VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 69 (2006)

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

---Ss.80-C(2)(a)(ii), 143-B & 50(5)---Tax on income of certain contractors and importers ---Value for computation of advance tax ---Collector of Customs shall collect advance tax computed, on the basis of value of such goods as increased by the customs duty and sales tax and for the purpose of S.80-C(2)(a)(ii) Income Tax Ordinance, 1979, the amount computed under S.50(5) of the Income Tax Ordinance, 1979, would be the value of the goods.

Writ Petition No.18268 of 2001; Ramna Pipe's case 1994 PTD 848 and 2003 PTD (Trio) 735 distinguished.

2005 PTD 194 and Writ Petition No.19286 of 2001 ref.

Messrs Madina Enterprises Ltd. v. Federation of Pakistan and others in Constitutional Petition No. 398 of 2001 rel.

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

----S.50(5)---Customs Act (IV of 1969), S.25----Deduction of tax at source---For purpose of income tax on the import of the goods, value of the goods is to be taken as per S.25 of the Customs Act, 1979 plus customs duty and sales tax, if any, paid on it.

Messrs. Madina Enterprises Ltd. v. Federation of Pakistan and others in Constitutional Petition No. 398 of 2001 rel.

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

----Ss.61, 62 & 80C---Notice for production of books of accounts, etc.---Non-issuance of notice ---Return was revised inviting the attention of Taxation Officer for calculating income tax pursuant to S.80C of the Income Tax Ordinance, 1979 on the value of imported finished goods excluding the customs duty and sales tax ---Was not necessary to issue fresh notice in that context being purely a legal issue agitated in view of the judgments of High Court ---No controversy being involved and no explanation was required of whatsoever nature for determination of the issue, in the situation, neither notice under S.61 and S.62 of the Income Tax Ordinance 1979 was necessary nor mandatory.

2003 PTD 739 rel.

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

----Ss.23 & 80-C---Deduction---Exchange loss---Claimed exchange loss was disallowed by observing that it was not possible as the assessee was subject to tax under S.80-C of the Income Tax Ordinance, 1979---Issue having already been decided in favour of Department, appeal was dismissed on the issue by the Appellate Tribunal.

2003 PTD 739 rel.

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

---Ss.30, 23 & 80C---Income from other sources ---Assessment under presumptive tax regime---Profit on bank deposits ---Taxation of---Validity---Presumptive tax regime was entirely different from the normal assessment of tax, neither any total income was computed nor any expenses were allowed, no total income was determined and the entire sales were deemed to be income on which fixed rate of tax was covered---In presumptive tax regime, there was no concept of probe, enquiry or proceedings---Assessing Officer had no option but to decline the claim in this context.

1989 PTD 582 and 1993 PTD 383 rel.

Soli Parekh, C.A. for Appellant.

Rehmatullah Khan Wazir, D.R. for Respondent.

ORDER

The assessee, in the appeal captioned above, has taken objection to learned CIT(A)'s order dated 20-7-2005 (i) confirming the Taxation Officer's action of treating the customs duty and sales tax paid at import stage as income for purposes of calculating the value of imported finished goods subject to tax under section 80C of the repealed Income Tax Ordinance, 1979; (ii) disallowing the exchange loss at Rs.17,51,18,000; (iii) assessing the profit on bank deposit under section 13 instead of section 20. Additionally, it is pleaded that no notice under sections 61 and 62 of the repealed Income Tax Ordinance, 1979 has been served upon the assessee, as such he has been condemned unheard.

2. The assessee is a public limited company deriving income from sale of pesticides and related products. The return of income was filed on 26-11-2002 declaring income of Rs.33,164,597 along with a claim of refund amounting to Rs.22,671,066 accompanied with computation of income sheet, income and tax liability, tax depreciation schedule and audited financial statements, computerized balance sheet, profit and loss account and notes attached thereto as well as statements under section 143-B. In response to notices under sections 61 and 62, complete compliance of the initial notice under section 61 could not be made and on 30-10-2003, the assessee failed to make compliance on due date. On 25-9-2004, fresh notices under sections 61 and 62 were served for 30-9-2004 but the matter was adjourned on the request of the assessee for 30-11-2004. It appears that a revised return was filed under section 57 and as per statement of the learned counsel for the assessee, no notice under sections 61 and 62 was served after filing of the revised return. The Taxation Officer finalized the assessment and treated the customs duty and sales tax paid at import stage as income for purposes of calculating the value of imported finished goods subject to tax under section 80C of the repealed Income Tax Ordinance, 1979, invoked the provisions of section 12(18), disallowed exchange loss and expenses under the heads samples, advertisement and sales promotion, disallowed stocks written off and provisions for obsolete and slow-moving stocks, assessed profit on bank deposits under section 30 and did not allow tax credit under section 107AA. However, we will confine to the issues involving grounds of appeal before the ITAT.

Customs Duty and Sales Tax (Grounds of Appeals Nos. 3 and 4)

3. The assessee claimed that the value of imported finished goods is to be calculated without adding customs duty and sales tax to the value of such imported finished goods. It is added that return of income and the statement of income covered by the Presumptive Tax Regime under section 143-B of the repealed Income Tax Ordinance, 1979, section 115(4) of the Income Tax Ordinance, 2001 were revised under the cover of learned A.R.'s letter dated December 30, 2004 before the finalization of the assessment which pertains to the calculation of tax liability in respect of imported finished goods excluding customs duty and sales tax from the customs landed value for the purpose of section 80-C of the repealed Income Tax Ordinance, 1979. It is added that no notice under sections 61 and fit was issued so far as this issue is concerned, after the revised return was filed. The Assessing Officer did not accept the version of the assessee and the learned CIT(A) also confirmed the order of the Taxation Officer observing that for the purpose of section 80C of the repealed Income Tax Ordinance, 1979, the value of the "imported finished goods" should be the customs landed value including customs duty and sales tax.

4. We have heard the learned representatives of the two parties and have also gone through the record.

5. The learned counsel for the assessee argued that the two officers below altogether ignored the Honourable High Court's judgment No.18268 of 2001 dated November, 16, 2001, referred to in the letter dated December 30, 2004. It is added that no notice under sections 61 and 62 was issued, otherwise it could have been explained that the Income Tax Department had not referred the case to the Honourable Supreme Court on this issue as their representative had conceded. The learned counsel for the assessee further stressed that the decision/judgment is in the appellant's favour and also distinguished the appellant's case from the Honourable High Court's judgment dated September, 14, 2004 in the following manner:---

"(a) In the 11.C. judgment reported as 1994 PTD 848 (Ramna Pipe), it was held that sales tax cannot be deemed to be Income of the assessee and cannot be subject to income tax for the purposes of section 80C. The Department's representative conceded.

(b) In Appeal No.18268 of 2001 [wherein the issue related to section 50(5) read with section 80C - as evident from 2003 PTD (Trib.) 735], the H.C. judgment reported as 1994 PTD 848 was followed and it was held that Sales Tax and Customs Duty shall not be added to the value of imported finished goods for the purposes of assessing income under section 80C:.

(c) The SC judgment dated July 6, 2004 (reported as 2005 PTD 194) which still holds the field, dealt with section 50(5) read with section 80C which is full and final discharge of tax liability; and upheld the HC judgment in 18268 of 2001.

(d) The ITAT vide decision reported as 2003 PTD 735 which was based on the HC judgment of 18268 of 2001 dated November 16, 2001, held as follows:--

"8. From these findings of the High Court a principle has been enunciated that the Sales tax and Customs duty shall not be added in the value of imported goods for the purpose of assessing income of the assessee under section 80C of the Income Tax Ordinance, 1979. The underline purpose of these ratios seems to be that levy of further tax on sales tax and customs duty is not permissible which sounds to reasoning. Considering the facts of the cases in its entirety we feel convinced that the ratio decidendi applies on all fours and the distinction drawn by the Appeal Commissioner is not correct. Respectfully following the above judgments we feel no hesitation in holding that tax liability is to be worked out after deducting sales tax and customs duty paid by the assessee in the two assessment years under appeal and it is ordered accordingly."

(e) the HC judgment dated September 14, 2004 dealt with section 50(5) read with section 80DD whereby withholding tax is not a full and final discharge of tax liability. The decision is even against the law of precedent as HC and SC judgment were not followed.

(f) In the appellant's case the judgments specified in items (a) to (d) are applicable [and not in item (e)] as the issue relates to section 80C which is a full and final discharge of tax liability. Moreover, in the presence of the specific SC judgment the SC judgment would prevail over the HC judgment specified in item (e). Without prejudice, the A.R. further submitted that in the case of two conflicting HC judgments, the SC judgment will hold the field."

6. For the purpose of dilating the issue, we would like to refer section 50(5) of the Income Tax Ordinance, 1979, read with section 80C(2)(a)(ii) of the repealed Income Tax Ordinance, 1979 as under:

"Section 50(5)(a) ..The Collector of Customs shall, in the case of every importer 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 rates specified in the First Schedule ."

"Section 80C(2)(a)(ii)The amount as computed for the purpose 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;"

7. Above provisions lead to a conclusion that the Collector of Customs shall collect advance tax computed on the basis of value of such goods as increased by the customs duty and sales tax and for the purpose of section 80C(2)(a)(ii), the amount computed under subsection (5) of section 50 of the Income Tax Ordinance, 1979, would be the value of the goods. So far as Honourable Lahore High Court's judgment No.18268 of 2001 dated November 16, 2001 is concerned, we find that the Honourable High court has neither discussed nor dilated the issue but allowed the relief to the appellant in the terms that value of the imported finished goods is to be calculated without adding customs duty and sales tax to the value of such imported finished goods mere on the admission of the learned representative of the Department. Since the order was based on admission, neither detailed discussion has been made nor appeal has been preferred by the Department in this context. Contrary to the judgment of the Honourable Lahore High Court, the Honourable Sindh High Court in a recent judgment in Constitutional Petition No.398 of 2001 in case of Messrs Madina Enterprises Ltd. v. Federation of Pakistan and others has 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 as 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 and 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."

7-A. While passing the above order, the Honourable High Court Karachi has discussed the Lahore High Court's decision before deviating from the verdict and holding that for the purpose of income tax on the import of the goods, value of the goods is to be taken as per section 25 of the Act plus customs duty and sales tax, if any, paid on it.

The above referred provisions of Customs Act are similar to the 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 also attained finality, contrary to this, the order of the Lahore High Court is based on the statement of learned counsel appearing 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 but on different issues. 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 fact 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."

8. Apart from above, we further find that so far as service of notice under sections 61 and 62 is concerned, the return was revised inviting the attention of the Taxation Officer for calculating income tax pursuant to section 80C of the repealed Income Tax Ordinance, 1979 on the value of imported finished goods excluding the customs duty and sales tax. In fact, it was not necessary to issue fresh notice in this context being purely a legal issue agitated in view of the judgments of Sindh and Lahore High Courts. Since no factual controversy was involved and no explanation was required of whatsoever nature for determination of the issue, hence in the situation, neither notice under sections 61 and 62 was necessary nor mandatory: Reliance was placed on 2003 PTD 739 wherein it was held:---

"When the assessment is made under section 80C of the repealed Income Tax Ordinance, 1979 under PTR, the question of issuance of notice under section 61 or 62 does not arise. No substantial question arises requiring any consideration or interpretation by this Court and consequently is dismissed in limine. "

In the circumstances supra, appeal on the instance of the assessee in this context finds no merits whereby dismissed.

Exchange Loss

9. The assessee claimed exchange loss at Rs.17,518,000. 'The Assessing Officer disallowed the claim observing that it is not possible as the assessee is subject to tax under section 80C of the repealed Income Tax Ordinance, 1979. In fact, this is a decided issue in favour of the Department. Reliance is placed on 2003 PTD 739. Accordingly, the appeal stands dismissed in this context.

Taxing profit on bank deposits under section 30

The next issue pertains to the action of the two officers below taxing profit on bank deposits invoking section 30 of the repealed Income Tax Ordinance, 1979, the learned counsel for the assessee argued that vide section 23, any expenditure incurred is an allowable deduction, if it is incurred wholly and exclusively for the purpose of business. The learned counsel placed reliance on various judgments including the judgment of the Honourable High Court of Sindh reported as 1989 PTD 582 wherein it is held that increase in liability due to currency fluctuations is an allowable deduction. It is added that the Honourable Supreme Court maintained the order in this context vide judgment reported as 1993 PTD 383. Unfortunately, the decisions reported above to do not refer to section 80C of the repealed Income Tax Ordinance, 1979. The Presumptive Tax Regime is entirely different to the normal assessment of tax, neither any total income is computed nor any expenses are allowed, no total income is determined and the entire sales are deemed to be income on which fixed rate of tax is covered. In the Presumptive Tax Regime, there is no concept of probe, enquiry or proceedings, hence, in our view, the Assessing Officer had no option but to decline the claim in this context.

11. The appeal stands decided in the manner indicated above.

C.M.A./166/Tax(Trib.)Order accordingly.