VS, 2010 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 401 (2009)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 122(5-A) & 131---Amendment of assessment---Appeal to Appellate Tribunal---Returns filed by the appellant/taxpayer for the years under review were amended by the Taxation Officer, for the reason that same were erroneous and prejudicial to the interests of Revenue; as the subsidy received from the Federal Government had not been offered for tax, which, according to the Taxation Officer, was an income and liable to tax---Appeal filed by the taxpayer before Commissioner Income Tax (Appeals), having been dismissed, appellant/taxpayer had filed second appeal before the Appellate Tribunal---Amount received by the appellant/taxpayer was price differential of cost and sale price of transaction, executed for and on behalf of the Federal Government, which could not be treated as subsidy---Matter of price differential arising from executing transactions at the prices instructed by the Federal Government, was quite similar to the fact of the oil distribution companies' cases of which had been referred by the counsel for the appellant in his arguments---Appellant/taxpayer as well as oil distribution companies, both dispose of goods at price lower than the cost at the instruction of the Federal Government---When the department had accepted and not taxed that price differential in the case of the oil distribution companies, it should also be accepted in the case of appellant/taxpayer having similar facts---Amount under consideration was not subsidy to the appellant-Corporation as it was the loss of the government which had to be considered as borne out by the government being a principal, in other words, it could be said that it was a subsidy to general public by the Federal Government and not to the appellant-Corporation---Consolidated order of the Commissioner Income Tax (Appeals) was vacated and the orders passed by the Taxation Officer under S.122(5-A) of the Income Tax Ordinance, 2001, for all the three years under review were cancelled.

PLD 1975 Kar. 924; Messrs Bolan Beverages (Pvt.) Ltd. v. PEPSICO PLD 2004 SC 86; 1987 PTD 289 and 2002 PTD (Trib.) 2539 ref.

Ehsan Laliwala, A.C.M.A. and Khaliqur Rehman, F.C.A. for Appellant.

Dr. Imtiaz Ahmed, D.R. for Respondent.

ORDER

The appellant through these three appeals has objected to the consolidated impugned order of the learned C.I.T.(A) dated 25-6-2008 for the tax years 2003 to 2005 on the following common grounds:--

"(2) That the learned C.I.T.(Appeals) erred to confirm the treatment of the learned Taxation Officer (T.O.) which was made by not following the order of the President of Pakistan and ignoring the same altogether.

(3) Without prejudice to the ground of Appeal No.2 the learned C.I.T.(A) was not justified to confirm the treatment of the learned T.O. which was made by relying on the unreported judgment of the Honourable High Court in the case of Messrs Pakistan National Shipping Corporation dated 6-2-2008 without providing the copy thereof to the authorized representative of the taxpayer despite the specific request.

(4) Without prejudice to the grounds of Appeals Nos.2 and 3 the learned C.I.T.(Appeals) was not justified to confirm the treatment of the learned T.O. to tax `price differential' paid by the Federal Government on the transactions undertaken at the behest of the Federal Government as `subsidy' in the hands of the appellant.

(5) Without prejudice to the grounds of Appeals Nos.2 and 3 the judgment reported as PLD 1975 Kar. 924, and unreported judgment- of the Honourable High Court in the case of Messrs Pakistan National Shipping Corporation dated 6-2-2008 on which reliance was placed by the learned C.I.T.(Appeals) for confirmation of impugned treatment with regard to taxing the price differential' as `subsidy' are distinguishable from the facts of the case of the appellant.

(6) Without prejudice to the above grounds of appeals the learned C.I.T.(Appeals) erred to confirm the treatment of the learned T.O. to tax the appellant, for subsidy given by Federal Government to general public and not to TCP."

In addition to the above grounds, for the tax year 2003 the following ground has also been framed:

"2. That the C.I.T.(Appeals) erred to confirm the treatment of the learned Taxation Officer (T.O.) who passed order under section 122(5A) of the Income Tax Ordinance, 2001 on April 30, 2008 to re-amend the earlier order passed under section 122(5A) of the Income Tax Ordinance 2001 dated December 31, 2007 when the said order has already stood merged with order of the Commissioner of Income Tax (Appeals-I), Karachi dated April 11, 2008."

2. We have heard the learned representatives from both the sides and have also perused the above referred impugned order of the learned C.I.T.(A) and the orders passed by the Taxation Officer under section 122(5A) of the Income Tax Ordinance, 2001 for all the three years under review.

3. The facts of the case are that the appellant is a government owned corporation engaged in the trading of goods mainly food items both imported and local at the specific instruction of the federal government to provide commodity considered essential for general consumers and to maintain price level in the market. The returns filed by the taxpayer for the years under review were amended by the Taxation Officer for the reason that the same are erroneous and prejudicial to the interests of revenue as the subsidy received from the Federal Government has not been offered for tax which, according to the Taxation Officer, in an income and liable to tax. The Taxation Officer in this regard has placed reliance on the decision of the Honourable High Court of Sindh in the case of Messrs Pakistan National Shipping Corporation. The taxpayer against the above referred treatment meted out by the Taxation Officer filed appeal before the learned C.I.T.(A) and. as the appeal was dismissed, has come up in second appeal before this Bench.

4. The learned counsel representing the appellant, has contended that all the commodities acquired locally or imported are only at the instruction of the government and also at the prices approved or instructed by the government. All commodities are sold only at the instruction of the government are only at the prices approved or instructed by the government. Any differential of purchases and sale prices of these transactions are borne by the government and recorded in the financial statement as an excess of cost over sales receivable from government. The taxpayer corporation is only entitled to commission for its services rendered ranging from 0.5% to 4% on account of all the above transactions undertaken on behalf of the government. The taxpayer corporation has never imported, purchased locally or sold any commodity on its own behalf and every transaction is undertaken at the specific direction of the government. The taxpayer corporation has neither claimed nor ever granted any subsidy or any financial support to meet the corporation's own expenditure or losses. The learned counsel in this regard has also placed before us the Affidavit sworn in by S.M. Shoaib, Manager (F&A) of the taxpayer corporation.

5. The learned counsel has pointed out that these facts were also submitted before the Taxation Officer which are mentioned in the assessment order but have not- been controverted. According to the learned counsel, the amount on the basis of which the case of the taxpayer has been amended, is merely the price differential claimed from federal government for transactions undertaken on its behalf and it is not subsidy or the grant from government to meet the corporation's losses. He has contended that the Taxation officer has considered subsidy to the corporation ignoring that ultimate beneficiary of this payment is not the appellant rather the beneficiary actually the general public. He has elaborated that the relationship of the taxpayer and the federal government for the transaction under consideration is like agent and principal as the taxpayer has to perform certain acts along with funds and is granted commission/service charges for such acts. All the pros and cons or gains or losses for such acts are borne by the principal i.e. the federal government. He has contended that the federal government also monitors performance of the assigned work from time to time and at the end of the given task, the taxpayer corporation provides complete statements of account to claim amount under consideration. He has also placed before us the copies of such statement which has been placed on record.

6. The learned counsel has contended that the Honourable Supreme Court of Pakistan in its judgment in the case of Messrs Bolan Beverages (Pvt.) Ltd. v. PEPSICO reported as PLD 2004 SC 86 enunciating the principal that where a person is liable for submission of accounts and surrenders and pays the results of the transaction (gains or losses) has held that such person merely acts- as an agent. He has in this respect drawn our attention to the fact that the Revenue Department itself in each and every case has been taxing commission received by the appellant from government separately which demonstrates that the relationship between the appellant and the Federal Government is of agent and principal. He has argued that the case of the appellant equates with the cases of oil distribution companies such as PSO and Caltax etc. which are paid freight subsidy known as freight equalization margin and price differential on imported purchases were also the government is responsible and committed to pay for maintaining equilibrium in price throughout the country. The learned counsel in this regard placed before us the copies of the financial statements of the PSO and the decision of this Tribunal in the case of PSO vide order dated 19-12-2002 in I.T.A. - No.1489/KB of 2001 (assessment year 1998-99) and-the order in the case of Messrs Caltex Oil Pakistan limited dated 13-12-2001 in I.T.A. No.832/KB of 2001 (assessment year 1998-99) along with the assessment orders. The learned counsel in this regard has also referred the decision of the Honourable Lahore High Court reported as 1987 PTD 289 in the case of Messrs Dawood Hercules v. ITO wherein it has been held that price differential is not subsidy. According to learned counsel, it is now an accepted legal principle that the Department cannot discriminate amongst the taxpayers on similar issues and such discrimination has always been disapproved by this Tribunal as Well as by the sups for Courts. He has in this regard referred the decision of the Honourable Lahore High Court reported as 90 Tax (HC Lahore) and the decision of this Tribunal reported as 2002 PTD (Trib.) 2539.

7. The learned counsel for the appellant has contended that the Taxation Officer has referred the case of PNSC but according to him, the facts of the PNSC are distinguishable from the case of the assessee. According to him, the amount received by the PNSC from the Government was for payment of corporation's outstanding tax liability and such amount was taxed by the Department treating the same as subsidy which is not in the case of the assessee. He is of the view that there is a specific distinction as the government has not paid the amount to the appellant for supporting its losses or liabilities/tax burden but the amount admittedly is merely price differential of transaction executed at the instructed price of the Federal Government. The learned counsel in this regard has also distinguished the case of the PIA which has been mentioned in the impugned order of the learned C.I.T.(A). In this regards, the learned counsel has submitted that judgment reported as PLD 1975 Kar. 924 in the case of the PIA is of High Court and not of Supreme Court of Pakistan as has wrongly been mentioned in the impugned order of the learned C.I.T.(A). Referring the facts in that decision, the learned counsel has stated that in that judgment, it has been referred that the PIAC suffered losses and as per section 26 of the Pakistan International Airlines Corporation Act, the Federal Government was required to make good losses sustained by the PIAC during the three years next after 30th September, 1953. The learned counsel has contended that this case is also distinguishable from the case of the appellant as in that decision, the issue was whether or not the losses made good by the government of Pakistan are subsidy are taxable in the hands of the PIAC. The case of the PIAC was not that it undertook any transaction at the behest of the government and at the prices instructed by the Federal Government. The transactions made and losses suffered by the PIAC were on its own account and not on account of the Federal Government. According to learned counsel, this is not the position in the case of the appellant as in the appellant's case the issue before this Tribunal is not of amount paid to make good the losses of an entity rather it is only the price differential of transaction undertaken at the behest of the government as an agent. He has contended that the appellant's case is not of any grant given by the government to meet the tax liability of an entity.

8. On the other hand, the learned DR is supporting the impugned order of the officers below. He has argued that the action of the Taxation Officer is in line with the judgment of the superior Courts in the case of the PIAC and PNSC. According .to him, whatever name given whether price differential or otherwise subsidy, it is taxable and both the officers below have rightly not accepted the version of the taxpayer keeping in view the provisions of law as well as the cases decided in this respect.

9. We have considered the rival arguments of both the learned counsel for the appellant and the learned DR and have also perused the citations referred from both the sides. Regarding the facts as submitted through Affidavit, we are of the view that these are the same fats which were given at the stage of the amendment of the impugned order before the taxation Officer as well as at the first appellate stage as in the orders of both the officers, these facts have been mentioned. But we have observed that the facts as mentioned in the Affidavit have not been controverted by the officers below as well as by the learned DR before this Tribunal. We have found that the Taxation Officer as well as the learned C.I.T.(A) have placed reliance on the decisions in the case of Messrs PNSC and PIAC but we are of the view that both these cases are quite distinguishable from the case of the appellant as this fact has not been denied by the Department that the amount received by the appellant is price differential of cost and sale price of transaction executed for and on behalf of the Federal Government, which cannot be treated as subsidy. The matter of price differential arising from executing transactions at the prices instructed by the Federal Government is quite similar to the fact of the oil distribution companies, cases of which have been referred by the learned counsel for the appellant is his arguments. We are of this view that the taxpayers as well as the oil distribution companies both dispose of goods at price lower than the cost at the instruction of the Federal Government. We are, therefore, of the view that when the Department has accepted and not taxed this price differential in the case of the oil distribution companies, it should also be accepted in the case of the taxpayer having similar facts. The amount under consideration is not subsidy to the appellant corporation as it is the loss of the government which has to be considered as, borne by the government being a principal. In other words, it can be said that it is a subsidy to general public by the Federal Government and not to the appellant corporation.

10. We have further noted that in the appellant's own case for the assessment years 1996-97, 1997-98, 1999-2000, 2001-2002 and 2002-2003 vide M.A. (Rect.) No.478 and 470/KB/2003 in I.T.A. Nos.656/KB/1998-99 and in I.T.A. No.1977/KB/2001 (assessment years 1996-97 and 1997-98) and I.T.As. Nos.1483, 1851-and 1873/KB/2003 (assessment years 2002-2003, 2001-2002 and 1999-2000), this Tribunal in its order dated 3-12-2008 has set aside the assessments for these years with the directions to follow the decision of the President of Pakistan on the dispute after on subsidy given to the assessee-Company that may not be taxed.

11. In view of these facts and circumstances of the case, the consolidated impugned order of the learned C.I.T.(A) is vacated and the orders passed by the Taxation Officer under section 122(5A) of the Income Tax Ordinance, 2001 for all the three years under review are canceled.

12. All the three appeals filed by the assessee are allowed.

H.B.T./196/Tax(Trib)Appeal allowed.