I.T.A. No.1150/KB of 2005, decided on 9th January, 2007. VS I.T.A. No.1150/KB of 2005, decided on 9th January, 2007., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1550 (2007)

(a) Income-tax---

----Evidence---If the evidence produced by the assessee was not reliable in the opinion of Taxation Officer, then he should have recorded his reasons for the same indicating its infirmities or have discarded its probative value.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.12(5) & 80AA---Income deemed to accrue or arise in Pakistan--Fee for technical services or reimbursement of cost---Burden of proof--Departmental officers had not discharged their onus and burden to establish that the payments made to the assessee constituted its income was not discharged---There was no material evidence in the assessment order which could be relied upon to hold that the payments made to assessee were fees for technical services in contrast to reimbursement cost as was claimed by the assessee---No evidence as opposed to claim of assessee had been brought on record despite specific request by the assessee during the assessment proceedings which fact had not been denied---If a receipt was not income, it could not be charged under S.12(5) read with S.80AA of the Income Tax Ordinance, 1979.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.12(5) & 80AA---Income deemed to accrue or arise in Pakistan--Reimbursement of cost was treated as fee for technical services but no evidence was led in support of such treatment---Validity---Evidence proved that the assessee had received only re-imbursement---Departmental officer. failed to establish that the receipt of the assessee was the income, which was pre-requisite for charge of tax under S.12(5) of the Income Tax Ordinance, 1979---Departmental officer had not brought anything on record to suggest that the receipt had the character of income or it had accrued during the year under consideration or it fell within the definition of fee for technical services---Evidence was available on record that the payments received by the assessee were mere re-imbursement of certain costs and did not fall under the definition of 'income'---Assessment was not sustainable in law which had rightly been annulled by the First Appellate Authority.

Messrs Tapal Energy (Pvt.)'s case 1997 PTD 1555 and 1991 PTD 999 rel.

Fahim-ul-Haq, D.R. for Appellant.

Arshad Siraj for Respondent.

ORDER

The department in this appeal has objected to the impugned order of the learned C.I.T.(A) dated 17-6-2005, on the following ground:---

"That the learned Commissioner of Income Tax Appeals was not justified to annul the order passed by the Assessing Officer by holding that no income was accrued to the company whereas the assessee company is a technical advisor and thus income accrued to it is a fee for technical services."

2. We have heard the learned representatives of both the sides and also perused the impugned order and the assessment order.

3. We have found that in this case on behalf of the assessee, it has been contended that it has not earned any income and the receipt of payment was on account of reimbursement cost of expenses paid by them on behalf of the Power Project of Messrs. Tapal Energy Ltd. The record shows that the assessee company has requested the departmental officers to bring on record any evidence which can establish that payment to the assessee-company is its income and earned in consequence to rendering of services of managerial, technical or consultancy nature relevant to income year of the assessee. In support the assessee has produced third party evidence and auditors certificates before the Assessing Officer. However, the evidences were brushed aside and entirely ignored without any valid and legal justification. In case the evidences produced by assessee were not reliable in the opinion of the T.O. then he should have recorded his reasons towards its infirmities or have discarded their probative value relied by the assessee. We have not seen any other piece of evidence contrary to one produced by the learned A.R. nor even facts having appearance of truth which inclines the mind to disbelieve or disprove the evidences consistent to bear fact that the amount received is re-embursement costs paid by the assessee on behalf of Messrs Tapal Energy (Pvt.). Learned A.R. has rightly referred to a case reported as 1997 PTD 1555 wherein it is held by the Hon'ble Supreme Court of Pakistan that before charging tax, an assessee must be shown to have received income or the same has arisen, accrued or deemed to be so under the statute. Any amount which cannot be treated as above is not an income and, therefore, cannot be subject to tax. Learned A.R. has also relied on another case reported as 1991 PTD 999 wherein it was observed that the burden of proof of the fact that any receipt by a person is an income `is on the revenue'. In the present case, the departmental officers have not discharged their onus and burden to establish that the payment made to the assessee constitutes its income. We have not been able to find out any material evidence from the assessment order which could be relied to hold that the payment made to the assessee is fees for Technical Services in contrast to reimbursement cost as is claimed by the assessee. No evidence as opposed to the claim of the assessee has been brought on record despite specific request by the assessee during the assessment proceedings which fact has not been denied. Once a receipt is not income, it cannot be charged under section 12(5) read with section 80AA of the repealed Ordinance, 1979. It will be worthwhile to reproduce the certificate of Auditors Messrs KPMG dated 16-5-2001 which was also placed before the Assessing Officer:---

"On the basis of our work we report that nothing has come to our attention which causes us to believe that the expenditure amounting to US $ 3,854,66227 was not incurred by the Company on behalf of TEL in respect of its power plant project in Tapal Pakistan."

Besides above, the other evidences also prove the case of the assessee that it has received only re-imbursement. The departmental officer has failed to establish that the receipt of the assessee is the income, which is pre-requisite for charge of tax under section 12(5) of the repealed Ordinance, 1979. The departmental officer has not brought anything on record to suggest that the receipt has the character of income or it has accrued during the year under consideration or it falls within the definition of fee for technical services as defined under Explanation to subsection (5) of section 12 of repealed Ordinance, 1979. There is however an evidence on record as quoted supra. That the payment received by the assessee was mere re-imbursement of certain costs and does not fall under the definition of income read with section 12(5) of the said' Ordinance. The assessment made by the T.O. therefore is not sustainable in law which has rightly been annulled by the learned C.I.T.(A).

4. The appeal filed by the department is therefore, dismissed.

C.M.A./30/Tax(Trib.)?????????????????????????????????????????????????????????????????????????? Appeal dismissed.