VS, 2010 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1209 (2009)

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

----Ss.80-C, 59 & 61---Constitution of Pakistan (1973), Art.23, 4 & 8--C.B.R. Circular No.15 of 1980, dated 26-6-1980---C.B.R. Circular No.26 of 1980 dated 12-10-1980--Tax on income of certain contractors and importers---Self-assessment----Commission agent---Franchisee---Assessing Officer OUSTED the case from Self-Assessment Scheme due to reason that the notices claiming for short documents had not been complied with within the prescribed time limit and commission receipts fell under the ambit of S.80-C of the Income Tax Ordinance, 1979 as provided under subsection (2)(a)(ia) of the Self-Assessment Scheme---Assessments were finalized under S.62 of the Income Tax Ordinance, 1979---Assessee contended that nature of business had not been properly appreciated as the assessee was not a commission agent but as a Franchisee rendering services to his company as was running a Franchise to solicit customers for company's customers subject to the terms and conditions set out in the agreement and was merely a franchisee not an agent of the company and as such his relationship with the company was not that of a commission agent---Validity---Assessee placed on record a copy of invoices raised to company to support his contention that the nature of receipts were services rather than commission, which revealed that assessee was generating revenue line rent, retention, upgradation, international roaming etc., and all such transactions were out of purview of definition of `commission' as revenue in this regard had not been generated from the sale of goods but by providing services---Transactions of the assessee fell out of the definition of `commission'---Order of First Appellate Authority was vacated and assessments were set aside with the directions for fresh consideration.

2008 PTD 1751 rel.

(b) Words and phrases---

----Franchised dealer---Agent---Distinction---Franchised dealer was defined as "a retailer who sells the product or service of a manufacturer of supplier under a franchise agreement which generally protects the territory for the retailer and provides advertising and promotion support to him "---Such definition showed that a franchisee had a similar role as that of an agent in its wider perspective.

Black's Law Dictionary (Eighth Edition) and 2008 PTD 1751 ref.

Sohail Mutee Babri, I.T.P. for Appellant.

Mrs. Sabiha Mujahid, D.R. for Respondent.

ORDER

Through these two appeals the appellant/assessee has objected to the consolidated impugned order of the learned CIT (A) dated 21-3-2005 for the -assessment years 2000-01 and 2001-2002 on the following common grounds:--

"(1) That the assessment order passed by the learned Assistant Commissioner of Income Tax/Wealth Tax, Circle-09, Zone-B, Lahore ("Assessing Officer), dated 21-1-2002 ("the Order") and confirmed by the learned Commissioner of Income Tax (Appeals-IV), Lahore ("CIT") by its order, dated 21-3-2005 served on 20th of August, 2005 ("Appellate Order") (after passing five months) is bad in law and against the facts of the case on record.

(2) That the learned Assessing Officer was not justified in passing the order under section 62 of the Income Tax Ordinance, 1979 as the statutory notices of the Income Tax Ordinance, 1979 ("the Repealed Ordinance") were not properly served upon appellant and further certain notices with reference to Appellate Order were also not properly served on the Appellant and thereof confirmation of the above in Appellate Order by the learned CIT is illegal. Appellant unjustifiably has been condemned unheard. Appellant had not given any ample opportunity to explain his case. Hence Order passed without providing any ample opportunity to the appellant is coram non judice, void and against the principle of natural justice.

(3) In appellant's explanatory notice(s) he had requested the learned Assessing Officer to grant opportunity to clarify his position also. The learned Assessing Officer acted without jurisdiction in making the impugned Order without granting such opportunity of oral hearing and the learned CIT has failed to take notice of this vital point hence makes his Appellate Order illegal and without jurisdiction.

(4) That the learned CIT has passed the above Appellate Order with malice in law, his mala fide intention, biased opinion lurking in his mind because of her this attitude counsel of the appellant had requested not to hear all of the cases and to transfer all cases pertaining to the counsel to some other officer for fair trial. She totally disregard this request and passed the above Appellate Order at her whims and forcibly exercised power and retain them at his office for five months for no reasons and therefore made his Appellate Order illegal and without jurisdiction.

(5) That the learned CIT and as well as Assessing Officer did not apply their own independent mind to the facts of the case, and made theirs Order/Appellate Order on purely presumptions, surmises and conjectures and suppositions including this important fact that the assessee is a commission agent of PMCL and his declared income of business from `service' and therefore both the orders are illegal, without jurisdiction and of no legal effect.

(6) That the learned CIT had failed to decide the important regarding applicability of section 80C of the Income Tax Ordinance, 1979 ("the Repealed Ordinance") in the case of appellant and specifically when the appellant in ground No.6 had clarified that the Assessing Officer has misinterpreted section 80C of the repealed Ordinance by applying it in the appellant's case when the appellant himself declared his business of `services' and had denied his involvement in the business of commission. In the circumstances both the order and appellate order are illegal and without jurisdiction and ultra vires the Repealed Ordinance.

(7) It is respectfully submitted that under section 59 of the Ordinance, if assessee filed the return under the SAS he acquired a right to be assessed under the SAS. This was clearly conceded by the Central Board of Revenue in its Circular No(s) 15 & 26 of the 980. Even otherwise is a vested right and a constitutional right and cannot be taken away except in accordance with law. That process has not been observed in the proceedings started by the learned Assessing Officer and his action confirmed by the learned CIT and therefore there has been an infringement of Article(s) 23,4 and 8 of the Constitution of Pakistan, 1973. In these circumstances all proceedings lose legality.

(8) That the appellant order has failed to meet the legal arguments of the appellant in challenging the notice/order of the learned Assessing Officer, dated 26-3-2001/2-6-2001 whereby the appellant's income tax return was thrown out of the purview of the SAS coupled with a notice under section 61 of the repealed Ordinance, therefore, both order and appellate order are bad in law and without jurisdiction.

(9) To be assessed under the SAS provided in section 59 of the repealed Ordinance is a very valuable right and property of the assessee. By the action of the Assessing Officer assessee in depriving of this valuable right and property without granting him reasonable opportunity to being heard in respect of whatever ground the Assessing Officer had in his mind and without confronting it to the appellant and its further confirmation by the learned CIT. In the circumstances action of both the Assessing Officer and the learned CIT are illegal, entirely without jurisdiction, nullity and void.

(10) That the notice-issued under section 61 of the Ordinance after proclamation of the Income Tax Ordinance, 2001 are without jurisdiction and of no legal effect. So, order based on such notice and confirmed by the learned CIT(A) is also without jurisdiction.

(11) The impugned order and appellate order are without jurisdiction, mala fide and of no legal effect because it was passed without granting reasonable opportunity to the appellant of being heard.

(12) On receipt of the show-cause notice under section 62 from the Assessing Officer, the appellant had raised objections to his jurisdiction to act under the relevant provisions of the Scheme, He was requested, as the law stands, to decide these objections before proceeding, with the case on merits. The Assessing Officer did not decide the principle objection and proceeded to pass the impugned order and the learned CIT had failed to take notice of this vital point. In the circumstances, the impugned order and appellate order are unlawful, without jurisdiction, malafide, and null and void.

(13) Assessing Officer acted on pure speculations and conjecture and had absolutely no material or evidence to support its allegations. The impugned order in the circumstance was wholly arbitrary and unsustainable and any superstructure built on this order is not sustainable and hence the appellate order is equally bad in law and unreasonable and without jurisdiction.

(14) Assuming that the Assessing Officer had jurisdiction to pass the impugned order, he lost this jurisdiction while exercising it by acting in bad faith and prejudice and the learned CIT has failed to decide this objection.

(15) Notwithstanding the above arguments, if the jurisdiction to assess the appellant's income under normal law is found to be well established, then:

(a) The estimation of sales of mobile phones, repair of mobile set is purely based on surmises and conjectures and without any evidence(s) because no such business has been conducted by the assessee after the assessment year 1998-99 and further addition in profit and loss accounts are not only illegal but based on pure guess works and whims of the Assessing Officer and are required to be accepted as declared and by not taking into consideration this important aspect the learned CIT has lost his jurisdiction too and make his Appellate Order illegal and void.

(b) The estimation of appellant's income at Rs.1,809,309 for the assessment year 2000-2001 and Rs.2,266,514 for the assessment year 2001-2002 of the so-called income at Rs.1.120,000 for the assessment year 2000-2001 and at Rs.1372,057 for the assessment year 2001-2002 of whole business of `services' is without any cogent material, evidence and purely based on surmises, suppositions, conjectures and such order based on above facts has no validity in law and its confirmation by the learned CIT by its appellate order without rebutting the appellant's contention is equally unsustainable in law."

The office of this Tribunal has put a note that both the appeals are barred by time for one day. In this regard on behalf of the appellant the application for condonation of delay was filed which has already been allowed vide order dated 2-10-2009 and therefore the appeals are treated to be filed within time.

Regarding the above referred grounds of appeal for the two years we have found that the grounds are argumentative, unspecific and against the Income Tax Appellate Tribunal Rules but during the course of arguments the learned counsel representing the appellant has contended that out of above referred grounds he will press only three grounds which are Ground Nos.2, 6 and 7.

In this regard he has contended that the appellant in this case is an individual deriving income from running a Franchise of Pakistan Mobile Communication Ltd., through commission receipts on sale and connections of mobile phones of Mobilink and from sales and service and related accessories at Centre Point. The returns for both the years under review were filed under SAS but the Assessing Officer has ousted the case from SAS due to the reasons that the notices claming for short documents have not been complied with within the prescribed time limit and the commission receipts for both the years fell under the ambit of section 80-C as provided under subsection 2(a)(ia) of the SAS. The Assessing Officer has passed the consolidated assessment order under section 62 of late Ordinance, 1979 for both the years under review. He has contended that the statutory notices under the law in this case has not been served upon the appellant and the appellant has not been afforded proper opportunity of being heard. He has contended that the order passed by the Taxation Officer is based on presumptions, surmises and conjectures. He has argued that section 80-C of the repealed Ordinance, 1979 has been misinterpreted by both the officers below as the appellant himself has declared his business of 'services' and had denied his involvement in the business of commission and therefore the orders of both the officers below are against the law. Learned counsel in this regard has referred the C.B.R. Circular Nos.15 and 26 of 1980 has contended that under section 59 of the late Ordinance, 1979 if assessee filed the return under SAS he acquires a right to be assessed under SAS and his case cannot be ousted on the basis of presumptions and surmises. Learned counsel has submitted that the estimation of sales of mobile phone and the amount recovered through repair of mobile sets has been made by the Assessing Officer purely on presumptions and conjectures and without any basis. He has contended that no such business has been conducted by the assessee after the assessment year 1998-99. Regarding the disallowance out of profit and loss account he has contended that these additions are not only illegal but based on pure guess work and whims of Assessing Officer which has been upheld by the learned CIT(A) without any justification. According to learned counsel for the assessee the nature of the business has not been properly appreciated as the assessee is not a commission agent but as a Franchisee is rendering services to PMCL. He is of the view that the case of assessee has been ousted from SAS without any justification. He has contended that the B assessee is running a Franchise to solicit customers for PMCL customers subject to the terms and conditions set out in the agreement and is merely a franchisee not an agent of the company and as such his relationship with the company is not that of a commission agent. The copy of agreement between the Taxpayer and PMCL has also been placed before us. Learned counsel has also placed before this Bench copy of invoices raised to PMCL to support his contention of services rather than commission.

On the other hand learned D.R. is supporting the impugned orders of the officers below. He has contended that the Assessing Officer has duly followed the procedural requirement and after conducting inquiries through Circle Inspector regarding the appellant's business and subsequently confronting him with findings of the Circle Inspector's report, intention of the estimation of sales, repair receipts and due unavailability of details of P&L account expenses through notice under section 62 has made the assessment. He has contended that sufficient opportunity of presentation of the case was provided to the appellant but he failed in producing the books of accounts or other relevant documentary evidence not only in support of his declared version but also regarding expenses etc. He is of the view that the Assessing Officer has rightly made the assessment. According to learned DR the Taxation Officer has taken lenient view in estimation of sales which has rightly been upheld by the learned CIT(A).

We have heard the learned representatives from both the sides and have also perused the impugned order of the learned CIT(A), the assessment order and other relevant record of the case.

Learned counsel has placed before us the specimen agreements between the Pakistan Mobile Connection (Pvt.) Ltd. and Messrs Tele Links Lahore and has taken the plea that the taxpayer is merely a franchisee not any agent of the company and as such his relationship with the company is not that of a commission agent. While going through the above referred agreement we have observed that the taxpayer in this case could also appoint sub dealers for the business after approval and permission of PMC. While examining the plea of the appellant that he is a Franchisee the definition of Franchiser and Commercial Franchisee as appearing in the Black's Dictionary was examined. According to which Franchised Dealer is defined as "A retailer who sells the product or service of a manufacturer or supplier under a franchise agreement which c generally protects the territory for the retailer and provides advertising and promotion support to him." This definition shows that even a Franchisee has a similar role as that of an agent in its wider perspective. We have also gone through the definition of commission as appearing in the Black's Law Dictionary (Eighth edition). According to which,---

"An agent who is employed to sell property for the principal and who possesses or sells goods for a commission (a factor was employed to sell goods for the company). A factor differs from a broker because the factor possesses or controls the property. Also termed commission merchant; deal credere bailiff. Cf. Broker (Cases: Factors I.C.J.S. Agriculture 163, 165,178)

"A factor by the rules of common law and of mercantile usage is an agent to whom goods are consigned for the purpose of sale, and he has possession of the goods, power to sell them in his own name, and general discretion as to their sale. He may sell them on the usual terms of credit, may receive the price, and give a good discharge to the buyer." William R. Anson, Principles of the Law of Contract 153 (Arthur L. Corbin ed, 3d am. Ed (1919)".

After considering the above referred definitions we are of the view that the Franchisee has a similar role as that of agent in its wider perspective. In this regard the decision of this Tribunal reported as 2008 PTD 1751 has also been referred.

Learned counsel for the assessee/appellant has also placed before this Bench copy of invoices raised to PMCL to support his contention that the nature of receipts are services rather than commission, which reveal that the assessee is generating revenue line rent, retention, upgradation, international roaming etc., and all these transactions are out of the purview of the definition of commission as revenue in this regard has not been generated from the sale of goods but by providing services. It is therefore held that the transactions of the assessee fall out of the definition of commission. We are of the view that both the officers have failed to consider the above referred decisions of the Tribunal as well as the legal aspect of the case. The impugned order of the learned CIT (A) is, therefore, vacated and the assessments for both the years under review are set aside with the directions for fresh consideration in the light of above referred observation.

Both the appeals by the assessee are decided in the manner referred above.

C.M.A./43/Tax(Trib.)Order accordingly.