I.T.As. Nos. 840/KB and 848/KB of 2005, decided on 23rd May, 2006. VS I.T.As. Nos. 840/KB and 848/KB of 2005, decided on 23rd May, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2859 (2006)

(a) Income Tax Ordinance (XLIX of 2001)---

----Ss. 169, 170(4), 148(7)(9), 122 (5A) & 2(2)---Tax collected or deducted as a final tax---Value of goods---Firs Appellate Authority found that for the purpose of calculating the tax under S.169 of the Income Tax Ordinance, 2001 the value of the goods imported shall be the value, ignoring the customs duty and sales tax, if any levied thereon and Taxation Officer was directed to compute the Income and Tax accordingly and if any refund became due by way of excessive deduction that shall be paid to the assessee after due verification---Validity---Section 148(7) of the Income Tax Ordinance, 2001 read with definition of "value of goods" under S.148(9) of the Income Tax Ordinance, 2001 along with S.109 of the Income Tax Ordinance, 2001 were very much clear and left no doubt so as to form different opinion that customs duty and sales tax shall be included in the value of the imported goods---At the time of collecting the Income Tax on the import of the goods, value of the goods was to be taken as value of the goods which shall be the value of the goods plus income tax (sales tax) and customs duty---Appellate Tribunal allowed the appeals of the Department and annulled the orders of the First Appellate Authority under section 170 and 122(5A) of the Income Tax Ordinance, 2001.

Civil Petition No.364-L of 2002, decided on 6th July, 2004 and 2005 PTD 194 ref.

1994 PTD 848 ref.

Messrs Madina Enterprises Ltd. v. Federation of Pakistan and others Constitution Petition No.598 of 2001, decided on 14th September, 2004 rel.

(b) Income tax---

----Admission by authorized representative---Effect---Admission on the part of representative contrary to the statutory law had no legal significance, as such the order which was purely based on such admission could not be relied upon.

Messrs Madina Enterprises Ltd. v. Federation of Pakistan and others Constitution Petition No.598 of 2001, decided on 14th September, 2004 rel.

Dr. Faiz Ellahi Memo. D.R. for Appellant.

Mazharul Hassan for Respondent.

ORDER

The Department in above captioned appeals pertaining to Tax year 2004 has taken common objection to the orders, dated 16-4-2005 and 23-5-2005.

I.T.A. No.840/KB of 2005

2. The Department has challenged the order, dated 16-4-2005passed by the learned CIT(A) bearing No.CIT/VI/2004/421, directing to the effect to exclude the income tax collected on the amount of sales tax and customs duty for the purpose of section 148(7) read with definition of "value of goods" under section 148(9) further read with section 169 of the Income Tax Ordinance, 2001. Initially the Taxation Officer mentioned that the word `income' includes any amount which is subject to collection or deduction of tax under section 148 thus the case of the taxpayers for issuing of refund does not maintain consideration and un-maintainable under the law, hence rejected the request for issuance of refund involving section 170(4) of the Income Tax Ordinance, 2001. Order, dated 29-3-2005 was challenged before the learned CIT(A) who vide order, dated 16-4-2005 decided the issue observing hereunder:--

"I shall feel no hesitation while ordering that for the purpose of calculating the tax under section 169 the value of the goods imported shall be the value, ignoring the Custom Duty and Sales Tax, if any levied thereon and Taxation Officer is directed to compute the Income and Tax accordingly and if any refund becomes due by way of excess deduction that shall be paid to the assessee after due verification."

I.T.A. No.848/KB of 2005

3. The another appeal for the same tax year arise from an order under section 122 (5A) of the Income Tax Ordinance, 2001 on the same issue. The facts reveal that the Assessing Officer rejected the version of the assessee observing hereunder:--

"It has become clear that refund claimed at Rs.529,559 in the statement under section 115(4) was not justified which is accordingly rejected and the imports made by the taxpayers are charged to tax as per specified rates worked out hereunder:--

Value of goods imported

(including sales and customs duty)52,188,100

Tax deducted @ 6% in accordance

with rates specified in Part-II of

The 1st Schedule to the Income Tax

Ordinance, 20013,131,286

4. The learned CIT(A) in Appeal bearing No.CIT(A)/VI/2004/452 vide order, dated 23-5-2005, cancelled the order of the Taxation Officer again observing hereunder:--

"Respectfully following the decision of Hon'ble Supreme Court of Pakistan cited as Civil Petition No.364-L of 2002, decided on 6th July, 2004 in the case of Deputy Collector of Customs, Railway Station Lahore, v. Messrs Abdul Ghaffar Abdul Rehman and others, I feel no hesitation while ordering that for the purposes of calculation the Tax under section 169 the value of the goods imported shall be the value ignoring the customs duty and sales tax, if any levied thereon, as such the order passed by the learned IAC under section 122(5A) is devoid of any rule hence cancelled."

5. In the circumstances supra, the only issue which requires consideration is "as to whether the learned CIT(A) was justified in holding "that for the purpose of calculating the tax under section 169 the value of the goods imported shall be the value ignoring the customs duty and sales tax, if any levied thereon. However, before dilating on the issue involved in these appeals, we would like to refer section 169 and subsection (7) of section 148 of the Income Tax Ordinance, 2001 which reads as under:-

"169. Tax collected or deducted as a final tax.---(1) This section shall apply where---

(a) the collection of advance tax is a final tax under subsection (7) of section 148 or subsection (5) of section 234 on the income to which it relates; or

(b) the deduction of tax is' a final tax under subsection (6) or (7) of section 153, subsection (4) of section 154 subsection (3) of section 156 subsection (2) of section 156A of subsection (1) and (3) of section 233 or clause (a) and clause (b) of subsection (1) of section 233A on the income from which it has been deducted.

(2) Where this section applies-

(a) the income shall not be chargeable to tax under any head of income in computing the taxable income of the person;

(b) no deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the income;

(c) the amount of the income shall not be reduced by--

(i) any deductible allowance under Part IX of Chapter III; or

(ii) the set off of any loss;

(d) the tax deducted shall not be reduced by any tax credit allowed under this Ordinance; and

(e) there shall be no refund of the tax collected or deducted unless the tax so collected or deducted is in excess of the amount for which the taxpayer is chargeable under this Ordinance.

(3) Where all the income derived by a person in a tax year in subject to final taxation under the provisions referred to in subsection (1) or under sections 5, 6 and 7, an assessment shall be treated to have been made under section 120 and the person shall not be required to furnish a return of income under section 114 of the year."

"(148). Imports.---(1) The Collector of Customs shall collect advance tax from every importer of goods on the value of the goods at the rate specified in Part-II of the First Schedule.

(7) Except in the case of an industrial undertaking importing goods as raw materials plant, machinery and equipment for its own use, the tax collected under this section shall be a final tax on the income of the importer arising- from the imports subject to subsection (1)"

6. Section 169 as well as subsection (7) of section 148 of the Income Tax Ordinance, 2001 is crystal clear and there may not be two opinions that the tax collected under section 148 of the Income Tax Ordinance, 2001 is a final tax on income of the importer arising from the importer subject to subsection (I) and the plea that the assessee does not enjoy any element of profit (income) on the levies in fact has no significance. In this respect it would be necessary to refer subsection (2) of section 2 of Income Tax Ordinance, 2001:---

"Income" includes any amount chargeable to tax under this Ordinance, any amount subject to collection or deduction of tax under sections 148, 153, 154 and 156, subsection (5) of section 234 any amount treated as income under any provision of this Ordinance and any loss of income but does-not include, in case of a share holder of a company, the amount representing the face value of any bonus share or the amount of any bonus declared, issued or paid by the company to the shareholders with a view to increasing is paid up share capital".

7. Contrary to provisions of law the learned CIT(A) allowed the relief to favour the assessee on the issue giving effect to the decision of Supreme Court of Pakistan reported as 2005 PTD 194. The Supreme Court of Pakistan in this case did not allow leave to appeal from the order of the Lahore High Court reported as 1994 PTD 848, wherein it has been held that presumptive tax liability under the Income Tax Ordinance, 1979 (repealed) in respect of finished goods imports shall be based on value of goods imported only, "not inclusive of sales tax and customs duty etc." leviable at import stage. Accordingly, the CIT(A) has directed that the appellant is entitled for refund on account of excess income tax collected at import stage which has been considered as full and final discharge of tax liability under section 80C of the Income Tax Ordinance, 1979 (repealed).

8. The learned DR in the circumstances vehemently argued that the order of the learned CIT(A) is based on Ramna Pipe Mills' case (1994) PTD 848, however, in that case the learned counsel for the Department conceded contrary to law and on the other hand Hon'ble High Court has also not decided the issue on merits but on admission due to the consent of the learned representative of the Department. The learned DR in furtherance of his argument also stressed that in this context judgment, dated 14-9-2004 passed by the Hon'ble High Court of Sindh in Constitution Petition No.598 of 2001 is most relevant, well discussed and comprises definite finding.

9. Perused the record. The relief has been allowed by the learned CIT(A) in favour of assessee in view of order of .the Supreme Court, reported as 2000 PTD 194 wherein admittedly the Supreme Court refused the leave to appeal from the order of the Lahore High Court reported as 1994 PTD 848. In fact the issue has been decided at the level of the High Court as per order reported as 1994 PTD 848 due to admission of the counsel representing the Department that sales tax and customs duty is not to be included in the import value for deduction of tax under section 50(5) of the repealed Ordinance. The Hon'ble Lahore High Court vide its order referred above to neither discussed the issue nor dilated the legal controversy involving relevant provisions of law but has summarily accepted the version of the learned counsel for the Department which is apparently contrary to statutory provisions. Section 148(7) read with definition of value of goods under section 148(9) and further read with section 109 of the Income Tax Ordinance, 2001 are very much clear and leave no doubt so as to form different opinion that customs duty and sales tax shall be included in the value of the imported goods.

10. We are therefore, the considered opinion that admission on the part of the Departmental representative contrary to the statutory law has no legal significance, as such the order of the Lahore High Court which is purely based on admission cannot be relied upon as an authoritative judgment on this issue. This Sindh High Court has passed a specific order on relevant issue taking into consideration subsection (5) of section 50 and section 80C of the Income Tax Ordinance, 1979 (repealed). In this context we would like to refer the order recorded in Constitution Petition No.598 of 2001 in case of Messrs Madina Enterprises Ltd. v. Federation of Pakistan and others wherein the Hon'ble High Court held as under:--

"The tax under sub-clause (5) of section 50 of the Ordinance is collected on the value determined under section 25 of the Customs Act, 1969 (hereinafter referred to the "Act"), which provides that for the purpose of determining the value, the normal price of an imported goods shall be determined by including in the prices, duties and taxes applicable in Pakistan. Sub-clause (5) of section 50 of the Ordinance provides that the Collector of the Customs shall in the case of every import of goods, collect advance tax computed on the basis of the value of such goods as increased by the customs duty and sales tax, if any, levied thereon at the rate specified in the First Schedule and credit for the tax so collected in any financial year".

"Having gone through section 25 of the Act and sub-clause (5) of section 50 of the Ordinance, at the time of collecting the income tax on the import of the goods, value of the goods is to be taken as value of the goods determined under section 25 of the Act along with customs duties and sales tax, if any, to be paid on it."

11. The above referred provisions of Income Tax Ordinance, 2001 are same in the sense and in this context provisions of repealed Income Tax Ordinance, 1979 i.e. except change of sections, there is no difference between the two sections which are fully applicable in present case. Besides the above order in Constitutional Petition was not agitated before the Supreme Court, hence it has attained finality, whereas the order of the Lahore High Court is based on the statement of learned counsel for the Income Tax Department who conceded on this issue stating that while charging income tax under section 80C of the Income Tax Ordinance, 1979 the amount paid as sales tax and in terms of customs duty cannot deem to be the income of the petitioner and thus cannot be subjected to the payment of income tax whereas the Supreme Court refused leave to appeal for a reason although different from issue in present appeal. Para-5 of the order reproduced hereunder would clear the situation that the issue involved was not subject-matter of leave to appeal:

Para-5 of the order:

"In the instant case the Authorities of Customs Department are merely collectors of tax on behalf of the Income Tax Department. The Income Tax Department has not filed any petition against the impugned judgment despite the Act that it was a party in the writ petition and was represented by the same learned Counsel Mr. Muhammad Ilyas Khan, Advocate. The Collector of Customs though a party in the writ petition and never contested the matter, had never appeared and had never filed any comments."

12. In the circumstances, the order, dated 14th September, 2004 in Constitutional Petition No.598 of 2001 can be safely relied upon being a latest judgment on the relevant issue, wherein after great deal of discussion, the Hon'ble Bench of the High Court Sindh at Karachi has arrived at a conclusion that at the time of collecting the Income Tax on the import of the goods, value of the goods is to be taken as value of the goods shall be the value of the goods plus income tax and customs duty. In this judgment with reference to case of Ramna Pipe and General Mills Ltd. v. Federation of Pakistan, the Court observed that "we have gone through it but failed to conceive that how the proposition in the said matter is applicable to the instant case". In the circumstances, when on this issue, specific view has been recorded in the latest Judgment of the Karachi Bench of the Sindh High Court and because the earlier decision of the Lahore High Court is apparently open to objection as it has not reached finality after proper inquiry and suffers from a legal defect as per Karachi High Court, there would be no bar to deviate from the order of the Lahore High Court being a decision which could not reasonably have been reached on the material before the authority if the counsel would have not conceded.

13. Since the issue in both the appeals is common, hence in both the years under appeal we find .reasons to accept the version of the Department. Consequently we allow the appeals of the Department and annul the orders of the learned CIT(A) under section 170 and 122(5A) of the Income Tax Ordinance, 2001.

14. Appeals are accordingly allowed.

C.M.A./140/Tax(Trib.)Appeals allowed.