VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 590 (2008)

Oct. 28, 2008 INCOME TAX APPELLATE TRIBUNAL PAKISTAN 2009 PTD 590

2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 590

2009 P T D (Trib.) 590

[Income-tax Appellate Tribunal Pakistan]

Before Javed Iqbal, Jawaid Masood Tahir Bhatti, Judicial Members and Shahid Azam Khan, Accountant Member

I.T.As. Nos.836/KB to 839/KB of 2006, decided on 28/10/2008.

Per Javed Iqbal, Judicial Member; Jawaid Masood Tahir Bhatti, Judicial Member, agreeing

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

----Ss.161 & 236(1)(b)(3)---Failure to pay tax collected or deducted---Pay phone cards---Prepaid phone cards---Tax was levied under S. 161 of the Income Tax Ordinance, 2001 declaring the assessee as defaulter for not withholding the tax @ 10% on sale of payphone cards---First Appellate Authority found that prepared telephone cards which were subject to withholding collection of tax under S. 236 of the Income Tax Ordinance, 2001 were different in character from payphone cards---Validity---Held: payphone cards relevant to various public call offices (PCOs) of the assessee's companies were not liable to action under S.236(1)(b)(3) of the Income Tax Ordinance, 2001 withholding tax.

I.T.As. Nos.153/IB to 156/IB of 2008; I.T.As. Nos.107/IB to 109/IB of 2007; I.T.As. Nos. 243/IB to 244/IB of 2007; I.T.As. Nos.118/IB to 120/IB of 2007; I.T.As. Nos. 99/IB to 101/IB of 2007; Oxford Encyclopedic English Dictionary 1991 Edition and 2008 PTD (Trib.) 442 rel.

1998 PTD (Trib.) 3771; (1948) 16 ITR Suppl. 101 HL; The Black's Law Dictionary 7th Edn. and 1993 SCMR (sic) ref.

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

----S.2(41)---Permanent establishment---Assessee was `permanent establishment' of non-resident in Pakistan as it was proved that assessee had its office and telephone numbers in Pakistan---Assessee fell under the provisions of S.2(41) of the Income Tax Ordinance, 2001 and was termed as `permanent establishment'.

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

----S.153---Payment of goods and service---Payment outside Pakistan---Import of equipment---Withholding tax---Payment having been made outside Pakistan, it was not liable to deduction of tax on import of equipment---Order of First Appellate Authority was upheld by the Appellate Tribunal.

1999 PTD (Trib.) 2515 rel.

Per Jawaid Masood Tahir Bhatti, Judicial Member, agreeing with Javed Iqbal, Judicial Member

(d) Income Tax Appellate Tribunal---

----Member of Appellate Tribunal---Difference of opinion---One member had no authority to differ from the conclusion drawn by the other which was based on the earlier decisions of the Appellate Tribunal having similar set of facts moreso when one member had not found any deviation in the facts and without recording in his order that the facts of the two cases were not similar---Merely for the reason that in his opinion, the Appellate Tribunal in its earlier orders had not touched upon certain issues which, according to him were important, did not authorize him to deviate from the earlier orders and to record his own findings different from the findings recorded in the earlier decisions.

2006 SCMR 496 = 2006 PLC (C.S.) 355; PLD 1963 SC 296; PLD 1995 SC 423; 178 ITR 548; 2007 PTD 1533; ITRA 176 of 2007; 2004 PTD 62; 93 Tax 72; PLD 2004 Pesh. 47; 1997 PTD 879; 1998 PTD 3319; I.T.A. No.42/KB of 1999-2000; 2003 PTD 2321 and 2005 PTD 2247 ref.

(e) Income Tax Appellate Tribunal---

----Members of Appellate Tribunal---Difference' of opinion---One member, in the absence of his contradictory note on the facts of the case, ought not to have deviated from the judgments of the Appellate Tribunal and forming questions on the basis of his own findings whereby he had tried to create legal infirmities in the earlier decisions of the Appellate Tribunal.

(f) Income Tax Appellate Tribunal---

----Division Bench decision---Binding effect---Decision of Division

Bench was binding on another Division Bench and that a Single Bench

had no authority not to follow a decision of a Division Bench.

1997 PTD 879; 2008 PTD (Trib.) 442; Bashir Ahmad v. State PLD 1960 Lah. 687; and I.T.As. Nos.42/KB and 43/KB of 1999-2000 rel.

2006 SCMR 496 = 2006 PLC (C.S,) 355; PLD 1963 SC 296; PLD 1995 SC 423; 178 ITR 548; 2007 PTD 1533; ITRA 176 of 2007; 2004 PTD 62; 93 Tax 72; PLD 2004 Pesh. 47; 1997 PTD 879; 1998 PTD 3319; I.T.A. No.42/KB of 1999-2000; 2003 PTD 2321 and 2005 PTD 2247 ref.

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

----S.236---Telephone users---Deduction of tax---Payphone cards--Prepaid cards---Cards issued by the assessee were payphone cards and not prepaid cards---On payphone cards, the provisions of S.236 of the Income Tax Ordinance, 2001 were not applicable---Provisions of S.236 of the Income Tax Ordinance, 2001 were not very clear about public call office (PCO) operators who operate through payphone cards---Where there was any ambiguity in the taxation laws, the benefit of the same had to be given to the assessee.

2008 PTD (Trib.) 442 rel.

(h) Constitution of Pakistan (1973)---

----Art. 25---Equality of citizens---Equality and taxation---Legislature had complete powers, authority and domain of taxing a particular class of citizens while exempting the other class of citizens from the same tax---Benefit of doubt arising from a taxing statute is to be given to the assessee---If a particular class by virtue of the benefit of doubt remains outside from the charge of tax, it was the legislature to provide in clear terms that the said tax was applicable on such class.

PLD 1997 SC 582 = 1997 PTD 1555 rel.

(i) Income Tax Appellate Tribunal---

----Decision of Division Bench---Binding force---Since a decision of a Division Bench was binding on the other Division Bench of the same strength, there was no escape for a Single Member from not following the judgment of a Division Bench even if it had not addressed some issues which, in the opinion of Single Member, had a bearing on the decision given by the Division Bench---What was left with the Member was to record his concerns and let the matter to be decided by higher authorities but he was not saddled with the power to dissent from a Division Bench decision.

Per Shahid Azam Khan, Accountant Member.---[Minority view].

I.T.As. Nos. 153/IB to 156/IB of 2008; I.T.As. Nos. 107/IB to 109/IB of 2007; I.T.As. Nos. 243/IB to 244/IB of 2007; I.T.A. Nos.118/IB to 120/IB of 2007; I.T.As. Nos. 99/IB to 101/IB of 2007; 1993 SCMR (sic) and I.T.As. Nos. 293/IB & 294/IB of 2007 ref.

Hassan Naeem and Asad Fawad, C.A. for Appellant (in I.T.As. Nos.836/KB and 837/KB of 2006).

Rehmatullah Wazir, D.R. Farrukh Ansari and Zain Aslam Ali, (Additional Commissioner) for Respondent (in I.T.As. Nos.836/KB and 837/KB of 2006).

Rehmatullah Wazir, D.R. Farrukh Ansari and Zain Aslam Ali, (Additional Commissioner) for Appellant (in I.T.As. Nos.838/KB and 839/KB of 2006).

Hassan Naeem and Asad Fawad, C.A. for Respondent (in I.T.As. Nos.838/KB and 839/KB of 2006).

ORDER

Through this order we intend to dispose of above captioned appeals two each instituted by assessee as well as department against the combined impugned order recorded by the learned C.I.T. (Appeals) vide dated 15-7-2006. The grounds agitated by the parties are reproduced as under: --

Assessee's common grounds of appeals

(Tax years 2003-2004)

That the learned C.I:T. (A) was not justified in confirming the order of the Taxation Officer who wrongly concluded that the appellant has defaulted its withholding obligations under section 236 of the Income Tax Ordinance, 2001 on payphone cards and for that matter holding that tax not allegedly withheld is to be recovered from the appellant under section 161 of the Income Tax Ordinance, 2001.

That without prejudice to ground No.2 recorded above, the learned Commissioner of the Income Tax (Appeals) was not justified in confirming the order of the Taxation Officer who failed to appreciate that the withholding tax under section 236 of the Income Tax Ordinance, 2001 is applicable on prepaid telephone cards whereas the cards sold by the appellant are payphone cards which are different from prepaid cards in character and therefore, are out of the ambit of the withholding provisions as embodied under section 236 of the Income Tax Ordinance, 2001.

It is added that the appellant issued payphone cards to the appellant's PCOs on which P.T.C.L. has already collected tax under section 236 from the appellant and therefore, tax demanded under section 161 read with section 236 of the Income Tax Ordinance, 2001 is unwarranted.

That the learned C.I.T. (A) was not justified in confirming the order of the Taxation Officer holding that the appellant has defaulted its withholding obligations under section 153 of the Income Tax Ordinance, 2001 and therefore, is liable to action under section 161 of the Ordinance, on payments it had made to (ZTE Corporation (a non-resident) China Based Company) and for that matter holding that recovery of tax allegedly not withheld is to be effected from the appellant under section 161 of the Income Tax Ordinance, 2001.

That without prejudice to ground above the learned C.I.T. (A) was not justified in confirming the order of the Taxation Officer who treated ZTE Corporation as a permanent Establishment within the meaning of section 2 (41) of the Income Tax Ordinance, 2001.

That the learned C.I.T. (A) was not justified in confirming the levy of additional tax under section 205 of the Income Tax Ordinance, 2001 on the appellant.

That the Taxation Officer has not worked out the tax under section 161 and additional tax under section 205 correctly, and therefore, the learned C.I.T. (A) wrongly upheld his order.

Department's common grounds of appeals

(Tax years 2003-2004)

That the learned C.I.T. (A) had erred in directing the taxation officer to calculate the amount of tax under sections 236/161 by excluding the amount of discount from gross sales of payphone cards.

That the C.I.T. (Appeals) has erred in holding that the contract with ZTE Corporation cannot be treated as a "turnkey" project.

Without prejudice to ground No.3 above the C.I.T. (Appeals) has erred in holding that payment to ZTE Corporation from supply of machinery equipment cannot be subjected to tax in Pakistan.

2. Briefly the relevancy of the facts as per record leading to these appeals are that the appellant is Public Limited Company quoted on Stock Exchanges at Karachi and Islamabad, engaged in the business of Telecommunication services. Income was returned, Assessee deals with the business of sale of cards namely telecards which as per assessment orders are payphone cards. Department was of the view that the sale of these cards' was liable to deduct the withholding tax @ 10% for not withholding the same declaring the assessee as defaulter tax has been levied under sections 161 and 205 of the Income Tax Ordinance, 2001 (hereinafter referred as Ordinance, 2001). Also tax under section 205 for non payment of tax required under the above section of the Ordinance, was levied.

3. The taxation officer also treated the assessee as defaulter for non-deduction of tax under section 153 of the Ordinance, 2001 for the two years for payment made to ZTE Corporation China in which the assessee has executed the contract for supply installation and commissioning of CDMA, WLL System, commonly, known as wireless local loop or GO CDMA telephone system. The Taxation Officer was of the view that the contract is a turnkey contract and @ rate of tax applicable to payments under such contract is 6% which the appellant did not deduct. Additional tax under section 205 of the Ordinance was also levied for both the years under appeal. Being not satisfied from the treatment of Taxation Officer, by the assessee went in appeal before the learned C.I.T. (Appeals), who vide the impugned order decided the matter, he maintained the action of section 161 read with section 236(1)(b)(3) while held that is not deducted on import goods as payment was made by the assessee out side the Pakistan. Hence both the parties being aggrieved from the impugned treatment given by the learned C.I.T. (A) have come up in these appeals before us. It would not be out of place to mention here that during pendency of these appeals stayed against the recovery of tax demand was granted for a period of six months. Thereafter for further stay assessee approached the Honourable Sindh High Court, where the petition was dismissed, however directions were given for completion of .order upto 31-10-2008. Hence the adjournment's request of learned A.R. was refused.

4. Mr. Hassan Naeern Advocate and Mr. Asad Fawad appearing on behalf of the appellant/assessee has submitted detailed written arguments same are reproduced as under:--

WRITTEN SUBMISSIONS

The appellant is a Public Limited Company listed on the Karachi and Islamabad Stock Exchanges and is engaged in providing a variety of telecommunication services.

TAX DEDUCTION UNDER SECTION 236

Background

In early 90s, due to inefficiencies in the PCO (Public Call Office) operations of Pakistan Telecommunication Corporation Limited (PTCL), Government of Pakistan decided to grant licenses for the PCO business in the private sector. Initially, these licenses were issued by the Ministry of Communications but after the formation of Pakistan Telecommunication Authority (PTA), power to issue payphone licenses was given to the PTA.

During 1990 to 1998, outdoor payphones were launched in Pakistan. However, due to misuse of these outdoor payphones, indoor manned PCOs were introduced. These phones are operated with specialized cards called payphone cards. These cards work as. a key to operate and control the usage of the payphone.

To avoid any ambiguity, the "PCO" and "Payphone" and used synonymously in the telecom industry.

Relationship of Payphone operator with PTA and PTCL

PTA in its capacity as a regulatory authority of telecom sector in Pakistan grants license to payphone operators for commencement of payphone business. This license defines the terms and conditions and delineates the responsibilities of the operator and the PTCL in the payphone operations. The license entitles the payphone company to continence payphone services by using PTCL network. Following paragraphs of the license are worth-noting in this regard. Underlined emphasis is added by us.

"2. The Chairman, PTCL (hereinafter referred to as PTC) or his authorized representative will supervise, monitor and regulate the card phones under this licence.

3. Card phones shall be provided by the operator with the prior consent of P.T.C. in the following cities and towns where network is available subject to the conditions specified hereinafter

6. The operator shall install only that system of card phones which shall be approved by Government of Pakistan/Pakistan Telecommunication Corporation (P.T.C.) and shall be in conformity with its network.

7. A non-refundable registration fee of one hundred thousand rupees (Rs.100,000) shall be charged from the operator who shall further deposit two thousand five hundred rupees (2,500) per card phone with the P.T.C. as a guarantee for the payment of telephone bills.

8. The guarantee money deposited against a particular payphone shall be forfeited if the corresponding telephone bills are not paid to the P.T.C. or in the event of cancellation of the licence.

12. The operator shall be provided telephone connection on preference by P.T.C. giving first priority for card phone system. All costs for providing such connection, in excess of the usual expenditure for a telephone connection shall be borne by the operator. P.T.C. shall provide telephone lines on the formal written request of the operator for installation of Public Call Office subject to technical feasibility.

13. In case of any dispute of telephone bills payable to P.T.C, the decision of the concerned Executive Billing Penal appointed by the Federal Government in that behalf shall be final and binding on the operator. Any payment withheld by the operator and not paid within thirty days after the decision of the penal shall be considered as default and may lead to suspension of the defaulting line or lines as the case may be.

18(xvi). The operator shall be responsible for making payment of monthly bills within due dates.

20. The P.T.C.L. shall supply telephone numbers and pair lines for installation of card phones within sixty days of demand, wherever technically possible."

Besides obtaining the license issued by PTA payphone companies also sign an interconnect agreement with the P.T.C.L. P.T.C.L. then allots a category code and issues lines to the payphone company for the installation of its PCOs. Payphone company pays demand note ranging from Rs.2,500 to Rs.7,500 per line for the number of lines it subscribes from the P.T.C.L. Payphone company also pays monthly line rent for all these lines. Copy of Tele Card's interconnect agreement with P.T.C.L. is attached. Relevant extracts therefrom are reproduced below for a ready reference.

1.2 P.T.C.L. shall make necessary arrangement to provide, on first priority telephone lines to the operator for interconnection with the operators terminal equipment (Card Payphone). The advice Note to be issued for every new connection for the operator shall invariably contain the relevant category code allocated to the operator by P.T.C.L. under computerized corporate billing system. P.T.C.L. will intimate to the operator the allotted telephone number along with the category code within 72 hours of completion of action on the Advice Note.

2.1 During the term of the agreement P.T.C.L. shall give a flat discount at the rate of 10% to the operator on telephone bills for his card payphone.

3.1 The operator undertakes to make unconditional payments, notwithstanding any excessive billing complainant of monthly telephone bills pertaining to his payphones within 14 days from the date of issue of such bills....

3.2 The operator further undertakes to pay monthly bills as per P.T.C.L. billing cycle and reconcile the billing and payment quarterly with the P.T.C.L. regional office.

7.1 General approved tariffs of installation charges excluding the cost of telephone set and security deposit shall be applicable for the provision of P.T.C.L. lines for Card-Payphones of the operator. However, security deposit @ Rs.2,500 per line shall continue to be payable by the operator .

The above clauses of the license and the interconnect agreement with the P.T.C.L. make it abundantly clear that payphone companies use telephone lines/connections provided by the P.T.C.L. for which P.T.C.L. issues monthly telephone bills on a post paid basis. It is obligatory for the payphone company to pay these bills within the due date as specified on the bill. This process is similar to ordinary bills to the payphone company. Copy of simple bills attached. Please note that withholding tax on this bill is collected by P.T.C.L. as per the requirements of section 236(1)(a) of the Income Tax Ordinance, 2001.

Relationship between PCO holder and payphone company.

Initially, payphone companies used to operate PCOs with their own staff. However, as business expanded, they started outsourcing of PCOs as per the guidance of PTA. At that time employees were replaced with PCO holders.

The PCO holder acts as an on site human phone operator on behalf of the payphone company. He is neither the subscriber of the phone nor is the user thereof. He is appointed by the payphone company just to act as a facilitator. The phone is used by the public generally deprived and poor who cannot afford telephone at home.

Even PTA does not recognize PCO holders as separate entities from the payphone company. It is the payphone company which is responsible for all its PCOs. For example, if a PCO holder makes excessive charging from any customer at the PCO under his control, PTA imposes fine on the payphone company and not on the PCO holder. Payphone company is also responsible for payment of advertisement tax on the hoarding installed at the PCO shop.

This goes to show that the PCO holder is merely an extension of the payphone company, and acts as a facilitator between the payphone company and the general public. He is neither the subscriber of the phone nor is the user thereof. The payphone company is the subscriber of the phone (issued by P.T.C.L.) and the general public is the user.

Arrangement between the payphone company and the PCO holder is also follows:

PCO holder pays an amount of Rs.20,000 Rs.10,000 as security of the Terminal (Payphone set) and Rs.10,000 against the billing. All these are refundable upon the return of set by the PCO holder. Payphone company issues payphone card to the PCO holder for the operation of the payphone telephone set. Without that card, the PCO telephone set cannot operate. Every company has its own payphone card which cannot be used/ operated on another company's telephone set.

P.T.C.L. issues bill to the payphone company on a post paid basis. Payphone company shares the discount allowed by P.T.C.L. with the PCO holders after verification of call records from their National/Network management system (NMS) with P.T.C.L. records.

Purpose of payphone card.

Payphone card is basically used as a control mechanism to prevent unauthorized use of phone at the PCO. It is a key to login to the phone, not an article for sale to end users. Public uses phone on a call to call basis and pays after making the call (Post Paid Basis) No card is issued to the end user. He just uses the phone set for making one Local /NWD/International call and the PCO holder charges (say) Rs.4 per unit consumed. As per section 236, minimum threshold for the applicability of tax on a post paid bill is Rs.1,000. Bill of call made by the end user on a PCO generally comprises of a call or two and therefore, does not come under the ambit of section 236.

SECTION 236 OF THE INCOME TAX ORDINANCE, 2001.

Section 236 of the Income Tax Ordinance, 2001 is reproduced below for a ready reference:--

236. Telephone users.--(1) Advance tax at the rates specified in Part-IV of the First Schedule shall be collected on the amount of--

(a) Telephone bill of a subscribed and

(b) Prepaid cards for [J telephones.

(2) The person preparing the telephone bill shall charge advance tax under subsection (1) in the manner telephone charges are charged.

(3) The person issuing or selling prepaid cards for [] telephones shall [collect] advance tax under subsection (1) from the purchasers at the time of issuance or sales of cards.

(4) Advance tax under this section shall not be collected from Government a foreign diplomat, a diplomatic mission in Pakistan, or a person who produces a certificate from the Commissioner that his income during the tax year is exempted from tax.

As per Oxford dictionary, the term "prepaid" means paid in advance.

In telecom industry, the terms "prepaid" and "postpaid" are used in relevance to end users and not the intermediaries. Section 236 of the Income Tax Ordinance, 2001 also takes the same position. By writing the words "Telephone users" in the heading of the section, the legislature has made it abundantly clear that this tax is applicable on telephone users and not on the intermediaries.

Distribution model of a mobile company

For the sake of understanding, a simplified card distribution model for a mobile phone company given below:--

Mobile Company

Franchisee

Shopkeeper

User

Mobile companies do not sell cards to the end users directly. They appoint franchisees for specific areas. These franchisees sell cards to shopkeeper of their area. End users buy cards from the nearest shopkeepers as per their convenience. In this way a prepaid card for mobile telephone passes through several hands before it finally reaches the user.

If this analogy is accepted that withholding tax is applicable on intermediaries as well, tax should be charged at each successive stage of the distribution channel. Mobile company should collect tax from the franchisee, franchisee should collect tax from the shopkeepers and the shopkeeper should finally collect tax from the end user. However, this does not happen. Tax under section 236 is only collected by the mobile company from the end user at the time when he loads card in his mobile telephone. It is a common experience that if you load a card of Rs.250 denomination in your mobile phone, you get a balance of Rs.227. Remaining Rs.23 are deducted by the mobile company as withholding tax for which it gives a tax deduction certificate at the year end.

The practice of tax collection under section 236 only from the end users is followed by all the mobile operators. Since, it is in line with the provisions of section 236, it has never been challenged by the revenue administration.

Business model of payphone companies.

Parallel business model of payphone companies is as follows:

P.T.C.L.

Payphone Companies

PCO Holder

End User-makes calls on a post paid basis.User

Payphone company subscribes telephone line from the P.T.C.L.

P.T.C.L. issues monthly telephone bill (post paid basis) and collects withholding tax under section 236(1)(a) with the bill amount from the payphone company in its capacity as a subscriber of the phone.

Payphone company gives the phone to the PCO holder on the basis of number of units consumed. PCO is inherently a post paid service and cannot be equated with the prepaid mechanism. The end user makes a call first and then pays for the same.

It becomes clear from the above that the payphone card is used by the PCO holder on the same telephone line on which tax is already collected under section 236(1)(a) through the bill issued by P.T.C.L. Accordingly, levy of another tax under section 236(1)(b) on the same line would tantamount to double taxation of the same subscriber.

Besides, payphone card is issued by the payphone company to the PCO holder, who is a middleman and not the user of this card. Since tax under section 236 is applicable on users and not on the middlemen, this tax is not applicable on payphone cards.

Even for arguments sake, if it is accepted that this tax is applicable on payphone cards, who will get credit of this tax? Please note that tax under section 236 is an advance tax adjustable against the final tax liability of the person paying the tax, PCO is a retail service out let used by many users. Accordingly identification of user for tax purpose is not possible in this case. Besides, it is a service meant for poor and deprived whose income is invariably not chargeable to tax.

Average usage per PCO ranges from Rs.4,000 to Rs.5,000 per month. Margins of the PCO holders are not more than 5% to 8%. Is it possible for PCO holder to pay 10% out of these 5% margins? Even there net margin has never exceeded the minimum threshold for taxable income i.e. Rs.100,000.

Reasonfor the omission of the word "mobile" from clause 236(1)(b).

Through the Finance Ordinance 2002, the word "mobile" was omitted from clause 236(I)(b) of the Income Tax Ordinance, 2001. The purpose was to bring "prepaid calling cards" into the tax net.

Under the prepaid calling card system, an access code (0800) is used to make a call from any landline. As in the case of mobile telephone, prepaid calling card is purchased by the end user for self consumption. The user dials 0800 and the scratch card number before the desired telephone number. Calls made through this mechanism escape billing from P.T.C.L. and accordingly, escape withholding tax. Please note that P.T.C.L. does not issue telephone bill for calls made through prepaid calling card while a bill is issued for every PCO line, which includes line rent and call charges for all the calls made through that line.

Since call rates offered by calling card companies were very economical compared to P.T.C.L, there was a wide spread use of these cards especially for NWD/International calls. In order to tap these non taxed calls, the wise legislature excluded the word "mobile" from clause 236(1)(b).

Calling cards are purchased by the users for self consumption whereas payphone cards are just issued to the PCO holder who is an intermediary.

Calls made through calling card escape P.T.C.L. billing and also withholding tax whereas a bill is generated by P.T.C.L. for each call made through a payphone and this bill includes withholding tax under section 236 (1)(a).

The distinction between prepaid cards and payphone cards is clearly recognized in the Federal Excise Duty Law, Under clause 6 of Table II of the Federal Excise Act, each type of card is listed separately as follows:

TABLE II

(EXCISABLE SERVICES)

Description of services.	Heading/Sub Heading
6. Telecommunication Services	Number
(vii) Payphone cards	9812.1400
(viii) Prepaid calling cards	9812.1500

PTA is also of the view that withholding tax is not applicable on payphone service. Copy of letter written by PTA to Member C.B.R. is enclosed.

The income tax officers have largely misunderstood the difference between payphone cards and calling cards. Non-recognition of this difference has resulted in huge illegitimate tax demands on payphone companies. The entire payphone industry is badly affected because of the misinterpretation.

In a recent development three different benches of the Honourable Income Tax Appellate Tribunal have separately examined the controversy and all have issued favourable decisions holding that payphone card is different from the prepaid card and payphone companies are not liable for the collection of tax under section 236. Copies of the decision are enclosed.

PRAYER

TO DECLARE THAT PAYPHONE CARD IS DIFFERENT FROM PREPAID CARD AND PAYPHONE COMPANIES ARE NOT LIABLE TO COLLECT TAX UNDER SEC TION 236.

1. Following documents are attached:

2. Copy of license issued by PTA (Annex: A)

3. Interconnect agreement with P.T.C.L. (Annex: B)

4. Bill issued by P.T.C.L. (Annex: C)

5. Copy of letter written by PTA to Member C.B.R. (Annex: D).

6. Copy of decision by ADRC (Annex: E).

7. ITAT orders vide I.T.As. Nos. 153 to 156 (IB) of 2008 dated 27-6-2008

8. ITAT orders vide I.T.As. Nos. 107 to 109 (IB) of 2007 dated 10-10-2008

9. ITAT orders vide I.T.As. Nos. 243 to 244(IB) of 2007 dated 10-10-2008

10. ITAT orders vide I.T.As. Nos. 118 to 120(IB) of 2007 dated 10-10-2008

11. ITAT orders vide I.T.As. Nos. 99 to 101 (IB) of 2007 dated 12-12-2007

PAYMENT TO ZTE CORPORATION CHINA.

The appellant has entered into a contract for supply, installation and commissioning of CDMA WLL System. Commonly known as Wireless local loop or GO CDMA telephone system. The Taxation Officer observed that during the years under consideration certain amounts representing equipment purchased under a contract from ZTE Corporation Chine (Copy enclosed) were transferred from work in progress to schedule of owned assets. The appellant was confronted on this issue during audit proceedings under section 122 of the Income Tax Ordinance, 2001 on which the appellant filed a letter dated 6 December, 2005. It was stated by the appellant that ZTE Corporation is resident of China and therefore, is to be considered as a non resident for Pakistan tax purposes. It was further contended that the equipment was imported by Telecard title of which was transferred outside Pakistan and therefore, such imports are not taxable in Pakistan. Moreover, ZTE Corporation does not have a PE in Pakistan and under Article 7 of the agreement for the evidence of double taxation between Pakistan and China, the business profits of a Chinese resident would only be taxed in Pakistan if the business is carried on in Pakistan through PE in Pakistan. The taxation officer did not take any adverse action on this issue and mentioned in the assessment order that matter relates to Enforcement & Collection Division L.T.U, Karachi.

During the proceedings initiated under sections 161/205, the Taxation Officer issued a notice whereby he was of the view that the contract with ZTE Corporation is a turnkey contract and the rate of tax applicable to payments under such contracts is 6% which the appellant did not deduct.

The Taxation Officer merely on the basis of certain Clauses of the contract held that the contract between the appellant and ZTE Corporation is a turnkey contract which includes supply, installation and maintenance (providing technical services). The appellant contends that the taxation officer was not justified in concluding that the impugned contract is a turnkey contract. In this connection Circular 6 of 1994 sub-para. (d) of para. 4 issued by the C.B.R. and the decision of the learned ITAT reported as 1998 PTD (Trib) 3771 (copy enclosed) were relied upon. The learned ITAT in this case has analyzed a construction contract of power project which was treated as a turnkey contract by the department. The learned ITAT had held the turnkey contracts involved designing consultancy, supply of equipment and machinery, and installation thereof. It was held that if anyone of the specified work is not performed by the contractor, the contract could not be said to be a turnkey contract. The ITAT recorded the following findings-

41. We further find that there is sufficient documentary evidence to conclude that although the respondent has constructed the main and major portion of the Pipeline System envisaged, planned and designed as per D.B.D., some of the essential elements of the system have been constructed by other and until such other elements have been integrated, no testing or commissioning has been possible for the respondent. Thus, in our considered opinion the contract executed by the respondent lacks the essential characteristics of the turnkey project both as commonly understood in terms of its dictionary meaning as well as explained in the C.B.R. Circular 6 of 1994 ibid and that the ratio of decision in (1948) 16 ITR (Suppl)101 (HL) is applicable to the employment of the term turnkey in the instant case. We find that the respondent has not been extended the benefits that has promoted the legislation explained in sub-para (d) of para.4 of the C.B.R. Circular being reproduced by us hereunder:

"(d) Withholding tax regime for non-resident contractors.---Non resident Contractors, including those executing turnkey projects, were so far subject to withholding tax equivalent to 3% of the gross receipts which was treated as full and final tax liability. The rate of tax so charged was found too below given relatively high profit margins in such contracts, particularly in case of turnkey projects involving designing consultancy, supply of equipment and machinery, and installation thereof.

42. Accordingly, we hereby confirm the finding of the learned C.I.T. (Appeals) that the respondent has not executed a turnkey projects; hence not liable to the charge of tax under item (b) of sub-para. (ii)(ibid) and appeal dismissed on this ground".

Since the machinery/equipment was not supplied into Pakistan by the contractor as it was imported by the appellant itself, the contract lacks the characteristics of a turnkey contract as discussed by the 1TAT in the above quoted decision. Moreover, the Income Tax Ordinance, 2001 does not contain the definition of the term "turnkey contract" and therefore, the C.B.R. Circular 6 of 1994 and the case-law 1998 PTD (Trib.) 3771 are valid and applicable to the case of the appellant.

It is contended that the Taxation Officer was not justified to hold that ZTE Corporation was having a permanent Establishment (PE) in Pakistan on the basis of the wordings of the contract. In this connection the Taxation Officer has referred to the definition of the Term PE as defined in section 2(41) of the Income Tax Ordinance, 2001 and held that ZTE Corporation is having a PE in Pakistan and payments to PE of a non-resident in Pakistan under a contract are liable to 6% withholding tax under section 153 of the Income Tax Ordinance, 2001. In this connection the Taxation Officer has based his action on the following premise as recorded in the impugned order-

"The explanation filed by the counsel of the taxpayer has been examined. The perusal of title page of agreement shows that the contract will be executed on turnkey basis and such contracts usually involve supply, installation as well as maintenance therefore, to perform all these functions, the presence of contractor in the country of execution becomes essential. Therefore, this is an evidence that non-resident had a permanent establishment in Pakistan for satisfactory execution of the contract.

It was contended that the above conclusion of the Taxation Officer is based on his assumptions. It was argued that it is well settled that a tax cannot be imposed merely on the basis of assumptions and that in order to levy a tax on a person or on a transaction, it has to be established that the person/transaction are liable to such tax. The Taxation Officer failed to appreciate the ZTE Corporation being a China resident company, the provisions of the Double Tax treaty between the Governments of Pakistan and China would prevail over the provisions of the Income Tax Ordinance, 2001. Article 5 of Pak China tax treaty defines the term "permanent establishment" and reads as under:--

(1) the purposes of this agreement the term permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

(2) The term "permanent establishment" includes especially:

(2) a place of management;

(b) a branch;

(d) a factory;

(e) a workshop;

(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; and (g) a permanent sales exhibition.

(3) The term "permanents establishment" likewise encompasses a building side, a construction, assembly or installation project or supervisory activities in connection therewith, but only where such site, project or activities continue for a period of more than six months.

In terms of the above provisions, if an installation project continues for more than six months only them it would be treated as a PE of the non-resident in Pakistan'. Since ZTE Corporation did not have physical presence in Pakistan for the reason that its employees were not present in Pakistan for more than six months it would not be treated as having a PE in Pakistan. Accordingly, payments made to ZTE Corporation were not liable to Pakistan tax and the appellant rightly did not deduct any tax therefrom.

It is contended that the Taxation Officer did not consider that the machinery/equipment installed by ZTE Corporation was imported by the appellant. In terms of the provision of the Income Tax Ordinance, 001 this import of machinery was not taxable in the hands of ZTE Corporation since it was imported by the appellant by opening LCs and payments were made outside Pakistan and the delivery was also made outside Pakistan. In this connection reliance is placed on a decision of the ITAT reported as 1999 PTD (Trib) 2515 (Copy enclosed). The learned ITAT observed that the machinery was imported into Pakistan from the non-resident assessee by the contractee and not by the assessee itself. It was held that the income deemed to accrue or arise in relation to Payments made for import of the machinery was thus not liable to tax in Pakistan. The operative part of the decision reads as under:--

"(34)" There is no dispute about the fact that the impugned receipts on account of price of equipment and material is received by the respondent in Italy and its is neither actually received nor the learned representative of the Department has referred to any provision of law under which it can be deemed to be received in Pakistan. As for contention that it has accrued or arisen or is deemed to have accrued or arisen to the respondent in Pakistan we find that the contrary provision of subsection (2) of section 12 (supra) is quite unambiguous. There is no doubt about the fact that the business operation of procurement and supply of equipment and material have been carried on by the respondent out of Pakistan hence income from such operations is not reasonably attributable to operations carried out in Pakistan".

Accordingly, there was no occasion for the Taxation Officer to tax the receipts relating to supply of machinery/equipment to tax in terms of section 153 of the Income Tax Ordinance, 2001.

ADDITIONAL TAX

Apart from consequential relief it is requested that the Taxation Officer may also be directed to re-compute the levy of additional tax under section 205 taking into account the above mistake.

5. On the other hand learned D.Rs appearing on behalf of the department has also submitted written arguments same is hereby reproduced as under:--

(a) In the Islamabad cases, the taxpayers were only providing payphone service using landlines. In the instant case, the taxpayer is providing multiple services, using both the landline and the wireless technology. The following services are offered, as per the website of the company itself.

(i) GO-CMDA

(ii) Smart Wireless

(iii) Wireless Local Loop

(iv) Street Side Payphone Service

(v) Super net

(vi) Long Distance Telephony

(vii) Public Access Calling

(viii) Value added Services

(ix) Force Net

(b) In the Islamabad cases, the taxpayers had raised the pleas that they were acting as "Agents" for P.T.C.L. In the instant case, the taxpayer admittedly impost the cards in its own name, and is therefore not an agent.

(c) In the Islamabad cases, the taxpayers had raised the plea that their cards were not prepaid cards. In this case, though the same plea is raised, but this plea is negated by the following information available on the website of the taxpayer:

(i) Products and Services

(ii) Smart Wireless

Smart wireless is an entirely new concept in the realm of communications. With Smart wireless, get connected instantly and communicate without boundaries. Smart wireless is easy! Simply scratch your prepaid card and enjoy seamless hours of talk time or surf the internet with freedom of mobility. Liberate yourself from the hassle of monthly bills. Take charge with convenient prepaid packages that help you control your calling budget.

(iii) Products and Services

Wireless Local Loop

Telecard has customized the technology to run a prepaid wireless phone services. The CDMA technology selected for the WLL project will enable the consumer to not only benefit from basic voice telephony but also data transmission such as Internet and other wireless applications protocol in future.

(iii) Products and Services

Value Plus---White Label Calling Card

Value Plus---White Label Calling Card, a service which allows business to launch their own brand of Pre-paid Calling Card services using Telecard's advanced Long Distance and International (LDI) network. Telecard offers this partnership proposal to companies, SME's payphone operators or other operators/individuals who wish to profit from activity participating in the telecom sector. Through this partnership arrangement, operators can become Telecard's whole-sale partners and will have the opportunity to run their own brand of pre-paid calling card business, using Telecard's state-of-the-art LDI network and taking advantage of their experience with preferred or niche markets.

2. The taxpayer's plea that the cards sold by the taxpayer are not prepaid cards is contradicted by the statement on page-5 of the Annual Report for the year 2003 which categorically states that Telecard is the only prepaid Wireless Phone provider in Pakistan. This also contradicts the plea that the taxpayer was not running wireless telephone service during the year.

3. The plea taken by the taxpayer that it is only acting as a facilitator is not correct, due to the following reasons:--

(a) The cards are imported by the taxpayer and carry its name.

(b) The taxpayer admittedly pays P.T.C.L. bills and the PCOs admittedly pay their bills to the taxpayer.

Call Rates

Force Fone To Landline

Zone	Distance	Duration/Minute	Duration/Minute
	(In Kms)	(In Units)	(In Units)
1.	0-25 (Local)	1	1
2.	26-80	2	1
3.	81-160	2	2
4.	161-Above	2	2

Force Fone To Mobile

Zone	Distance (In Kms)	Duration/Minute (In Units) Full Rate 8 a.m. 7-59 p.m.	Duration/Minute (In Units) Half Rate 8 p.m. 7-59 a.m.
1	0-25 (Local)	2	2
2	26-80	4	3
3	81-160	4	3
4	161-Above	4	4

Card Pricing

2500	6500	2.60
3430	7924	2.31
20	110	5.50
45	120	4.88
150	660	4.40
500	1600	3.20
1500	4500	3.00
3500	9100	2.60

WIRELESS CARDS

Denomination (Units)	Price (Rs.)	Rate/Unit (Rs.)
250	875	3.50
500	1600	3.20
1500	4125	2.75

2. The plea taken by the taxpayer that their case falls under clause (a) of s.s. (1) of section 236, where P.T.C.L. is a deducting authority is not correct. The transaction between P.T.C.L. and the taxpayer is a separate transaction, where P.T.C.L. is deducting tax on behalf of the Telecard Ltd. as a taxpayer for landline facility provided to it. The PCO owner is not in picture at this stage. This transaction falls under clause (a). The transaction between the taxpayer and the PCO owner is a separate transaction. In this transaction the Telecard Company assumes the role of a withholding authority, and collects tax on account of taxpayer. This transaction attracts the provisions of clause (b). The following table depicts the position.

Nature of Transaction	Withholding Agent	Person on whose behalf the Tax is withheld	Provision Attracted	Whether Final or Adjustable
Telephone Bill	P.T.C.L.	Telecard Ltd.	236(1)(b)	Adjustable
Issue or sale of Prepaid Card	Telecard Ltd.	PCO Owner	236(1)(b)	Adjustable

Possibility of double taxation is excluded due to the reasons that:

(i) Transactions are different.

(ii) Withholding agents are different.

(iii) Persons on whose behalf the tax is withheld are different

(iv) Different provisions are attracted

(v) Tax is adjustable in both the cases

Moreover Annex vii of return for the Tax, Year 2003 shows tax deducted/collected at source on use of telephone (S.No.11) at Rs.130,944 which also precludes double taxation.

5. The term `prepaid' is the past and past participle of "prepay". According to the Oxford Encyclopedic English Dictionary 1991 Edition it means "pay (a charge) in advance". The legislature has intentionally used this term instead of using more specific terms such as "scratch card", etc. This shows the intention of the legislature to include all types of prepaid cards within the ambit of the section.

6. As to the charge of tax on discounted value, it is submitted that subsection (1) of section 236 uses the words "on the amount of". This denotes the amount shown as the face value. Had the legislature intended to charge tax on the discounted value, it would have used the words "payment made" or any other appropriate words.

Payment Mode to ZTE Corporation

7. The contract with ZTE Corporation covers "supply installation and maintenance", as mentioned on Page No.4 of the order under section 161. The Oxford Encyclopedic English Dictionary 1991 Edition defines the terms "turnkey" as (of a contract etc.) providing for supply of equipment in a State ready for operation". The Black's Law Dictionary 7th Edition defines it as" (of a product) provided in a state of readiness for immediate use". Since the contract covers installation and maintenance as well in addition to supply, it squarely falls under the definition.

8. The case 1998 PTD 3771 is distinguishable, as it relates to Italian treaty, which does not contain the force of attraction rule. The instant case is covered under the Chinese treaty, which contains this rule. Article 7 Para 4 contains this rule in sub para (c) as under:--

"(c) Other business activities (other than activities referred to in paragraph 3 of article 5) carried on in that other State of the same or similar kind as those carried on through that permanent establishment."

Since the definition of "permanent establishment" given in Article 5 of the treaty covers "installation project" as well, the case falls in this definition and constitutes a permanent establishment.

We have heard the arguments of both the parties and have also perused the assessment orders, impugned order and relevant law submitted by both the parties.

First issue agitated by the assessee regarding treating him defaulter for non deduction of withholding tax under section. 236 of the Ordinance, 2001 on payphone cards. In this regard learned C.I.T.' (A) has given his finding as under:--

"I have considered the submissions of the learned A.R. and have also perused the impugned orders. As far as the contention of the A.R. that the appellant has filed application of ADR under section 134A of the Income Tax Ordinance, 2001 before the C.B.R. and therefore, the taxation officer should not have passed the impugned orders, I am of the view that there is no provision in the Income Tax Ordinance, 2001 which puts a bar on the Taxation Officer not to initiated/culminate any proceedings if the same have been challenged under section 134A of the Income Tax Ordinance, 2001. Accordingly, this contention of appellant must fail. As to the contention that/ prepaid telephone cards which are subject to withholding/collection of tax under section 236 are different in character from payphone cards issued by the appellant and there is no obligation cast upon the appellant to withhold collect tax therefrom under section 236, I am of the view that there is no distance as far as the two types of cards are concerned. In section 236 the legislature inter, alia, has used the term "prepaid cards". and in my view every prepaid card for telephones falls under this category.

Accordingly, there is no force in this contention of the appellant. The appellant also contended that it has paid tax under section 236 along with telephone bills on which P.T.C.L. has charged the said tax and therefore, there is no requirement for the appellant to withhold collect tax under section 236 of the Income Tax Ordinance, 2001 from payphone cards issued by the appellant. However payment of tax under section 236 by the appellant along with P.T.C.L. bills does not mean that the appellant is not obliged to withhold tax under section 236 of the Income Tax Ordinance, 2001 from payphone cards to its subscribers.

So far as the issue of discount allowed to distributors which as per the A.R. was not considered by the taxation officer while charging tax under section 161 read with section 236 of the Income Tax Ordinance, 2001 I find force in the contention of the learned A.R. The details of discount allowed have also been provided and are also evident from perusal of the audit account for the two years under appeal. Moreover, this office while deciding the appeal of the appellant for tax year 2003 (for the period of January, 2003) vide order dated March 8, 2004 on similar issue considered this aspect direct the taxation officer to recompute the tax liability. Accordingly, the taxation officer is directed to calculate the amount of tax under sections 236/161 by scouting the amount of discount from gross sale of pay-phone cards. It is further directed that sale of payphone card amounting to Rs.426,071,603 and discount thereon of Rs.23,549,010 be excluded from the tax so calculated for tax year 2003 since these sales have already been subjected to action under sections 161/236 of the Income Tax Ordinance, 2001 by taxation officer through order dated 31 March, 2003.

9. On the above issue of withholding tax under section 161 @ of 10% the arguments delivered by both the parties are exactly identical to I.T.As relied upon by the A.R. at the time of hearing of appeal decided the Islamabad Bench of the ITAT and have been incorporated in those orders and the relevant portion of which has been reproduced supra. After analyses of arguments in I.T.A. No.153 to 156(IB)/2008 for tax years 2003 to 2005 dated 27-6-2008 Tribunal has given its conclusion as under: --

"When a statute enacts that something shall be deemed to have been done which in fact and in truth was not done, the Court is entitled and bound to ascertain for what purposes the statutory fiction is to be resorted to. The Honourable Supreme Court of Pakistan in the case reported 1993 SCMR (sic) has observed that:

"The days have long passed when Courts adopted a strict constructionist view of interpretation which required them to adopt the literal meaning of the language. The courts now adopt a purposive approach, which seeks to give effect to the true purpose of legislation and prepared to look at much extraneous material that bears upon the back ground against which the legislation was enacted."

We have analyzed arguments of both the parties in the light of material laid before us. There are visible variations between the prepaid card system and payphone card system used by PCO operators. Their nature and character different than each other. There is no similarity between them and provision of section 236(1)(b)(3) are therefore not attracted telephone facility used by the consumers or end users.

It may also be mentioned that the issue of applicability of section 23(1)(b)(3) has already been decided in I.T.As. Nos. 107 to 109(IB)/2007 dated 10-10-2007 in favour of the assessee. Respectfully following the ratio decidendi we hold that the provisions of section 236(1)(b)(3) are not applicable in the case of assessee company. In the light of these finding we hereby confirm the order of authority below.

As a result departmental appeals fail being benefit of any merit".

10. Similarly ITAT Islamabad in I.T.As Nos. 107,' 108, 109(IB) dated 10-10-2007 while in I.T.As Nos. 99 to 101(IB) 2007 dated 12-12-2007. ITAs Nos. 243 &244 (IB) of 2007 dated 10-10-2007 and I.T.As. Nos. 118 to 120 (IB) of 2007 dated 10-10-2008 has given its conclusion by holding that payphone cards are not subject to action under section 236(1)(3). Similarly ADR has also given its mind in the case of assessee and has held so. However in the present case learned D.R pointed out that assessee is engaged in multiple business of the cards besides phone pay cards to PCO holders and has sold the prepaid cards. Learned A.R. of the assessee on inquiry before us told that he has placed all the PCOs telephone bills on the assessment record and entire amount show in the returns for the years under appeals pertain to it. However when he was asked by the Bench to produce the same and the pay phone cards sample it was not done so. However only one month bill related to Quetta PCO has been produced and has been placed on the appellate record, which is showing the demand of units consumed by the PCO and amount of bill payable to P.T.C.L. to be paid by PCO's owner.

11. Further the argument reproduced supra by the learned A.R. of assessee, about model of payphone companies and distinction between a calling card and payphone card are also significant and carries weight.

12. So, considering the binding force of judgment of one Bench of ITAT on the other, we have no option except to respectfully follow the judgment of the Islamabad Bench of the Tribunal as referred to and recorded supra. So, we hold that payphone cards relevant to the various PCOs of the assessee's companies are not liable to action under section 236(1)(b)(3) withholding tax. On in this way assessee appeals on this issue succeeds in the manner and to the extent as indicated above.

13. Now coming to the next issues of levy of tax under section 153 and section 161 of the Ordinance, on payment made to ZTE Corporation. The learned C.I.T. (A) has confirmed the treatment of Taxation Officer the issue of permanent establishment. Before us learned D.R. produced the proof that ZTE has its office and telephone numbers in Pakistan. Thus it is established that assessee falls under the provisions of section 2(41) of the Ordinance, and is termed as permanent establishment. Thus in the light of above it is established that ZTE is PE of non-resident. The learned C.I.T. (A) has rightly decided this issue hence it need not to be disturbed and having no merits on the issue, the appeal on behalf of the assessee fai4s on this issue.

NOW WE TAKE UP THE DEPARTMENTAL APPEALS.

14. The first objection of the department about the exclusion of amount of discount from gross sales of payphone cards, we have already given our finding in assessee's appeals by holding that on payphone cards relevant to the PCOs of the company under section 236(1)(b)(3) is not applicable, thus this issue absolved accordingly.

15. Regarding the withholding tax under section 153 on import of equipment and subjection of it to withholding tax learned C.I.T. (A) has rightly held that payment was made outside Pakistan hence it is not liable to deduction.

16. Regarding the turnkey project the learned C.I.T. (A) through placing reliance on the cases law reported as 1998 PTD 3771 and 1999 PTD 2515 has given the conclusion while learned D.R. failed to rebut the above cases law, therefore, impugned finding is approved and departmental appeals having no substance are rejected.

17. Resultantly, assessee's appeals are partially allowed and the departmental appeals are dismissed.

(Sd.)

(JAVED IQBAL)

JUDICIAL MEMBER

SHAHID AZAM KHAN (ACCOUNTANT MEMBER).---The instant judgment has been authored by my learned brother, the Judicial Member of this Division Bench and received by me on 1-11-2008 for my consideration and next day was Sunday. I also deem it appropriate to record that the instant case was fixed for hearing on 8-10-2008 before another Division Bench, comprising of Mr. Jawaid Masood Tahir Bhatti (Judicial Member) and Mr. Iqbal Ahmed (Accountant Member) and hearing of the case was attended by Mr. Hassan Naeem, Advocate for the taxpayer/appellant and Mr. Farrukh Ansari, DR for the respondent/department. On verbal request of the taxpayer/appellant, the case was adjourned for 22-10-2008 and hence, the taxpayer itself wasted fourteen previous days out of the twenty four days directed by the Honourable High Court of Sindh, Karachi for disposal of captioned appeals. Not only this, the taxpayer/appellant again made a verbal request for further adjournment even on 22-10-2008 which was not granted. On 22-10-2008, the case was presented before this Division Bench as per the Cause List of that date. As recorded by the learned JM at the end of Para.3 of this order, the learned AR's further request for adjournment was refused.

18. I have very carefully gone through the judgment authored by my learned brother, various judgments of the Islamabad Bench of the Tribunal and other material available on record. The learned JM, relying on the Islamabad Benches' various judgments, as mentioned in this order and on the learned AR's arguments, has recorded his findings in supra Paras 11 & 12 of this order that (i) learned AR's arguments about model of payphone companies and distinction between a calling and payphone card are also significant and carry weight; and (ii) payphone cards relevant to the various PCOs of the assessee-company are not liable to action under section 263(1)(b)(3) withholding tax. With due respect, I do not find myself in conformity with these findings of my learned brother as discussed in the following paragraphs.

19. In Para-9 of this order, the findings of the Honourable Supreme Court of Pakistan in the case reported as 1993 SCMR (sic) have been attributed to the conclusion of the Tribunal in I.T.As. Nos.153 to 156(IB)/2008 (Tax Years 2003 to 2005) dated 27-6-2008. Whereas, careful study of the Tribunal's supra order reveals that the citation of the case law 1993 SCMR (sic) forms part of the arguments of the learned DR as discussed in Para-4 of the Tribunal's order and not part of the Tribunal's conclusion which was drawn in Paras. 5 & 6 of the said order as reproduced below:--

I.T.As. Nos.153, 154 and 155(IB)/2008

Messrs. Dancom Pakistan (Pvt) Ltd, Islamabad

Dated: 27-6-2008

1. "

2. .

3. .

4. .

5. We have analyzed arguments of both the parties in the light of material laid before us. There are visible variations between the prepaid card system and payphone card system (used by PCO operators). Their nature and character are different than each other. There is no similarity between them and provisions of section 236(1)(b)(3) are therefore, not attracted on telephone facility used by the consumers or end-users. (underlined emphasis given by me)

6. It may also be mentioned that the issue of applicability of section 236(1)(b)(3) has already been decided in I.T.As. Nos.107 to 109(IB)/2007 dated 10-10-2007 in favour of the assessee. Respectfully following the ratio decidendi, we hold that the provisions of section 236(1)(b)(3) are not applicable in the case of assessee-company. In the light of these findings we hereby confirm the order of Authority below."

20. I have also gone through the other orders passed by Islamabad Division Benches of the Tribunal as cited in this order. In the said cases, the Tribunal has recorded the following findings:

"(i) I.T.As. Nos. 99, 100 and 101 (IB)/2007

Messrs Metrotel (Pvt.) Ltd. Islamabad

Dated: 12-12-2007

1. "

2. .

3. .

4. .

7. It may also be mentioned that the issue of applicability of section 236(1)(b)(3) has already been decided in I.T.As. Nos.107 to 109(IB)/2007 dated 10-10-2007 in favour of the assessee. Respectfully following the ratio decidendi, we hold that the provisions of section 236(1)(b)(3) are not applicable in the case of assessee-company. In the light of these findings we hereby vacate the order of both the Authorities below, annul the impugned order under section 161 and accept the appeals filed by the assessee-company." (Underlined emphasis given by me)

"(ii) I.T.As. Nos. 107, 108 and 109(IB) of 2007

Messrs. Naba Engineering and Trading

(Pvt.) Ltd., Islamabad

Dated 10-10-2007

1. "

2. .

3. .

4. .

5. .

6. .

7. In the light of analysis recorded supra we conclusively hold that "smart card" is not similar to a "prepaid card". Both these types of cards are not one and the same thing. Therefore, provisions of section 236(1)(b)(3) are not applicable in the case of assessee company. In the light of these findings we hereby vacate the orders of both the authorities below, annul the impugned order under section 161 and accept the appeals filed by the assessee company." (Underlined emphasis given by me)

"(iii) I.T.As. Nos. 118,119 and 120(IB) of 2007

Messrs Telezone Communication

(Pvt.) Ltd., Rawalpindi

Dated: 10-10-2007

1. "

2. .

3. .

4. .

5. .

6. .

(iv) I.T.As. Nos. 243 and 244(IB)/2007

Messrs ARK Telecom (Pvt.) Ltd., Islamabad

Dated: 10-10-2007

1. "

2. .

3. .

4. .

5. .

6. .

"(v) I.T.As. Nos. 293 and 294(IB)/2007

Messrs Ace quality (Pvt.) Ltd., Rawalpindi

Dated 20-2-2008

1. "

2. .

3. .

4. .

5. In the light of above analysis we conclusively hold that smart card is not similar to a prepaid card. Both these cards are 'not one and the same thing. Therefore, provisions of section 236(1)(b)(3) are not applicable in the case of assessee company. Therefore, we vacate the orders passed by both authorities below under section 161 of the Income Tax Ordinance, 2001 and accept the assessee's appeal in terms of prayer. Impugned order under section 161 is hereby annulled." (Underlined emphasis by me)

21. A careful study of all the supra orders of the Islamabad DBs reveals that the learned ARs of the appellants have tried to create technically operational distinction between the pre-paid card and the payphone card or the "smart card". In none of these orders, the Tribunal has deliberated upon section 23.6 of the Income Tax Ordinance 2001 (hereinafter referred to as the Ordinance) itself. Therefore, I consider it appropriate to reproduce section 236 of the Ordinance as follows:--

"236. Telephone users.---(1) Advance tax at the rates specified in Part-IV of the First Schedule shall be collected on the amount of--

(a) telephone bill of a subscriber; and

(b) prepaid cards for telephones

(2) The persons preparing the telephone bill shall charge advance tax under subsection (1) in the manner telephone charges are charged.

(3) The person issuing or selling prepaid cards for telephones shall ' [collect] advance tax under subsection (1) from the purchasers at the time of issuance of sale of cards.

(4) Advance tax under this section shall not be collected from Government, a foreign diplomat, a diplomatic mission in Pakistan, or a person who produces a certificate from the Commissioner that this income during the tax year is exempt from tax".

22. As is clear from the above, the title of section 236 ibid is "Telephone Users". There is no ambiguity that the tax under this section is to be paid by the telephone users. The use of telephone includes use of telephone connected to land line, use of mobile telephone, use of a payphone or use of any other type of telephone that may be introduced in future. In clause (a) of subsection (1) of section 236, the Legislature has used the word "subscriber" and under subsection (2) of section 236, the person preparing the telephone bill shall charge advance tax from the subscriber who is the user of telephone that may be land line telecommunication system or a mobile telecommunication system or any other telecommunication system. There is a similarity in the users of all types of telephones i.e. to converse telephonically with another person on the other side.

23. A further analysis of section 236 reveals that in clause (b) of subsection (1) of section 236, the Legislature has purposefully omitted to use the word "subscriber" and carries a significant meaning. All users of prepaid cards, whether they are subscribers or non-subscribers, have to pay this tax. Further, the Legislature, through the Finance Act 2002, omitted the word "mobile" from clause (b) of subsection (1) and from subsection (3) of section 236, thus enlarging the scope thereof to all pre-paid cards for telephone issued or sold by a mobile phone company or by any other company having whatever name of nomenclature. In the instant case, the appellant is the issuer or seller of the card whether it is called the telecard or a payphone card or the smart card or by whatever name it is issued or sold. Thus, there is another similarity between the appellant and the mobile phone companies or the payphone companies or the calling card companies as far as the issuance or sale of pre-paid cards for telephone is concerned. Similarly, there is yet another similarity as far as purpose of these cards is concerned i.e. facility created for the people to make phone calls.

24. As far as the nature of the card issued or sold by the appellant is concerned. I consider it essential to reproduce the relevant part of the, Licence Agreement issued by the Government of Pakistan as follows:--

"No. 7(96)/90-P&T

Government of Pakistan

Ministry of Communications Islamabad

Dated 9-7-2002

II. Responsibility of Operator

18. The Operator shall be responsible:--

(i) "

(ii). .

(iii). .

(iv) . .

(v). .

(vi). .

(vii)

(viii). .

(ix). .

(x). .

(xi). .

(xii) That the card phones conform to International Standard Organization (ISD) standards in size and shape and show face-value of the card on its front window." (underlined emphasis by me)

25. As is absolutely clear from the above, it is legally mandatory on the appellant to show face-value of the card on its front window. The learned DR, as discussed in Paras. 5 & 6 of this order, has drawn our attention to the fact that `air time' in terms of units is imbedded in different types of appellant's phone cards each carrying its denomination value in terms of rupees on its face called the "face value" as is also mandatory on the appellant in terms of the Licence Agreement discussed earlier. This is yet another important similarity between the cards issued/ sold by the appellant and those by the mobile phone or calling card companies. Thus, there is no doubt in my mind that the cards issued or sold by the appellant are pre-paid cards falling within the scope of clause (b) of subsection (1) read with subsection (3) of section 236 of the Ordinance.

26. "Isotes", i.e. equality before law is the cardinal principle of all laws. This principle is also enshrined in the "Preamble" and Article (25) of the Constitution of the Islamic Republic of Pakistan. The difference in technical details of one particular type of telephone cards cannot be allowed to create one segment of the telephone users as exempt from tax when all other users of telephone are paying tax for the same purpose H under section 236 of the Ordinance. It is a prerogative of the Legislature alone to allow exemption from tax to certain persons and there is no provision in the Ordinance that allows exemption from tax under section 236 ibid to the users of the appellant's payphones installed at its PCOs.

27. The Islamabad DBs of the Tribunal, in the cited cases, have omitted to deliberate on the legal issues raised in paragraphs 21 to 26 of this order and, in their orders, the principle of equality before law also stands negated since exemption from tax to one sequence of telephone users stand granted when no such exemption has been specifically allowed by the Legislature in any provision of the Ordinance. All these issues remained untouched (Res integra) in the cited judgments of the Islamabad DBs. Therefore, I am of the considered opinion that the supra judgments of the Islamabad DBs are not binding on this DB and, in view of my considered opinion as expressed in this order, I hold that the appellant is liable to collect advance tax under section 236 ibid from the users of its telephone cards by whatever name these are called. Accordingly, the captioned appeals of the appellant taxpayer fail on this issue for both the tax years under consideration.

28. In para. 14 read with last para. numbered as 16 of this order, my learned brother, the Judicial Member has dismissed the captioned departmental appeals on the issue of exclusion of amount of discount from gross sales of payphone cards for the purpose of section 236 of the Ordinance in the light of his findings in the taxpayer's captioned appeals. Whereas, in Paras. 18 to 27 of this order, I have held a different view and dismissed the taxpayer's captioned appeals. In addition, there is no provision in section 236 or Part-IV of the First Schedule to the Ordinance that allows deduction of any discount allowed to a middleman to calculate tax liability under section 236. Accordingly, I vacate the order of the learned C.I.T.(A) and allow the Department appeals for both the tax years under consideration on the issue of discount for the purposes of section 236 of the Ordinance.

29. I may also mention that the recommendation of the Alternate Dispute Resolution Committee or any order passed under section 134-A of the Ordinance is not binding on the Income Tax Appellate Tribunal.

(Sd.)

(SHAHID AZAM KHAN)

ACCOUNTANT MEMBER

Dated 6-11-2008

QUESTIONS OF LAW FOR FURTHER NECESSARY ACTION

There is a disagreement between the Members of the DB which heard the captioned appeals on 22-10-2008. Hence, we propose the following questions for referring to the 3rd Member:

(1) Whether the case-law cited as 1993 SCMR (sic) can be attributed to the arguments of learned Departmental Representative and not to the findings of the Division Bench of the Tribunal as discussed in paragraph-4 of that DB's order dated 27-6-2008 in I.T.As. Nos.153 to 156 (IB)/2008 (Tax years 2003 to 2005)?

(2) Whether the purpose of all users of every type of telephone is not the same i.e. to converse telephonically with other persons on the other end?

(3) Whether any exemption from payment of Income Tax can be allowed under section 236 of the Income Tax Ordinance, 2001 to a particular segment of telephone users when no such exemption is provided in the said Ordinance?

(4) Whether payment of tax under section 236'can be attributed only to the subscribers of telephones when the Legislature has omitted to use the word "subscriber" in Clause (b) of sub-section (1) of section 236 of the Income Tax Ordinance, 2001?

(5) Whether the Legislature has not enlarged the scope of section 236 to users of all types of pre-paid cards omitting the word "mobile" through the Finance Act 2002?

(6) Whether exemption from payment of tax under section 236 of the Income Tax Ordinance, 2001 to the users of appellant's telephones would not negate the principle of "Equality before Law" as enshrined in the "Preamble" and Article (25) of the Constitution of the Islamic Republic of Pakistan?

(7) Whether exemption from payment of tax under section 236 of the Income Tax Ordinance, 2001, if allowed to the users of appellant's telephones, would not amount to discrimination against those users of other telephones who are paying tax under section 236 of the Income Tax Ordinance, 2001?

(8) Whether the cards for telephone use issued or sold by the appellant are not the pre-paid cards when it is legally binding on the appellant, in terms of License Agreement issued by the Government of Pakistan, to show face-value of the cards on their front windows and also when the said cards actually carry their denominational values in terms of rupees?

(9) Whether the cited judgments of the Islamabad DBs are binding on this DB when all the issues, as raised in Paragraphs 18 to 27 of this DB's order, have not been deliberated upon in the said orders?

(10) Whether section 236 or Part-IV of the First Schedule to the Income Tax Ordinance, 2001 allows any deduction of middleman's discount on issue or sale of cards for the purposes of payment of tax by the telephone users under the said section?

(Sd.)(Sd.)

(JAVED IQBAL)(SHAHID AZAM KHAN)

JUDICIAL MEMBERACCOUNTANT MEMBER

Irfan Saadat Khan, Hassan Naeem and Asad Azam Khan for Assessee.

Rehmatullah Wazir and Farrukh Ansari, D.Rs. along with Aslam Ali, Additional Commissioner for Department.

JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).--This matter has been referred to me by the Honourable Chairperson to resolve the difference of opinion between my learned brothers Mr. Javed Iqbal the Judicial Member and Mr. Shahid Azam Khan the Accountant Member. In this respect Ten questions have been framed which have been mentioned in the above paras of the order. While perusal of the above paras of the order by my learned brothers I have found that as a matter of fact, in the titled cross-appeals filed for the above two tax years by the assessee as well as by the department, the following two issues have been contested:--

(i) Whether the provisions of section 236 of the Income Tax Ordinance, 2001 concerning withholding of tax are applicable to the pre-paid cards (as treated by the Department) or payphone cards (as contended by the appellant) issued by the assessee to its PCO operators.

(ii) Whether discount allowed by the assessee would be taken into account while working out the amount for withholding of tax under section 236 of the Ordinance on the above cards.

(iii) Whether the department was justified in invoking the provisions of section 153 of the Ordinance on payments made by the assessee to ZTE Corporation, a non-resident China based company by treating the contract executed between ZTE Corporation and the assessee as a turnkey contract and holding that ZTE Corporation has a Permanent Establishment (PE) in Pakistan thereby subjecting to tax in Pakistan the entire payments i.e. for supply of equipment and for its installation.

The above referred taxes have been imposed by the Taxation Officer under section 161 of the Ordinance, 2001 read with sections 153 and 236 of the Ordinance and further levying additional tax for the tax not withheld by the assessee, in terms of section 205 of the Ordinance.

I have noted that my brothers learned members have differed on the issues discussed at (i) and (ii) above while there is no disagreement as far as taxation of payments to ZTE Corporation by the assessee is concerned. It has been held by the learned members that since equipment was sold by ZTE Corporation from outside Pakistan and was imported by the assessee itself whereby the title of the goods transferred outside Pakistan, the payments for such equipment are not subject to Pakistan tax and therefore, the action taken by the department under section 161 read with section 153 and levy of additional tax under section 205 of the Ordinance on this score has been quashed. While it has been held that the installation of the equipment was carried out in Pakistan by ZTE Corporation's personnel; it would be treated that ZTE Corporation has a permanent establishment in Pakistan and accordingly, the related payments for installation services rendered have rightly been taxed in Pakistan.

The learned representatives have been heard and the dissenting orders passed by both my brothers learned members have been perused vis-a-vis the material and case law submitted by the learned representatives.

It is noted that my brother the learned Judicial Member has decided the issue of withholding of tax under section 236 of the Ordinance by placing reliance on the identical orders passed by this Tribunal at Islamabad in the cases of the companies which were engaged in the rendering of telephony services through PCOs set-up for this purpose under licenses issued by the Pakistan Telecommunication Authority and after having concluded agreement with the Pakistan Telecommunication Corporation, after having found the facts of the two cases being identical--

(i) In I.T.As. Nos. 153 to 156(IB)/2008 order dated 27-6-2008

(ii) In I.T.As. Nos. 107 to 109 (IB)/2007 order dated 10-10-2008

(iii) In I.T.As. Nos. 243 & 244(IB)/2007 order dated 10-10-2008

(iv) In I.T.As. Nos. 118 to 120(IB)/2007 order dated 10-10-2008

(v) In I.T.As.. Nos. 99 to 101 (IB)/2007 order dated 12-12-2007

As far as the facts of the instant case are concerned, it is apparent that there is no dispute between my brothers the learned Judicial Member and the learned Accountant Member. As a matter of fact my brother the learned Judicial Member has recorded in the above para (9) on page 28 of the order that the arguments delivered by both the parties are exactly identical to that recorded in I.T.As which have been decided by the benches of the Tribunal at Islamabad and this finding of the learned Judicial Member has not been displaced/controverted by my learned brother the learned Accountant Member Accordingly. I do not consider it appropriate to discuss the facts and merits of the case again as these already stand elaborately discussed in the above paras of this order although the learned representatives of the Department tried to distinguish the facts of the instant case with that of the cases on which my brother the learned Judicial Member has placed reliance while deciding the appeals. However, in the interest of justice I will discuss the arguments of the learned DRs as far as the facts of the case are concerned, in the ensuing paragraphs.

The learned representatives of the assessee at the very outset contended that the learned Accountant Member in the presence of the binding judgments of this Tribunal at Islamabad ought not to have deviated from those judgments. It was vehemently contended that since the learned Judicial Member has decided the cross appeals on the issue of tax withholding under section 236 of the Ordinance by following the earlier judgment which are binding on both the learned Members, there was no room for the learned Accountant Member to create any ambiguity in the earlier judgments in the absence of any distinguishing facts more so when he has not disputed that the facts of the instant case are different from the cases decided by the Islamabad benches of the Tribunal. Strengthening their arguments, the learned representatives of the assessee relied upon the following case law:--

(1) Tribunals and Courts must give consistent judgments qua similarly placed persons.	2006 SCMR 496 = 2006 PLC (C.S.) 355
(2) Division Bench differing from earlier Division Bench, should refer case to Larger Bench or while following earlier cases express their doubt and leave matter to be raised by appeal before Supreme Court.	PLD 1963 SC 296
(3) Earlier judgment of equal bench in the High Court on the same point is binding upon Second Bench. If however, a contrary view has to be taken then request for constitution of a Larger Bench should be made.	PLD 1995 SC 423
(4) Decision of a Division bench binding on Division Bench with same or lessor number of Judges.	178 ITR 548
(5) Difference of opinion between two Division Benches---Bench disagreeing with the earlier view has to make reference to a Larger Bench for resolution of such difference---If the Income Tax Appellate Tribunal while passing its order was in disagreement with the earlier view of another Bench of the Tribunal, the proper course available to it was to refer the matter to its Chairman for constitution of a Larger Bench to resolve such difference of opinion between the two Benches.	2007 PTD 1533
(6) Orders of the Tribunal deviating from the earlier decision given by a Division Bench of same strength set aside and remanded back to the Tribunal with the directions to place the file before the learned Chairman to form a Larger Bench and direct it to hear and dispose of the appeals within a period of 90 days from the receipt of order by the Registrar of the Tribunal.	176 ITR 2007
(7) When a Bench adopts a view different or contrary to the view earlier expressed by a Bench of equal jurisdiction, then legal propriety demands reference of case for constitution of a larger Bench or leave it to be settled in appeal by higher Court.	2004 PTD 62
(8) Whether Second Bench of Tribunal in judicial courtesy should not have proceeded to decide matter in presence and availability of judgment of Bench of equal strength in favour of assessee on same legal and factual issues--Held Yes. Whether such matter ought to have been referred to Chairman for constitution of larger Bench-Held, yes- High Court set aside both impugned orders and remanded case to Chairman for constitution of Full Bench or Larger Bench not comprising any member of two Division Benches which had earlier decided appeals	93 Tax 72
(9) Division Bench differing from earlier Division Bench. Should refer case to Larger Bench or while following earlier case express their doubt and leave matter to be raised by appeal before Supreme Court.	PLD 2004 Pesh. 47
The object of this principle is to maintain uniformity and consistency of views/decisions in different Benches of the same Court and is aimed at to foster, develop and channelize the system of justice to an extent sufficient enough for the general public to repose its firm confidence in the same.
(10)Principles of consistency and certainty occupy a very prominent position in the law of precedent which has to be adhered to in order to maintain discipline in the administration of justice.	1997 PTD 879
Conflict of view by different Benches of the same forum is bound to create confusion and ultimately chaos
Decision of a Division Bench is binding on other Division Benches of the same judicial institution and it is absolutely necessary to observe the principle in order to avoid conflicting decisions by the Benches of equal strength which is bound to create complication, confusion and chaos which will result in uncertainty and would be ultimately disastrous to the administration of justice
(11) Ratio settled by the Appellate Tribunal is binding upon a Bench of equal strength.	1998 PTD 3319
(12) Under the law of precedence the earlier Division Bench judgment is binding on the other Bench and therefore respectfully following the earlier Division Bench judgment it was held that the impugned order of the learned I.A.C. was not justified, which was vacated.	I.T.A. 42/KB/99-2000
(13). Principles of consistency and certainty occupy a very prominent position in the law of precedent which has to be adhered to in order to maintain discipline in the administration of Justice.	2003 PTD 2321
(14) Principal object behind all legal formalities is to safeguard the paramount interest of justice--Legal precepts were devised in order to view to import certainty, consistency and uniformity to the administration of justice and to secure same against arbitrariness, errors of individual judgment and mala fides.	PLD 2008 Lah. 685

It was argued that the well settled principle of law that is enunciated time and again by the Honourable Superior Courts as well as by this Tribunal which can be deduced from the above case law is that once an issue is decided by a judicial forum, the same become binding on the authority subsequently deciding the similar issue, unless the decision is reversed by a Larger Bench or by a higher forum. Moreover, a decision of a bench of equal strength is binding on the other Bench of similar strength and if the subsequent Bench considers that in the earlier decision some important aspects have not been considered which could alter the decision, the subsequent Bench should refer the matter to the Honourable Chairman for referring the matter to the third member and in the case of High Court and Supreme Court to the Honourable Chief Justice. However, it was vehemently argued that a single member has no authority to declare a judgment of a Division Bench as not binding owing to any reason whatsoever and therefore, he has no option but to follow the judgment in letter and spirit leaving the matter to be decided by the higher forum.

The learned D.Rs. on their turn did not avert the above arguments/contentions raised by the learned A.Rs. and they even fail to place before me a single decision wherein a contrary view is taken as advocated by the learned A.Rs. However, they tried to argue the case on factual planes. I have in the earlier part of my order, already observed that on the facts there appears no dispute between the two learned members and therefore, there is no need to discuss or deliberate on the facts of the case but in the interest of justice the arguments of the learned D.Rs. are being discussed. It was argued by the learned D.Rs. that the appellant besides running PCOs is also involved in other telephony services and therefore the ratio decidendi by the Benches of the Tribunal at Islamabad is not applicable to the instant case. in this connection they have referred to the assessee website to contend that it shows a number of other services being provided by the assessee. On this the learned ARs have contended that this contention is misplaced for the reason that the learned DRs referring to the services being provided by the assessee presently as its website shows. They argued that the appeal relates to tax years 2003 and 2004 which is corresponding to the years ended on 30th June, 2003 and 30th June, 2004 and therefore reliance on the assessee website as it stands today is of no relevance. The learned D.Rs. then argued that the assessee in the above tax years was also involved in providing wireless telephony services and therefore the contention that it acted as a facilitator for the P.T.C.L. in providing telephony services through the PCOs is not correct for the reason that in providing wireless telephony services, the assessee does not use P.T.C.L. infrastructure. The learned DRs also tried to distinguish the card issued by the assessee to its PCO holders and contended that it is a prepaid card for the purposes of section 236 of the Ordinance. However, the learned ARs submitted that this contention of the learned DRs is due to misconception. They argued that in the show-cause notice issued by the Taxation Officer dated 13 March, 2006, the Taxation Officer himself referred these cards as payphone cards and not as prepaid cards. Moreover, the Taxation Officer has himself treated the assessee as in default for not withholding tax under section 236 from payphone cards issued to PCO operators and the distinction between a prepaid card and a payphone card has very elaborately been discussed and decided in the above cases decided by the learned Benches of the Tribunal at Islamabad, which have been relied upon by the learned Judicial Member. The learned ARs then explained the business model of the assessee PCO business and stated that a PCO is setup after obtaining a line from P.T.C.L. For this purpose any interested party can approach the assessee for such PCO whereafter the assessee contacts P.T.C.L. to find out if it is technically possible to obtain a telephone line at the desired premises. If P.T.C.L. is in a position to install a telephone line at the required premises, an agreement is entered into between the assessee and the intended PCO operator and then application is moved before the P.T.C.L. for installation of a telephone connection. The intended PCO operator is then provided with a PCO equipment which is connected to the line provided by P.T.C.L. It may be noted that the telephone line is installed in the name of the assessee and P.T.C.L. issues bills on a monthly basis to the assessee on the basis of usage of telephone at the PCO. With the amount of bill, P.T.C.L. also includes the amount of tax in accordance with section 236 which is duly paid by the assessee and credit for such tax paid with the P.T.C.L. bill is claimed by the assessee in its return of income for the respective period. The PCO operator is issued with payphone card(s) of different units (of time usage) which card is inserted in the PCO equipment to enable the PCO equipment to function. A telephone user comes to the PCO to make a telephone call and on the basis of the units consumed; the PCO operator charges the corresponding amount from the caller. The ARs contended that on the usage of the telephone line tax is duly collected by P.T.C.L. under section 236 and therefore, further tax for the usage of the same telephone line is not warranted and would amount to double taxation. The ARs then explained that the payphone cards issued to PCO operators are not similar with prepaid cards available in the market. This is for the feason that prepaid cards are issued by mobile phone companies and by companies which are engaged in providing telephony services without the PCOs. A mobile telephone subscriber buys a prepaid card say of Rs.100 and after scratching the card inputs the revealing number through his handset in the system whereafter corresponding credit/ balance is transferred against his telephone number and withholding of tax under section 236 is also affected. The tax so collected can be claimed by the subscriber of the mobile phone for which purpose he can obtain a certificate of tax withholding from the concerned mobile telephone company. Since he is a registered subscriber / user, the tax collected from him is adjusted against his other tax liability. In the assessee payphone system, neither the assessee nor the PCO operator is the user. The user is the general public who makes calls from the PCOs but since they are not registered users tax withholding is not affected. For this reason, it was argued that the payphone card issued by the assessee to the PCO operators is different from the prepaid cards available in the market while the payphone cards are not available in the market for general public since it uses the service through the PCOs.

I have considered the above submissions from both the sides and have also perused the referred case law. I am of the view that once my brother the learned Judicial Member has found that the facts of the instant case of the appellant are similar to the facts as discussed by the Benches of the Tribunal which decided the cases of payphone companies in Islamabad, and accordingly relying on those decisions has allowed the appeals filed by the assessee and dismissed the appeals filed by the department on the issue of tax withholding under section 236 of the Ordinance, my brother the learned Accountant Member had no authority to differ from the conclusion drawn by the learned Judicial Member which is based on the earlier decisions of this Tribunal having similar set of facts moreso when the learned Accountant Member has not found any deviation in the facts and without recording in his order that the facts of the two cases are not similar. Merely for the reason that in the opinion of my brother the learned Accountant Member, this Tribunal in its earlier orders has not touched upon certain issues which according to him are important does not authorize him to deviate from the earlier orders and to record his own findings different from the findings recorded in the earlier decisions. As to the facts to the case on which the learned DRs have spent their energy trying to distinguish them, I have found that not only in the cases decided earlier by the this Tribunal at Islamabad as discussed above, there is a very recent reported decision which is cited as 2008 PTD (Trib.) 442 on the similar issue. In this decision another division bench of the Tribunal at Islamabad has discussed all the relevant facts and again reached to the conclusion that the provisions of section 236 of the Ordinance are not applicable on payphone cards which are different in nature and character than that of prepaid cards. The head notes of the cited case law are reproduced below for ease of reference:---

"Ss.161(1)(a) & 236 (1)(b)(3)---Finance Ordinance (XXVII of 2002), Preamble---Failure to pay tax collected or deducted---Payphone company---Assessee in default---Assessee was held in default on account of not deduction of income tax @ 10% on its sales under S.236(l)(b)(3) of the Income Tax Ordinance, 2001 on the ground that assessee was a pay phone company and liable to collect withholding tax on its sales as the payphone companies were brought under the ambit of withholding tax regime through Finance Ordinance, 2002---Validity---Tax @ 10% was deductible by the companies dealing with pre-paid cards for telephones---Assessee was admittedly a payphone company and there was visible difference between the prepaid system and payphone card system due to different nature and character with each other---Provisions of section. 236(1)(b)(3) of the Income Tax Ordinance, 2001 were not attracted and assessee was exempt from withholding tax @ 10%---Smart card was not similar to a prepaid card; both these cards were not one and the same thing--Provisions of Section. 236(1)(b)(3) of the Income Tax Ordinance, 2001 were not applicable in the case of a prepay phone company---Orders passed by both the Authorities below under S. 161 of the Income Tax Ordinance, 2001 were vacated and annulled by the Appellate Tribunal---Section. 236(1)(b)(3)---Telephone users---PCO operators---Non-deduction of tax--Provisions of S. 236(1)(b)(3). of the Income Tax Ordinance, 2001 were not very clear about PCO operators and it was a settled law that where there was any ambiguity in taxation laws, the benefit of same had to be given to the assessee."

In the presence of these binding precedents I find myself to be in agreement with the arguments of the learned ARs that my brother the learned. Accountant Member in the absence of his contradictory note on the facts of the case ought not to have deviated from the judgments of the Tribunal and forming in as much as 10 questions on the basis of his own findings whereby he has tried to create legal infirmities in the earlier decisions of the Tribunal. I am fortified in my views on the basis of the settled law that a decision of a Division Bench is binding on another Division Bench and that a Single Bench has no authority not to follow a decision of a Division Bench. In this connection, I would like to refer to the decision reported as 1997 PTD 879 wherein Mr. Mujibullah Siddiqui who was Chairman of this Tribunal at that time and now has been retired as a Judge of the Sindh High Court recorded the following findings.--

"We have been observing during the last few years with anxiety that due to lack of assistance and several other reasons the law of precedent has not been followed strictly in the administration of Justice. In addition to various other principles, the principles of consistency and certainty occupied from prominent position and these principles should always be adhered to in order to maintain discipline in the administration of justice and maintain discipline in this behalf. Thus, we proposed to consider the principles in this behalf as enunciated and affirmed by the Superior Courts, in the interest of better administration of Justice and to bring certainty in this behalf. It needs no emphasis that the conflict of views by different benches of the same forum is bound to create confusion and ultimately chaos which is not desirable on the face of it."

In this regard another case has been referred reported as 2003 PTD (Trib.) 835 wherein in a difference of opinion has arisen between the learned members and the matter was referred to third referee member who while placing reliance on the above decision of the Tribunal has recorded the following findings:---

"The above discussion leaves no scintilla of doubt that in view of the law as laid down by the superior Courts the decision of a Division Bench is binding on the other Division Benches of the same judicial institution. As already held by the Honourable High Court and honourable Supreme Court it is absolutely necessary to observe this principle in order to avoid the conflicting decisions by the Benches of equal strength which is bound to create complications, confusion and chaos which will result in uncertainty and would be ultimately disastrous to the administration of justice.

Consequent to the above conclusion we are of the considered opinion that mistake of law has taken place whereby the earlier decision of Division Bench of the Tribunal has been ignored and a different view has been taken by the learned Accountant Member sitting in the Division Bench and the sleazed third Member to whom the difference of opinion was referred it appears that the learned third Member was not assisted properly on this aspect of the legal decision and consequently a different view was taken whereby the earlier view that by the Division Bench was dissented and contrary view was taken instead of making reference to the Chairman for constitution of larger Bench."

In this background it is advantageous to see what is precisely in a precedent that constitutes the rule of the law to be followed by the subordinate Courts or for that matter other benches. Needless to dilate upon this issue in detail. Suffice it may to say that there are two constituents of a precedent namely ratio decidendi and obiter dicta and indisputably ratio decidendi is an underlying principle of a precedent having an authoritative feature which is binding on the parties to it but has the force of law and is operative in rem."

I have also gone through another decision in the case of Bashir Ahmed v. State PLD 1960 Lahore 687 where in it was held as under--

"(1) The decision of Full Bench of the Court cannot be dissented from by a Division Bench or a Single Bench.

(2) The decision of a Division Bench of the Court cannot be dissented from by a Single Bench.

(3) The decision of a Division Bench of the Court can be dissented from by another Division Bench or even by the same Bench and may be overruled by a Full Bench but it cannot be dissented from by a Single Bench, and

(4) The decision of a Single Bench can be dissented from by another or the same Single Bench and can be overruled by a Division Bench or a Full Bench."

In an unreported decision of this Tribunal dated 7-2-2000 in I.T.As. Nos.42 and 43/KB of 1999-2000 difference of opinion had arisen between the two learned Members who were sitting in the Division Bench. The learned Accountant Member owing to his opinion was of the view that on a particular issue the earlier decision of the Tribunal was based on incorrect appreciation of law and therefore, he did not follow the same. The than Honourable Chairman sitting in the bench differed from the views of the learned Accountant Member as he was of the opinion that the issue stands decided by a Division Bench of the Tribunal and therefore under the law of precedent, the earlier Division Bench judgment is binding. Accordingly, the following question was referred to the Honourable Chairman for reference to third member for its resolution with the question that:--

"Whether the earlier Division Bench judgment of the Tribunal is binding on the subsequent Division Bench under the law of precedent?"

The matter was referred to another Judicial Member who concurred with the views of the learned Chairman and concluded the matter vide his order dated 7 February, 2000 in the following manner--

"6. After going through the admitted facts reproduced hereinabove and also following the law of precedent as enunciated in the decision reported as (1997) 75 Tax P.108, it is held that the earlier decision of the Division Bench of this Tribunal being binding has been rightfully followed by the learned Chairman as the same is still holding the field having not been overruled by any decision of the Larger Bench. Consequently the question referred to the undersigned is answered in affirmative."

After considering all the facts and the case law discussed above my view regarding the question referred by the Honourable Chairperson are as under:--

Q.No.1. Regarding the question No.1, I have observed that the relevant page No. of the case law 1993 SCMR (sic) has not been found even in the decision referred to in the question. I have noted that the Islamabad Bench of the Tribunal while recording their observations in I.T.As. Nos. 153 to 156(IB)/2008 also recorded the concluding arguments of the learned Departmental Representatives who relied on the above case law. However, in their decision they did not dilate upon the above decision. The learned Judicial Member while relying on I.T.As. Nos.153 to 156(IB)/2008 in the instant case reproduced the findings from the above I.T.As on page 28 of his order and also referred to the above case-law 1993 SCMR (sic). However, I find that this has no bearing on his decision since he has in fact relied upon the operative part of the above I.T.As.

Q. Nos.2 to 5 and 8. As far as question Nos.2, 3, 4, 5 and 8 are concerned, I have found that the issues raised in these questions have already been elaborately discussed and decided by the learned Benches of the Tribunal at Islamabad in the cases which have been relied upon by my brother the learned Judicial Member and in the case law reported as 2008 PTD (Trib.) 442. These cases law have discussed the technicalities involved in the payphone system to the respective appellant and then it was held that the cards issued by them are payphone cards and not prepaid cards. It was further held that on payphone cards, the provisions of section 236 are not applicable. It is also held in these cases law that the provisions of section 236 are not very clear about 4 PCO operators who operate through payphone cards and that it is a settled law that where there is any ambiguity in the taxation laws, the benefit of the same has to be given to the assessee.

Q. Nos.6 & 8. Regarding the question Nos.6 and 7 the learned representatives of the assessee referred to the famous decision given by the Honourable Apex Court of Pakistan in the case of Elahi Cotton Mills Limited which is reported as PLD 1997 SC 582 = 1997 PTD 1555. I agree that this decision contains answers to the above questions as it has been held by the Honourable Supreme Court of Pakistan that the legislature has complete powers, authority and ,domain of taxing a particular class of citizens while exempting the other class of citizens from the same tax. moreover, it is also a settled law that the benefit of doubt arising from a taxing statute is to be given to the assessees and therefore, if a particular class by virtue of the benefit of doubt remains outside from the charge of tax, it is the legislature to provide in clear terms that the said tax is applicable on such class. Hence in my opinion, the reliance by my brother the learned Accountant Member on Article 25 of the Constitution of Pakistan is misplaced and out of context.

Q. No.9. The answer to question No.9 is obviously in the affirmative since a decision of a Division Bench is binding on the other Division Bench of the same strength and therefore, there is no escape for a single Member not to follow the judgment of a Division Bench even if it has not addressed some issues which, in the opinion of the learned single member, have a bearing on the decision given by the learned Division Bench. What is left with the member is to record his concerns and let the matter to be decided by the higher authorities but he is not saddled with the authority to dissent from a Division Bench decision.

Q. No.10. In view of the above, observation question No.10 framed by my brother the learned Accountant Member is of no effect and in my opinion, it does not needs to be answered.

Accordingly, it is my considered view that instead of the ten questions framed referred above the only question that arises is the one which has been decided in the above unreported decision of this Tribunal vide order dated 7 February 2000 in I.T.As. Nos.42 and 43/KB of 1999-2000 and I find that the above referred question No.9 framed by my brother the learned Accountant Member also contains somewhat similar issue. Following the case-law discussed above, I find myself to be in agreement with the decision of my brother the learned Judicial Member (as well as the various decisions given by the Tribunal Islamabad benches on this particular issue) who allowed the appeals filed by the assessee and dismissed the cross appeals filed by the Department by following the earlier decisions of Tribunal at Islamabad and order accordingly.

C.M.A./127/Tax(Trib.)Order accordingly.

VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 590 (2008)

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