VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1751 (2004)

Income Tax Ordinance (XLIX of 2001)---

----Ss.233, 170(4), 169, 120, 115(4) & 114---Brokerage and commission---Franchisee---Commission agent---Claim of refund was rejected on the ground that the tax had been deducted under S.233 of the Income Tax Ordinance, 2001 which fell under the ambit of S.169 of the Income Tax Ordinance, 2001 and was the final tax liability under Presumptive Tax Regime---Assessee was required to furnish statement under S.115(4) of the Income Tax Ordinance, 2001 instead of return of income under S.114 of the Income Tax Ordinance, 2001---Assessee contended that he was merely a franchisee and not an agent of the company and as such his relationship with the company/deducting agent was not that of a commission agent---Appeal was allowed by the First Appellate Authority and Taxation Officer was directed to issue refund---Validity---According to the agreement, assessee was also appointed sub-dealer for the business---Definition of "Franchised dealer" showed that even a `franchisee' had a similar role as that of an `agent' in its wider perspective---Fact as to whether the return filed under S.114 of the Income Tax Ordinance, 2001 was a valid return or not and the fact that S.120 of the Income Tax Ordinance, 2001 stipulated that only such return was to be taken to be an assessment which needed to be reexamined---Emphasis in S.120 of the Income Tax Ordinance, 2001 was on the "furnishing of a complete return of income"---Whether return filed under S.114 of the Income Tax Ordinance, 2001 was a complete and correct return of income needed to be examined---Matter needed to be re-examined in detail with original scheme and spirit of law by the framer of Universal Self-Assessment Scheme and procedure adopted accordingly---Order of First Appellate Authority was set aside and case was remanded for re-adjudication on the basis of guidelines given by the Appellate Tribunal.

Black's Dictionary ref.

Shahabuddin Ousto, D.R. for Appellant.

Ameeruddin Shaikh for Respondent.

Date of hearing: 26th April, 2008.

ORDER

These two departmental appeals are filed against the order of Commissioner of Appeals, wherein the learned CIT(A) had after discussing the arguments and grounds of appeals filed at his level directed the Taxation Officer to issue refund of excess payment to the appellant which had become due in the absence of any adverse order in the field. Taxation Officer was directed to issue the refund to the appellant after necessary verification if no other legal action is pending to this date.

2. Brief facts of the case are that the appellant is an individual running a Franchise of Pakistan Mobile Communication Ltd. to solicit customers for PMCL mobile services and PMCL products and to provide services to PMCL customer subject to the terms and conditions set out in the agreement. The assessee filed return for tax year 2005 under section 114 of the Income Tax Ordinance, 2001 declaring income of Rs.4,35,870 and claimed refund of Rs.8,13,220 and for the tax year 2006 declared income of Rs.4,95,000 and claimed a refund of Rs.7,75,573. Presuming that assessments are deemed to have been finalized under section 120(6) of the Income Tax Ordinance, 2001, the taxpayer expected refund which was not issued. The taxpayer applied for refund against which the Taxation Officer passed on order under section 170(4) of the Income Tax Ordinance, 2001, wherein, the Taxation Officer rejected the claim of taxpayer for both these years with the observations that the tax in this case has been deducted under section 233 of the Income Tax Ordinance, 2001, which as such falls under the ambit of section 169 of the Income Tax Ordinance and which is accordingly the final tax liability under the presumptive tax regime. The Taxation Officer has also mentioned the fact that the taxpayer was required to have furnished statement under section 115(4) of the Income Tax Ordinance, 2001, instead of return of income under section 114. Accordingly the claim of refund was rejected by the Taxation Officer. It is against this treatment that the taxpayer filed appeal before the CIT(A), which was allowed by the learned CIT(A) and the department was directed to issue refund. Hence this appeal before the Tribunal.

3. We have examined the matter in its totality. Whereas, the learned CIT(A) has confined his findings to the procedural issue of issuing refund if due in case the assessment is deemed to have been finalized under section 120(b) of the Income Tax Ordinance, 2001. We are however, of the opinion that the issue involved in these two appeals is of more fundamental nature with far-reaching consequences. It would therefore, be appropriate to examine the issue in totality with the spirit of law as envisaged under sections 114, 115, 169 and 120.

4. Section 114 read as under.

Return of Income: (1) Subject to this Ordinance, the following persons are required to furnish a return of income of a tax years, namely:--

[(a) every company]

[(ab) every person (other than a company) whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this Ordinance for the year;]

[(ac) any non-profit organization as defined in clause (36) of section 2; and]

[(ad) any welfare institution approved under clause (58) of Part 1 of the Second Schedule;]

[(b) any person not covered by clauses [(a), (ab), (ac) or (ad)] who:

(i) has been charged to tax in respect of any of the two preceding tax year;

(ii) claims a loss carried forward under this Ordinance for a tax year;

(iii) owns immovable property with a land area of two hundred and fifty square yards or more or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory].

[(2) A return of Income--

(a) Shall be in the prescribed form and shall be accompanied by such annexures, statements or documents as may be prescribed.

(b) Shall fully state all the relevant particulars or information as specified in the form of return, including a declaration of the records kept by the taxpayer; [and]

(c) Shall be signed by the person, being an individual or the person's representative where section 1'72 applies]

[(2A) A return of income filed electronically on the web or any magnetic media or any other computer readable media as may be specified by the Board shall also be deemed to be a return for the purpose of subsection (1) and the Board may, by Notification in the official Gazette, make rules for determining eligibility of the data of such returns and e-intermediaries who will digitize the data of such returns and transmit the same electronically to the Income Tax Department under their digital signatures].

(3) The Commissioner may, by notice in writing, require a person, or a person's representative, as the case may be to furnish a return of income by the date specified in the notice for a period -of less than twelve months, where--

(a) the person has died;

(b) the person has become bankrupt or gone into liquidation;

(c) the person is about to leave Pakistan permanently;

(d) The Commissioner otherwise it appropriately require such a return to be furnished.

(4) Subject to subsection (5) the Commissioner may, by notice in writing, require any person who, in the Commissioner's opinion, is required to file a return of income under this section for a tax year [or assessment year] but who has failed to do so to furnish a return of income for that year within thirty days from the date of service of such notice or such longer period as may be specified in such notice or as the Commissioner may allow.

(5) A notice under subsection (4) may be issued [in respect of one or more] [of the] last five completed tax years [or assessment years].

(6) Any person who, having furnished a return, discovers any omission or wrong statement therein, may furnish a revised return within five years of the date that the original return was furnished.

(7) Every return purporting to be made or signed by, or on behalf of a person shall be treated as having been duly made by the person or with the person's authority until the person proves the contrary.

5. Section 115(4) on the other hand states as under:--

(4) Any person who is not obliged to furnish a return for a tax year because all the person's income is subject to final taxation under sections 4, 5, 6, 7, 15, 133-B, 148, clauses (a), (b) and (d) of subsection (1) of section 151, sections 52, 153, 154, 156 and 156-A, subsection (3) of section 233, clauses (a) and (b) of subsection (1) of section 233-A or subsection (5) of section 234 shall furnish to the Commissioner a statement showing such particular relating to the person's income for the tax year in such form and verified in such manner as may be prescribed.

6. Section 120 reads as under:--

"120. Assessment: (1) Where a taxpayer has furnished a complete return of income (other than a revised return under subsection (6) of section 114) for a tax year ending on or after the 1st day of July, 2002;

(a) the Commissioner shall be taken to have made an assessment of taxable income for that tax year, and the tax due thereon, equal to those respective amounts specified in the return; and

(b) the return shall be taken for all purposes of this Ordinance to be . an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished.

7. Section 169 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 clauses (a), (b) and (d) of subsection (1) of section 151, subsection (1-B) of section 152 subsection (6) or section 153, subsection (4) of section 154, section 155 subsection (3) of section 156, subsection (2) of section 156 or subsections (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.

8. A plain reading of these sections reveals that the Income Tax Ordinance has categorically identified the persons and situations where a taxpayer is liable to file either return of tax under section 114 or a statement under section 115/169 if it falls in the category defined under section 115. It will be of importance to mention here that Income Tax Ordinance, 2001 and the Universal Self Assessment Scheme introduced, places great responsibility and trust on the taxpayers not only to declare correct and complete income but also to identify whether his income falls under normal tax regime or under the presumptive tax regime. It is to be noted that the question of a valid or an invalid return also arises here' which needs to be properly understood and appreciated. In this particular case the taxpayers withholding of tax was made by the company under section 233 of the Income Tax Ordinance, 2001, which withholding in fact falls under the presumptive tax regime as provided in sections 115 and 169. The tax payer on the contrary has filed the return of income under section 114, despite the knowledge of having his tax withholding made under section 233 of the Income Tax Ordinance,- 2001. At the time of hearing of appeal the taxpayer has taken the plea that taxpayer is merely a Franchisee and not an agent of the company and as such his relationship with the company is not that of a commission agent. In this context the A.R. of the taxpayer has provided the company of the agreement between the taxpayer and the PMCL as well as quoted certain case-laws to highlight the facts that the relationship is not that of an agent but of a Franchisee. While going through the copy of agreement between taxpayer and Franchiser it was observed that the taxpayer in the case could also appoint sub-dealers for the business after approval and permission of PMCL, while examining the taxpayer plea that he is a Franchisee the definition of Franchiser and Commercial Franchisee as appearing in the Black's Dictionary was examined which is reproduced as under:

Franchised dealer. A retailer who sells the product or service of a manufacturer or supplier under a franchise agreement which generally protects the territory for the retailer and provides advertising and promotion support to him.

9. The definitions show that even a Franchisee has a similar role as that of an agent in its wider perspective.

10. Since the fact as to whether the return filed under section 114 was a valid return or not and the fact that section 120 stipulates that only such return is to be taken to be an assessment which is complete needs to be re-examined.

11. The emphasis in section 120 as we have seen is on the `furnishing of a complete return of income'. Whether in this case the return filed under section 114 was a complete and correct return of income needs to be examined.

12. After examining all these issues we are of the opinion that matter needs to be re-examined in detail with original scheme and spirit of law by the framer of Universal Self-Assessment Scheme and procedure adopted accordingly. In this, view of the matter the order of the learned CIT(A) is set aside and case of the taxpayer is remanded back for re-adjudication on the basis of guidelines given above.

13. The appeals succeed to the extent mentioned above.

C.M.A./57/Tax(Trib.)Order accordingly.