COMMISSIONER INLAND REVENUE, KARACHI VS CENTRE FOR MANAGEMENT SCIENCES, KARACHI, 2013 PTD-KARACHI-HIGH-COURT-SINDH 1 (2012)

Income Tax Ordinance (XLIX of 2001)---

----Ss.2(41)(d), 21(c), 107 & 152---United Kingdom/Pakistan Double Taxation Convention 1986---Non-resident company having no permanent establishment in Pakistan---Addition to income of such company made under S.21 of Income Tax Ordinance, 2001 for non-deduction of withholding tax on payment to non-resident under S.152 of the said Ordinance---Validity---Record showed that company in question was resident of United Kingdom and had no permanent establishment in Pakistan---As per Art. 7 of United Kingdom/Pakistan Double Taxation Convention, 1986 commercial/business profit received by such company from Pakistan was exempt from tax in Pakistan---Impugned addition to income of company for being for non-deduction of tax was unjustified---Reference application was dismissed in circum-stances.

S. Mohsin Imam for Applicant.

ORDER

AQEEL AHMED ABBASI, J.---Through instant income tax reference application, the applicant has proposed the following question, which according to learned counsel for the applicant, arises from the impugned order:--

"Whether on the facts and in the circumstances of the case, the learned ATIR was justified to hold that the taxpayer namely Messrs Centre for Management Sciences was not a permanent establishment of the N.R ACCA within the meaning of Section 2(41)(d) and hence income received by the N.R was not business profits, taxable in Pakistan?"

2.Learned counsel for the applicant has read out the impugned order passed by the Appellate Tribunal Inland Revenue (Pakistan) Karachi, as well as the order in appeal and submitted that both the forums below were not justified to hold that taxpayers namely Messrs Centre for Management Sciences did not have permanent establishment of the N.R ACCA within the meaning of section 2(41)(d), hence income received by the N.R was not business profits, taxable in Pakistan.

3.We have heard the learned counsel for the applicant and perused the impugned order passed by the Appellate Tribunal Inland Revenue (Pakistan) Karachi. From perusal of the order of Taxation Officer, it appears that while disallowing the amount of Rs.3,217,826 undersection 21(c), claimed by the taxpayer as an expense, did not record any finding to the effect as to whether the appellant, who is resident of United Kingdom and ACCA, has permanent establishment (PE) in Pakistan or not. No finding about the taxability of such amount of the non-resident in terms of section 107 of the Income Tax Ordinance, 2001 read with Article 7 of the Tax treaty between two countries i.e. Pakistan andUnitedKingdom,hasbeenrecorded,henceprovisionsofsection 152(3)(d) read with section 21(c) were not properly appreciated by the Taxation Officer.

4.On the contrary, when the matter was assailed before the Commissioner Inland Revenue (Appeals-II), Karachi a detailed finding in this regard has been recorded, which reads as follows:--

"3. As regard addition made under section 21 of the Income Tax Ordinance, 2001 on the ground of non-deduction of withholding tax on payment to non-resident under section 152 of the Income Tax Ordinance, 2001 amounting to Rs.3,217,826, the learned AR submitted that the said payment does not fall under taxability of Pakistan law in terms of tax treaty between Government of Pakistan and United Kingdom according to which the said amount is exempt from tax in Pakistan is found valid. The treaty provision has over riding effect as envisaged in section 107(2) of the Income Tax Ordinance, 2001. To substantiate the above contention a certificate from ACCA was produced which confirms that it is resident in United Kingdom. Therefore, the treaty between Pakistan and United Kingdom provides exemption from tax to this amount in Pakistan, as the same falls under business/commercial profits. The relevant excerpt of Article 7 of the Tax treaty is reproduced below for ready reference.

"Article 7

Business Profits

(1)The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable directly or indirectly to that permanent establishment."

Since the appellant is a resident of United Kingdom and ACCA has no permanent establishment (PE) in Pakistan, hence the commercial/business profit received from Pakistan by ACCA is exempt from tax in Pakistan in view of the above article of the Pak-UK double taxation avoidance treaty, hence no withholding of tax under section 152 of the Income Tax Ordinance, 2001 was required.

In view of the above, the action of the Taxation Officer in adding the amount of Rs.3,217,826 under section 21 of the Income Tax Ordinance, 2001, to the income of the appellant for non deduction of tax is unjustified and uncalled for. The addition made on this account is hereby deleted."

5.Similarly when the order of the Commissioner Inland Revenue (Appeals-II), Karachi, was assailed by the department before the Appellate Tribunal Inland Revenue, finding of the Commissioner (Appeals) has been approved by the Tribunal in the following manner:--

"6. I have considered the arguments of both the sides and have also perused the provisions of section 152 as well as section 107 of Income Tax Ordinance, 2001 and also Article 7 of Tax treaty. Perusal of the Taxation Officer order reveals that the Taxation Officer has not been able to establish that the non-resident recipient has permanent establishment in Pakistan. He has also not been able to establish that such payment made to the non-resident, represents income chargeable to tax under section 11 of Income Tax Ordinance, 2001. Further to above, it is also noted that such payment is not taxable in Pakistan in terms of tax treaty between Government of Pakistan and U.K. and is fully covered by Article 7 of said treaty. Therefore, I fully agree with the finding of the learned Commissioner (Appeals-II), Karachi in this regard and uphold the decision of the learned Commissioner (Appeals-II), Karachi on this issue."

6.We are of the opinion that both the appellate forums below, while setting aside the order of the Taxation Officer, have recorded concurrent finding of fact, which is inconsonance with the legal provision applicable to the facts of this case. Learned counsel for the applicant has not been able to show any perversity in the concurrent finding of facts recorded by the two appellate forums nor any illegality has been pointed out. In view of hereinabove facts, while exercising referral jurisdiction under section 133 (1) of the Income Tax Ordinance, 2001, we are not inclined to interfere with the concurrent finding of fact recorded by the learned Tribunal, which otherwise depicts correct law.

Accordingly, instant reference application having no merits is hereby dismissed in limine along with listed application.

SAK/C-6/KReference dismisse