2010 PTD 2457
ORDER
SYED MUHAMMAD FAROOQ SHAH (JUDICIAL MEMBER).--- Being dissatisfied with the order passed by the learned CIT(A), dated 16-4-2009, under section 129 of the Income Tax Ordinance, 2001, the department has preferred captioned appeals on the following grounds:
(i) ???????? That the order passed by the learned CIT(A) Karachi is bad in law and on facts of tile case.
(ii) ??????? That the learned CIT(A) was not justified in relying upon section 124(1) as there has been no decision in the favour of the instant taxpayer by a High Court or the ITAT.
(iii) ?????? That the learned CIT(A) has erred in deciding the issue as the matter is still pending before the honourable High Court, Islamabad Bench.
(iv) ?????? That the learned CIT(A) was not justified in holding taxpayer not liable to deduct tax under section 236 of the Income Tax Ordinance, 2001 as against the fact that the taxpayer was conducting its business by appointing agents to run PCOs and by selling units to them in advance in lieu of payment in advance hence company was liable to deduct withholding tax on sale of such prepaid cards.
(v) ??????? That the appellant craves leave to add, amend or alter any of the grounds on or before the final hearing of appeal."
2. Appellant's D.R and respondent's AR have been heard. Available record including order under section 124(2) read with sections 161/205 of the Income Tax Ordinance, 2001 passed by the Taxation Officer on dated 24-6-2008 and the Appellate Order of learned CIT(A) have also been perused.
3. Facts and issues involved in both captioned appeals, pertaining to the assessment years 2003 and 2004 are same hence learned CIT(A) had decided the appeals by common order. We would also like to decide the captioned appeals together by this combined order.
4. Succinct facts leading to this case are that the respondent/ assessee engaged in the business of operating public call offices has been held by the Taxation Officer as an "assesses in default" of non-fulfilling of his obligation as a withholding agent and "prescribed person" under the provision of section 236(1) of the Income Tax Ordinance, 2001 and the tax charged/levied under section 161 along with tax under section 205 of the Income Tax Ordinance, 2001. The learned Taxation Officer by separate order proposed to enforce tax worked out for the tax year, 2003-2004. It appears that during pendency of the constitutional petition before the Hon'ble High Court of Sindh, the Taxation Officer passed order under sections 161/105 of the Income Tax Ordinance, 2001 in the case of the respondent. The constitutional petition filed by the appellant was dismissed by the Hon'ble High Court of Sindh being not maintainable in law, the appellant being dissatisfied with the judgment, dated 14-3-2006 passed by the Hon'ble High Court in C.P. No.376 and 611/04 preferred C.P.L.A. No.267 of 2006 before the Hon'ble Supreme Court of Pakistan. An appeal has also been filed before the learned CIT(Zone-1) Karachi by the appellant against the order passed by the Taxation Officer under sections 161/205 of the Income Tax Ordinance, 2001. The Hon'ble Supreme Court vide order dated 13-2-2007 pronounced the judgment in the following manner:
"??.After arguing out the petitions at quite some length, learned counsel states at the Bar that he would not press these petitions provided assessing authority under the Income Tax Ordinance, 2001 is directed to determine the question of his jurisdiction in the perspective of relevant law and then to proceed with assessment or otherwise of tax. For this purpose assessing authority would need to pass a speaking order, after going into controversies of facts between the parties and recording necessary evidence if necessary. The suggestion being just and fair on the face of it is not opposed by the other side, therefore, the petitions are disposed off in terms of as above???" ???????????
5. From perusal of the record it appears that the learned Taxation Officer vide his order dated 24-6-2008 maintained his earlier order. Hence the assessee/taxpayer has preferred appeals before learned CIT(A). The concluding paras. of the CIT(A) are reproduced herein below:--
"The Taxation Officer while resorting to action has miserably failed to follow the above principles laid down by the apex court quoted supra, and has embarked upon section 236 of the Income Tax Ordinance, 2001, without first ascertaining the fact that whether the appellant under obligation to deduct tax or otherwise. It is further observed that the Taxation Officer has failed to mention under which clause the appellant has been treated as taxpayer in default.
In view of the foregoing discussion, the impugned orders passed under section 124(2) read with sections 161/205 of the Income Tax Ordinance 2001, are not sustainable in the eyes of law, hence annulled."
6. Learned DR at the very outset contended that the learned CIT(A) has erred to hold taxpayer not liable to deduct tax under section 236 of the Income Tax. Ordinance, 2001 as against the fact that the taxpayer conducting their business by appointing agents to run PCO and by selling units to them in advance hence company was liable to deduct withholding tax on sale of such pre-paid cards.
7. On other side, learned representative for the assessee/respondent argued that provisions of section 236(1)(3) are not applicable in the case of assessee-company as the mentioned provisions were not very clear about PCO operators and it is a settled law that where there is any ambiguity in taxation law the benefit has to be given to the assessee. Since the issue under consideration pertains to section 236(1)(b)(3), therefore, we deem it appropriate to reproduce the provisions of the section 236 of Income Tax Ordinance, 2001:--
"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; and
(b) ? prepaid cards for telephones.
(2) The person preparing the telephone bill shall charge advance tax under subsection (1) in the manner telephone charges are charged.
(3) The person issuing or selling prepaid cards for telephones shall 2[collect] advance tax under subsection (1) from the purchasers at the time of issuance or sale of cards.
(4) Advance tax under this section shall not be collected from Government, a foreign diplomat, a diplomatic mission in Pakistan, or a person who produces a certificate from the Commissioner that his income during the tax year is exempt from tax."
8. Suffice it to say that the provisions of section 236(1)(b)(3) are not applicable to the facts relating to the "Payphone Operators" as they are not recognized collecting agents in terms of section 161, whereas subscriber of telephone, mobile telephone and prepaid telephone cards have been held as collecting agents. Under section 236(1)(b) "pre-paid cards for telephones" do not involve functions performed by "pay phone operators" as the business carried out by the pay phone operators is completely different and distinguishable. It is argued by the learned A.R that the business of pay phone operators is in respect of operating the PCOs and the business of the pay phone operators have not been mentioned in section 236(1)(b). It is further contended that the pay phone operators are issued specific licence by the PTA being a regulatory body and that the income tax functionaries erred to hold the electronic key that the pay phone operators used to keep control over the misuse of PCO, whereas the 'SIM' card is not equivalent to the pre-paid calling card. The activation card, which is also known as smart card, is issued against advance payment in respect of units desired to be purchased and the system remains operative until the units purchased against advance payment are consumed. In case of the pre-paid calling card, the money is received from the buyer at the time of selling or issuing him the card. He can use the card in any public booth and even can use it from his own telephone set, whereas in case of the pay operators, smart card is not sold in public and a user does not pay anything against smart card, he simply arrives at the PCO, makes a call and pays the money for the time used during the call. Aforementioned provisions of subsection 3 of section 23'6 further clarifies the procedure for the collection of advance tax only in the cases of prepaid cards of telephone and refers to charging of advance tax from the purchasers at the time of issuing or sale of cards.
9. Admittedly the Payphone Operators already make the payment of advance income tax in terms of section 236(1)(a) of the Income Tax Ordinance, 2001 by virtue of fact that they are subscribers to all the lines of which a corporate bill is raised. All the payphone operators make the said payment in terms of section 236(1)(a), therefore, there is no further rationale to insist on yet another category of levy under the same provision on the same transaction. Facts of the present case transpires that the appellant provides pay phone service acting on behalf of the service provider i.e. PTCL and sale service of PTCL, through his franchise premises.
10. Whatever mentioned above, we reached at the conclusion that the worthy arguments of the learned AR are convincing as the appellant has not been found indulged in any kind of business transaction referred to in aforementioned provision of law as the business activity of "pay phone operators" has not been described in section 236(1)(b) of Income Tax Ordinance, 2001, therefore the learned CIT(A) in his order has correctly held that the provision of section 236 are not applicable in the circumstances of the present case.
11. Remaining issues involved in this case raised by the department in the grounds of appeal are relating to section 124(1) relied upon by the learned CIT(A) and regarding pendency of appeal before High Court of Islamabad (defunct). On these issues we have considered the arguments advanced by both sides and carefully perused the law and material available on the subject.
12. Learned A. R has fully supported the order passed by the learned CIT(A) on the ground that the order passed by the Taxation Officer is ab initio void as he has not followed the provision of section 124 (a) of the Income Tax Ordinance, 2001. For the sake of ready reference and convenience section 124(a) is reproduced as under:
" [124A. Powers of tax, authorities to modify orders etc .---(1) Where a question of law has been decided by a High Court or the Appellate Tribunal in the case-of a taxpayer, on or after first day of July, 2002, the Commissioner may notwithstanding that he has preferred an appeal against the decision of the High Court or made an application for reference against the order or the Appellant Tribunal, as the case may be followed the said decision in the case of the said taxpayer insofar as it applies to said question of law arising in any assessment pending before the Commissioner until the decision of the High Court or the Appellate Tribunal is reversed or modified.
(2) In case the decision of High Court or the Appellate Tribunal referred to in subsection (1), is reversed or modified, the Commissioner may, notwithstanding the expiry of period of limitation prescribed for making any assessment or order, within a period of one year from the date of receipt of decision, modify the assessment or order in which the said decision was applied so that it conforms to the final decision.].."
13. Keeping in view the aforementioned provision, we are of the considered opinion that when the controversy on legal issues i.e. section 236(1)(b)(3) have been resolved as mentioned supra, the Taxation Officer is bound to follow the provisions of law arising in any assessment notwithstanding that the Commissioner has filed Reference before the Hon'ble High Court, until decision of the Appellate Tribunal reversed or modified. In this view of the legal implication of the mentioned provision, the learned CIT(A) has rightly observed the orders of the Taxation Officer not maintainable regarding the fact that the matter has been sub judice before the next higher forum until such decision is revised or reversed.
14. Whatever mentioned above, we conclusively hold that smart card is not similar to a pre-paid card and both these cards are not one and the same thing, therefore, the provisions of section 236(1)(b)(3) are not applicable in the case of assessee company. Accordingly, we uphold the consolidated order passed by the learned CIT(A), particularly no legal infirmity, irregularity or illegality is apparent from it.
15. Resultantly, the appeals filed by the department fail.
H.B.T./165/Tax (Trib.) ???????????????????????????????????????????????? ??????????? Appeals dismissed.