a principal and, therefore, to the extent of that amount which is paid or payable to a person or is received or is deemed to be received shall not be taxed in the hands of that person. Now applying above principle to the facts in the present case we find that the appellant company has received a total amount of Rs.15,88,75,799 as issuing airline. Out of this total receipts the appellant has received the amount of Rs.8,93,15,645 on account of carriage of passengers, livestock, mail or goods by the operation of aircrafts as their owner or charterer and thus, the appellant is principal as defined in section 80-A of the Income Tax Ordinance, 1979 while he has received the remaining amount of Rs.6,95,60,154 for carriage of passengers, livestock, mail or goods from Pakistan to the airports outside Pakistan by operation of aircrafts of which the appellant is not the owner or charterer, but the owner and charterer of such aircrafts or the carrying airlines whom this amount has been passed on under the IATA Rules in accordance with the interline billing system. In other words the amount of Rs.6,95,60,154 has been passed on an account of transportation charges of the carrying airline by the appellant as issuing airline. The owner or charterer of such aircrafts are the carrying airlines. Thus, in accordance with the provisions of law as contained in section 80-A, to the extent of receipts at Rs.6,95,60,154 the principal as defined in section 80-A of the Income Tax Ordinance, 1979 are the carrying airlines and, therefore, the amount at Rs.6,95,60,154 have been received by the appellant as issuing airline and not as a principal as defined in section 80-A of the Income Tax Ordinance, 1979. Thus, to that extent the appellant has acted as an agent of the principals, which are carrying airlines and, therefore, the receipts to this extent are to be subjected to tax in the hands of carrying airlines.
15. So far the receipts shown in the F.P. Forms submitted to the State Bank of Pakistan are concerned wherein the gross receipts have been shown at Rs.15,88,75,799, it has nothing to do with the provision contained in section 80-A of the Income Tax Ordinance, 1979. A bare reading of the above Form shows that its caption is, monthly statement to be submitted by the airlines in respect of their passage and freight earning as also the disbursement in Pakistan for the month of. " It only relates to the information about the collection of passage and freight money, disbursement made in Pakistan out of the said collection and the net amount applied for remittance. Thus, the amount of passage collection shown in Form F.P., is not to be taken as receipts defined in subsection (1-A) of section 80-A of the Income Tax Ordinance, 1979 for the purpose of treating the same as deemed income under subsection (1) of section 80-A. We fully agree with the contention of learned counsel for the appellant on this point.
16. We have further examined the observation of assessing officer to the effect that the return prescribed vide CBR. Circular No.26 of 1980 does not give any indication of subtracting any amount of receipt from aggregate. On going through the quarterly return prescribed by CBR Circular No.26 of 1980, we find that the following information is sought at Serials Nos.2, 3 and 4:
"(2) Travelled Revenue realised from Carriers own Tickets/documents sold in Pakistan.
(3) Travelled Revenue realised from other Carriers tickets/documents sold in Pakistan.
(4) Total of Line (2) + (3)."
17. A perusal of the above information sought in the quarterly return prescribed by the CBR shows that the non-resident airlines are required to declare the travelled revenue realised from the carries own tickets/documents sold in Pakistan as well as the travelled revenue realised from other tickets/documents sold in Pakistan. Thus, in the present case the non-resident carrying airlines, to wit, Air France, Thai Airways, Air Lanka, Indian Airlines and Philpine Airlines who are operating in Pakistan are required, according to the contents of the quarterly return to show the travelled revenue realised from carriers of their own tickets as well as the travelled revenue realised from other carriers ticket which is inclusive of revenue realised from the appellant Cathay Pacific Airways. So far the resident carrying airline to wit PIA is concerned it is also required to declare the revenue received from the appellant Cathay Pacific Airways through IATA under interline billing system. Thus, the non-resident airlines are required to declare their travelled revenue issuing airline as well as carrying airlines and the aggregate of both the revenue is to be treated as income and is to be subjected to tax under section 80-A. In this manner the amount received by a carrying airline from the issuing airline is subjected to tax in the hands of carrying airline and, therefore, the same amount cannot be taxed in the hands of issuing airline at the same time. It would amount to taxing the same amount twice in the hands of two assessees, which is not permissible in law. A perusal of the quarterly return and particularly the items under consideration further shows that even according to CBR the amount to be taxed in the hands of an airline is to be on account of travelled revenue realised from carriers own tickets or travelled revenue realised from other carriers tickets. Applying it to the facts of the present case, we find that the appellant realised travelled revenue from its own tickets at Rs.8,93,15,645 and the remaining amount of Rs.6,95,60,154 was the travelled revenue realised by the carrying airlines from the tickets of appellant carrier. Thus, if the appellant had shown in its quarterly return, the figure of travelled revenue realised from carriers own tickets at Rs.8,93,15,645 it was the proper compliance of the requirement of law. The assessing officer was not justified in holding that the passage and freight collection shown in Form F.P. airlines submitted before the State Bank of Pakistan ought to have been shown as travelled revenue realised from carriers own tickets in the returns filed by the appellant non-resident airline.
18. Lastly in order to ensure that no loss is caused to the State revenue we asked Mr. Pasha to give the details of the transportation charges paid to the carrying airlines under the interline billing system through IATA and to further produce evidence to the effect that the receipt in the hands of carrying airlines have been subjected to tax. Mr. Salman Pasha submitted details of the transportation charges paid to the carrying airlines during the period under consideration. According to these details the amount of Rs.1,07,78,311 was paid to the PIA and the PIA has certified that this amount has been fully realised through IATA Clearing House. We presume that the PIA has offered this amount for tax in its return. However, the assessing officer may confirm this fact from the assessment record of PIA and if this amount received by the PIA from the appellant airline, has not been offered for tax necessary action may be taken according to law. Remaining amount has been paid to Air France, Thai Airways, Air Lanka, Indian Airlines and Philpine Airlines. Mr. Salman Pasha has submitted that Pakistan has agreement for avoidance of double taxation with all the countries to whom the above airlines belong and according to provision contained in all agreements for avoidance of double taxation the profits derived by an enterprise of a contracting State by operation of aircrafts in International traffic shall be exempt from tax in the other contracting State. According to the definition in agreement for avoidance of double taxation the other contracting State means Pakistan. Mr. Satman Pasha has produced copies of agreement for avoidance of double taxation with all countries concerned and the international traffic has been defined in all the agreements to mean any transport by an aircraft operated by an aircraft in contracting estate except when the aircraft is operated solely between places in the other contracting State. None of the carrying airlines have received any transportation charges from the appellant for operating solely between the places in Pakistan and, therefore, the transportation charges received by all the non-resident carrying airlines from the appellant airline enjoy exemption and, therefore, they are not to be subjected to tax in Pakistan and thus, the question of any loss of revenue does not arise.
19. Consequent to the above discussions and our findings it is held that the appellant non-resident airline is required to pay tax on its actual share at Rs.8,93,15,645 received on account of carriage of passengers, livestock, mail or goods on account of carrying of business of operation of aircrafts as the owner and charterer thereof only being principal as defined in section 80-A of the Income Tax Ordinance, 1979 out of the total receipts of Rs.15,88,75,799, and remaining amount of Rs.6,95,60,154 paid to the carrying airlines on account of transportation charges for carriage of passengers, livestock, mail or goods by the said carrying airlines is to be subjected to tax in the hands of carrying airlines in accordance with the law. The appeal is allowed as above.
C. M. A./6/Trib.
Appeal allowed.