2010 P T D (Trib.) 428
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Khalid Siddiqui, Accountant Member
I.T.A. No.728/KB of 2008 decided on 01/09/2009.
Income Tax Ordinance (XLIX of 2001)---
----Ss.159, 107, 221 & 131---Issuance of exemption certificate---Application for---Appeal to Income Tax Tribunal---Respondent-Corporation applied to the Commissioner Income Tax for issuance of exemption certificate under S.159(1) of Income Tax Ordinance, 2001, however after lapse of around 15 months, a letter was issued from the Commissioner Income Tax, Enforcement and Collection Division, regretting issuance of said exemption certificate---Regret letter to the respondent-Corporation refusing exemption certificate, was issued without properly adjudicating on the point raised in the application; including the provisions of Ss.159(1)(a) & 107 of Income Tax Ordinance, 2001 read with relevant Article of the Avoidance of Double Taxation Treaty between UAE and Pakistan and decision of the Tribunal in Income Tax Appeal (dated 8-7-2006) in their proper perspective-;-Regret. letter against application under S.159 of Income Tax Ordinance, 2001 had constituted an order for the purpose of S.221 of Income Tax Ordinance, 2001 as law did not prescribe a specific format for the order under S.159 of the Ordinance---Such was a particular case of lethargy and inefficiency on the part of the departmental officers---Federal Board of Revenue had issued standing instructions to the field formations to dispose of applications for exemption certificates expeditiously; in fact in order to allow relief in suitable cases, F.B.R. empowered itself under S.159(3) of Income Tax Ordinance, 2001 to exempt persons, classes of persons, goods, classes of goods or payments etc. from application of any provisions of the Ordinance relating to withholding taxes---On receipt of application under S.159 of Income Tax Ordinance, 2001, primary responsibility of Commissioner was either to issue exemption certificate or to regret the same by establishing that the income of the non-resident company was chargeable to tax in Pakistan, but that had not been done---Held, business profits of the non-resident company were not chargeable to tax in Pakistan and the company was entitled for issuance of exemption certificate in the light of the provisions of S.159(1)(a) of the Income Tax Ordinance, 2001---Order of Commissioner Income Tax (Appeals) directing to issue exemption certificate to the respondent/non-resident company, did not call for any interference which, was maintained.
2007 PTD 1687 ref.
Dr. Abdul Sattar Abbasi, D.R. for Appellant.
Syed Riazuddin along with Syed Munir-uz-Zaman for Respondent.
ORDER
The appellant Department through this appeal has objected against the impugned order of the learned C.I.T.(A) dated 26-9-2008 on the following grounds:
(1) That the learned C.I.T.(A) acted in excess of jurisdiction by directing to issue exemption certificate, as such order of refusal dated 3-3-2008 itself, was not challenged before the C.I.T.(A), only its status to be treated as an order was sought in the ground No.3 of 1st appeal.
(2) That the remedy against order of refusal under section 159 rests with the D.G under section 122B of the Income Tax Ordinance, 2001 and not with the C.I.T.(A), hence the C.I.T.(A) has acted in excess of his jurisdiction.
(3) That the order of learned C.I.T.(A) to issue exemption certificate without giving a finding that applicant's income is not chargeable to tax in Pakistan, is baseless and illegal.
2. Brief facts giving rise to this appeal as discussed in the impugned orders of the officers below are that the respondent is .a Dubai based non-resident company known as International Media Corporation FZ LLC, incorporated in Dubai as a Free Zone Limited Liability Company", has the facilities and infrastructure for transmission of TV programmes from Dubai under a licence issued by the Government of Dubai. The respondent entered into an agreement on 22-9-2002 with Messrs Independent Media Corporation (Private) Limited, a company incorporated in Pakistan, hereinafter referred to as, "IMC". The "IMC" is a production house and develops software and programmes for television channels. As per the agreement the "the respondent" sold its airtime to Messrs "IMC" for transmission of its programmes, contents and advertisements.
Since income of "the respondent" was not chargeable to tax in Pakistan, therefore, "IMC" before making payment of airtime charges to "the respondent" sought permission of the concerned Commissioner of Income Tax under section 152(5) to make the payment without deduction of tax. The Commissioner, however, did not agree with "IMC". She vide her order under section 152 (6) dated 13-6-2005 directed "IMC" to deduct tax on airtime charges payable to "the respondent". According to the Commissioner, "IMC" is the `PE' of "the respondent" in Pakistan. An application under section 211 was filled by the "IMC" with the CIT to correct mistakes apparent in her order under section 152(6). On her refusal to rectify the order IMC filed an appeal before the Commissioner (Appeals) which was not succeeded. The "IMC" filed an appeal before the ITAT against the order of C.I.T.(A). This Tribunal in its order vide I.T.A. No.1613/KB/2005 dated 8-7-2006, reported as 2007 PTD 1687 refused to interfere with the order of the CIT directing the "IMC" not to make payment of airtime charges to "the respondent" without deduction of tax. However, at the same time besides other things it was observed by this Tribunal that findings of the CIT recorded in her order under section 152(6) regarding deduction of tax by the "IMC" do not disentitle the "the respondent" to exercise the alternate remedy available to it under section 159 of the Income Tax Ordinance, 2001, to apply for exemption certificate in the same circumstances, as according to the tribunal order under section 152(6) has been passed by the Commissioner without affording an opportunity to the "the respondent" whose tax is to be deducted, remedy under section 152(6} cannot determine the status of foreign. based person for all purposes under the status as both sections 152 and 159 are distinct and separate in nature providing remedy respectively to IMC and the respondent and remedy available to Messrs International Media Corporation FZ LLC is still alive for the reason that the status of the parties cannot be determined unless the person, whose tax is being deducted, is not heard. This Tribunal, therefore, directed that if the Commissioner is satisfied that income of the respondent is not likely to be chargeable to tax under the Income Tax Ordinance, upon an application from the respondent shall issue an exemption certificate irrespective of the order under section 152(6) dated 13-6-2005 of the Commissioner of Income Tax E&C in the case of IMC.
In view of above directions/observations of this Tribunal, the respondent applied to the then CIT, Cos-IV, for issuance of exemption certificate under section 159(1) vide application dated 25-11-2006. However, on 3-3-2008, after a lapse of around 15 months a letter was issued from the Commissioner of Income Tax, Enforcement & Collection Division-IV, Regional Tax Office, Karachi regretting issuance of exemption certificate under section 159, citing following reasons:
"Section 159 provides for the authority to issue exemption certificate with respect to the amount to which Division-II (Section-148) or III (Sections 149, 150, 151, 152, 153, 154, 155 & 156) of Part-V applies only where payments to which these sections applies to (a) Exempt from tax under this Ordinance or (b) subject to tax at a rate lower than that specified in the First Schedule. You being an entity not registered for tax purpose in Pakistan do not enjoy this facility as no questions of your taxability or non-taxability exists in Pakistan. Hence you are not entitled for, filing application under section 159 of Income Tax Ordinance, 2001. The Income Tax Appellate Tribunal (ITAT) has already taken decision in your case vide order No. ITA No.1613/KB/2005 dated 8-7-2006. In the order the learned ITAT has given the following findings in this regard:---
"However, the order directing to deduct tax is elaborate, clear, unambiguous, free from errors, containing sufficient reasons to believe that the appellant is liable to deduct tax, thus, does not warrant interference. We have therefore, no hesitation in holding that the order passed on rectification application dated 18-5-2005 does not warrant interference besides being beyond the scope of rectification as a result thereof the appeal on the instance of Messrs International Media Corporation (Private) Limited stand dismissed."
Keeping the above decision in view it is clear that proper action has been taken with regard to application of the provision under section 152 of the Income Tax Ordinance, 2001 and there exists no ground for the payee to apply for exemption under section 159 which section only provides authority for issuance of exemption certificate under specific condition. Your case however, does not fall within the purview of section 159 as has been explained. The transaction in question is squarely covered under section 152 of the Income Tax Ordinance, 2001. Action in this regard has been taken and confirmed by the ITAT as stated supra.
Thus your application under section 159 of the Income Tax Ordinance, 2001 is misplaced therefore, it is regretted.
Therefore, amount payable to you by Messrs Independent Media Corporation (Pvt.) Ltd. is liable for deduction of tax under section 152(2) of the Income Tax Ordinance, 2001."
Respondent filed rectification application under section 221 of the, Income Tax Ordinance, 2001 with the grounds that since application under `section 159 was disposed of without properly adjudicating on the points raised in the application, provisions of Income Tax Ordinance, '2004; Income Tax Rules 2002, Articles of the Avoidance of Double Taxation Treaty between UAE and Pakistan on the subject and decision of this Tribunal in I.T.A. No. 1613/KB/2005 (Tax Year 2004) dated 8-7-2006 in their proper perspective and relevant provisions of law and decision of this Tribunal were misconstrued and quoted out of context ignoring the relevant portion of the decision, which lead to serious mistakes of law and facts in disposing of appellant's application under section 159 requesting the Commissioner to reconsider his decision to regret issuance of exemption certificate under section 159, as according to the respondent mistakes pointed out by it in its rectification application were apparent from the face of record.
The Staff Officer of the Commissioner of Income Tax in response thereto vide his letter dated 23-4-2008 maintained as under:
"This office issued letter of regret against' your application filed for certificate of non-deduction of tax under section 159 read with section 152 of the Income Tax Ordinance, 2001. The said letter being not an order under any provision of Income Tax Ordinance 2001, cannot be made the subject matter of rectification under section 211 of the Income Tax Ordinance, 2001. Therefore, I am directed to regret for the issuance of requested rectification".
The respondent being aggrieved by this refusal filed appeal before the learned C.I.T.(A) who vide his order dated 26-9-2008 directed the Commissioner to issue exemption certificate applied for by the respondent under section 159 of the Income Tax Ordinance 2001. Now the Department feeling aggrieved by the findings of the learned C.I.T.(A) has filed this appeal.
3. The learned DR Mr. Abdul Satar Abbasi has assailed the impugned order of CIT (A) on the point of jurisdiction. According to him regret letter issued by the CIT to the respondent in response to its application under section 159 did not constitute an order; therefore no rectification lied against that letter as no order within the meaning of section 221 existed for rectification under section 122. According to learned DR, even if for a moment the regret letter is treated as an order no appeal lied under section 127 against an order under section 159 of the Income Tax Ordinance 2001, therefore, it was vehemently contended by the learned DR that learned C.I.T.(A) erred in accepting appeal of the respondent under section 221 for hearing and passing an order under section 129 of the Ordinance. 'The learned DR has further argued that findings of the learned C.I.T.(A) to the effect that income of the respondent is, not chargeable to tax in Pakistan is without any basis, hence not maintainable. According to him order of C.I.T.(A) suffers from serious legal infirmities, therefore, is void ab initio, illegal and is liable to be cancelled. The learned DR has argued that here was no remedy available with the respondent against regret letter of the CIT except filing in revision application before the Director General under section 122B of the Ordinance. According to the learned DR irrespective of the taxability or otherwise of the business income of the respondent non-resident company in the country of its registration that is UAE tax had to be deducted on payments made to it by the resident company, therefore, learned C.I.T.(A) was not justified in directing to issue exemption certificate to the appellant.
4. On the other side representing the respondent the learned counsel Syed Riazuddin and Syed Muneer uz Zaman, Advocates have supported the impugned order of the learned C.I.T.(A). According to them application of the respondent under section 159 was required to be looked into by the CIT(E&C) in the light of provisions of section 159, clear cut findings of this Tribunal in I.T.A. No.1613/KB/2005 vide order dated' 8-7-2006 reported as 2007 PTD 1687, in respect of respondent's right to exercise remedy available to it under section 159 and provisions of relevant Article of the Avoidance of Double Taxation Treaty between UAE and Pakistan. It has been vehemently contended by the learned counsel that a plain reading of the regret letter dated 3-3-2008 of CIT Enforcement' and Collection shows that he has not fulfilled his obligation. According to learned counsel, after receipt of application under section 159 of the Ordinance primary responsibility of the CIT(E&C) was either to issue exemption certificate or to regret the same by establishing that the income of the appellant non-resident company was chargeable to tax in Pakistan. On the contrary regret letter issued to the respondent by the CIT(E&C) was evasive, out of context and irrelevant suffering from apparent mistakes of law and facts. Failure of the CIT Enforcement & Collection to take into consideration the facts or statutory provisions which if so considered would have material effect on the fate of the case amount a mistake on the face of record and rectifiable within the meaning of section 221. The respondent therefore was within 'its right to make a resort to the provisions of section 221 of the Income Tax Ordinance, 2001, because no appeal is provided under section 127 against an order under section 159 which suffers both from the mistakes of law and facts. The learned AR in this regard has placed reliance on the decision of this Tribunal reported as 2007 PTD 1687 in the case of IMC, wherein under the identical circumstances it has been held that every order becomes appealable by virtue of invoking provisions of section 221 of the Income Tax Ordinance, 2001. The learned AR has therefore, vehemently contended that the learned C.I.T.(A) has rightly taken up respondent's appeal under section 221 and no illegality has been committed by him. Regarding objection of the learned DR that regret letters dated 3-3-2008 or dated 23-4-2008 of CIT did not constitute order, it has been argued by the learned AR that clause (a) of subsection (1) of section 159 requires the Commissioner to "satisfy" himself that the amount to be paid to the respondent is exempt from tax under the Ordinance in the light on the basis of the claim which in the taxpayer's case were the provisions of relevant Article of the Avoidance of Double Taxation Treaty. between UAE and Pakistan read with provisions of sections 107 and 159 of the Ordinance and findings of this Tribunal in ITA No.1613/KB/2005 dated 8-7-006 in respect of respondent's right to exercise remedy available to it under section 159. According to the learned counsel, the expression "satisfy" postulates a detailed scrutiny of all relevant facts and legal position focusing on claim of exemption of the respondent and requires a decision by the CIT According to him, word "order" is synonymous with the word "decision", which is nothing but as per dictionary meaning is a finding of fact and conclusion of law that must be in writing. It has been contended by the learned counsel that the decision given by the CIT on applicant of the respondent under section 159 was a finding of quasi judicial nature. Therefore, the finding given by the CIT on application older section 159 automatically constituted an order as according to him, no specific format for an order has been prescribed under the law for an order under section 159. He is of the view that regret letter dated 3-3-2008 of CIT(E&C) constituted an order and a decision for the purposes of section 221 of the Income Tax Ordinance, 2001.
Regarding contention of the learned DR that only remedy available with the respondent was to file a revision before the DG under section 122 B of the Ordinance, he has contended that the order of, CITE&C) under section 159 become appealable by virtue of invoking provisions of section 221 of the Income Tax Ordinance, 2001. According lo him, this issue already stands decided in the case of "IMC" by this Tribunal in ITA No. 1613/KB/2005 dated 8-7-2006, reported as 2007 PTD 1687, therefore respondent was not required to approach the DG RTO for revision of CIT (E&C's) decision. The learned AR has further pointed on that contention of the learned DR is self-contradictory. According to him, on one hand the learned DR claims that the regret letters of CIT(E&C) did not constitute orders for application of the provisions of section 221 and on the other hand he desires that the respondent should have opted for the remedy available under section 122B in the shape of revision application to the DG. He has agued that section 122B also requires revision of an "order". In support of his contention' he has drawn our attention towards provisions of subsection (2) of section 122B which state that "Where, after making such inquiry as is necessary, Regional Commissioner considers that order requires revision, the Regional Commissioner may, after providing reasonable opportunity of being heard to the taxpayer, may make such order as he may deem fit." According to learned counsel, contention of the Department is nothing but blowing hot and cold in the same breath,' hence does no merit consideration. The learned AR has further contended that the respondent had little hope of justice from the Departmental channel. According to him respondent filed Application under section 159 on 25-11-2006 which was disposed of by the CIT Enforcement and Collection Division on 23-4-2008 i.e. after a period of one and half year. He has submitted that the respondent addressed reminders to the DG, RTO in the intervening period but failed to get any response from him. Likewise C.I.T.(A) decided respondent's appeal on 26-9-2008 directing the CIT (E&C) to issue exemption certificate to the respondent under section 159. Aging a period of nine months has passed and the CIT(E&C) did not comply with the order of C.I.T.(A) till date. The reminders sent by the respondent to the DG, RTO, Karachi for issuance of exemption certificate in the light of C.I.T.(A)'s order remained un-responded till date. He has, therefore, considered that under these circumstances how could the respondent have filed a revision application under section 122 B before the DG, RTO, Karachi and expect justice from him.
Regarding contention of the learned DR that irrespective of the taxability or otherwise of the business income of the respondent non-resident company in the country of its registration that is UAE tax had to be deducted on payments made to it by the resident company, the learned AR has argued that if this contention is accepted hen each and every transaction between a resident and a non-resident company would become taxable in Pakistan. He is of the view that in fact on one hand amounts to extend the applicability of the Pakistan Income Tax laws beyond its territorial jurisdiction and on the other hand renders the provisions of section 159(1)(a) and relevant provisions of the Article of Avoidance of Double Taxation Treaty absurd and redundant, which would never be the intention of legislature. According to the learned AR, business profits of the respondent company cannot be subjected to tax in Pakistan on the basis of plea taken by the learned DR. The learned AR has also produced a copy of Advance Ruling giving by F.B.R. on 3-2-2009 in the case of a limited liability company of USA in support of his contention, wherein it has been held that consideration received by the US company from a Pakistani company is not taxable in Pakistan under the relevant provisions of the Pakistan USA Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income. According to the learned AR this ruling has been given on the basis that business profits of the US company were taxable in USA only, whereas in the respondent's case business profits are not even chargeable to tax in UAE as there is no income tax in that country not to talk of its taxation in Pakistan.
5. We have heard the representatives of two sides and have also considered the relevant provisions of law. We are of the considered opinion that regret letter dated 3-3-2008 of the CIT(E&C) to the respondent refusing exemption certificate under section 159 was issued without properly adjudicating on the points raised in the application, including provisions of sections 159(1)(a) and 107 of the Income Tax Ordinance, 2001 read with relevant Article of the Avoidance of Double Taxation Treaty between UAE and Pakistan and decision of this Tribunal in I.T.A. No.1613/KB/2005 (Tax Year 2004) dated 8-7-2006 in their proper perspective. It has rightly been pointed out by the learned AR that regret letter of the CIT(E&C) was irrelevant and out of context, therefore, respondent was left with no option but to request him under section 221 to reconsider his decision. The regret letter .against application under section 159 constituted an order for the purposes of section 221 as law does not prescribe a specific format for an order under section 159. In respectful agreement with our learned brothers in I.T.A. No.1613/KB/2005 order dated 8-7-2006, reported as 2007 PTD 1687, we feel no hesitation in holding that learned C.I.T.(A) assumed lawful jurisdiction in disposing of appeal of the respondent filed under section 221. Department's contention in this regard is without any basis, hence, repelled. He wound force in the arguments of the learned AR regarding not opting for a revision application before the DG, RTO under section 122B. The learned DR has not been able to tell us why it took the CIT(E&C) one and half year to dispose of respondent's application under section 159 and why the DG, RTO and the CIT (E&C) failed to implement the order of C.I.T.(A) dated 26-9-2008 for issuance of exemption certificate till date. This is a particular case of lethargy and inefficiency on part of the Departmental officers. We understand that there are standing instructions of F.B.R. to the field formations to dispose of applications for exemption certificates expeditiously. In fact in order to allow speedy relief in suitable cases, F.B.R. empowered itself under section 159(3) of the Income Tax Ordinance, 2001, to exempt persons, classes of persons, goods, classes of goods or payments etc., from application of any provisions of he Ordinance, relating to withholding taxes. As has been envisaged in Circular No.5/2008 dated 5-7-2008 that main objective of amendment in subsection (3) of section 159 was to allow relief in hardship cases at Board's level. We wonder why it was not thought expedient in this case to dispose of application under section 159 at an early date and why despite C.I.T.(A)'s clear directions relief has not been provided in this case after passage of a period of two and a half years. We have further noted that this is not the case of the Department that the appellant has a PE in Pakistan as nowhere in the regret letters of the CIT (E&C) this has been mentioned. Besides, we agree with the observations of learned AR that on receipt of application under section 159 of the Ordinance primary responsibility of the CIT(E&C) was either to issue exemption certificate or to regret the same by establishing that the income of the respondent non-resident company was chargeable to tax in Pakistan. This has not been done. The Department has also failed to establish that business profits of the respondent company did not enjoy exemption from tax under the relevant provisions of Avoidance of Double Taxation Treaty between UAE and Pakistan. Advance Ruling dated 3-2-2009 by F.B.R. in the case of a limited liability company of USA cited by the learned AR holding that the consideration received by the US company from a Pakistani company is not taxable in Pakistan under the relevant provisions of the Pakistan USA Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion has been found relevant.' It has been rightly pointed out that the ruling has been given on the basis that business profits of the US Company were taxable in USA only, whereas in the respondent's case business profits are not even chargeable to tax under UAE laws. At the same time Department has not been able to prove that income of the respondent was chargeable to tax in Pakistan. Therefore, in view of foregoing we see no hesitation in holding that business profits of the respondent company were not chargeable to tax in Pakistan and the respondent was entitled for issuance of exemption certificate in the light of the provision of section 159(1)(a) of the Income Tax Ordinance, 2001. Accordingly, order of the learned C.I.T.(A) directing to issue exemption certificate under section 159 of the Income Tax Ordinance, 2001, to the respondent non-resident company does no call for any interference. The same is maintained.
6. Appeal filed at the instance of the Department is dismissed.
H.B.T./197/Tax(Trib.)Appeal dismissed.