I.T.AS. NOS. 1244/KB, 1245/KB AND 1266/KB OF 1999-2000 VS I.T.AS. NOS. 1244/KB, 1245/KB AND 1266/KB OF 1999-2000
2001 P T D (Trib.) 2914
[Income-tax Appellate Tribunal Pakistan]
Before Inam Ellahi Sheikh, Chairman and Rasheed Ahmed Sheikh,
Judicial Member
I.T.As. Nos. 1244/KB, 1245/KB and 1266/KB of 1999-2000, decided on 06/04/2001.
Income Tax Ordinance (XXXI of 1979)---
----Ss.66-A, 50(5) & 80-C---Power of Inspecting Additional Commissioner to revise Deputy Commissioner's order ---Assessee imported card,, and pay phones and tax was deducted at import stage under S.50(5) of the Income Tax Ordinance, 1979--- Assessee claimed credit of such tax and assessment was finalized under S.62 of the Income 'fax Ordinance, 1979---Assessment was cancelled by the Inspecting Additional Commissioner on the ground that the imports were covered under S.80-C of the Income Tax Ordinance 1979 being goods imported and directed the Assessing Officer to finalize the assessment accordingly---Assessee contended that cards, imported could not be classified as "goods" because those could be used only for the purpose of using the pay phone facility i.e. services provided by the assessee and could not be said to be "goods" imported for sale as cards were not goods to ordinary sense of the word---Validity---Term "goods" carries wide meaning--Collection of tax under S.50(5) of the Income Tax Ordinance, 1979 was applicable to all the imports of the goods subject to certain exceptions and concessions laid down in S.50(5)---Cards having been imported as commercial importer amount computed for the purpose of collection of tax under S.50(5) of the Income Tax. Ordinance; 1979 was deemed to be the income of such person who was importing' the goods and tax was to he charged at the rate specified in the First Sched. Of the Income Tax Ordinance, 1979 Cards had been imported as commercial goods and had suffered tax under S.50(5) of the Income Tax Ordinance, 1979---Assessee's appeal was dismissed by the Tribunal in circumstances.
AIR 1968 SC 922 and 189 ITR 463 ref.
E.U. Khawaja for Appellant.
Qamaruddin, D.R. for Respondent.
Date of hearing: 27th March, 2001.
ORDER
IMAM ELLAHI SHEIKH (CHAIRMAN). ---These three appeals of a public company in the business of installation of pay phone operated by telecards sold by it. The appeals arise out of three orders of the learned IAC of Income-tax, Range-IV, Cos. V, Karachi, dated 16-12-1999 whereby the assessments of the assessee framed under section 62 of the Income-tax Ordinance, 1979 (hereinafter called the Ordinance) were cancelled by invoking the provisions of section 66-A of the Ordinance.
2. The relevant facts in brief are that in the assessment year 1995-96 the assessment was made at a loss of Rs.40,836,537 in addition to the assessment of receipts under section 80-C of the Ordinance. In the assessment year 1996-97 the assessment was made at a loss of Rs.8,847,604 in addition to the receipts assessed under section 80-C of the Ordinance. In the assessment year 1997-98 the assessment was made at a loss of Rs.15,498,452 in addition to the assessment of receipts under section 80-C of the Ordinance. On perusal of the assessment record, the learned IAC found that the assessee had claimed credit of tax collected under section 50(5) of the Ordinance in respect of the import of Cards and pay phone sets. The learned IAC formed the view that such imports were covered under section 80-C of the Ordinance, being goods imported and he proposed to the assessee that these should have been taxed under section 80-C of the Ordinance with the result that the tax collected under section 50(5) of the Ordinance constituted to the full and final tax liability. The assessee took the pleas that it was selling telephone communication services through card operated pay phones. It was further elaborated that the sale price of the card was based on the number of unit which was itself based on the time. Thus, according to the assessee it was the value of time that was being sold by the assessee and not a card itself. It was also explained that the average cost of each card imported was Rs.27 while the sale price of the same ranges from Rs.100 to Rs.530 depending to the number of units contained in the card. With regard to the pay phone equipment it was explained that the same were installed at various points but these pay phones sets remained the property of the assessee company. Hence this could not be said to be goods imported for sale. The learned IAC,, however, did not accept such plea and he found that the assessee was selling the cards, as imported by him, without carrying any process whatsoever except the printing of some advertisements on the card. Thus, according to the learned IAC, the assessee was deriving following three kinds of revenue:---
(i) Assessee is selling a service and thus, the sale price of the card includes a service charges. Expenses being paid to PTCL for utilization of telecommunication facility pertain to this head.
(ii) Sale price of the card is fixed keeping in view expenses to be incurred for providing the service and the cost of the card and thus, a part of the revenue earned through sale of pay phone card is attributable to the service while a part is attributable to the card in its physical Form and not to the qualities that it contains.
(iii) By using the card a medium of advertisement the assessee is also earning advertisement income. This income although attributable to the card is earned indirectly and does not form a part of the sale price.
3. The learned IAC, thus concluded that the part of the revenue which pertain to sale comes under the ambit of section 80-C. The learned IAC also reasoned that various companies were making deduction under section 50(4) of the Ordinance while making the payment to the assessee company on sale 'of cards. Thus, it was concluded that the cards were being treated as goods Thus, according to the learned IAC the revenue could be allocated by way o: the sale of card and service receipts and P&L, expenses could be allocated on the basis of the prorata G.P. Hence the assessments in question have been cancelled by the learned IAC with the direction that assessments being framed afresh accordingly by correct treatment in the light of observation made by the learned IAC.
4. The learned counsel of the assessee has strongly objected to the cancellation of assessment orders with the submission that the learned IAC had taken a wrong view of the assessee's business. It was submitted that the assessee was providing telephone services to public as well as other person through pre-paid cards and that the cards themselves had no value It was further elaborated that the assessee was earning income by charging for the calls made by the user of the card and tithe card only serve as key to the use of the pay phone installed by the assessee at various points. An alternate plea of the learned counsel of the assessee was that the assessee engaged in a service industry and the cards have been imported for use in its own business. An analogy was drawn by the learned counsel of the assessee by reference to the sale of tickets of airlines which could not be taxed as sale of goods because they also carrying no value by themselves except that these entitled the holder of tickets to a passage. The learned counsel further argued that the cards imported by the assessee could not be classified as goods because these could not be used for any purpose other than for the purpose of using the pay phone facility provided by the assessee. The learned counsel of the assessee reiterated that the duty paid value of a card was not more than Rs.27 per card in respect of demonisation as already mentioned above. The learned counsel of the assessee further submitted that the learned IAC lost sight of the fact that section 50(4) of the Ordinance was not only applicable to the supply of the goods but also to the provision of services while taking into consideration .the deduction of tax from the payment made to the assessee by its customers. The learned D.R. has appeared without assessment record and he has simply defended the orders of the learned IAC with the same reason as recorded in the impugned orders.
5. The arguments have been considered and the relevant orders perused. First we would like to consider the reasonings of the learned IAC that the assessee was suffering the deduction of tax at the time of receiving the payment from various customers on the sale of Cards. This let him to conclude that the sale of Cards was sale of goods. The learned counsel of the assessee has taken stand that even the services are subjected to deduction of tax under section 50(4) of the Ordinance and thus it is not correct to draw an automatic conclusion. A perusal of the orders of the Assessing Officer recorded under section 62 of the Ordinance which have been cancelled by the learned IAC, however, shows that some of the supplies have been taxed under section 80C of the Ordinance. A question put forth to the learned counsel to explain the nature of such receipts which have been taxed under section 80C of the Ordinance. On this, the learned counsel frankly conceded that the sales/supplies of telecard have in fact been subjected to tax under section 80C of the Ordinance, However, it was further submitted that the assessee decided not to file any appeal against such treatment as no financial burden was levied in view of the charge of minimum tax under section 80D of the Ordinance from which the tax suffered under section 80C of the Ordinance has already been deducted. This explanation, of the learned counsel with regard to the absence of any financial burden is found to be in accordance with the order under section 62of the Ordinance.
6. The learned counsel of the assessee has strongly submitted that the assessee is only providing services to its customers and that the Card is simply a key to the use of pay phone installed by the assessee. In other words a Card could be said to be equivalent of a container in the case of ordinary goods. After a consumption of the specified unit the Card become worthless. The learned counsel of the assessee, however, did not address any argument on the aspect of the case that the sales were not made by the assessee company to the consumers directly. The company was supplying Cards to various. intermediaries such as retailers shops etc., Who were selling the Cards to the consumers or pay phone users. Thus it could be viewed that the assessee is importing these Cards ' and selling them, practically without any further processing, to the dealers. As far as, the advertising part is concerned the same can be ignored for all practical purposes.
7. The assessee has suffered the collection of tax under section 50(5) of the Ordinance which is applicable to all the imports of the goods subject to certain exceptions and concessions laid down in the same subsection: As, per the Bill of Entry, the cards have been imported as commercial importer. Under the provisions of clause (ii) of subsection (2) of section 80C of the Ordinance read with the provisions of subsection (1) of section 80C of the Ordinance the amount computed for the purpose of collection of tax under subsection (5) of section 50 of the Ordinance is deemed to be the income of such person who is importing the goods and tax is to be charged at the rate specified in the First Schedule to the Ordinance. However, under the provisions of the said clause (ii) of subsection (2) of section 80C of the Ordinance an exception has been made an industrial undertaking of goods as raw material for its own consumption. The alternate plea of the assessee before us is that it is service industry and has imported such cards for its own consumption. We are afraid we cannot subscribe this proposal as the cards have not been consumed by the assessee-appellant in the present case. On the contrary these are sold to outsider to provide the service of uses of pay phone. It is also not the case of an assessee that the cards have not been imported as goods.
8. The main plea of the learned counsel before us is that the cards are not goods in the ordinary sense of the word. The learned counsel has referred to certain case-law to support his contention. In the case reported as AIR 1968 (SC Ind.) 922, the Supreme Court of India has considered the term goods. The learned counsel of the assessee has highlighted the following observations:---
"As the Act does not define goods, the legislature must be taken to have used that word in its ordinary dictionary meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market."
In the case reported as 189 ITR 463 a question of investment allowance came up before the Karnataka High Court and the meaning of industrial undertaking was considered. It was held that in the absence of the definition of industrial undertaking in the relevant statute. A reference could be made in a sister statute and feeling that, to adopt the meaning in common parlance. A reference to the dictionary meaning has not been given much support to the contention of the assessee. A reference has also been made by us to the Sales of Goods Act which defines the goods in subsection (7) of section 2 thereof in the following manner:--
"goods" means every kind of movable property other than actionable claims and money; and includes (electricity, water, gas) stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.
9. The above definition shows that the term goods carries from wide meaning. The learned IAC only treated a part of the sale price as attributable to the sale of cards which have been imported as commercial goods and have suffered tax under subsection (5) of section 50 of the Ordinance. In these circumstances we are not inclined to accept these appeals of the assessee and we dismissed the same.
C.M.A./M.A.K./103/Tax (Trib.) Appeals dismissed.