2010 P T D (Trib.) 1537
[Income-tax Appellate Tribunal Pakistan]
Before Khawaja Farooq Saeed, Chairperson and Istataat Ali, Accountant Member
I.T.A. No940/IB of 2009, decided on 15/04/2010.
(a) Income Tax Ordinance (XLIX of 2001)---
----S.177 (4)---Audit---Selection of case for audit---Commissioner can also select cases for audit' irrespective of issuance of audit selection criteria by Federal Board of Revenue and mentioning of specific clause of S.177(4) of the Income Tax Ordinance, 2001 was not necessarily required.
W.P. No.11166 of 2009 rel.
(b) Income Tax Ordinance (XLIX of 2001)---
----S. 177(4)---Audit---Pre-selection show-cause notice---Department need not issue a pre-selection show-cause notice---Commissioner was competent to select cases for audit and mentioning of specific clause of S.177(4) of the Income Tax Ordinance, 2001 was not essentially required.
Writ Petitions Nos. 960 of 2008 and W.P. No.11166 of 2009 rel.
2007 PTD 239; 2009 PTD 20; 2009 PTD 284; 2007 PTD 2188; 2008 PTD 1440; PLD 1963 Kar. 182; 2000 SCMR 1017; I.C.A. No.125 of 2007; Writ Petition No.7146 .of 2008 and Writ Petition No. 2928 of 2008 ref.
2010 PTD 395 and Mohsin Raza v. Chairman, F.B.R. and others 2009 PTD 1507 not in field.
(c) Income Tax Ordinance (XLIX of 2001)---
----S.177(4)---Audit---While selecting a case for audit, the Department should intimate the taxpayer about the same and criteria/reasons of selection of the case for audit, should also be disclosed.
2005 PTD 152 and Commissioner of Income Tax and others v. Fatima Sharif Textile, Kasur and others 2009 SCMR 344 = 2009 PTD 37 rel.
(d) Income Tax Ordinance (XLIX of 2001)---
----S.177 (4)---Audit---Selection of case for audit---While selecting a taxpayer's case for audit, the Department. should intimate him about the same and also disclosed the criteria/reasons of selection of the case for audit---Such condition is obligatory in nature and it was incumbent upon the Department that if the case of any taxpayer was selected for audit, an intimation should be given about such selection to the taxpayer and criteria/reasons of such selection should also be communicated---In the present case, Department, while intimating the taxpayer about selection of his case for audit, also disclosed the criteria/reasons of selection---Intimation letter was duly issued through which the taxpayer was informed that his case was selected for audit, because claim of exemption from tax had to be examined---Legal requirements for selection of the case for audit were duly fulfilled by the Department---Case was rightly selected for audit and objections raised from the taxpayer's side about selection of his case for audit were not maintained by the Appellate Tribunal---Appeal of the taxpayer against selection of case for audit, being devoid of any merit, was rejected.
2009 PTD 284 rel.
(e) Income Tax Ordinance (XLIX of 2001)---
----Ss.54, proviso, 170, 177, 120(1) 122 (1) & Second Sched., Part-1--Income Tax Ordinance (XXXI of 1979), Fifth Sched., Part-1---Regulation of Mines and Oil Fields and Mineral Development (Government Control) Act (XXIV of 1948), S.38, Paragraphs (9) to (13)---Petroleum Concession Agreements---Exemption and tax provisions in other laws---Salary income of expatriate---Exemption of---Assessee contended that salary income earned by the expatriate was exempt from tax for a period of three (years) from the date of arrival in Pakistan---Department pleaded that income of the taxpayer was not exempt from tax under any of the provisions of Second Schedule to the Income Tax Ordinance, 2001; and in the light of provisions contained in S.54 of the Income Tax Ordinance, 2001; and in the absence of any specific exception in the Second Schedule, income of the taxpayer was not exempt from tax---Assessee pointed out that there was a proviso which was part of S.54 of the Income Tax Ordinance, 2001, which envisaged that any exemption from income tax or a reduction in the rate of tax or a rate of tax liability' of any person or any exemption from operation of any provision of the Income Tax Ordinance, 2001 provided in any other law. in force on the commencement of the Income Tax Ordinance, 2001 shall continue to be available unless withdrawn; and said proviso was omitted by Finance Act, 2008; and in this manner, exemption. provided under laws/regulations relating to petroleum/mines shall continue to be operative till tax year, 2008, because the proviso was omitted/deleted through Finance Act, 2008---Income of the taxpayer was exempt in terms of proviso to S.54 of the Income Tax Ordinance, 2001, because specific exemption from tax was granted through sovereign agreement by Government of Pakistan and the Regulation of Mines & Oil Fields and Mineral Development (Government Control) Act, 1948---Validity--- Exemption from tax was provided through sovereign agreement between the stakeholders--Exemption was also available as contained in the provisions of Regulation of Mines & Oil Fields and Mineral Development (Government Control) Act, 1948---Proviso to S.54 of the Income Tax Ordinance, 2001 further supported the contention of the taxpayer, because protection was provided through the proviso to the exemptions granted by the Federal Government through statutes---It was only in 2008 that a decision was made by the Government that exemption from tax shall only be available through Income Tax Ordinance, 2001 and no other statute granting exemption from tax shall have any legal effect---Income of the taxpayer was exempt from tax and Taxation Officer was not justified to reject taxpayer's claim of exemption---Action of both the authorities below on said point was vacated and taxpayer's appeal on the point of exemption from tax was accepted by Appellate Tribunal.
Flopetrol International S.A, Islamabad' and others v. Central Board of Revenue, Islamabad and others 1994 CLC 1721 = 1994 PTD 1370 and 2003 PTD 463 ref.
Rashid Ibrahim, F.C.A., Jehanzeb Amin, A.C.A. and Hafiz M. Idrees for Appellants.
Mrs. Aisha Khalid, D.R. for Respondent.
ORDER
This appeal has been filed by the taxpayer against order dated 30-9-2009 passed by CIT (Appeals), Islamabad.
2. The taxpayer is an expatriate employee of Messrs Schlumberger Seaco Inc Return for the year under appeal was filed declaring salary income of Rs.20,38,709, which was claimed as except from tax under section 3B read with clause (13) of the Schedule to the Regulation of Mines and Oil Field and Mineral Development Act, 1948. This return was deemed to have been accepted under section 120(1) of the Income Tax Ordinance, 2001. This case was selected for audit regarding which, taxpayer was duly informed that his claim of exemption from tax had to be examined under the law. Proceedings were accordingly started for amendment of assessment. For the reasons recorded in assessment order under section 122(1) dated 31-5-2009, the claim of exemption from tax was rejected and the declared income was subjected to tax. The taxpayer filed appeal against this assessment, which was rejected by CIT(A) vide his impugned order dated 30-9-2009. The taxpayer has now filed second appeal before this forum on the following grounds (reproduced verbatim):--
(i) The Hon'ble Commissioner of Income Tax/Wealth Tax (Appeals-II), Islamabad has erred in upholding the order of the learned Taxation Officer of Income Tax, Audit-IV, Regional Tax, Office, Islamabad in amending your appellant's deemed assessment under the provisions of section 122 (1) of the Income Tax Ordinance, 2001 (Ordinance) which assessment was earlier treated to have been made by "operation of law" pursuant to section 120(1)(b) of the Ordinance by the Commissioner (having original jurisdiction), being an officer of higher rank.
(ii) The Hon'ble Commissioner of Income Tax/Wealth Tax (Appeals-II), Islamabad has, erred in upholding the order of the learned Taxation Officer of Income Tax, Audit-IV, Regional Tax, Office, Islamabad, which was based on your appellants' selection of his return of income for audit under subsection (4) of section 177 of the Ordinance without following the criteria laid down by Federal Board of Revenue and without first obtaining approval of the Hon'ble Commissioner of Income Tax (Audit), Regional Tax Office, Islamabad.
(iii) The Hon'ble Commissioner of Income Tax/Wealth Tax,(Appeals-II), Islamabad has erred in upholding the order of the learned Taxation Officer of Income Tax, Audit-IV, Regional Tax, Office, Islamabad in amending your appellant's deemed assessment under the provisions of section 122(1) of the Income Tax Ordinance, 2001 without responding to the submission made by your Honour's appellant.
(iv) With prejudice to the above, the Hon'ble Commissioner of Income Tax/Wealth Tax (Appeals-II), Islamabad has further erred in upholding the order of the learned Taxation Officer of Income Tax, Audit-IV, Regional Tax Office, Islamabad in subjecting to tax your appellants' income from salary which is exempt from tax under the provisions of Regulations of Mines and Oil Field and Mineral Development (Government Control) Act, 1948 (Act No.XXIV of 1948) as amended by Act LXXXIII of 1976 and/or otherwise.
(v) The Hon'ble Commissioner of Income Tax/Wealth Tax (Appeals-II), Islamabad has erred in upholding the order of the learned Taxation Officer of Income Tax, Audit-IV, Regional Tax, Office, Islamabad in levying additional tax against the provisions of section 205 of the Income Tax Ordinance, 2001.
3. Selection for audit.---In the beginning, learned AR traced history of audit under the new Income Tax Ordinance, 2001. He stated that selection for audit under section 177 was made under the new Ordinance for the first time in the tax year 2003. It was challenged in different High Courts through writ petitions. Apart from so many other judgments, a judgment in case of Muhammad Hussain v. CIT was passed by the Lahore High Court reported as 2005 PTD 152. The said judgment along with many other judgments were assailed in Supreme Court of Pakistan through Civil Appeals Nos. 1962 to 2205 of 2005. The Hon'ble Supreme Court of Pakistan had decided the above cited appeals vide judgment reported as 2009 SCMR 344 = 2009 PTD 37 titled as "Commissioner of Income Tax and others v. Fatima Sharif Textile, Kasur and others". In the landmark judgment, a principle was laid down by the Hon'ble Supreme Court that issuance of intimation about selection for audit disclosing/criteria in respect thereof is mandatory. Relevant portion of this judgment reads as under:
"With the observation that let appellants issue fresh notices to the respondents in terms of section 177 of the Ordinance, as it was prevailing at the relevant time, disclosing criteria/reasons for selecting their cases for purpose of audit".
4. After tax year, 2003, the department had not selected any case for audit for a few years. However, 2/3 years back, selection of cases was again started. Through Finance Act, 2004, section 177 was amended and subsections (1), (2), (3) and (4) were introduced, which are as under:-
"177. Audit.---(1) The [Board], may lay down criteria for selection of any person for an audit or person's income tax affairs, by the Commissioner.
(2) The Commissioner shall select a person for audit in accordance with the criteria laid down by the [Board] under subsection (1).
(3) The [Board] shall keep the criteria confidential.
(4) In addition to the selection referred to in subsection (2), the Commissioner may also select a person for an audit of the person's Income Tax Affairs having regard to-
(a) The person' history of compliance or non-compliance with this Ordinance.
(b) The amount of tax payable by the person;
(c) The class of business conducted by the person; and
(d) Any other matter which in the opinion of Commissioner is material for determination of correct income".
5. Learned A.R. stated that current selections were again challenged in the Hon'ble High Courts throughout Pakistan raising objections about:--
a)issuance of show-cause notice;
b)selection of case under subsection (4) without invoking subsection (2) of section 177;
c)non-mentioning of sub clauses of subsection (4) i.e. a, b, c or d and
d)basis and criteria of selection.
6. Different High Courts interpreted the issues differently. The Hon'ble Islamabad High Court and Karachi High Court upheld the selection in accordance with law and rejected the writ petitions/references of the taxpayers in Writ Petitions Nos. 960 of 2008, 550 of 2009, 99 of 2009 and 1006 of 2009 dated 14-7-2009 (Islamabad High Court) and 2009 PTD 284. Hon'ble Lahore High Court vide Writ Petition No. 2663 of 2007 dated 5-3-2008 2010 PTD 395 i.e. Writ Petition No.1858 of 2009 dated 8-6-2009, Writ Petition No.20306 of 2009 dated 18-10-2009, Writ Petition No. 20339 of 2009 dated 16-10-2009, Writ Petition No. 20340 of 2009 dated 16-10-2009, 2009 PTD 1507 titled Mohsin Raza v. Chairman, F.B.R. and others, accepted the writ petitions of the taxpayers by following the judgment of Supreme Court (Fatima Sharif's case). Learned A.R. stated that specifically in judgment of Mohsin Raza case, the Hon'ble High Court accepted all the four objections of the petitioners.
7. It was stated by the learned A.R. that selection of this taxpayer's case for Audit is not in accordance with law. No criterion for selection was laid down by C.B.R. No prior show-cause notice was issued to the taxpayer and opportunity of hearing was not provided before selection for audit. Even the basis of selection was not communicated. No criteria for selection of case for audit was laid down by C.B.R., which is a pre-requisite for Commissioner to select a person for audit.
8. Learned D.R. stated that Hon'ble Islamabad High Court in their order dated 29-6-2009 in Writ Petition No. 960 of 2008 and Hon'ble Lahore High Court in their order dated 22-10-2009 explicitly and unequivocally held that pre-selection show-cause notice was not required while selecting a case for audit and Commissioner could also select cases for audit, without issuance of audit selection criteria by F.B.R. It was also held in these judgments that mentioning of specific clause of subsection (4) of section 177 of the Income Tax Ordinance, 2001 was not necessarily required for the purpose of selecting a case for audit. Learned D.R. emphasized that Hon'ble Lahore High Court in their above referred judgment dated 22-10-2009 specifically referred to the previous judgment of another Single Bench of Hon'ble Lahore High Court, wherein selection of cases for audit was knocked out for non-issuance of pre-selection notice and non-issuance of audit criteria by F.B.R. In this manner learned D.R. supported her contention that issuance of pre-selection show-cause notice, issuance of selection criteria by F.B.R. and mentioning of specific clause of section 177(4) is not an essential requirement in selection of cases for audit. Learned D.R. emphasized that it was held the Hon'ble High Court in their order dated 22-10-2009 that intimation letter indicating reasons/basis of selection for audit was sufficient legal formality. She stated that similar ratio was settled by Hon'ble Supreme Court of Pakistan in their judgment in Fatima Shareef Textile Mills, Kasur reported as 94 Tax 317 2006 and it was finally settled that Department may issue notice in terms of selection under section 177(4), as it was applicable at the relevant time, disclosing criteria/reasons of selecting the cases for audit. Learned D.R. stated that Hon'ble Lahore High Court in their judgment dated 22-10-2009, while confirming the departmental action, also made reference to cases favoring the Department cited as (i) 2007 PTD 239 (H.C. Lahore), (ii) 2009 PTD 20 (H.C. Lhr.), (iii) 2009 PTD 284 (H.C. Kar.), (iv) 2007 PTD 2188 (H.C. Lhr), (v) 2008 PTD 1440 (H.C. Ibd), (vi) PLD 1963 Kar. 182, (vii) 2000 SCMR 1017, (viii) ICA No.125 of 2007 (unreported), (ix) Writ Petition No. 7146 of 2008 (unreported) and (x) Writ Petition No. 2928 of 2008 (unreported). Learned D.R. put emphasis on her arguments by placing reliance on aforesaid judgments of superior Courts by stating that issuance of intimation letter about selection of the case containing reasons/basis of selection for audit is a sufficient legal step for selection of a case audit. She contended that in this case, this requirement was duly fulfilled by the Taxation Officer hence taxpayer's case was rightly selected for audit and this selection was rightly confirmed by CIT(A) in his impugned order.
9. We have considered arguments of both the sides. For selection of cases for audit under section 177(4), the main issues raised by the taxpayer are (i) whether a notice was necessarily required to be issued before selecting a case for audit (ii) whether the Commissioner could select a case for audit under section 177(4) without issuance of `audit selection criteria" by the F.B.R.? (i.e. the interpretation of words "in addition to" appearing in the beginning of subsection (4) of section 177 of the Income Tax Ordinance, 2001 and (iii) whether mentioning of specific clause of subsection (4) of section 177 of the Income Tax Ordinance, 2001- was necessarily required for the purpose of selecting a case for audit?
10. The Hon'ble Lahore High Court, in their judgment reported as [(2009) 100 Tax 213 (H.C. Lah.)] titled as "Mohsin Raza v. Chairman FBR etc.", decided these issues in favour of the taxpayers and held that selection of cases for audit will not be lawful, if a pre-selection show-cause notice is not given and if selection is made without issuance of audit selection criteria by F.B.R. and that mentioning of specific clause of section 177(4) is also necessary. In all other judgments of High Court level, especially the judgment of Hon'ble Islamabad High Court dated 14-7-2009 in Writ Petition No.960 etc. and the judgment of Hon'ble Karachi High Court reported as 2009 99 Tax 272 (H.C. Karachi-Division Bench), the issue in question was decided in department's favour and it was held that pre-selection show-cause notice under section 177(4) is not required. Moreover, the Commissioner can also select cases for audit irrespective of issuance of audit selection criteria by F.B.R. and mentioning of specific clause of section 177(4) was not necessarily required. In a recent judgment of Hon'ble Lahore High Court dated 22-10-2009 in Writ Petition No.11166 of 2009, the aforesaid issues were clearly and unequivocally settled in favour of the Department. Now the Department contends that this judgment, being chronologically later in the order, holds the field and prevails at the present. In our opinion, varying judgments on the same issues have been given by two Benches of Lahore High Court, whereas Hon'ble Islamabad High Court and Karachi High Court have decided the issues in dispute in Department's favour. Moreover, latest judgment of Hon'ble Lahore High Court dated 22-10-2009 in Writ Petition No.11166 of 2009, being chronologically later in order, also has prevailing effect. In these circumstances, we are of the opinion that it is not necessary for the Department to issue a pre-selection show-cause notice. Moreover, the Commissioner is also competent to select cases for audit and mentioning of specific clause of 177(4) is not essentially required. Nevertheless, the judgment of the Hon'ble Supreme Court of Pakistan reported as 2009 SCMR 344 = 2009 PTD 37 in the case of Commissioner of Income Tax and others v. Fatima Sharif Textile, Kasur and others has also a binding effect. It was held by the Hon'ble Supreme Court in this case that while selecting a case for audit, the Department should intimate the taxpayer about it and criteria/reasons of selection of the case for audit should also be disclosed.
11. It has now crystallized that Hon'ble Supreme Court in their judgment in the case of Commissioner of Income Tax and others v. Fatima Sharif Textile, Kasur and others settled that while selecting a taxpayers' case for audit, the Department should intimate him about it and also disclose the criteria/reasons of selection of the case for audit. In our opinion, this condition is still obligatory in nature in the present scenario. It is incumbent upon the Department that if the case of any taxpayer is selected for audit, an intimation should be given about such selection to the taxpayer and criteria/reasons of such selection should also be communicated. In the instant case, this requirement was duly fulfilled. The Department, while intimating the taxpayer about selection of his case for audit, also disclosed the criteria/reason of selection. An intimation letter was duly issued through which the taxpayer was informed that this case was selected for audit, because claim of exemption from tax had to be examined. In this manner, legal requirements for selection of the case for audit as spelled out by the Hon'ble Supreme Court of Pakistan in their judgment in the case of Commissioner of Income Tax and others v. Fatima Sharif Textile, Kasur and others were duly fulfilled by the Department. The instant case was, therefore, rightly selected for audit and objection raised from taxpayer's side about selection of his case for audit are not maintained. Appeal of the taxpayer against selection of his case for audit, being devoid of any merit, is rejected.
12. Exemption from tax.---Learned A.R. stated that salary income earned by the appellant, employed by Dowell Schlumberger (Western) S.A., who is a contractor of petroleum exploration companies is exempt from tax for a period of three years under the provisions of section 3B of the Regulation of Mines and Oil-fields and Mineral Development (Government Control) 1984 Act read with the Schedule to the Act. The activities for exploration prospecting mining and production of petroleum in Pakistan are regulated by Regulation of Mines and Oil-Fields and Mineral Development (Government Control) 1984 Act and the Rules made pursuant thereto. This is the 'overriding law that governs all aspects including tax on income from such activities. All the entities engaged in such business are required to enter into an arrangement with the President of Pakistan. There can be two kinds of arrangements i.e. Production Sharing Arrangement and Concession to exploration companies. Concession Agreements are governed by section 3B of the Act. For availing concession the entities normally more than one (termed as Working Interest Owners) enter into Petroleum Concession Agreements (PCA's) with the President of Pakistan. Learned A.R. contended that implementation of income tax concessions laid down in the Mining Act is carried through special provisions contained in the Income Tax Ordinance, 2001 (which were similar in Income Tax Act, 1922 and Income Tax Ordinance, 1979), as companies engaged in the exploration and production of the petroleum products in Pakistan are assessed in a specific manner laid down in Part I of the Fifth Schedule to the repealed Income Tax Ordinance, 1979 (1979 Ordinance) or the Income Tax Ordinance, 2001 (Ordinance). He stated that the manner through which the taxes on income are to be determined operates through combined reading of (i) Mining Act 9 read with the Rules, (ii) Petroleum Concession Agreement (PCA); and (iii) Part I of Fifth Schedule to the 1979 Ordinance or the Ordinance. Learned A.R. stated that the Mining Act was promulgated for the regulation of mines and oil fields. The law also provides certain caveats relating to determination of payments to Government either by way of royalty or taxes on income. Section 3B' (inserted in 1976) of the Mining Act provides certain concessions to the petroleum companies and consequently the agreement with Petroleum Companies are named "Petroleum Concession Agreement". Section 3B reads as under:
Section 3B Concessions to petroleum exploration companies:
(1) Notwithstanding anything contained in any other law for the time being in force, every company, whether incorporated in Pakistan or outside Pakistan to whom 'a license or a lease to explore prospect and mine petroleum, is granted under this Act, not being a company such as is referred to in subsection (1) of section 3A, shall be entitled to the concession specified in the Schedule in addition to any concessions for the time being admissible to it under any other law or the rules made under the Act.
(2) The Federal Government may, by notification in the official Gazette, amend the Schedule so as to add any concessions thereto or to improve any concessions therein".
13. Learned A.R. referred to Schedule to the Act-Paragraph 13:--
"Foreign nationals employed by a licensee or lessee or its contractor shall not be charged Income Tax for a period of three years from the date of their arrival in Pakistan in accordance with and subject to the provisions of clauses (7) and (8) of the Second Schedule to the Ordinance as in force on the effective date of agreement with the licenses of lessee".
14. Learned A.R. contended that under the provisions of para graph (13) of the Schedule to the Act read with section 3B of the Act, salary income earned by the expatriate appellant is exempt from tax for a period of three years from the date of their arrival in Pakistan. He stated that Hon'ble Lahore 'High Court, Lahore in the case of Flopetrol International, S.A, Islamabad and others v. Central Board of Revenue, Islamabad reported as 1994 CLC 1721 = 1994 PTD 1370 in deciding the matter of exemption in a similar case has allowed the exception under section 3B of the Schedule to the Act and observed that the said exemption cannot be refused on the plea that the conditions laid down in the Repealed Income Tax Ordinance, 1979 must be fulfilled in addition on the conditions appearing in section 3B and the Schedule to the Act. He argued that under the provisions of section 3B of the Act, the concessions made available under the Act to a company engaged in the business of Oil and Gas exploration and production in Pakistan, has been given overriding effect over any other law. Further such concessions granted by the Act as specified in the Schedule, are in addition to any concession for the time being admissible under any other law in force. He stated that Income Tax Appellate Tribunal vide their appellate order dated June 8, 2002 reported as 2003 PTD 463 gave following decision:--
"(3) The only issue involved in these appeals can be framed as under;
"Whether exemption from income tax is available to the foreign nationals employed by an oil exploration and production company on their salaries earned out of such employment, under section 3B of "The regulation of Mines and Oil-fields and Mineral Development (Government Control) Act, 1948" read clause 13 of the Schedule thereto".
8. incidentally both the above provisions came up for elaboration in case titled "Flopetrol International v. Central Board of Revenue etc. as (1994) 70 Tax 195 (H.C. Lahore). Relevant extracts are reproduced as under: -
"Two things must be noted while interpreting section 3-B of the Act, firstly, it operates `notwithstanding anything contained in any law for the time being in force" and secondly that the concessions being granted by this Act as specified in the Schedule are in addition to any other concession for the time being in force."
"The contention of the learned standing counsel that if the Schedule is in conflict with the provisions of the Act itself, the Schedule must yield to the main provision is correct but on proper analysis of the Act and the Schedule it becomes apparent that there is no conflict between the two. It is well-established principle of law that various provisions in an enactment must be harmoniously construed with a view to avoid any repugnancy. It also cannot be disputed that the Schedule is as much a part of the enactment as any other provision. See Bindra's interpretation of Statutes, 7th Edition pages ..Reading . becomes obvious that the concession in the schedule is available not only to the licensees and lassees but also to its contractors. It would be appreciated that by allowing a concession in payment of income tax to the contractor of a licensee, the exemption is not available to the employees of the Contractor and the liability to pay the tax falls on its employees, it would naturally add to the cost of exploration and this affect the rights of the licensee itself".
"Section 3-B in unmistakable terms not only begins with a non obstante clause but it also in unmistakable terms provides that the concession available in the Schedule shall be in addition to any concession for the time being admissible to it under any other law or rules made under this Act. This clearly spells out the intention of the Legislature that the concession being granted by section 3-B which are specified in the Schedule are in addition to the concession available under any other law which would include the Income Tax Ordinance, 1979. It is, therefore, idle on the part of the learned standing counsel to contend that in order to avail of benefits under the Schedule the person concerned must also be eligible for grant of exemption under para 7 of the Second Schedule to the Income Tax Ordinance, 1979".
9. The cases of assessees are identical with the one discussed in the above said reported judgment and the distinction sought to be created by the legal advisor in relation to the case of the employees of a licensee having not been covered by section 3B of the Regulation is not acceptable. It is clear from the judgment that the employees of a licensee have been taken to be part and parcel of the company as any benefit made available to the employees is in its ultimate result and analysis a concession to the company for which different incentives are intended to be given The examination of paragraphs (9) to (13) and in particular para. (13) of the Schedule to section 3B of the Regulation of Mines and Oil Fields and Mineral Development (Government Control) Act XXIV of 1948, as amended, would show that the reference to Clauses (xiii) and (xiii a) of subsection (3) of section 4 of the Income Tax Act, 1922 were incorporated through the process of legislation by reference which was replaced by Clause (7) of Part I of the 2nd Schedule to the Income Tax Ordinance, 1979, which was deleted w.e.f. July 01, 1991 by Notification S.R.O 1136(I)/91 dated Nov. 7, 1991 reveals that the exemption of taxation would be available to the foreign nationals employed by a company under section 3B of the Regulation of Mines and Oil Fields and Mineral Development (Government Control) Act, 1948, as amended by Act, LXXVIII of 1976 irrespective of deletion of clause (7) of the 2nd Schedule to the Income Tax Ordinance, 1979. The said clause of the Ordinance only explained the procedure for claiming exemption.
11. The upshot of the above discussion is that the assessees being foreign nationals having been employed by .Pakistan licensees are entitled to the exemption in relation to their salary being given by the licensee for the period claimed by them". (emphasis is ours).
15. Learned A.R. stated that the above referred decision of the Tribunal has attained finality and is to be applied in all cases since as per his understanding, the Income Tax Department bases on the policy decision of the Federal Board of Revenue (F.B.R.) (previously Central Board of Revenue) has withdrawn reference application filed before the Hon'ble High Court against the above referred decision. In this connection, the Central Board of Revenue through its letter dated April, 2005 had communicated to Regional Commissioner of Income Tax, Northern Region that C.B.R. had not approved filing of references before High Court and in continuation thereof RCIT vide letter No. SO-II-20(905)/2005/8727 dated April 12, 2005 had also directed Commissioner of Income Tax, Islamabad Zone, Islamabad not to file reference application. The Commissioner of Income Tax, Islamabad Zone, Islamabad had also withdrawn identical departmental appeals/ reference pending before Tribunal.
16. Learned A.R. further stated that in case a person is non-resident then in accordance with section 107 of the Ordinance, reference is to be made to relevant tax treaty (if any) and provisions of general law cannot be invoked and said principle has been ignored in toto by the Assessing Officer. He averred that in view of the aforesaid resume of facts, the appellant is entitled to exemption in the light of (i) the provision of related statute (ii) decision of Hon'ble High Court (iii) decision of Hon'ble Income Tax Appellate Tribunal (iv) the fact that Federal Board of Revenue decide not to file reference application with High Court and (v) Commissioner of Income Tax also preferred to withdraw said appeals from tribunal in light of directives/decision of F.B.R.
17. Learned D.R.' referred to section 54 of the Income Tax Ordinance, 2001, which reads as under:-
"54. Exemptions and tax provisions in other laws.---No provision in any other law providing for;
a)an exemption from any tax imposed under this Ordinance;
b)a reduction in the rate of tax imposed under this Ordinance;
c)a reduction in tax liability of any person under this Ordinance;
d)an exemption from the operation of any provision of this Ordinance.
shall have legal effect unless also provided for in this Ordinance.
18. She stated that taxpayer's contention of exemption under the provisions of Regulation of Mines and Oil Fields and Mineral Development (Government Control) Act, 1948 and contracts with the Government of Pakistan providing for exemption from tax have no legal effect. It has been specifically laid down in the Income Tax Ordinance, 2001 that providing exemption from tax is the exclusive domain of Federal Board of Revenue, who is competent to grant exemption and for this purpose, a full-fledged schedule (2nd Schedule) has been made part of the statute. She contended that income of this taxpayer is not exempt from tax under any of the provisions of the 2nd Schedule to the Income Tax Ordinance, 2001. She emphasized that in the light of provisions contained in section 54 and in the absence of any specific exemption in the 2nd Schedule, income of this taxpayer is not exempt from tax. Therefore, action of the Taxation Officer was legally correct. That is why, CIT(A) has also confirmed rejection of taxpayer's claim of exemption from tax.
19. At this point, learned A.R. replied by stating that a proviso was part of section 54 of the Income Tax Ordinance, 2001 which envisaged that any exemption from income tax or a reduction in the rate of tax or a rate of tax liability of any person or any exemption from operation of any provision of the Ordinance provided in any other law and in force on the commencement of this Ordinance shall continue to be available unless withdrawn. He contended that this proviso was omitted by Finance Act, 2008 and in this manner, exemption provided under the laws/regulations relating to petroleum/mines shall continue to be operative till tax year 2008, because the proviso was omitted/deleted through Finance Act, 2008. Learned A.R. emphatically contended that income of this taxpayer is exempt in terms of proviso to section 54 of the Income Tax ordinance, 2001, because specific exemption from tax was granted through sovereign agreement by Government of Pakistan and the Regulation of Mines and Oil Fields and Mineral Development (Government Control) Act, 1948. He pressingly stated that Taxation Officer was not justified to reject taxpayer's claim of exemption and the CIT(A) also did not properly appreciate the relevant provisions of law while rejecting the taxpayer's appeal.
20. We have considered arguments of both the sides in the light of legal position emerging from above mentioned discussion. It has become apparent that exemption from tax was provided through sovereign agreement between the stakeholders. Moreover, exemption was also available as contained in the aforesaid provisions of Regulation Mines and Oil Fields and Mineral Development (Government Control) Act, 1948. We have no doubt in our mind that proviso to section 54 further supported the contention of the taxpayer, because protection was provided through this proviso, to the exemptions granted by the Government of Pakistan through other statutes. It was only in 2008 that a decision was made by the Government that exemption from tax shall only be available through Income Tax Ordinance, 2001 and no other statute granting exemption from tax shall have any legal effect. In the light of this legal position of the matter, we have no hesitation to hold that, income of this taxpayer was exempt from tax and Taxation Officer was not justified to reject taxpayer's claim of exemption. Action of CIT(A) by way of confirming the assessment of the Taxation Officer is also not legally correct. It is consequently held that income of this taxpayer was exempt from tax. Action of both of the authorities below on this point is hereby vacated and taxpayer's appeal on the point of exemption from tax is accepted.
C.M.A./79/Tax(Trib.)Appeal accepted.