COMMISSIONER INCOME TAX, COYS ZONE, ISLAMABAD VS PAK DATA COMPANY LTD., ISLAMABAD, 2009 PTD-ISLAMABAD 1500 (2009)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 80-C(i)(2) & 50(4)---Receipt on account of execution of contracts for setting up operating and maintenance of data communication network are covered by the term "services rendered" and as such not liable to be taxed under the provisions of S.80-C, Income Tax Ordinance, 1979---Principles.

Shahid Iqbal for Petitioner.

Mian Ashiq Hussain for Respondent.

Date of hearing: 27th April, 2009.

JUDGMENT

MUHAMMAD MUNIR PERACHA, J.---This judgment shall dispose of Tax References Nos.53 of 2002, 05 of 2005, 117 of 2006, 118 of 2006 and 119 of 2006.

2. Order dated 19-3-2003, passed by Lahore High Court, Rawalpindi Bench, Rawalpindi reads as under:--

"The question of law proposed in para. 7 of the statement of the case is admitted to regular hearing. Notice to the respondents for a date to be fixed by the office in the week commencing from 21-4-2003."

Para 7 of the statement of the case is reproduced:--

"Against the order of the learned ITAT a reference application under section 136(1) of the Income Tax Ordinance, 1979, before the ITAT on the following questions of law :-

(i) "Whether on the facts and in the circumstances of the case the learned ITAT was justified in holding that the receipts on account of execution of contracts for setting up operating and maintenance of data communication network are covered by the term "services rendered" and as such not liable to be taxed under the provisions of section 80-C of the, Income Tax Ordinance, 1979?"

3. The assessee is a listed public limited company, engaged in the business of setting up, operating and maintaining a countrywide network of communication. In the relevant assessment year, the company filed return of total income considering that the same is to be assessed under normal law. However, the Deputy Commissioner, Income Tax was of the opinion that the assessee was liable to file statement under section 143-B of the Income Tax Ordinance, 1979 and its gross receipts are assessable under section 80-C read with section 50(4) of the Income Tax Ordinance, 1979. The assessee challenged the order of the assessing officer through an appeal before the Commissioner of Income Tax (Appeals). The learned appellate court came to the conclusion that the assessing officer was not justified in assessing the case under the presumptive tax regime under section 80-C of the Ordinance. The assessing officer was directed by the Commissioner of Income Tax (Appeals) that the assessment be framed under section 62 of the Ordinance. The order of the Commissioner Income Tax (Appeals) was challenged by the department before the Income Tax Appellate Tribunal. The Tribunal vide judgment dated 12-5-2001, upheld the order of the appellate authority, whereby the order of the assessing officer was set, aside. However, the case was remanded with the direction that the assessing officer would examine the issue afresh after obtaining breakup and details of the receipts declared and a de novo order will be passed as per facts and circumstances of the case.

4. We have heard the learned counsel for the petitioner as well as learned counsel for the respondent and have gone through the record of the case.

5. Section 50(4) casts a duty on any person responsible for making any payment in full or in part to any person being resident on account of the supply of goods or for services rendered to or the execution of a contract with government or a local authority or a company or a registered firm or any foreign contractor or consultant or consortium to deduct advance tax at the time of making such payment at the rate specified in the First Schedule. Sections 80-C (1) and (2) reads as under:--

"80-C(I) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where any amount referred to in subsection (2) is received by or accrues or arises or is deemed to accrue to any person the whole of such amount shall be deemed to be income of the said person and tax thereon shall be charged at the rate specified in the First Schedule.

80-C(2):---The amount referred to in subsection (1) shall be the following namely;

(a) Where the person is a resident:---

(i) the amount representing payments on which tax is deductible under subsection (4) of section 80, other than payments on account of services rendered;

(ia)

(ii)

(iia) ..

(iii)

(iv)

Reading of sections 50(4) and 80-C (1), (2), makes it clear that the amount representing payment on which tax is deductable under subsection 4 of section 50 other than payment on account of services rendered shall be deemed to be the income of the recipient and tax deducted shall be deemed to be final discharge of liability. The question, therefore, arises whether the amount received by the assessee is received for the services rendered. The term "services rendered" has not been defined in the Income Tax Ordinance. However, in C.B.R. Circular No.25 of 1980 dated 23-9-1980, "services rendered" has been defined as:--

"This includes the services rendered, whether through a contract or otherwise, by professions such as medical practitioners, legal practitioners, accountants and consultants, etc."

The assessing officer seems to be of the opinion that payments received by professionals such as Medical practitioners, legal practitioners, accountants, consultants can only be taken to be the payments received for services rendered. However, this opinion of the assessing officer cannot be accepted for two reasons. Firstly, the Central Board of Revenue has no power to define a phrase used in the Income Tax Ordinance and not defined in it and secondly, when the phrase "includes" is used, it is used to enlarge the definition. It cannot therefore, be said that only "services rendered" which are mentioned in the circular shall be deemed to be "services rendered" within the meaning of section 80-C(2)(ai).

5. Learned counsel for the petitioner admits that the payments received by the assessee are not on account of supply of goods but he contends that the payments are on account of the execution of a contract of the assessee with companies.

We are unable to agree with the contention raised by the learned counsel for the department and are of the firm opinion that the receipt made by the assessee on account of providing network services are covered under the term "services rendered". We therefore, answer the question framed in the positive.

M.B.A./C-8/IslReference answered.