LETTER FROM MIR & ASSOCIATES, TAX & CORPORATE CONSULTANTS, RAWALPINDI TO TEAM LEADER CORRESPONDENCE, MESSRS PAKISTAN MOBILE TELECOMMUNICATION LTD., LAHORE

LETTER FROM MIR & ASSOCIATES, TAX & CORPORATE CONSULTANTS, RAWALPINDI TO TEAM LEADER CORRESPONDENCE, <!--[if gte mso 10]> LETTER FROM MIR & ASSOCIATES, TAX & CORPORATE CONSULTANTS, RAWALPINDI TO TEAM LEADER CORRESPONDENCE, MESSRS PAKISTAN MOBILE TELECOMMUNICATION LTD., LAHORE (Tax Deductions) [15th September, 2005] This refers to your letter Ref. No. 1077-07-2005, dated 8-9-2005, sent under Courier Service TCS 4009612296, received today. In this regard it is submitted as under:-‑ I am grateful to your esteemed organization for changing my existing price plan to Indigo Freedom 2 from next Bill. Accept my appreciation in this regard. As regard the explanation provided against Income Tax collected from Monthly Post-Paid Bill, prepared by your Organization, is misconceived. For ready reference, statutory provisions, vesting with powers to the person preparing bills and rate of tax to be charged as provided under 'repealed as well as Income Tax Ordinance, 2001, are as under:-‑ INCOME TAX ORDINANCE, 1979 (1) Under this Ordinance such power is vested under sub-section (7F) of section 50, inserted by Finance Act, 1996, reproduced hereunder: "At the time of preparing telephone bills or issuing or selling prepaid telephone cards for mobile telephone, the person responsible for preparing such bills or issuing or selling such prepaid telephone cards shall charge tax on the amount of such bill or card as the case may be at the rates specified in the First Schedule, and the 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 subscriber 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: *(The underlined phrase is substituted for "mobile telephone bills" by Finance Act, 1998) Provided that nothing contained in this subsection shall apply where the Government or a diplomat is the subscriber." Accordingly under Para L of Part I of First Schedule to the Income Tax rates of Income Tax be collected as provided under subsection (7F) of section 50 is as under:-‑ Rates of collection of income tax under subsection (7F) of section 50----- (a) In the case of telephone subscriber where the monthly bill-‑---- (i) Exceeds Rs.1,000 but does not exceed Fifty rupees. Rs.2,000. (ii) Exceeds Rs.2,000 but does not exceed One hundred rupees Rs.3,000 (iii) Exceeds Rs.3,000 but dose not exceed Two hundred rupees Rs.5,000 (iv) Exceeds Rs.5,000 Three hundred rupees (b) In the case of mobile telephone subscribers if the monthly bill or the issue of sale price of prepaid telephone card--‑ (i) Does not exceed Rs.2000 One hundred twenty five rupees (ii) Exceeds Rs.2000 but does not exceed Two hundred fifty Rs.5,000. rupees; (iii) Exceeds Rs.5,000 Four hundred rupees. It is to be noted that at the time of insertion of subsection (7F), the rate for collection of ax was one thousand five hundred rupees per annum. It was substituted as provided above. Thereafter by Finance Act, 1997 the fixed amount of collection of tax at the time of insertion of subsection (7F) of section 50 by Finance Act, 1996 was substituted with "Ten per cent of bill" by Finance Act, 1997. 2. Plain reading of rate of tax to be collected, under First Schedule .for the purpose of subsection (7F) of section 50 of repealed Ordinance under Clauses (a) and (b), provided for two different categories of telephone subscribers with effect from 1-7-1998, is:-‑ (i) For telephone subscriber, it is not specifically provided whether it is meant for normal telephone Bills or post-paid telephone Bills prepared by other than Pakistan Telecommunication Corporation or Mobile Telephone Companies. (ii) However rate of tax, to be collected against mobile telephone subscriber, if monthly telephone bills or issue or sale price of prepaid telephone card, is provided under Clause (b) of the Schedule. INCOME TAX ORDINANCE, 2001 1. Under section 236 of Income Tax Ordinance, it is provided 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; and (b) prepaid cards for mobile 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 prepared cards for mobile telephones shall collect advance tax under subsection (1) from the purchasers at the time of issuance or sale of cards. (4) Advance tax ..(Applicable upon only specified class of person) It is to be noted that word "mobile" from Clause (b) of sub-sections (1) and (3) and word "collect" in same subsection (3) of section 236 is omitted and substituted -for word "called" by Finance Ordinance, 2002 and Finance Act, 2003, respectively. Accordingly in Division V Part-IV of First Schedule to the Income Tax Ordinance, 2001, rate of tax to be collected is provided as under:-‑ Division V Telephone users Rates of collection of tax under section 236,-‑ (a) In the case of telephone subscriber other than mobile phone subscriber where the monthly bill----- (a) Exceeds Rs. 1000 but does not exceed Rs.2000. Rs. 50 (b) Exceeds Rs.2000 but does not exceed Rs.3,000 Rs. 100 (c) Exceeds Rs.3000 but dose not exceed Rs.5,000 Rs.200 (d) Exceeds Rs.5000 Rs.300 (b) In the case of subscriber of 10% of the amount of bill or mobile telephone and pre- sales price of pre-paid paid telephone card telephone card [Clause (b) is inserted- by Finance Ordinance, 2002 and no amendment is made by Finance Act, 2005] 2. Subsection (1) of section 236 of Ordinance provides two categories of telephone users (a) telephone bill of a subscriber and (b) prepared cards for telephones. In subsection (2) of this section, it is provided that "The person preparing the telephone bill shall charge advance tax under subsection (1) in the manner telephone charges are charged". (The correct verb after word "charges" erroneously used as "are" instead of verb "is"). It is essential to mention that advance tax to be collected against "mobile", wherever inserted is omitted by Finance Ordinance, 2002; leaving behind "pre-paid cards for telephone". There are many types and sorts of pre-paid cards are being sold in Market to be used for land line as well as mobile telephones. In addition, the word "subscriber" used in statutory provision means "One who writes his name under a written instrument; one who affixes his signature to any document, whether for the purpose of authentication or attesting it, of adopting its terms as his own expressions, or of binding himself by an agreement which it contains." The meaning of word "subscriber" in other words be construed a person who enter into an agreement with any person or execute agreement to avail facility under fixed terms and conditions. 3. Subsection (2) read with Clause (a) provides, "the person preparing the telephone bill shall charge advance tax in the manner telephone charges are charged" fortifies that advance tax is be charged according to telephone charges as provided in Clause (a) of Division V in Part-IV and not as provided in clause (b) of Division V in Part-IV of First Schedule to Income Tax Ordinance, 2001, for the reasons that charging of advance tax at the time of preparing bills depends upon telephone charges. Contrary to it no bill is prepared for pre-paid cards by a person, therefore, collection of advance tax for pre-paid card is to be collected as provided under Clause (b) read with subsection (3) in Division V in Part-IV of First Schedule to Income Tax Ordinance, 2001. 4. The application of Schedule as enumerated by Kenneth H. Gifford, in his compiled book "How to understand an Act of Parliament" 3rd. Edition, at pages 61 and 62 clearly explained conflict between a section of an Act and form in a schedule to that Act. While compiling his book, he says that "A different rule applies where the conflict is between the positive provision of a section on one hand and a mere form in the schedule on the other hand. In such case the provisions of section must be given their full force without being restricted in any way by the form inserted in the Act as a matter of convenience and cannot prevail over the words of a section in that Act. He quoted an excerpt from a decision of Lord Penzance in case titled as "Dean v. Green (1882), 8 P.D. 79, at page 89". In said decision it is held that:-‑ "It would be quite contrary to the recognized principles upon which Courts of law construe Acts of Parliament, to enlarge the conditions of the enactment, and thereby restrain its operation, by any reference to the words of a mere form given for convenience sake on a Schedule. " As elaborated above, it clearly provided that rate of' Advance Tax collected under Clause (b) of Division V in Part-IV of First Schedule is contradict to the provision of Clause (a) of subsection (1) of section 236 of Income Tax Ordinance, 2001. Thus provisions of Clause (a) of subsection (1) of section 236 of Income Tax Ordinance, 2001 shall apply only to post-paid telephone Bills. 5. It is also to be noted that while preparing post-dated monthly telephone bill, you charge (i)Sales Tax on the aggregate bill amount. (ii) Call Charges, Air Time Charges, calls for other Cellular Companies or PTCL call charges and all other charges Thereafter on aggregate amount mention as above at S. Nos. (i) and (ii) you add 10% Advance Tax. It amounts to collecting Advance Tax on Sales Tax as well. Whereas, according to provision Clause (a) of subsection (1) read with subsection (2) of section 236, you are under legal obligation only to collect Advance Tax on Monthly Bill amount and not on Sales Tax. In this regard, your attention is drawn towards Circular No-6 of 18-3-1996, where matter of "Turnover" in connection minimum tax liability as provided under subsection (2) of section 80D of repealed Ordinance is discussed. Under para. 3 of said Circular, the Board clarifies that:-‑ keeping in view this spirit and the fact that in Pakistan it is Well-established convention and principle in accounting profession that "turnover is supposed not to include sales tax and central excise duty, it has been decided to modify the existing instructions referred to in paragraph 1 ante. "The turnover will be exclusive of sales tax and excise duty charged, if these "two taxes are mentioned on Invoices separately from the sale price. In other words if the sales vouchers, sales book and ledger account clearly show these three things separately, the "turnover" will not include the two levies. However, if the sales vouchers, sales book etc. show only one figure of sales price which inclusive of these taxes, the "turnover" will consist of that one figure and these will not be segregated or split up on the basis of any formula, the entire amount will be treated as turnover for the purpose of section 80D." (Copy of Circular is enclosed for your 'ready record) 5. Similar situation arises with regard to monthly post-dated Telephone Bills. Thus, monthly post-dated Telephone Bills are akin to invoice wherein Sales Tax is mentioned separately from monthly post-paid telephone charges. As such at the time of preparing post-paid bill 10% Income Tax shall not be collected on amount of Sales Tax, levied @ 15% of the post-paid charges. As aforesaid and provided under Clause (1) of subsection (t) read with subsection (2) of section 236, advance tax shall only be collected at the rate provided wider Clause (a) of Division V of Part-V and not 10% as provided under Clause (b) of First Schedule to the Income Tax Ordinance, 2001 on "telephone charges are charged" It is settled principle that Schedules in any enactment are dependent upon statutory provision and cannot override that statutory provision. In view of the foregoing, if your esteemed organization collects Advance Tax under section 236 of Income Tax Ordinance, 2001, it is to be collected as provided under-Clause (a) and not under Clause (b) of. Division V of the First Schedule to the Income Tax Ordinance. It further needs to clarify against the word "mobile" stood omitted from Clause (a) of subsection (1) and subsection (3) of section 236. It is also to be noted that Federal Excise Act, 2005 is enacted contrary to Article 70 of the Constitution, therefore, Federal Excise Duty under Federal Excise Act, 2005 cannot be charged unless said Bill is represented before any Floor, of the Parliament and re-enacted in accordance with the Constitution. Kindly note that in case Advance Tax is collected a 10% of the monthly post-paid telephone bill of subscriber, the matter may be brought before superior Judicial Authority at the risk and cost of your esteemed organization as well Revenue Division through Chairman C.B.R. It is essential to mention that reply for any legal provisions may also be made keeping in mind the reference and context of subject-matter and not in summary manner, which needs not to be mentioned here. Copies of reply to your letter under reference are endorsed to His Lordship, the Chief Justice of Pakistan, PTA, Chairman C.B.R., all Tax Bars and all leading Tax Journal for publication being a matter of public importance. Thanking you and expect that your esteemed Organization must follow statutory provisions in true letter and spirit.