Messrs PAKSAUDI FERTILIZERS LIMITED VS COMMISSIONER OF INCOME-TAX
2005 P T D 1607
[Karachi High Court]
Before Sarmad Jalal Osmany and Amir Hani Muslim, JJ
Messrs PAKSAUDI FERTILIZERS LIMITED
Versus
COMMISSIONER OF INCOME‑TAX and others
I.T.A. No. 915 of 1999, decided on /01/.
th
February, 2005. (a) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑S. 136‑‑‑Appeal to Nigh Court‑‑‑Interpretation of agreement is a question of law.
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑Ss. 50(4), 80‑C, 136, 143‑B & Second Sched., Part IV, Cl. (9)‑‑ Sales of Goods Act (III of 1930), Ss. 4(1) & 5(1)‑‑‑Contract Act (IX of 1872), Ss. 182, 211, 222 & 223‑‑‑Agreement for distributing and marketing products of Manufacturing Company after its purchase by Marketing Company‑‑‑Deduction of advance Income Tax by Marketing Company on payments made to Manufacturing Company for such purchase‑‑‑Claim of Manufacturing Company to be assessed under S.80‑C of Income Talc Ordinance, 1979‑‑‑Appellate Tribunal rejected such claim as no supplies as envisaged by S.50(4) of Income Tax Ordinance, 1979 were involved‑‑‑Validity‑‑‑Question decided by Tribunal was, whether. Manufacturing Company was not entitled to benefits of S.80‑C of Ordinance upon such deductions made from its payments by Marketing Company‑‑‑Such exercise would involve interpretation of agreement between the parties, which was a question of law‑‑‑Only question of law decided by Tribunal would be appealable before High Court‑‑‑Present appeal did raise questions of law decided by Tribunal‑‑‑Agreement in question involved an outright purchase of products of Manufacturing Company by Marketing Company to distribute and market same‑‑‑All essential elements of a contract of agency were missing in such agreement between parties‑‑‑Such agreement envisaged outright sale of products of Manufacturing Company to Marketing Company‑‑‑Advance tax deducted under S.50(4) of the Ordinance upon payment made by Marketing Company would qualify Manufacturing Company to claim benefits of S.80‑C thereof for disputed year‑‑‑High Court accepted appeal and, set aside the impugned order.
Rehmatuallh Khan v. Government of Pakistan 2003 SCMR 50; Concentrate Manufacturing Company of Ireland v. Seven‑Up Bottling Company Pvt. Ltd. 2002 CLD 77; Coca Cola Beverages Pakistan v. Abdul Hameed Chaudhry 2001 YLR 568; Pakistan Paper Corporation v. National Trading Company Ltd. 1983 CLC 1695; Caltex Oil (Pakistan) Ltd., Karachi v. Rehanuddin PLD 1958 (W.P.) Lah. 63; World Wide Trading v. Sanyo Electric Trading Co. Ltd. PLD 1986 Kar. 234; Vijay Tranders v. Bajaj Auto Ltd. 1995 SCC 566; Sri Tirumala Venkateswara v. Commercial Tax Officer AIR 1968 SC 784; State of Mysore v. Mysore Spinning AIR 1958 SC 1002; Hope P & Co. v. Hamel and Horley Ltd. AIR 1925 PC 161; Gordon Woodroffe and Co. v. Shaikh M.A. Majid and Co. AIR 1967 SC 181; CIT/WT v. Prime Dairies Ice Cream Ltd. 1999 PTD 4147; Messrs Nafees Cotton Mills Lid. v. Income Tax Appellate Tribunal, Lahore 2001 PLD 1380; CIT v. Shaikh Muhammad Ismail and Co. 1986 SCMR 968; Irum Ghee Mills Ltd. v. ITAT 1998 PTD 3835; Inland Revenue Commissioner v. Wesleyen General Assurance Society 1948 ITR 101; Lachminarayan Madan Lal v. CIT West Bengal AIR 1972 SC 439; GEC Avery (Pvt.) v. Government of Pakistan and others 1995 PTD 856; Asian Food Industries v. Pakistan and others 1985 SCMR 175; Nazeer Ahmed v. Pakistan and 11 others PLD 1970 SC 453 and Mehran Associates v. CIT Karachi 1993 SCMR 274 ref.
Mrs. Yasmeen Lari v. Registrar ITAT 1990 PTD 967 rel
(c) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑S. 136‑‑‑Appeal to High Court‑‑‑Only a question of law decided by Appellate Tribunal would be appealable before High Court.
(d) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑Ss. 50(4) & 80‑C‑‑‑Deduction of advance income tax from payments made by the payer to payee/assessee‑‑‑Claim for benefits of S.80‑C of Income Tax Ordinance, 1979 by assessee‑‑‑Validity‑‑‑Assessee merely on basis of such deduction would not automatically qualify to claim such benefits‑‑‑Upon filing of return by assessee claiming such benefits, Income Tax Officer would allow or refuse such benefits depending upon his opinion as to whether or not a supply or service had been made/ rendered by assessee to payer‑‑‑Principles.
C.I.T. v. Prime Dairies Ice Cream Ltd. 1999 PTD 4147 rel.
(e) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑Ss.80‑C & Second Sched., Part IV, Cls. (9)‑‑‑Presumptive tax regime, option to avail‑‑‑Scope‑‑‑Unless such option was exercised, assessee would continue to be taxied under normal law‑‑‑Law gave an unfettered right to assessee to opt in or out of presumptive tax regime under S.80‑C of Income Tax Ordinance, 1979‑‑‑Past history of assessee (i.e. of opting in or out of such regime), thus, would be of no consequence.
Khalid Anwar for Appellant.
Muhammad Farid for Respondents.
Dates of hearing: 14th, 15th April, 5th 6th, 12th May, 2004 and 7th February, 2005.
JUDGMENT
SARMAD JALAL OSMANY, J.‑‑‑This Appeal impugns the order, dated 21‑9‑1999 passed by the learned Income Tax Appellate Tribunal whereby it has been held that as National Fertilizers Marketing Limited (Marketing Company) is an agent of the appellant Company viz. Pak Saudi Fertilizer Limited, hence there could be no question of any sale to the former by the latter and consequently the Appellant Company could not claim any benefits under the presumptive tax regime per section 80‑C of the Income Tax Ordinance, in which event normal assessment under section 62 of the Ordinance would be applicable.
2. The following questions of law have been raised in his Appeal:‑‑
(i)Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal was justified in treating the Appellant as a Private Limited Company when the Appellant fell within the definition of a public limited Company?
(ii)Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal was justified in holding that the case of the Appellant did not fall within the ambit of section 80C and the Respondent No.2 was justified in finalizing the assessment under normal law?
(iii)Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal was justified in holding that the transaction between the Appellant and National Fertilizers Marketing Ltd., was not in the nature of Sales and Tax was not deductible on such transactions under section 50(4) and therefore these transactions did not fall within the ambit of section 80C?
(iv)Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal was justified in holding that the agreement between the Appellant and National Fertilizers Marketing Ltd., was an agency agreement and not an agreement of sale and purchase?
(v)Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal was justified in holding that the Respondent No.2 has powers to pass an order under section 62 even in cases where statement under section 143‑B has been filed?
(vi)Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal was justified in holding that the action of the Respondent No.2 was within his jurisdiction and authority?
(vii)Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal was justified in rejecting the option exercised by the Appellant under Clause 9 of Part IV of the Second Schedule to be assessed under the presumptive tax regime?
3. Briefly stated the facts of the matter are that the Appellant Company is fully owned by the National Fertilizer Corporation, which is working under the administrative control of the Ministry of Production. The Appellant Company is involved in the production of Urea and allied products and from time to time has entered into agreements with the Marketing Company for the sale of its products on the terms and conditions appearing therein. Accordingly, advance income tax under the provisions of section 50(4) of the Ordinance was deducted by the Marketing Company on the payments made to the Appellant Company. For the assessment year 1998‑99, the Appellant Company filed a statement under section 143‑B of the Ordinance claiming that it qualified for assessment under section 80‑C as it had made supplies to the Marketing Company on which advance tax had been deducted. The DCIT rejected the claim of the Appellant Company and upon appeal before the CIT (Appeals) the order of the DCIT was upheld. As noted above the same fate befell the Appellant Company before the learned Tribunal.
4. Mr. Khalid Anwar appearing for the Appellant Company has firstly submitted that the view of the department as well as the learned Tribunal that the agreement in question is an agency agreement is not sustainable at all. In this regard, he has referred to the title of the agreement, dated 30‑6‑1987, which is a sale agreement and the recitals thereof, which provide for the sale of the fertilizers by the Appellant Company to the Marketing Company. Similarly, learned counsel has referred to the other clauses of the agreement viz. 1, 2 and 3 which all relate to the sale in question and clause 4 which provides for delivery and inspection of the product. Similarly clause 8 which disclaims any warranty for the product by the Appellant Company and clause (11) regarding, the advertisement of the product as well as clause (14) providing for the indemnity extended by the Marketing Company to the Appellant Company for any claims against the product. Per learned counsel the above provisions of the sale agreement establish beyond any reasonable doubt, that intact there was an outright sale of the product to the Marketing Company by the Appellant Company. Hence, the decision of the learned Commissioner as well as the Tribunal against the Appellant Company is fallacious as it is based on extraneous considerations viz. that the entire sale price was not charged to the Marketing Company but some allowance was made for incidentals per the agreement etc. In this respect learned counsel has submitted that admittedly in the invoices issued by the Appellant Company there is no such adjustment. In settlement of such invoices payments were made in full by the Marketing Company less the advance income tax. Further more, per learned counsel, in a contract of sale per section 4 of the Sale of Goods Act, the title in the goods must pass for the contract to become enforceable as has been done in the instant case. Finally, learned counsel has submitted with regard to the transaction between the two companies that per section 182 of the Contract Act an agent is a person employed by any other person to do any an act for and on behalf of the latter so as to bind him, which element is entirely missing from the agreement ill question. Similarly, sections 213 and 212 of the Contract Act provide for the rights and obligations of an agent vis‑a‑vis his principal i.e. to account for the sale/profits/losses, which is again missing in the present case as evidenced by the sale agreement in question. Finally, learned counsel has submitted that per sections 222 and 223 of the Contract Act an agent acting in good faith must be indemnified by the principal against the consequences of that Act. In contrast the agreement between the parties clearly states that the Marketing Company shall protect, defend and indemnify the Appellant Company against any and all claims, which clearly show that there is no relationship of agent and principal between the two companies. In support of his arguments, learned counsel has relied upon Rehmatuallh Khan v Government of Pakistan (2003 SCMR 50, 52); Concentrate Manufacturing Company of Ireland v. Seven Up Bottling company Pvt. Ltd. 2002 CLD 77; Caltex Oil (Pakistan) Ltd., Karachi v. Rehanuddin (PLD 1958 (W.P.) Lahore 63), World Wide Trading v. Sanyo Electric Trading Co. Ltd. (PLD 1986 Karachi 234), Vijay Tranders v. Bajaj Auto Ltd. (1995 SCC 566), Sri Tirumala Venkateswaia v. Commercial Tax Officer (AIR 1968 SC 784), State of Mysore v. Mysore Spinning (AIR 1958 SC 1002), Hope P & Co. v. Hamel and Horley Ltd. (AIR 1925 Privy Council 161), Gordon Woodroffe and Co. d. Shaikh M.A. Majid and Co. (AIR 1967 SC 181), Coca Cola Beverages Pakistan Ltd. v. Abdul Hameed Chaudhry, Proprietor, Khurram and Co., (2001 YLR 568) Pakistan Paper Corporation Ltd. v. National Trading Company (NTC) Ltd. (1983 CLC 1695).
5. The next argument put forward by learned counsel is that per section 80C of the Ordinance, any amount received under which tax is deductible under section 50(4) shall be deemed to be the total income tax liability of the assessee. Hence, per learned counsel, the nature of the transaction is totally immaterial to the applicability of section 80C of the Ordinance. Consequently in view of the fact that the supplies were made by the Appellant Company for which payment was received less the advance income tax is sufficient for the Appellant Company to claim the benefit of section 80C. In this regard learned counsel has also referred to section 50(4) of the Ordinance, which provides for the deduction of advance income tax on supplies/sales made by one person to another. Hence, per learned counsel; the ITO's reason for not accepting the return under section 80C i.e. since no advance tax was payable under section 50(4) cannot be substantiated since upon a plain reading of such section tax is to be, deducted on the supplies/sales made by the Assessee to another person/company. For this submission learned counsel has relied upon: CIT/WT v. Prime Dairies (1999 PTD 4147).
6. Next learned counsel has referred to the reliance of the Commissioner (upheld by the learned Tribunal) upon the past history of the Marketing Company i.e. that it sought an exemption from being subjected to tax under section 80(D) (turn over tax) on the basis that the sales made by it did not represent its own sales but in fact it acted as an agent of the producing companies viz. Pak Saudi Fertilizer Company, Pak Arab Fertilizer Company, Pak American Fertilizer Company and Lyallpur Chemical and Fertilizer Company and Hazara Phosphate and Fertilizer Company (which alongwith the Marketing Company are fully owned units of the National Fertilizer Corporation Limited). Such exemption was granted by the C.B.R. vide office memorandum 11‑1‑2003 per learned counsel, however, in this memorandum it is clearly mentioned that in the Marketing Company's Books the sales on behalf of other units of the National Fertilizer Corporation shall not be included to the turn over of the Marketing Company. Hence, as the word "sale" has been used it cannot be interpreted as any thing else. According to Learned Counsel as turn over tax was being paid twice i.e. once by the producing companies on sale to the Marketing. Company and also by the Marketing Company upon its sale to consumer., hence exemption was being sought although the liability was admitted.
7. For all the foregoing reasons learned counsel has prayed that the appeal be allowed and the impugned order as well as the orders of the ITO, DCIT, and Commissioner be set aside.
8. On the other hand, Mr. Muhammad Farid appearing on behalf of the Respondents has firstly raised a preliminary objection that the appeal does not raise any question of law arising from the decision of the learned Tribunal and hence is to be dismissed on this short ground alone. In this respect per learned counsel only one issue was decided by the learned Tribunal viz. whether the supply of fertilizers by the Appellant Company to the Marketing Company was in the nature of a sale so as to attract the provisions of section 80C of the Ordinance. This issue was dependent upon the interpretation of the agreement between the two companies and accordingly the learned Tribunal came to the conclusion that this was an agency agreement after consideration of all the facts and circumstances of the case and hence the Appellant Company could not take the benefit of section 80C. In view of the foregoing, per learned counsel, as such interpretation involves a question of fact the appeal is not maintainable. In support of this submission learned counsel has relied upon Messrs Nafees Cotton Mills Ltd. v. Income Tax Appellate Tribunal, Lahore (2001 PLD 1380), CIT v. Shaikh Muhammad Ismail and Co. (1986 SCMR 968) and Iram Ghee Mills Ltd. v. ITAT (1998 PTD 3835).
9. Secondly, learned counsel has submitted that prior to the assessment year in question, the Appellant Company was being assessed normally under section 62 of the Ordinance. However, for the assessment year 1998‑99 the Appellant Company filed a statement under 143‑B of the Ordinance claiming assessment under section 80C while placing reliance upon the agreement in question between the Companies. Per learned counsel the matter was discussed between the Appellant Company and the Revenue Authorities as a result of which the ITO passed the assessment order rejecting the stand taken by the Appellant Company which was upheld by the DCIT as well as by CIT and the learned Tribunal. Learned counsel has fully supported the version of the Revenue Authorities since the various clause of the agreement provide of the distribution and marketing of the Appellant Company's fertilizer by the Marketing Company viz. that the latter was an agent of the former. In this respect learned counsel has referred to the recitals of the agreement and clauses 1, 2 and 3 thereof. Clause 1.2 provides for the appointment of the Marketing Company to carry on the business of distribution and marketing of the product of selling or causing to sell the same as the Marketing Company may determine. Similarly, per clause 2.1, the Marketing Company is to use its best endeavours to promote the sale of the products and under clause 2.2 the Marketing Company may engage dealers for the purpose of effecting sales of the product etc. per learned counsel under Clause 3.1(a) of the agreement again, incidental expenses have been allowed to the Marketing Company viz. Rs.850 per metric ton. Finally, under Clause 4.2 entitled Delivery and Inspection the Marketing Company representative has the right to enter the factory premises and carry out quality control checks etc., so as to determine the .marketability of the product. In view of the foregoing provisions of the agreement learned counsel has submitted that the same had been executed by the Appellant Company with a view to market its products through the Marketing Company, and as such the latter was an agent of the former. In this connection learned counsel has further submitted that according to well‑settled principles of the interpretation of documents, it is not the title pf the document which would control its legal character and nature but the intention of the Parties is always taken into consideration while deciding this issue. In this respect, he has referred to the decision of the House of Lords in Inland Revenue Commissioner v. Wesleyen General Assurance Society (reported in 1948 I.T.R 101) wherein it has been held inter alia that the name given to a transaction by the parties concerned does not necessarily decide the nature of the transaction. So also he has replied upon the case of Lachminarayan Madan Lal. v. CIT West Bengal (AIR 1972 SC 439) in this regard.
10. Finally, learned counsel has submitted that deduction at source under section 50(4) of the Income Tax Ordinance does not automatically entitle the assessee to take advantage of the benefits provided under section 80C of the Ordinance since this provision would only be applicable when the tax is deductable under the law under section 50(4) and not when it is deducted at the option of the assessee. In this connection he has further submitted that per the Scheme of section 50(4) of the Ordinance, all assesses are bound to deduct income‑tax at source on all sales/supplies made by them to others and the ITO is not bound at the stage of deduction/collection of tax to examine whether or not this would give rise to the assessee's claim to be taxed under section 80C of the Ordinance. Per learned counsel this exercise would be done by the ITO after the return has been filed where-after it would be open for him to decide whether the case is covered under section 80C or not. .In this regard; learned counsel has relied upon CIT v. Prime Dairies Ice Cream Ltd. (1999 PTD 4147) and GEC Avery (Pvt.) v. Government of Pakistan and others 1995 PTD 856.
11. For all the foregoing reasons learned counsel has prayed that the Appeal be dismissed.
12. In reply Mr. Khalid Anwar has firstly submitted that insofar as the preliminary objection of Mr. Muhammad Fareed is concerned in income tax matters the interpretation of a contract is always a question of law. For this proposition, he relied upon Mrs. Yasmeen Lari v. Registrar ITAT (1990 PTD 967).
13. Regarding the history of the Appellant Company vis‑a‑vis Section 80‑C of the Ordinance, per learned counsel under Clause 9 of Part IV of the Second Schedule, section 80‑C would not apply to a manufacturer who opts out of the presumptive tax regime and the company chose to do so up to the assessment year 1997‑98, up to which year it was taxed under the normal law. Thereafter vide, the Finance Act, 1998., Manufacturer of goods were required to submit an option in writing if they wish to be charged to tax under the provisions of section 80C read with section 50(4) of the Ordinance which option would hold good for a period of three years. Per learned counsel such option was exercised by the Appellant Company in writing and hence cannot be rejected on the basis that in the past the assessment had been finalized under the normal provisions of the Ordinance.
14. Next, learned counsel has submitted that the ITO concerned was initially adamant that the Appellant Company should be assessed under section 80C of the Ordinance per his letter, dated 9‑9‑1998 in which he has stated that "it was agreed upon that legible copies of the tax deducted under 50(4) on account of supplies made to National Fertilizer Marketing Company Limited Lahore up to 31‑8‑1998 will be sent to this office". Per learned counsel as the ITO has considered the sales made to the Market Company as supplies for the purpose of section 50(4), now he cannot change his opinion and reject the assessment of the Appellant Company under section 80C. For this proposition learned counsel has relied upon Asian Food Industries v. Pakistan and others (1985 SCMR 175) and Nazeer Ahmed v. Pakistan and 11 others (PLD 1970 SC 453).
15. Finally learned counsel has submitted that per settled law if there is any doubt regarding the interpretation of a fiscal statute, the same is to, be resolved in favour of the citizen. Hence, he has emphasized that the amounts deducted under section 50(4) by the Marketing Company on the payments made by it to the Appellant Company be declared as a, final discharge of the latter's tax liability under section 80C of the Ordinance. In support of this submissions he has relied upon Mehran Associates v. CIT Karachi, (1993 SCMR 274).
16. We have heard both the learned counsel and our conclusions are as follows:--
17. As regards the preliminary objection raised by Mr. Muhammad Farid, it would be seen that the fundamental issue decided by the learned Tribunal is that in the facts and circumstances of the case the Appellant Company did not have the right to be assessed under section 80C of the Ordinance which involves the interpretation of the agreement in question between the two companies. In ancillary issue decided by the learned Tribunal was that no advance income tax was deductible by the Marketing Company on the, payments made by it to the Appellant Company since no supplies were involved contemplated under section 50(4) of the Ordinance and hence the option exercised by the Appellant Company under clause 9 of the Part IV of the Second Schedule to the Ordinance was rejected. In our opinion the interpretation of the agreement in question in the facts and circumstances of the case is a question of law as the claim of the Appellant Company to be assessed under section 80C of the Ordinance is dependent upon such interpretation. In this regard reference may be made to the case of Mrs. Yasmeen Lari v. Registrar Income Tax Appellate Tribunal (supra). Secondly, the question/issue whether or not the Appellant Company has the right to be assessed under section 80C of the Ordinance once advance income tax had been deducted under section 50(4) on the payments made to it, ipso facto, is a pure question of law. Consequently, we cannot agree with Mr. Muhammad Farid that the appeal does not raise any question of law decided by the learned Tribunal. Insofar as the cases cited by learned counsel in support of his preliminary objection, it would be seen that in the same the appeal filed before the High Court was held not to be maintainable as no question of law decided by the learned Tribunal was impugned since these were considered to be issues of fact. We are in agreement with this settled proposition of law as in terms of section 136 of the Income Taxi Ordinance only a question of law decided by the learned Tribunal is appealable before the High Court. As already observed, the questions raised before this Court are questions of law which have been decided by the learned Tribunal.
18. We would now like to address the question whether or not the Appellant Company has the right to be assessed, ipso facto under section 80C of the Ordinance once advance income tax had been deducted under section 50(4) on the payments made to it by the Marketing Company for supply of the fertilizers (Question No.V). In this connection it would be beneficial to reproduce both sections 50(4) and 80C of the Ordinance. Section 50(4) of the Ordinance provides as follows:‑‑
50(4)(a)
"any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person (being resident) (hereinafter referred to respectively as "payer" and "recipient") on account of the supply of goods or for service rendered to, or the execution of a contract with the Government, or a local authority, or (a company) (or a registered firm) or any foreign contractor or consultant or consortium shall, (where the total value, in any financial year, of goods supplied or contracts executed exceeds ten thousand rupees) deduct advance tax, at the time of making such payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessment to whom section 72 or section 81 applies, the assessment year, if any, in which the "said date", as referred to therein, falls, whichever is the later.
(provided that the provisions of this clause shall, mutatis mutandis, apply to any payment made on or after the first day of July, 1992, to any non‑resident person as they apply to any payment made to a resident recipient on account of execution of a contract for construction, assembly or like project in Pakistan.")
Section 80C of the Ordinance provides as follows:‑‑
(1)Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where any amount referred to in subsection (2) is received by or accrues or arises or is deemed to accrue or arise to any person (being a resident), the whole of such amount shall be deemed to be income of the said person and tax thereon shall be charged at the rate specified in the First Schedule.
(2)The amount referred to in subsection (1) shall be the following namely:‑‑
(a)Where the person is a resident;
(i)the amount representing payments on which tax is deductible under subsection (4) of section 50, other than payments on account of services rendered;
(ii)the amount as computed for purpose of collection of tax under subsection (5) of section 50 in respect of goods imported, not being goods imported by an industrial undertaking as raw material for its own consumption; and
(iii)the amount on which tax is deductible under subsection (7A) of section 50 in respect of lease of right to collect octroi duties, tolls, fees or other levies, by whatever named called;
19. Upon a perusal of section 50(4)(a) of the Ordinance it would be seen that it charges any person responsible for making any payment to another person on account of supply of goods or services rendered where the total value exceeds Rs.50,000 or Rs.10,000 in any financial year respectively as the case may be, to deduct advance income tax at the rate specified in the first schedule. Accordingly, credit for the income tax liability of the recipient shall be given as regards such amounts deducted in advance subject to the provisions of section 53 of the Ordinance Concurrently section 80C(1) read with section 80C(2)(i) provides that the amount representing payments on which tax is deductible under section 50(4) shall be deemed to be the income of the assessee/payer and tax thereon shall be charged at the rate specified in the First Schedule Reading both the provisions of section 50(4)(a) and 80C(2)(a)(i), it would he seen that the word used in the latter provisions with respect to discharge of income tax liability vis‑a‑vis a resident are "the amount representing payments on which tax is deductible under subsection (4) of section 50, other than payments on account of services rendered consequently, in our view where the word used in "deductible" and not deducted . it cannot be said that merely because advance income tax has been deducted from the payments made by the payer, to the payee/assessee, the latter would qualify to claim the benefits of section 80C of the Ordinance. We would therefore, agree with Mr. Muhammad Farid that once the return has been filed by the assessee claiming the benefits of the presumptive tax regime, it would be open for the ITO to allow or refuse such benefits depending upon his opinion as to whether or not indeed, a supply or service had been made/rendered by the assessee to the payer. Insofar as the case cited by Mr. Khalid Anwar is concerned viz. CIT v. Prime Dairies Ice Cream Ltd. (supra), therein a learned Division Bench of Lahore High Court came to the conclusion that the expression supplies as used in section 50(4) of the Ordinance does include sales. It was further held that the object of the section is efficient and quick collection of tax in advance which amounts to assessment of liability subject to section 9 which is the charging section of the Ordinance. In our view to the contrary, this decision supports the contentions of Mr. Muhammad Farid that mere deduction of tax at source under section 50(4) does not automatically entitle the assessee to claim the benefits under section 80C of the Ordinance since section 9 thereof clearly lays down that income tax shall be charged, levied and paid by every person in respect of the total income for the year subject to the provisions of the Ordinance. Question No. V as framed is therefore, answered in the positive.
20. We would now advert to the merits of the case which is the main question decided by the learned Tribunal i.e. whether in the facts and circumstances, the Appellant Company was not entitled to the benefit of the presumptive tax regime embodied in section 80C of the Ordinance this exercise, in our opinion, involves the interpretation/appreciation of the agreement between the Parties. We would hence proceed to examine the relevant portions of the agreement which are necessary to decide this controversy. In this connection, it would be seen that the Agreement is entitled as a "Sale Agreement" and in the recitals it is stipulated that the Appellant Company carries on the business of manufacturing fertilizer whereas the Marketing Company has the know‑how and experience to distribute and market the same and consequently the former has agreed to sell the latter such fertilizer for the purpose of marketing and distribution on the terms and conditions appearing in the said agreement. Thereafter Clauses 1, 2 and 3 of the Agreement provide, for the appointment of the Marketing Company to carry on the business of distribution and marketing of the fertilizer, the scope of services to be rendered by the Marketing Company and the prices at which the fertilizer is to be sold to the Marketing Company by the Appellant Company. Thereafter Clause 4 provides for the delivery and the inspection of the fertilizers and Clause 8 is a disclaimer by the Appellant Company regarding any warranty etc. for the fertilizer in question. Finally, Clause 14 of the Agreement provides for indemnification by the Marketing Company to the Appellant Company against all claims etc. is regards the purchase, storage and transportation of the fertilizer after it has been delivered to the Marketing Company. From a bare perusal of the aforegoing provisions of the agreement it is quite clear that although the Marketing, Company has been appointed to distribute and market the fertilizers, the fact remains that there was an outright purchase of the same from the Appellant Company, and upon the payments thereon advance income tax was also deducted by the Marketing Company. As much is an admitted position before us. In this regard it would also be seen that under section 4(1) of the Sales of Goods Act, a contract for sale of goods has been defined as one where the seller transfers or agrees to transfer the property in goods to the buyer for a price and per section 5(1) thereof the contract is made by an offer to buy or sell goods for a price and the acceptance of such offer. In our opinion, therefore, the true meaning and import of the agreement in question in the facts and circumstances of the case, can be nothing else than the outright purchase of the fertilizers by the Marketing Company from the Appellant Company. It may be that the agreement, particularly in Clauses 1, 2 and 3 thereof provide for the marketing and distribution of the fertilizers by the Marketing Company which may indicate the concept of agency however, this is negated by the fact that there is an outright sale. In this connection, it may be beneficial to consider the various provisions of the Contract Act, which define the concept of agency. According to section 182 thereof, an agent is a person employed to do any act for another or to represent another in dealing with third, person. The person for whom such act is done, or who is so represented, is‑ called the "principal". Further under section 211 of the Act an agent is bound to conduct the business of his principal according the directions given by the latter and per section 213 the agent is bound to render proper accounts to his principal on his demand. Finally, it would be seen that under sections 222 and 223 of the Contract Act an agent in acting in good faith must be indemnified by the principal against the consequences of such acts. In our opinion all the above essential elements of a contract of agency are missing in the agreement between the parties. In this regard reference can be made to the cases of Concentrate Manufacturing of Ireland v. Seven Up Bottling Company Pvt. Ltd. and Pakistan Paper Corporation v. National Trading Company (supra) cited by learned counsel for the Appellant. For all the foregoing reasons, we cannot agree with learned counsel for Respondent that in the facts and circumstances of the case the relationship between the two companies was in the nature of agency. Consequently, Question Nos. (iii) and (vi) are answered in the negative.
21. Next, we would advert to the past history of the Appellant Company vis‑a‑vis the presumptive tax regime embodied in section 80C of the Income Tax Ordinance. In this respect, it would be seen that this section was inserted in the Act vide Finance Act, 1991 and Cause 9 of the Part IV of the Second Schedule thereof gave the manufacturer the right to opt out of the same. Vide Finance Act, 1996 the words "opt out" appearing in the aforementioned clause were substituted by the words "opts for". This means therefore, that unless the option to avail the presumptive tax regime is exercised the manufacturer would continue G to be taxed under the normal law. Admittedly, the Appellant Company did not exercise this option until the assessment year in question viz. 1998‑99. In this view of the matter, vie are of the opinion that where the law gives an unfettered right to the assessee to opt in or out of the presumptive tax regime under section 80C of the Ordinance, then the past history of the assessee i.e. of opting in or out of this regime is of not consequence.
22. For all the foregoing reasons, we are of the opinion that the agreement between the two companies envisages the outright sale of the fertilizers manufactured by the Appellant Company to the Marketing Company. Consequently, the advance income tax deducted under section 50(4) of the Ordinance upon the payments made by the latter to the former qualify to be treated as the income of the Appellant Company under section 80C of the Ordinance for the year in question.
23. In view of the foregoing discussion we would set aside the impugned order passed by the learned Tribunal as well as the orders passed by the lower forums throughout. This Appeal is allowed. The assessment of the Appellant Company shall be finalized for the year in question under section 80C of the Income Tax Ordinance Accordingly Question Nos. (ii), (vi) and (vii) are answer in the negative. As question No.(i) was never argued before us and indeed does not arise from the impugned order it need not be answered. Appeal stands disposed off.
S.A.K./P‑33/KOrder accordingly.