COMMISSIONER INLAND REVENUE, ZONE-II VS AL-HAMAD INTERNATIONAL CONTAINER TERMINAL (PVT.) LTD., 2017 PTD-KARACHI-HIGH-COURT-SINDH 2212 (2017)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 133, 132 & 131--Reference to High Court---Nature of jurisdiction of High Court under S.133 of the Income Tax Ordinance, 2001---Concurrent findings of fact recorded by two Appellate Forums under the Income Tax Ordinance, 2001; unless found to be perverse and contrary to record, could not be interfered with by the High Court while examining questions of law proposed under S. 133 of the Income Tax Ordinance, 2001---Scope of reference jurisdiction under S. 133 of the Income Tax Ordinance, 2001 was restricted only to the extent of examining questions of law arising from order passed by the Appellate Tribunal and not to decide question of facts, or for determining disputed facts.

Muhammad Sarfaraz Ali Metlo for Applicant.

ORDER

AQEEL AHMED ABBASI, J.---Through instant reference application, the applicant has proposed following questions, which according to learned counsel for the applicant, are questions of law arising from the impugned order dated 22.02.2016 passed by the Appellate Tribunal Inland Revenue (Pakistan) Karachi in F.E.D. No. 27/KB of 2014:--

"A.Whether under the facts and circumstances of the case, learned ATIR was justified to delete the duty on the pretext that payment for software does not come under the ambit of section 2(12A) and Section 3 of Federal Excise Act, 2005 read with the Rule 43-A of the Federal Excise Rules, 2005?

B.Whether on facts and circumstances of the case, learned ATIR was justified in holding that FED may not be charged on payments for which exemption from withholding of taxes was claimed by the taxpayer under section 152(1) of the Income Tax Ordinance, 2001?"

2.Learned counsel for the applicant has read out the impugned order passed by the Appellate Tribunal as well as the order of the two authorities below and submits that the proposed questions are questions of law arising from the impugned order passed by the Appellate Tribunal. Per learned counsel, the Tribunal has erred in law and facts while dismissing the appeal, whereas, facts as recorded by the Taxation Officer have not been appreciated. Learned counsel submits that the element of providing franchise services by the respondents is attracted in the instant case, therefore, the impugned order passed by the Appellate Tribunal may be set-aside and the questions proposed in the instant reference application may be answered in negative in favour of the applicant and against the respondent.

3.We have heard the learned counsel for the applicant, perused the record as well as the impugned order passed by the Appellate Tribunal in the instant case. From perusal of the orders passed by the two appellate forums below, it appears that the Commissioner (Appeals) as well as Appellate Tribunal after having scrutinized the entire facts of the case, particularly, while examining the Certificate dated 20.08.2014 issued by the GAC, confirming the sale of software to the taxpayer, have reached to the conclusion that there was no element of providing any franchise services by the respondent, whereas, the transaction between the GAC and the respondent is of sale and purchase of the computer software. It will be advantageous to reproduce hereunder the relevant findings of the Commissioner (Appeals) as well as the Appellate Tribunal in this regard:-

Finding of Commissioner (Appeals):

I have pursued the impugned order and noted that the appellant is engaged in business of handling of business of container. For this purpose the appellant has approached GAC for I.T. services and make payments to GAC for purchase of software along with its continuous maintenance. The appellant submitted that the said payments were not for the right to use but the same were for the outright purchase of software. In the case of right to use or authority for grant of any right of asset including intangible then the ownership of said asset would be with the franchiser and the franchisee have, to pay consideration only for use of said right. In this case the officer has not determined the ownership, for the determination of ownership three factors are impartment i.e. seller, purchaser and consideration. The sale also referred to the transfer of risk or reward of the goods purchased from seller to purchaser. In the instance case the appellant had purchased the software and found that software having life not more than one year, therefore, management decided not to create the said intangible asset for amortization, particularly in the light of section 24 of the Income Tax Ordinance, 2001. Since the management noted that it is a revenue expenditure of the software purchased and used during the year, therefore, according to the understanding of the management, the purchased payments were treated as revenue expenses and claimed in the profit and loss account. The AR furnished certificate from GAC dated 20.08.2014 whereby GAC confirmed the sale of software to the appellant along with all the risk and reward to the appellant. When seller M/s. GAC confirmed the contention of the appellant that it is an element of simple sale and purchase and does not carry ownership with GAC for earning of franchise income from the appellant. Hence, the adverse inference drawn by the officer does not carry weight that the payments of Rs.104 million from tax years 2007 to 2013 were the payments for the franchise to GAC. When seller and purchaser are both on the same page and categorically confirmed the position of risk and reward of the asset shifted to the appellant and the appellant has claimed entire purchase expense as revenue expense during the years and possess 100% ownership, therefore, it is not open for the officer to treat such payments of Rs.104 million from years 2007 to 2013 as franchise payment, the appeal to this extend is, therefore, allowed." (underlining for emphasis)

"Finding of Appellate Tribunal:

6.We would like to reproduce section 2(12a) of the Federal Excise Act, 2005 as under:--

"Franchise" means an authority given by a franchiser under which the franchisee is contractually or otherwise granted any right to produce, manufacture, sell or trade in or do any other business activity in respect of goods or to provide service or to undertake any process to identified with franchiser against a fee or consideration including royalty technical fee, whether or not a trade mark, service mark trade name, logo, brand name or any such representation or symbol, as the case may be, is involved"

7. During the course of arguments learned AR of the taxpayer contended that the taxpayer is an end consumer of Software purchased. He is not selling, manufacturing or trade mark the Software as a franchiser therefore, Federal Excise Duty is not applicable. It is matter of record and admitted that business of GAC and the taxpayer are dealing in container handling. GAC has developed Software and that has successfully utilized for container handling business as such the taxpayer did not try to re-invent and utilized energy and funds for new software for container handling therefore, it was decided by the management to purchase the same software with time to time updating from GAC. The Board (FBR) vide letter No.61368-R dated 22-4-2016 clarify that simple purchase of software and continuous maintenance does not qualify the definition of franchise within the meaning 2(I2a) of the Federal Excise Act, 2005. The order-in-original as well as impugned order is self-explanatory that ingredients of franchise are lacking. It is not disputed that taxpayer is end consumer. Moreover, before CIR(A) the learned AR of the taxpayer furnished certificate dated 20.08.2014 issued by GAC who confirm the sale of software to the taxpayer along with risk and reward to the taxpayer and confirm the contention of the taxpayer that it is an element of simple sale and purchase and does not carry ownership with GAC for earning franchise income. Seller and purchaser both categorically confirm the position of risk and reward of the asset shifted to the taxpayer who claimed entire purchase expenses as revenue expenses during the year and possess 100% ownership therefore, learned CIR(A) has rightly allowed the appeal of the taxpayer. Learned CIR(A) remanded the matter on the basis of some payment that carry income tax withholding within the meaning of section 152(1) of the Ordinance, Remand of case on the above point itself is in conflict to the findings of CIR(A) hence findings regarding remand of case are vacated and appeal of tax payer is allowed as prayed, whereas department appeal stands dismissed " (underlining for emphasis).

4.From perusal of hereinabove findings, as recorded by the two Appellate forums, it appears that the concurrent finding on facts has been recorded, according to which, payments of Rs.104 million from the years 2007 to 2013 are made towards sale and purchase of computer software, and not towards franchise services. The Taxation Officer in the instant case, has misconstrued the facts and has drawn incorrect inference, which is contrary to record. It may be observed that while recording a finding to the effect that above amount is in respect of franchise services, the Taxation Officer failed to appreciate that entire amount has been claimed towards purchase expenses during the year, whereas, transfer of ownership along with the risk and reward in the asset has been duly confirmed by GAC in writing. We may observe that concurrent finding on facts recorded by two Appellate forums, unless found to be perverse and contrary to record, cannot be interfered by this Court while examining the questions proposed under Section 133 of the Income tax Ordinance, 2001. The scope of reference jurisdiction under section 133 of the Income Tax Ordinance, 2001, is restricted only to the extent of examining the questions of law arising from the order passed by the Appellate Tribunal and not to decide the questions of facts involving determination of disputed facts. We are of the opinion that the questions proposed through instant reference application are based on concurrent finding on facts by the two appellate forums, whereas, learned counsel for the applicant has not been able to point out any error or perversity in this regard, therefore, it does not require any interference by this Court. Accordingly, instant reference application being misconceived and devoid of any merits, is hereby dismissed in limine along with listed application.

KMZ/C-10/Sindh Application dismissed.