COMMISSIONER OF INCOME TAX (LEGAL) VS BEEPS AND BELLS COMMUNICATION (PVT.) LTD., 2014 PTD-LAHORE-HIGH-COURT-LAHORE 1419 (2014)

Income Tax Ordinance (XLIX of 2001)---

----Ss.161, 236(I)(b)(3) & 236(I)(c), (3A)---Advance income tax---"Pre-paid telephone cards" and "pay-phone companies"---Distinguished---Advisory jurisdiction of High Court---Mixed question of law and fact---Scope---Income Tax Appellate Tribunal annulled order passed under S.161 of Income Tax Ordinance, 2001, for default of non-deduction of advance income tax under S.236(I)(b)(3) of Income Tax Ordinance, 2001---Plea raised by authorities was that nature and business of pre-paid telephone cards and pay-phone companies was identical---Validity---In year 2004-2005, liability to deduct advance tax was restricted to pay-phone companies dealing in sale of pre-paid cards only---Business of selling pre-paid cards was different from selling of units as had been highlighted by legislature through amendment brought about in S.236(I)(c) and (3A) of Income Tax Ordinance, 2001---Mixed questions of law and facts could be answered in advisory jurisdiction of High Court---In year, 2004-2005, provision of S.236(I) of Income Tax Ordinance, 2001, was not applicable to case of pay-phone dealing with sale of units---Questions of law raised in reference were answered in affirmative---Reference decided accordingly.

Call Tell (Pvt.) Ltd., and another v. Federation of Pakistan and others 2004 PTD 3032; Union Cosmic Communications (Pvt.) Ltd. Karachi v. Central Board of Revenue and another 2006 PTD 1678 and Naseer A. Sheikh and 4 others v. The Commissioner of Income-Tax (Investigation), Lahore and others PLD 1992 SC 276 ref.

Ms. Shahina Akbar for Applicant.

Nemo for Respondent.

Date of hearing: 25th March, 2014.

JUDGMENT

SHAHID JAMIL KHAN, J.---This reference application arises out of order dated 26-1-2008 of the Appellate Tribunal, Inland Revenue, Islamabad Bench ("the Tribunal") passed in I.T.A. Nos.160 and 161/IB of 2007 relating to tax years 2004 and 2005.

2.The Department has proposed following questions of law in this application for opinion of this Court:--

(a)"Whether on the facts and in the circumstances of the case, the ITAT was justified to annul the order passed under section 161 of the Income Tax Ordinance, 2001 for default of non-deduction of tax under the provisions of section 236(1)(b)(3) of the Income Tax Ordinance, 2001, when the nature of the business and system operated by the company was identical with the prepaid companies, who are obliged to collect tax under section 236(I)(b)(3) of the Income Tax Ordinance, 2001?'

(b)"Whether on the facts and circumstances of the case, the ITAT was justified to annul the order when the assessee company was under legal obligation to collect tax on its sales @ 10% in terms of provisions of section 236(1)(b)(3) of the Income Tax Ordinance, 2001?"

3.Brief facts of the case are that the respondent taxpayer is engaged in the business of running a public call office, whereby a customer uses the pay phone of the petitioner for making a call and then at the end of the call pay for the units consumed. This is different from pay phone companies who issue prepaid phone cards. However, ignoring this distinction show cause notice under section 161 of the Ordinance was issued on 21-6-2006 relating to tax years 2004 and 2005. Reply filed by the respondent taxpayer could not satisfy the Taxation Officer, who concluded proceedings and held respondent taxpayer as personally liable to pay the tax vide order dated 8-7-2006, passed under the section 161. Respondent taxpayer challenged this order before Commissioner (Appeals), but remained unsuccessful. The order of the Taxation Officers was upheld vide order dated 28-10-2006. The respondent taxpayer filed second appeal before the Tribunal, which was decided in its favour vide order dated 26-1-2008.

4.Learned Tribunal held that the business of prepaid cards was different from the business of pay phone companies, whereby only units were being sold to its customers and held that section 236(1)(b) is not applicable to the case of the respondent taxpayer.

5.Learned counsel for the applicant department argued that the Tribunal's decision was against the verdict given by the Hon'ble Supreme Court of Pakistan in case Call Tell (Pvt.) Ltd., and another v. Federation of Pakistan and others 2004 PTD 3032 and a judgment by Sindh High Court in case Union Cosmic Communications (Pvt.) Ltd. Karachi v. Central Board of Revenue and another (2006 PTD 1678). She supported the reasons given by the Taxation Officer, as well as, Commissioner (Appeals) to submit that the business of Pay Phone Companies is similar to the business of the companies which issued Prepaid Cards. She added that Pay Phone Companies also issued prepaid cards to sell the units to the consumers.

6.We have heard learned counsel for the parties. Section 236 (1)(3) as it stood in the tax years 2004 - 2005 is as under:--

"236. Telephone users.---

(1)Advance tax at the rates specified in Part IV of the First Schedule shall be collected on the amount of-

(a)telephone bill of a subscriber;

(b)prepaid cards for [mobile] telephones; and

(3)The person issuing of selling of prepaid cards for telephones shall collect advance tax under subsection (1) from the purchasers at the time of issuance or sale of cards.

7.The above section clearly spells out that the liability of the advance tax shall be collected on the amount of Prepaid Cards for telephones. Admittedly the respondent taxpayer does not sell any prepaid cards, but in fact sells units, which are consumed by the consumers. The difference between the business of payphone company dealing with prepaid cards and the company dealing with units becomes clear when an amendment was introduced in the year 2010 in section 236(1)(c) and (3A), which read as under:--

"236. Telephone users.---

(1) (c) sale of units through any electronic medium or whatever form.

[The word "mobile" was omitted by Finance Ordinance, 2002]

(3A)The person issuing or selling units through any electronic medium or whatever form shall collect advance tax under subsection (1) from the purchaser at the time of issuance or sale of units.

8.From the above, it is clear that in the year 2004-2005 the liability to deduct the advance tax was restricted to pay phone companies dealing in sale of prepaid cards only. Business of selling prepaid cards is different from selling of units as has been highlighted by the legislature through the amendment brought about in section 236(1)(c) and (3A).

9.We have also examined the judgment by Apex Court Call Tell (Pvt.) Ltd., and another v. Federation of Pakistan and others 2004 PTD 3032, relied upon by learned counsel for the applicant. In this case the petitioner was in the business of selling prepaid cards. This very fact is sufficient to distinguish this judgment from the facts of this case. The other judgment relied upon by learned counsel is by Sindh High Court in case Union Cosmic Communications (Pvt.) Ltd. Karachi v. Central Board of Revenue and another 2006 PTD 1678. Though this relates to Pay Phone Companies business, yet the matter dealt in this judgment was about maintainability of Constitutional Petition under Art. 199 of the Constitution of the Islamic Republic of Pakistan 1973. Show Cause Notices issued to Pay Phone Companies for not withholding tax under clause (b) to subsection (1) of section 236 was in question. Learned Sindh High Court dismissed the petition as not maintainable and observed that factual inquires could not be made under constitutional jurisdiction. The petitioner was directed to approach statutory forums. The distinction is that in the case under discussion, the Pay Phone Company has exhausted all statutory forums and the matter is in advisory jurisdiction before this court, under section 133 of the Ordinance.

10.Though perusal of concluding part of the order under consideration by Tribunal shows that the decision was a finding of facts, yet we have considered the proposed questions of law as mixed questions of law and facts. The august Supreme Court of Pakistan has held in the case of Naseer A. Sheikh and 4 others v. The Commissioner of Income-Tax (Investigation), Lahore and others (PLD 1992 SC 276) that mixed questions of law and facts can be answered in the Advisory Jurisdiction. We, therefore, hold that in the year 2004-2005 section 236(1) was not applicable to the case of payphones dealing with the sale of units. Our answers to both the questions of law raised in this reference are in affirmative. This tax reference, is therefore, decided against the department accordingly.

11.This order shall also decide the following reference applications because all the applications are filed by the department and basic question in all the applications is the same.

12.Office shall send a copy of this judgment under the seal of the Court to the learned Appellate Tribunal, Inland Revenue as per section 133(5) of the Ordinance.

MH/C-6/LOrder accordingly.