PREMIER MERCANTILE SERVICES (PVT.) LTD. VS COMMISSIONER OF INCOME TAX, KARACHI, 2007 PTD-KARACHI-HIGH-COURT-SINDH 2521 (2007)

Income Tax Ordinance (XLIX of 2001)---

----Ss.115(4), 122(5A), 153(1)(c) & 153(6)---Final tax liability---Stevedoring, business of---Assessee was providing stevedoring services through contract---Assessee filed income tax statement under S.115(4) of Income Tax Ordinance, 2001, treating tax deducted on receipts as final tax liability---Income tax return filed, by assessee was not accepted by Assessing Officer as final discharge of tax liability but Appellate Authority accepted the tax return filed by assessee---Income Tax Appellate Tribunal set aside the order passed by Appellate Authority and restored that of the Assessing Officer---Validity---Receipts from business of stevedoring fell within the ambit of S.153(6) of Income Tax Ordinance, 2001---Tax deducted on such receipts was final discharge of tax liability of the receipts---Order passed by Income Tax Appellate Tribunal was set aside---Question raised in reference answered in negative in favour of assessee---Reference was disposed of accordingly.

2002 PTD 288 = (2001) 84 Tax 183 (Trib.) ref.

Iqbal Salman Pasha for Applicant.

Aqeel Ahmed Abbasi for Respondent.

ORDER

MUHAMMAD ATHAR SAEED, J.---This Income Tax Reference Application has been filed against the order of the Income Tax Appellate Tribunal, dated 30-11-2005 in ITA No. 1106/KB/2004 proposing the following questions for the opinion of this Court:--

(i) To whether the learned Income Tax Appellate Tribunal was justified in deciding the appeal without appreciating and considering the legal objection in regard to maintainability of appeal on account of jurisdiction as the appeal was filed by the Taxation Officer (Legal Division), LTU, Karachi and not by the Commissioner of Income Tax, Legal Division, Large Taxpayer Unit, Karachi.

(ii) That the appeal filed by the "Taxation Officer (Legal Division), LTU, Karachi being in clear violation to section 131(1) of Income Tax Ordinance, 2001, whether the Income Tax Appellate Tribunal was justified in admitting the appeal which was filed by the Taxation Officer .and not by the Commissioner of Income Tax.

(iii) Whether the Income Tax Appellate Tribunal was justified in not dismissing the appeal as the same was filed in clear violation to the provisions of section 131(1) of Income Tax Ordinance, 2001.

(iv) No notice under Clause (e) of subsection (3) of section 114 having been issued not served on the taxpayer, whether the Income Tax Appellate/Tribunal was justified in restoring and confirming the order passed by Additional Commissioner of Income Tax/Taxation Officer-C, Audit Division, LTU, Karachi.

(v) Whether the Income Tax Appellate Tribunal was justified in restoring `the. order under section 122(5A) although neither the Commissioner of Income Tax or the Additional Commissioner of Income Tax under the powers delegated under section 210 can amend, modify and/or alter a deemed order passed under section 120 on the basis of a "statement under section 115(4), without issuing a notice under section 114(3)(e) of Income Tax Ordinance, 2001.

(vi) Whether the proceedings initiated and the order passed by the Additional Commissioner of Income Tax under section 122(5A) were in accordance to law although there is no finding that the deemed order was "erroneous insofar as it is prejudicial to the interest of Revenue" and whether the Income Tax Appellate Tribunal was justified in confirming -the order passed under section 122(SA) of Income Tax Ordinance, 2001.

(vii) Whether the Income Tax Appellate Tribunal was justified in confirming that the receipts from the business of stevedoring for the Tax year, 2003 does not relates to contractual receipts, hence, does not fall within the ambit of section 153(1)(c) of Income Tax Ordinance, 2001.

(viii) That the word "Professional" was deleted from Clause (c) of section 153(1) vide Finance Act, 2003 applicable from 1-7-2003 and no retrospective application was expressed, whether the Income Tax Appellate Tribunal was justified in confirming that the receipts from the business of stevedoring does not qualify as final tax liability under section 153(6) of Income Tax Ordinance, 1979.

(ix) Whether the Income Tax Appellate Tribunal was justified in confirming that the receipt from the business of stevedoring does not qualify as final tax liability under section 153(1)(c), although upto the Tax Year, 2003 only the receipts for rendering or providing professional services were excluded from the said provision of law.

(x) Whether the Income Tax Appellate Tribunal was justified in confirming the order passed under section 122(5A) by relying on an earlier decision reported as 2002 PTD 288 = (2001) 84 Tax 183 (Trib.) although the same is distinguishable as it relates to provision of law incorporated in the Repealed Income Tax Ordinance of 1979.

(xi) Whether the Income Tax Appellate Tribunal was justified in confirming that the receipts from the business of stevedoring does not fall within the ambit of section 153(1)(c) on the assumption that these are non-contracts executed by the appellant.

2. Brief facts of the case are that the applicant a private limited company has been providing stevedoring service to its clients. Since these services were admittedly provided through contract, the applicant filed a statement under section 115(4) of the Income Tax Ordinance, 2001 treating the tax deducted on these receipts as the final tax liability in accordance with the provisions of section 153(6) of the Income Tax Ordinance, 2001. The Taxation Officer issued notice under section 122(9) and amended the order under section 122(5A) of the Income Tax Ordinance by holding that these receipts being service receipts do not fall within the ambit of section 153(6) and, therefore, tax deducted on such receipts cannot be treated as final tax liability on these .receipts and that these have to be assessed under normal law and the order was modified to the extent that income was computed in accordance with the profit as per profit and loss account and tax levied thereon.

3. Being aggrieved by the above order the applicant filed an appeal before the CIT(Appeals) who vide his order No. CIT(A)/I/2004/16, dated 14-6-2004 accepted the appeal and cancelled the order under section 122(5A) and restored the order under section 120(1).

4. Being aggrieved by the order of the CIT(Appeals) present respondents/the Commissioner of Income Tax filed an appeal before the Income Tax. Appellate Tribunal who vide the impugned order vacated the order of the CIT(Appeals) and restored the order passed by the Taxation Officer under section 122(SA) of the Income Tax Ordinance. Hence this reference application:

5. We have heard Mr. Iqbal Salman Pasha the learned counsel for the applicant and Mr. Aqeel Ahmed Abbasi the learned counsel for the respondent:

6. Mr. Iqbal Salman Pasha the learned counsel for the applicant at the very outset submitted that he will first argue on the last three questions i.e. questions Nos.9, 10 and 11 and if he can satisfy the Court on these three questions then he will not press the other questions. The learned counsel took us through the provisions of sections 153(1), 153(6) and 153(9) of the Income Tax Ordinance, 2001. He submitted that clause (a) provides for deduction of tax on payment on sale of goods, clause (b) provides for deduction of tax on payment for rendering of services and clause (c) provides for deduction of tax on execution of a contract other than a contract for sale of goods or rendering of services. The learned counsel submitted that services have been defined in section 153(9) and this definition has included the services of accountants; dentists, doctors, engineers, interior decorators and lawyers only. He further submitted that under subsection 6 the tax deducted .under section 153 shall be final tax on the income of resident person arising from transaction referred to in subsections 1(a) and 1(c). According to the learned counsel since the services on which tax has to be deducted under clause (b) will only be professional services as defined in subsection 153(9) of the Income Tax Ordinance, 1979, therefore, contractual services other than services defined in section 153(9) which have specifically been excluded from the purview of clause (c) of section 151, will fall under clause (c) and, therefore, tax deducted on such services shall be final tax liability in accordance with provisions of section 153(6). The learned counsel also relied on a Circular No.6 of 2003, dated 9th July, 2003 issued by Central Board of Revenue. In this Circular, the C.B.R. while explaining the important provisions relating to withholding tax incorporated vide Finance Act, 2003, has specified that persons providing other type of services such as security companies will fall within the presumptive tax regime. He, therefore, submitted that since the order is in accordance with law therefore action could not be taken under section 122 of the Income Tax Ordinance for amending the same.

7. The learned counsel for the respondent Mr. Aqeel Ahmed Abbasi took us through the amendments made in section 153 vide Finance Act, 2002 and Finance Act, 2003. He submitted that vide Finance Act, 2002, the word `professional' was omitted from clause (b) of section 153(1) whereas .vide Finance Ordinance, 2003 the word `professional' was omitted from clause (c) of section 153(1) and also subsection (9) of section 153. On the basis of these amendments the learned counsel submitted that since the word `professional' was omitted from sub-clause (c) of section 153(1) and clause 153(9) in 2003, therefore, it will apply for year, 2004 and not for tax year, 2003. He further submitted that due to deletion of the word `professional' in sub-clause (b) of section 153(1) clause (b) has been extended to all services. The learned counsel also argued that the Honourable Supreme Court has already held that C.B.R does not figure in the hierarchy of the forums who can interpret the provisions of the various Acts and, therefore, no reliance can be placed on their interpretation and explanation of various provisions.

8. We have examined the questions in the light of the arguments of the learned counsel and have carefully perused the provisions of various subsections of section 153 as stood on 30-6-2003. Since subsection (1), subsection (6) and subsection (9) of section 153 are the subject-matter of the present controversy, it will be relevant to reproduce them:--

153. Payment for goods and services.---(1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of non-resident person---

(a) for the sale of goods;

(b) for the rendering of services;

(c) on the execution of a contract, other than a contract for the sale of goods or the rendering of services.

Shall, at the time of making the payment, deduct tax from -the gross amount payable at the rate specified in Division III of Part III of the First Schedule.

(2) ---------------------------------------------------

(3) ---------------------------------------------------

(4) ---------------------------------------------------

(5) ---------------------------------------------------

(6) The tax deducted under this section shall be a final tax on the income of a resident person arising from transactions referred to in clause (a) or (c) of subsection (1).

(7) ---------------------------------------------------

(8) ---------------------------------------------------

(9) In this section,--"prescribed person" means---

(a) the Federal Government;

(b) a company

(c) an association of persons

(d) a foreign contractor or consultant;

(e) a consortium or joint venture;

(f) an exporter or an export house for the purpose of subsection (1A).

services includes the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee; and

"sale of goods" includes a sale of goods for cash or on credit, whether under written contract or not.

9. From a 'combined reading of these subsections it emerges that initially professional services and then services have been defined to include the services of accountants, dentists, doctors, engineers, interior decorators and lawyers only and dour not include other services. We cannot subscribe to the arguments of the learned counsel for the respondent that all services will fall under clause (b) of subsection (1) of section 153 as the services which have been defined in subsection (9) are services of those persons who require professional qualification to provide these services and, therefore, according to the rule of ejusdem generis which is one of the principles of interpretation, only such type of professional services which require the person to have a professional degree may be included in this definition and in our opinion stevedoring does not require a professional degree and will, therefore, not fall in the definition of services which have been excluded from the provisions of clause (c). It is an admitted fact that all the receipts are contractual receipts received for providing stevedoring services. We would also like to point out that though C.B.R. does not figure in the hierarchy of the forums whose interpretation or explanation is binding, but, if a law has been correctly interpreted by C.B.R., it cannot be rejected for this reason only. Even .otherwise, as far as the respondents are concerned they are bound under section 214 of the Income Tax Ordinance, 2001 to follow the directions of .the Central Board of Revenue although the directions of the C.B.R are not binding on the Appellate Authorities. The Tribunal has relied on its earlier judgment reported as 2002 PTD 228 without realizing that in section 50(4) of the Income Tax Ordinance, 1979 which is para materia with section 153(1), services were not defined and there was a C.B.R., Circular which apparently was followed in the earlier judgment wherein it was said that services under contract will also not fall within the presumptive tax regime.

10. In view of the above discussion, we are of the considered opinion that the receipts from business of stevedoring fall within the ambit of section 153(6) and tax deducted on such receipts is final discharge of tax liability of these receipt and, therefore, the order of the Tribunal holding otherwise cannot be sustained.

11. The above are the reasons for our short order passed in Court on 3-10-2007 by which, after hearing the arguments of the learned counsel, we have answered questions Nos. 9, 10 and 11 in negative in favour of the assessee and did not answer the other questions as the learned counsel for the applicant had not pressed them.

12. A copy of this order under the signature of the Registrar and seat of this Court be remitted to the Income Tax Appellate Tribunal for passing of order in conformity with this order.

M.H./P-24/KOrder accordingly.