BEFORE SYED NADEEM SAQLAIN, JUDICIAL MEMBER AND MUHAMMAD MUNIR QURESHI, ACCOUNTANT MEMBER VS BEFORE SYED NADEEM SAQLAIN, JUDICIAL MEMBER AND MUHAMMAD MUNIR QURESHI, ACCOUNTANT MEMBER
2002 P T D (Trib.) 260
[Income-tax Appellate Tribunal Pakistan]
Before Syed Nadeem Saqlain, Judicial Member and Muhammad Munir Qureshi, Accountant Member
I.T.As. Nos. 880/LB, 881/LB, 890/LB of 1996 and 4423/LB to 4425/LB of 1998, decided on 24/08/2000.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 66-A & 80-D---Turnover---Assessee, a travel agent ---Commis sion---Gross receipts---Sale of assets ---Inspecting Additional Commissioner directed the Assessing Officer to charge tax under S. 80D of the Income Tax Ordinance, 1979 on the gross turnover received by the assessee as an agent on behalf of its principal and sale of assets and. other income was also directed to be considered as part of gross turnover of the assessee for the purpose of charging of tax under S. 80D of the Income Tax Ordinance, 1979---Validity---Turnover of a travel agent was to be taken as commission income only and not turnover on behalf of the principal and sale proceeds of assets were also not relevant for adoption of gross turnover for the purpose of charging tax under S. 80D of the Income Tax Ordinance, 1979---Revisional order passed by the Inspecting Additional Commissioner was vacated and original order, passed under S.62 of the Income Tax Ordinance, 1979 by the Assessing Officer was restored by the Tribunal.
1994 PTD (Trib.) 758 and 1997 PTD (Trib.) 1120 rel.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss. 156, 66-A & 62---Assessment---Revision of assessment under S.66-A of the Income Tax Ordinance, 1979---Assessment, after the revision, was rectified under 5.156 of the Income Tax Ordinance, 1979 by the Assessing Officer---Validity---Since original assessment order passed under S.62 of the Income Tax Ordinance, 1979 stood merged with revisional order passed under S.66-A of the Income Tax Ordinance, 1979, the Assessing Officer could not exercise his powers under S.156 of the Income Tax Ordinance, 1979 to rectify the original assessment order for the reason that those orders were not holding the field.
1996 PTD (Trib.) 492, rel.
Yousaf Ali, I.T.P. for Appellant.
Anwar ul Haq, D.R. for Respondent.
Date of hearing: 6th June, 2001.
ORDER
SYED NADEEM SAQLAIN (JUDICIAL MEMBER).---These six appeals for the assessment years 1992-93 to 1994-95 have been preferred against the two separate orders i.e., dated 16-12-1995 passed by the learned I.A.C. and dated 21-9-1998 passed by the learned CIT(A). In the first three appeals (I.T.As. Nos.4423 to 4425/LB of 1998) the assessee/appellant feels aggrieved by the impugned order with, regard to confirming the rectification order passed by the learned D.C.I.T. under section 156 of the Income Tax Ordinance, 1979 and framing the charge of tax under section 80D on estimated turnover, while in the subsequent three appeals (I.T.As. Nos. 880, 890 and 881/LB of 1996), the assessee has challenged the order passed by the learned I.A.C. under section 66A of the Income Tax Ordinance, 1979 whereby he modified the Original order passed under section 62 of the Ordinance.
2. Briefly stated the facts of the case are that the assessee is a Private Limited Company deriving income from running air cargo and allied services. As general sales agent of British Airways in Pakistan, Returns for the years under appeal were filed declaring net losses of Rs. S,24,697, Rs. 9,00,691 and Rs. 1,71,218 respectively. Assessments under section 62, of the Ordinance were framed on the basis of declared results which were duly accepted and are as follows:
| | 1992-93 | 1993-94 | 1994-95 |
| General Commission | Rs. 244584 | Rs. 129420 | Rs. 778438 |
| Over riding commission | 1754676 | 1623135 | 2198250 |
| Service charges | 65003 | 56989 | 56999 |
| Freight Forwarding Commission. | | | 311489 |
| | 2064263 | 1809554 | 3611577 |
3. Assessment orders passed under section 62 of the Income Tax Ordinance, 1979 were examined by the I.A.C. and considering them to be erroneous and prejudicial to the interest of revenue he proceeded to revise the same under section 66A of the Ordinance. That after issuing requisite notices modified the assessment orders, dated 26-5-1993, 29-1-1994 and 29-3-1995. The assessee is in appeal before us impugning the order, dated 16-12-1995 passed by the learned I.A.C. under section 66-A of the Income Tax Ordinance.
4. However, meanwhile the D.C.I.T. in exercise of his powers under section 156 of the Ordinance rectified the original orders framed under section 62 of the. Ordinance for the reason that tax under section 80-D should have been charged on the gross receipts of British Airways, i.e. principal of the assessee-company against the original/assessments wherein the tax was levied on the receipts of the assessee who is sales agent of British Airways. The said treatment was confirmed by the First Appellate Authority vide an order dated 21-9-1998. The assessee has also contested the abovementioned appellate order vide I.T.A. No. 4423, 4424 & 4425/LB of 1998.
5. Firstly we would like to dispose of the appeals against the order, dated 16-12-1995 passed under section 66-A of the Income Tax Ordinance. While initiating proceedings under section 66-A following show-cause notice was issued:
"That examination of your assessment record reveals that the assessments made by the D.C.I.Ts. for the charge years 1992-93, 1993-94 and 1994-95 are erroneous and prejudicial to the interests of Revenue.
Assessment for the charge year 1992-93 was finalized under section 62 on 26-5-1993 through which tax under section 80D was charged at Rs. 10,321. Similarly, after first appeal again tax was charged under section 80D at Rs. 10,321 vide order under sections 62/132, dated 16-1-1994. Whereas, perusal of return shows that the assessee's gross turnover amounts to Rs. 5,715,341 on which tax under section 80D comes to Rs. 28,577. The Order of the Assessing Officer is erroneous in so far as it is prejudicial to the interests of Revenue.
Assessment for the charge year 1993-94 was completed under section 62 on 29-1-1994 and tax has been charged under section 80D at Rs. 28,175. The Assessing Officer has adopted gross turnover of Rs. 56,35,071. Whereas perusal of record shows that besides the turnover of Rs. 56,35,071 loss of Rs. 12,226 on account of other income and income of Rs. 1,240 on account of sale of assets has also been declared. The Assessing Officer has failed to account for the turnover of other income and sale of assets towards total gross turnover for the year and hence, lax under section 80D has not been properly charged. Therefore, the assessment order under section 62 dated 29-1-1994 is erroneous insofar as it is prejudicial to the interest of Revenue Assessment for the charge year 1994-95 was finalized under section 62 on 29-3-1995 and tax was charged 49%. However, on assessee's application, the assessment was rectified under section 156 on 15-10-1995 and tax under section 80D amounting to Rs. 33,202 was charged. The perusal of record shows that while charging tax under section 80D the Assessing Officer has not taken the correct business turnover of Rs. 74,52,310 and has not accounted for the turnover of loss Rs. 1,92,888 under the head other income. Therefore, the order passed under section 156 dated 15-10-1995 is erroneous in so far as it is prejudicial to the interests of Revenue.
You are hereby required to provide gross turnover of other income and disposal of assets for the years under consideration and also to show cause by 7-11-1995 as to why necessary order under section 66A should not be passed for assessment years 1992-93, 1993-94 and 1994-95."
6. In response to above notice the assessee/appellant submitted the following explanations:
"That assessee is general sales agent of Cargo of Messrs British Air Ways.
The assessee receives following commissions:
(a)General Commission.
(b)Overriding Commission.
(c)Service Commission.
The cargo is booked by the I.A.T.A. agent through us with our airline. I.A.T.A. agent receive the freight and deduct their commission 5% and balance freight is paid to the airline through us. We have not received Rs. 2,415,970. This amount is received by sub-agent (I.A.T.A. Agent), the same is the position of Service Income.
The G.S.A. only received 2.5% overriding commission in account 5% commission is received by I.A.T.A. from customer. This amount is not received by the G.S.A.
The said commission is not the part of our/receipts. We just pass journal entry to pass on the account to the airline (Principal).
In the assessment year 1994-95 80D calculation is not the part of the assessment order. IT/30 is only rent for the calculation of tax. The order of A-83 1994-95 does not attract section 66A. As it is not erroneous.
We hope that your good-self shall be satisfied from above information/explanations".
7. Considering the reply of the assessee unsatisfactory, provision of section 66A of the Income Tax Ordinance, 1979 was invoked and treating the original assessment made by the Assessing Officer to be erroneous and prejudicial to the interest of Revenue, the learned I.A.C. modified the same and directed to charge tax under section 80D on the gross turnover received by the assessee as an agent on behalf of its principal i.e. British Airways. Besides, the receipts on sale of assets and other income was also directed to be considered as part of gross turnover of the assessee for the purpose of charging of tax under section 80D of the Ordinance. In this regard, for the assessment years 1993-94 and 1994-95 the receipts on sale of assets and other income were estimated at Rs. 10,00,000 and Rs. 20,00,000 respectively.
8. Both the parties have been heard and relevant orders perused. The learned A.R. of the assessee vehemently argued the case and contended that invocation of section 66A by the learned I.A.C. was against the law as well as ratio settled by the Tribunal and other appellate forums in numerous cases. He submitted that the learned I.A.C. fell in error while making direction to the Assessing Officer, to charge tax under section 80D on the total turnover which was to be passed on to the principal instead of net commission received by the assessee. He further contended that cargo is booked by I.A.T.A. agent through assessee with the British Airways and the I.A.T.A. agent receives the freight and deduct its commission @ 5% which is paid by customers and balance is transmitted/handed over to the Air-line directly. He further argued that assessee being a G.S.A. receives only 2.5 % overriding commission. He pleaded that total turnover which has allegedly been received by the assessee cannot be termed as part of assessee's receipts at all. He further elaborated that the assessee just makes general entry to pass on the account to the airline (principal). In support of his contention he placed reliance on a judgment of the Tribunal reported as 1994 PTD (Trib.) 758 which is applicable on all fours to be assesse's case. The Tribunal elaborately and extensively dealt with the issue in hand and held that net receipts/commission of the agent is to be considered his turnover for application of section 80D. We would like to reproduce the relevant para which is as follow:
"In the case of a travel agent the gross receipt which is derived by it is the agency commission of 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 80D 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 (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 80D 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 actually comes to the confer of a travel agent and not the amount passed on to the principal which will represent the turnover of principal and not the agent."
9. Perusal of judgment also shows that it has been further observed in the supra judgments that:---
"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.
In the concluding paragraph it was further held that:
"For the purpose of levying tax under section 80D 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/carries."
10. An other issue which has been agitated by the assessee is that the learned I.A.C. was not justified to estimate sale proceed of assets, considering it as part of the assessee's income to charge the same to tax under section 80D of the Ordinance. To controvert the findings on this issue, recorded by the learned I.A.C., the learned A.R. of the assessee sought strength from another judgments of the Tribunal reported as 1997 PTD (Trib.) 1120. It was asserted at the bar that cited judgment also supports the arguments advanced by the assessee which lays down that for the purposes of levying tax under section 80D, turnover of a person does riot include an income on account of vacation of premises. In the reported judgment, while invoking section 66A, the learned I.A.C. directed that income received on, account of vacation of premises should also be considered a part of gross turnover of the assessee. However, on appeal the Tribunal reversed the findings of the learned I.A.C. and order passed was annulled.
The relevant extract of .the supra judgment is as under:
" ....Ss. 66A & 80D---Turnover---Assessee, a travelling agent-- Commission ---I.A.C. directed I.T.O. to adopt all receipts of travelling agent for purpose of levying tax under S. 80D of the Ordinance---Validity---Held, for purpose of levying tax under S. 80D turn over of travelling agent was his commission and not the entire payments received on behalf of principal carrier."
11. Lastly the learned. A.R. submitted that the original order passed under section 62 having been merged in the order passed by the learned I.A.C. under section 66A of the Ordinance, hence rectification order made was nullity in the eye of law since original order did not hold the field. In this respect he emphasized that revisional order had already been passed on 16-12-1995 while the learned Assessing Officer proceeded to make rectification on 20-5-1997 To prove his view point the learned A.R has relied upon a judgment of the Tribunal cited as 1996 PTD (Trib.) 492 wherein the Tribunal held that the learned I.A.C. was not justified to exercise his revisional jurisdiction, once the case has been adjudicated upon at the First Appellate level by the learned C.I.T.(A).
12. On the contrary the learned D.R. has opposed the arguments advanced by the learned A.R. and pleaded for the maintenance of the impugned order.
13. Considering the rival arguments put forth by the learned counsels of both the parties as well as having gone through the impugned orders alongwith case law cited at the bar, we find ourselves in full agreement with the arguments advanced by the learned A.R. In the judgment of the Tribunal reported as 1994 PTD (Trib.) 758, the issue that whether section 80D is to be applied on gross receipts of the principal or not receipts of the agent, it has been held that turnover of a travel agent is to be taken as commission income only and not turnover on behalf of the Principal. Similarly on the issue of estimating sale proceeds of assets and taking it as a part of assessee's income for the purposes of charging of tax under section 80D, we follow the ratio settled by the Tribunal in the reported judgment cited as 1997 PTD (Trib.) 1120 wherein this issue was elaborately dealt with and held that receipts on account of vacation of premises were not relevant for adoption of gross turnover of a Travel agent, because agent's receipts were considered to be his commission and not the entire payment received by him on behalf of the principal.
13A. As regards the 3rd argument of the A.R. we, again, have no cavil to the proposition advanced by the learned A.R. that since original B assessment order passed' under section 62 stood merged with the revisional order passed under section 66A, the D.C.I.T., cannot exercise his powers under section 156 to rectify the original assessment order for the reason that those orders were not holding the field.
14. For the foregoing reasons we would like to vacate the revisional order passed by the learned. I.A.C. under section 66A since the original order passed under section 62, was neither erroneous nor prejudicial to the interest of Revenue, hence restored.
15. As far as appeals against the order, dated 21-9-1998 confirming the rectification order is concerned, the same have become infructuous for the reason that we have already observed while disposing of appeals against the order under section 66A that the D.C.I.T. cannot rectify original assessment order passed under section 62 of the Ordinance, since it stood merged in the order passed by the learned I.A.C. under section 66A- of the Ordinance and in the light of above judgment nor rectification could be made of the assessment order. Since we have already accepted the assessee's appeals challenging the order passed under section 66A of the Ordinance and restored the assessment orders framed under section 62 of the Ordinance the issue involved in all the said appeals being same, the present appeals need not be dilated upon having become infructuous, hence stand dismissed.
16. All the six appeals are disposed of in the manner indicated above.
C. M. A. /M.A.K./159/Tax(Trib.) Appeals disposed of accordingly.