I.T.A. No.705/IB of 2003, decided on 12th April, 2004. VS I.T.A. No.705/IB of 2003, decided on 12th April, 2004.
2004 P T D (Trib.) 2051
[Income‑tax Appellate Tribunal Pakistan]
Before Inam Ellahi Sheikh, Chairman and Muhammad Jahandar, Judicial Member
I.T.A. No.705/IB of 2003, decided on /01/.
th
April, 2004. (a) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑Ss. 80AA/62, 55, 22 & 23‑‑‑Tax on income of non‑residents from, fees for technical service‑‑‑Income from providing mud logging services to oil exploration companies ‑‑‑Assessee filed return under S.55 of the Income Tax Ordinance, 1979 and desired to be assessed under Ss.22 and 23 of the Income Tax Ordinance, 1979‑‑‑Assessment was made under S.62/80AA of the Income Tax Ordinance, 1979 treating the gross receipts from mud logging services as fee for technical services‑‑ Validity‑‑‑Non‑resident was required to file a six monthly return under the provisions of subsection (2) of S.80AA of the Income Tax Ordinance, 1979‑‑‑Subsection (3) of S.80AA of the Income Tax Ordinance, 1979 required determination of the income referred to in subsection (2) of S.80AA of the Income Tax Ordinance, 1979 and charge tax thereon in accordance with the provision of S.80AA of the Income Tax Ordinance, 1979‑‑‑Assessee filed a return under. S.55 of the Income Tax Ordinance, 1979 and there was only one return filed by the assessee for the whole year which did not fulfill the requirements of S 80AA of the Income Tax Ordinance, 1979‑‑‑Consolidated assessment order was passed for two years instead of passing two orders for one year‑‑ Assessing Officer had assessed the income under S.62/80AA of the Income Tax Ordinance, 1979 as per history or past practice, rejecting the assessee's claim to be assessed under Ss.22 and 23 of the income Tax Ordinance, 1979 without issuing a notice which was the requirement of natural justice‑‑‑Proviso to S.62 of the Income Tax Ordinance, 1979 refers to the assessment to be made under S.62 of the Income Tax Ordinance, 1979 after giving the assessee a notice of defects in the books where the books had been produced as evidence ‑‑‑Assessee's claim o` being assessed under S.62 read with S.22 of the Income Tax Ordinance 1979 could not be brushed aside without providing the assessee an opportunity of being heard‑‑‑Assessment order passed by the Assessing Officer neither fulfilled the requirements of S.62 nor of S.80AA of the Income Tax Ordinance, 1979 and Appellate Tribunal thus annulled the assessment.
I.T.As. Nos. 163 and 164/IB of 2000‑2001; I.T.As. Nos. 405 and 508/IB of 2000‑2001 and R. As. Nos. 150 to 153/113 of 2002 ref.
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss. 62 & 80AA ‑‑‑Assessment on production of books of accounts etc.‑‑‑If the Assessing Officer was going to make an assessment under S.80AA of the Income Tax Ordinance, 1979, then the provisions of S.6 of the Income Tax Ordinance, 1979 could not be invoked as the provision of S.80AA of the Income Tax Ordinance, 1979 was a non obstante provision which excluded the application of other provisions of Income Tax Ordinance, 1979.
(c) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑S. 80AA ‑‑‑Tax on income of non‑residents from fees for technical services‑‑‑Provisions of law under S.80AA of the Income Tax Ordinance, 1979 were non‑obstante provisions and required the assessee to file two returns in a year‑‑‑Section 80AA did not make any provision for the Assessing Officer to force the assessee or taxpayer to file the returns and there was no prescribed form under the said section Proviso to subsection (2) of section 80AA of the Income Tax Ordinance, 1979 required a non‑resident assessee to file a return of total income by reference to S.81 of the Income Tax, Ordinance, 1979‑‑‑Said provision did not take care of the situation where a non‑resident company ceases its operations before the expiry of six months‑‑‑Provision of S. 81 just presumes that a non‑resident person receiving fee for technical services is an individual‑‑‑Definition of non‑resident in sub‑Cl. (c) of Cl.(40) of S.2 of the Income Tax Ordinance, 1979 refers to the control and management of the affairs in Pakistan and controls shift more easily as compared to the past since, the relaxation of exchange control‑‑‑Such situation has also to be taken into care while reconsidering the chargeability of income from fee for technical services in the hands of a non‑resident person.
Aaqib Hussain, ITP for Appellant.
Khalid Javed, DR for Respondent.
Date of hearing: 9th April, 2004.
ORDER
INAM ELLAHI SHEIKH (CHAIRMAN).‑‑‑A non‑resident company has filed this further appeal against an order, dated 3‑6‑2003 recorded by the learned CIT(A)‑I, Islamabad challenging the legality of the assessment order passed by Assessing Officer under section 62/80AA of the repealed Income Tax Ordinance, 1979, (hereinafter called the repealed Ordinance) and taking an alternative plea that the assessee's receipts does not fall within the ambit of fee for technical services making a ‑claim for assessment under section 22 of the repealed Ordinance.
2. The relevant facts in brief are that the assessee derives income from providing mud logging services to various oil exploration companies and returns were filed, presumably, under section 55 of the repealed Ordinance, to declare the losses in the assessment years 1999‑2000 and 2000‑2001. The Assessing Officer found that the earlier assessments had been made under section 62/80AA of the repealed Ordinance by treating the gross receipts from mud logging services as fee for technical services. Hence the assessee's `desire' to be assess6d under sections 22 and 23 of the repealed Ordinance as business income was not entertained and the assessments for these two years were made by subjecting the gross receipts to tax at 15%. The learned CIT(A), while deciding the assessee's appeal for the assessment year 2000‑2001 which is the year under consideration, found that the First Appellate Authority had in the assessment years 1998‑99 and 1999‑2000 confirmed the assessment made in a similar fashion although the assessee took the plea .that in the assessment year 1997‑98 similar assessment had been annulled by the first appellate authority.
3. The assessee has challenged these orders of the departmental officials on various grounds, especially, on the ground that the declared version had been rejected by the Assessing Officer without providing a single opportunity of being heard to the assessee and that in terms of section 62 of the repealed Ordinance, such assessment was in complete violation of the principle of natural justice. The alternative plea before us is that the receipts of the assessee did not fall within the definition of fee for technical services and that such receipts should be charged to tax under section 22 of the repealed Ordinance as income from business and profession.
4. We have heard both the parties and have also considered the facts of the case and perused the departmental orders. The learned AR of the assessee has produced copies of the Tribunal's orders, dated 4‑4‑2002 recorded in I.T.As. Nos. 163 and 164/113 of 2000‑2001 (assessee's appeals for the assessment years 1993‑94 and 1994‑95) and in I.T.As. Nos. 405 and 508/113 of 2000‑2001 (the departmental appeals for the assessment years 1996‑97 and 1997‑98). Also the learned AR of the assessee has filed a copy of the Tribunal's order, dated 22‑7‑2003 recorded in R.As. Nos. 150 to 153/113 of 2002 whereby two questions of law have been referred to the Hon'ble High Court on the subjects of cancellation of the original assessments under section 66A of the repealed Ordinance and whether the assessee's plea with regard to the income not being fee for technical services was rightly rejected. A perusal of the assessment order passed by the Assessing Officer shows' that he has described the assessee as a resident in the description part of the assessment order and the assessment is said to have been made under sections 62/80AA. A perusal of section 80AA shows that this is a non obstante provision and excludes the application of other provisions of the repealed Ordinance. If the Assessing Officer was going to make an assessment under section 80AA of the repealed Ordinance, then the provisions of section 62 of the repealed Ordinance could not be invoked. We also find that neither the provisions of section 80AA nor section 62 have properly been followed. It would be useful to reproduce these two sections which read in the following manner:‑‑
"80AA. Tax on income of non‑residents from fees for technical services.‑‑‑(1) Notwithstanding anything contained in this Ordinance, where any consideration by way of fees for technical service referred to in the Explanation to subsection (5) of section 12 if received or is deemed to be received by, or accrues or arises or is deemed to accrue or arise to, a non‑resident, the whole of such consideration shall be deemed to be income of the non‑resident and, tax thereon shall be charged at the rate of twenty per cent of such income.
(2)A non‑resident referred to in subsection (1), or an agent authorised by him in this behalf, shall prepare and furnish to the Deputy Commissioner within thirty days from the last day of each of period of six months in every financial year, that is to say, the thirty‑first day of December and the thirtieth day of June, respectively, a return, in respect of each such period of six months as aforesaid, showing therein full particulars of the income referred to in the said subsection:
Provided that, where such non‑resident is likely to leave Pakistan in any six month period as aforesaid or shortly after its expiry and he has no present intention of returning to Pakistan, the provisions of section 81 shall so far as may be, apply as if references to financial year, the return of total income, the income year, the order of assessment, the assessment year and rate of tax were references to the corresponding provisions of this section.
(3)On receipts of such return, the Deputy Commissioner may, after calling for such particulars, accounts or document as he may require, determine the income referred to in subsection (2) and charge tax thereon in accordance with the provisions of this section.
(4)Nothing contained in this Ordinance shall be so construed as to allow any expense against the income determined under subsection (3).
(5)The tax paid under this section shall, to the extent that the income of the non‑resident is chargeable under this section, be deemed to be the final discharge of this tax liability under this Ordinance, and he shall not be required to file the return of total income tinder section 55 or be entitled to claim any refund or adjustment on the basis of such return.
(6)The provisions of this section shall not apply to a non‑resident in respect of any consideration referred to in subsection (1), for rendering technical services under an agreement entered into on or before the thirtieth day of June."
"(62)Assessment on production of accounts evidence, etc.‑‑‑(1) The Deputy Commissioner, after considering the evidence on record (including evidence, if any, produced under section 61) and such other evidence as the Deputy Commissioner may require, on specific points, shall, by an order in writing; assess the total income of the assessee and determine the tax payable by him on the basis of such assessment:‑‑
Provided that where the assessee produces books of account as evidence in support of the return, the Deputy Commissioner shall, before disagreeing with such accounts, give a notice to the assessee of the defects in the accounts and provide an opportunity to the assessee to explain his point of view about such defects and record such explanation and the basis of computation of total income of the assessee in the assessment order.
(2)Where a person is authorized by the Central Board of Revenue under section 7 to assist the Deputy Commissioner in making an assessment and the Deputy Commissioner disagrees with the opinion of such peon on any point concerning assessment, the Deputy Commissioner shall record, in the order under subsection (1), the opinion of such person and the reason for his disagreement with such opinion."
5. Under the provisions of subsection (2) of section 80AA, a non resident was required to file a six monthly return to the Deputy Commissioner and under subsection (3) the Deputy Commissioner was required to determine the income referred to in subsection (2) and charge tax thereon in accordance with the provisions of section 80AA. As. already mentioned above, in the present case, the assessee has filed a return under section 55 of the repealed Ordinance and there is only one return filed by the assessee for the whole year which does non fulfil the requirement of section 80AA of the repealed Ordinance as already reproduced above. The Assessing Officer has also passed a consolidated order and that too for two years instead of passing two orders for one year. The Assessing Officer has assessed the income C under sections 62/80AA as per history or past practice, rejecting the assessee's claim to be assessed under sections 22 and 23 of the repealed Ordinance without issuing a notice which is the requirement of natural justice. Although the proviso in section 62 of the repealed Ordinance refers to the assessment to be made under section 62 of the repealed Ordinance after giving the assessee a notice of defects in the book where the books have been produced as evidence, we feel that the assessee's claim of being assessed under section 62 read with section 22 could not be brushed aside without providing the assessee an opportunity of being heard.
6. As we have already said above, the assessment order passed by the Assessing Officer fulfils neither the requirements of section 62 nor 80AA of the repealed Ordinance, we are inclined to annul this assessment for the assessment year 2000‑2001.
7. Before parting with this order, we would like to make few observations with regard to the provisions of law under section 80AA of the repealed Ordinance. Such law was a non‑obstante provisions and required the assessee to file two returns in a year. However it does not make any provision for the Assessing Officer to force the assessee or taxpayer to file the returns and there is no prescribed form under this section, or at least none has been pointed out to us at the time of hearing of the appeal. Also we find a proviso to subsection (2) of section 80AA of the repealed Ordinance which requires a non‑resident assessee to file a return of total income by reference to section 81 of the repealed Ordinance. Such provision does not take care of the situation where a non‑resident company ceases its operations before the expiry of similar six months. It just presumes that a non‑resident person receiving fee for technical services is an individual. The definition of non‑resident in sub‑clause (c) of clause (40) of section 2 of the repealed Ordinance refers to the control and management of the affairs in Pakistan. In the present day circumstances, the controls shift more easily as compared to the past since the relaxation of exchange control. This situation has also to be taken into care while reconsidering the chargeability of income from fey for technical services in the hands of a non‑resident person. A copy of this order may be communicated to the Member (Direct Taxes) of C.B.R. for his attention.
8. As a result of the above discussion, the assessee's appeal succeeds to the extent that the orders of the departmental officials are annulled.
C.M.A./128/Tax (Trib.)Appeal allowed.