I.T.A. No.3861/LB of 2001, decided on 22nd March, 2004. Versus I.T.A. No.3861/LB of 2001, decided on 22nd March, 2004.
ORDER
1. This appeal has been filed by the assessee. At the time of haring the learned AR of the assessee said that he does not press cancellation. However, filed additional grounds that speak as follows:--
2. "That while assessing income of the appellant under section 80C of the Income Tax Ordinance. 1979 (Repealed), the learned DCIT unlawfully included Sales Tax and Customs duty in the value of imported goods.
3. That Sales Tax and Customs duty is not part of sale/purchase price hence its inclusion in the value of imported goods for levy of Income Tax under section 80C is unlawful. Both Sales Tax and Customs duty cannot be termed as income hence levy of Income Tax on Sales Tax and Customs duty is unconstitutional and against the spirit of well-settled law on the subject."
4. The AR says that he wants to press only the above issue as the Honourable High Court has decided this case in favour of the taxpayers.
5. We have allowed the additional ground for the simple reason that Honourable High Court has recently given a finding on the issue involved and the same does arise from the order of the CIT(A). In the judgment announced by learned High Court Lahore in the case of Messrs Ramma Pipe General Mills (Pvt.) Limited learned I-A on instruction, from the respondent CBR conceded that while charging income-tax under section 80-C of the Income Tax Ordinance, 1979 the amount paid as Sales Tax shall pot be deemed to be the income. The Court, therefore, instructed that while calculating withholding tax chargeable under section 80-C the amount of Sales-tax paid should be ignored.
6. Following the ratio of the said judgment decided in writ petition No.16758 of 1993 heard on 15th February, 1994 we allow the appeal field by the assessee. The department is instructed to calculate tax under section 80-C accordingly.
7. (Sd.) (Sd.)
8. (Raja Sikandar Khan) (Khawaja Farooq Saeed)
9. Accountant Member Judicial Member
10. "Certified that corrections made by the learned Members in the order have been incorporated in the computer text before printing the copies for issuance."
11. RAJA SIKANDAR KHAN, (ACCOUNTANT MEMBER).--- With due respect to my learned brother Judicial Member, I differ in following the judgment of the Lahore High Court reported as 1994 PTD 848 and the Tribunal's order reported as 2003 PTD (Trib.) 735 for deciding the issue involved in this case. As is apparent from the grounds of appeal, the submission of the appellant is that inclusion of customs duty and sales tax to arrive at the value of imported goods for purpose of levy of Income Tax under section 50(5) reads with section 80C is illegal. For submitting so he has relied upon aforementioned judgments of Lahore High Court and of the Appellate Tribunal. The two judgments are per incuriam in view of the clear provisions of law as contained 'in section 50(5) of the Income Tax Ordinance under which value of the goods imported for the purpose of collection of tax under section 50(5) is to be determined by adding to the value of goods imported, the Customs Duty and Sales Tax The provision of section 50(5) is as follows:--
(5) Notwithstanding anything contained in any law for the time being in force.
(a) The Collector of Customs shall, in the case of every importer of goods, collect advance tax computed, on the basis of the value of such goods as increased by the customs duty and sales tax , if any, (levied) thereon, at the rates specified in the First Schedule, and credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by such importer for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, in which the "said date" as referred to therein, falls, whichever is the later";
(b) -------------"
12. The value of the goods determined under section 50(5) is deemed to be income of the assessee under section 80C and the tax collected under section 50(5) is final discharge of tax liability under subsection (4) of 80C of the Income Tax Ordinance. Subsection (1) and relevant portions of subsection (2) of section 80C read as follow:--
13. "80C. Tax on income of certain contractors and importers .---(1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where any amount referred to in subsection (2) is received by or accrues or arises or is deemed to accrue or arise to any person [ ] the whole of such amount shall be deemed to be income of the said person and tax thereon shall be charged at the rate specified in the First Schedule.
(2) The amount referred to in subsection (1) shall be the following namely:--
(a) Where the person is a resident:--
(i) -------------------
(ii) The amount as computed for the purpose of collection of tax under subsection (5) of section 50 in respect of goods imported not being goods imported by the industrial undertaking as raw material for its own consumption."
14. Reading the provisions of law as reproduced above together it becomes abundantly clear that the amount on which tax has been collected shall be deemed income of the assessee under section 80C and tax under section 50(5) of the Income Tax Ordinance has to be collected on the value of the goods imported as increase by Customs Duty and Gales Tax .
15. The short judgment of the Lahore High Court reported as 1994 PTD 848 in the case of Messrs Ramma Pipe and General Mills (Pvt.) Ltd. through its Director v. The Federation of Pakistan through Secretary. Ministry of Finance, Islamabad and 3 others which was later followed by the Tribunal reads as follows:--
16. "In this petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, the grievance of the petitioner is that while computing tax under section 80C of the Income Tax Ordinance, 1979, sales tax paid on goods supplied by the petitioner has also been included in the income of the petitioner, though it was not permissible for respondents under the law to do so.
17. Mr. Muhammad Ilyas Khan learned counsel appearing for respondents on instructions from respondents has conceded that while charging income tax under section 80-C of the Income Tax Ordinance, 1979 the amount paid as sales tax cannot be deemed to be the income of the petitioner and as such cannot be subjected to payment of income-tax. He submits that tax liability of the petitioner shall be worked out after deducting the sales tax mid.
18. In view of the matter, the petition fructifies and is, disposed of accordingly.
19. Order accordingly."
20. Judgment of the Honourable High Court is silent as to why the Sales Tax shall not be added in determining the value of imports for purposes of levying income tax under section 50(5) of the Income Tax Ordinance. It only says that amount paid as Sales Tax cannot be deemed income of the assessee. This judgment is dated 15 February, 1994. The validity of deeming provisions under, section 80C was upheld by the famous case of Messrs Ellahi Cotton Mills Ltd. decided by the Supreme Court of Pakistan and reported as (1997) 76 Tax 5 (SC). Thus besides being per incuriam the judgment of the Honourable High Court as well as of the Tribunal quoted above loose their binding force in view of the judgment of the Hon'ble Supreme Court of Pakistan as referred above.
21. (Sd.)
22. (Raja Sikandar Khan)
23. Accountant Member
24. As the difference of opinion has arisen between the members of this Bench, the case is referred to the Hon'ble Chairman for nomination of third member to resolve the following question:--
25. "Whether for the purpose of collection of tax under section 50(5), the value of the goods imported shall be the value as increased by the customs duty and sales tax if any levied thereon?
26. (Sd.) (Sd.)
27. (Khawaja Farooq Saeed) (Raja Sikandar Khan)
28. Judicial Member Accountant Member
1. The above titled cross appeals have been referred by the Hon'ble Chairman to resolve the controversy arising between my learned brothers Mr. Khawaja Farooq Saeed, Judicial Member (presently Hon'ble Chairman) and Mr. Raja Sikandar Khan, Accountant Member. Following question has been framed by my learned brothers for consideration:--
29. "Whether for the purpose of collection of tax under sec tion 50(5), the value of the goods imported shall be the value as increased by customs duty and sales tax if any levied thereon?
2. I have heard the learned representatives of both the sides and also perused the observations made by both my learned brothers, the impugned order of the learned CIT(A), the assessment order, the case law referred on behalf of both the sides, the relevant provisions of law and other documents relevant to the facts of the case. I have noted that my learned brother, Judicial Member following the ratio of the judgment of the Hon'ble High Court in Writ Petition No. 16758 of 1993 heard on 15 February, 1994 has instructed the department to calculate tax under section 80C with directions that the amount paid as sales tax shall not be deemed to be the income and the sales tax paid should be ignored while calculating withholding tax chargeable under section 80C. On the other hand, my learned brother the Accountant Member, is of the view that as "judgment of the High Court is silent as to why the Sales Tax shall not be added in determining the value of imports for purposes of levying income tax under section 50(5) of the Income Tax Ordinance. It only says that amount paid as Sales Tax cannot be deemed income of the assessee. This judgment is dated 15 February, 1994. The validity of deeming provisions under section 80C was upheld by the famous case of Messrs Ellahi Cotton Mills Ltd. decided by the Supreme Court of Pakistan reported as (1997) 76 Tax 5 (SC). Thus besides being per incuriam the judgment of the Honourable High Court as well as of the Tribunal quoted above loose their binding force in view of the judgment of the Hon'ble Supreme Court of Pakistan as referred above".
3. Mr. Muhammad Shahid Baig; Advocate has appeared on behalf of the appellant and has contended that the issue of amount paid as sales tax not to be deemed to be income while calculating withholding tax chargeable under section 80C has already been adjudicated by the Hon'ble High Court as well as by this Tribunal in the judgments which have been pronounced after the case decided by the Hon'ble Supreme Court of Pakistan in the above: referred famous case of Ellahi Cotton Mills Ltd. reported as (1997) 76 Tax 5 (SC). He has in this respect placed before us the decision of Hon'ble Lahore High Court reported as 1994 PTD 848. Order of the Hon'ble Lahore High Court in Writ Petition No.18286 of 2001 and a decision of this Tribunal reported as 2003 PTD (Trib.) 735. Learned counsel for the appellant has contended that in the case reported as (1994) PTD 842 Mr. Muhammad, Ilyas Khan was representing the department before the Hon'ble High Court and he on instructions from the Central Board of Revenue conceded before the Hon'ble High Court that while charging income-tax under section 80-C of the Income Tax Ordinance, 1979, the amount paid as sales tax cannot be deemed to be the income of the petitioner and as such cannot be subjected to payment of income-tax. According to learned AR, he further conceded that tax liability of the petitioner shall be worked out after deducting the sales tax paid. Learned counsel has contended that, therefore, the Hon'ble High Court disposed of the petition accordingly. He has contended that in Writ Petition No. 18286 of 2001, the Hon'ble High Court following the above referred judgment of the Hon'ble High Court has disposed of the petitions. Likewise this Tribunal in a case reported 2003 PTD (Trib.) 735 has also followed the above referred both decisions of the Hon'ble High Court wherein a principle has been enunciated that sales tax and customs duty shall not be added in the value of imported goods for the purpose of assessing income of the assessee under section 80C of the Income Tax Ordinance, 1979. The learned Counsel has further contended that in a case reported as (2002) 86 Tax 91 (Trib.) this Tribunal has observed that "either the assessee should have shown Sales Tax amount in each side of the Trading Account or net sales should have been credited on the credit side of the assessee". Regarding the judgments on which the learned Judicial Member has placed reliance and according to learned Accountant Member these are per incurium, learned counsel for the appellant has contended that as every judgment has been delivered after the consideration of relevant law which is sections 50(5) and 80C of the Repealed Income Tax Ordinance, 1979, and the department has not filed any appeal /reference before the Hon'ble Supreme Court of Pakistan against the above referred judgments despite the fact that first judgment was delivered in 1994 whereas subsequent judgments were in 2001 and 2003, in spite the fact that period of 7 years have passed. He has argued that it obviously means that none of the above judgment is per incuriam and all these were decided according to the spirit of law, and are undoubtedly still intact and fully applicable in the case of the appellant. According to learned Counsel, the Central Board of Revenue has already conceded that sales tax and customs duty is- not to be included in the import value for deduction of tax under section 50(5). This factum is verifiable from the statement of Mr. Muhammad Ilyas Advocate, Legal Advisor of the Department made before the Hon'ble Lahore High Court in a case referred above. He has contended that when the matter has already been admitted by the Central Board of Revenue which is apex Revenue Authority of Pakistan then how the judgment made on said admission can be said to be per incuriam. Learned Counsel has contended that there was no justification in the observation made by the learned Accountant Member that above referred judgments are per incuriam in view of the judgments of Supreme Court of Pakistan, in the case of Messrs Ellahi Cotton Mills Ltd. According to learned Counsel, in the said case of Messrs Ellahi Cotton Mills Ltd. although the Hon'ble Supreme Court of Pakistan has confirmed the validity of provisions relating to presumptive income but in that judgments it has no where mentioned that taxes and Government levies shall be treated as income and included in the value of imports or sales. According to him rather it was inter alia held by the Supreme Court of Pakistan in para. 41 of the judgment that the C.B.R. in a written undertaking, dated 9-4-1997 filed before the Court confirmed that subject of the conditions laid down in paras. 3 and 4 of Circular No.3 of 1996, dated 18-3-1996, it has retrospective effect and will be applicable to all pending assessments. According to learned Counsel, that para. has also been reproduced in the decision of the Hon'ble Supreme Court. Learned Counsel has also referred the above referred Circular No.3 of 1996 wherein, while explaining the turnover it has been specifically mentioned not to include sales tax and excise. According to learned Counsel, the law is very clear on the subject and the judgments relied upon by the appellant referred by the learned Judicial Member are fully intact and applicable in the case of appellant and the observation made by the learned Accountant Member are contrary to the judgments of Supreme Court of Pakistan coupled with those of High Court and this Tribunal. He has submitted that learned Accountant Member has ignored the above referred C.B.R's. Circular.
4. On the other hand, Syed Nadeem Hassan Shah, learned DR has contended that as the provisions of law contained in section 50(5) and section 80C are unambiguous and very clear, therefore, the judgments referred by the learned Judicial Member are per incuriam as according to him as per section 50(5) of the Repealed Income Tax Ordinance, 197.9 in the case of every importer of goods, the Collector of Customs shall collect advance tax computed on the basis of value of such goods as increased by the custom duties and sales tax. According to learned DR as under the provision of law, the custom duty and sales tax, has been specifically mentioned therefore that cannot be withdrawn through the decision of the Hon'ble Courts: He has contended that the value of goods determined under section 50(5) is deemed to be the income of the assessee under section 80C. He is, therefore, of the view that it becomes abundantly clear that amount on which the tax has been calculated shall be the deemed income of the assessee under section 80C and tax under section 50(5) of the Income Tax Ordinance has to be calculated on the value of then goods imported as increased by the custom duty and sales tax. Therefore, according to him, the value of goods imported shall be the value of goods as increased by custom duty and sales tax.
5. After going through the above submissions, I am of the view that under section 50(5), the Collector of Customs has been authorised to collect advance tax computed on the basis of value of such goods as increased by the custom duty and sales tax, if any, levied thereon at the rates specified in the first schedule. But in the same section; it has been further elaborated that credit for tax so calculated in any financial year subject to provision of section 53 shall be given in computing the tax payable by such importer for the assessment year commencing on the first day of July next following said financial year. I am of the view as through this section only the procedure for deduction of tax regarding import of goods has been provided, therefore, the Hon'ble High Court has specifically in the judgments reported as (1994) PTD 848 directed the legal adviser of the department to obtain instructions from the Central Board of Revenue and he has conceded before the Hon'ble Court that amount paid as sales tax cannot be deemed to be income of the petitioner, and as such cannot be subject to payment of income-tax. Regarding the view of my learned brother, Mr. Raja Sikandar Khan, Accountant Member that the validity of deeming provision of section 80C was upheld by the famous cases of Messrs Ellahi Cotton Mills Ltd. decided by the Hon'ble Supreme Court of Pakistan reported as (1997) 76 Tax 5 (SC), I am of the view that the issue of ignoring/ deducting the amount of sales tax/custom duty while calculating withholding tax chargeable under section 80C was not before the Hon'ble Supreme Court. Further I have noted that Hon'ble Supreme Court in that judgment in para. 41 has specifically observed that CBR in a written undertaking, dated 9-4-1997 filed before the Court; confirmed that subject of the conditions laid down in paras. 3 & 4 of Circular No.3 of 1996, dated 18th March, 1996, will be applicable to all pending assessments. While perusal of the Circular No.3 of 1996, I have found that CBR in that circular has specifically mentioned that turnover will be exclusive of sales tax and excise duty charged, if these two taxes are mentioned on invoices separately from the sales price. I am of the view that this principle will also be applicable in the present case, I, therefore, agree with the observations given by my learned brother Mr. Khawaja Farooq Saeed, Judicial Member (presently Hon'ble Chairman) that the amount of sales tax should be ignored while calculating withholding tax chargeable under section 80C. After considering the above facts of the case, I fully endorse the findings and the conclusion arrived at by my learned brother Judicial Member. It is held that for the purpose of calculation of tax under section 50(5), the value of goods imported shall be the value ignoring the custom duty and sales tax, if any, levied) thereon. The appeal filed by the assessee allowed.
30. H.B.T./350/Tax(Trib.) Appeal allowed.