2015 PLP (Trib (PTD)

MUHAMMAD PERVEZ ALAM, ACCOUNTANT MEMBER.

This appeal at the instance of the taxpayer/appellant has been filed against the order of learned CIR(A) dated 18-9-2014 whereby appeal of taxpayer relating to tax year, 2013 was rejected.

2. Briefly stated the facts of the case as per record are that appellant is subsidiary of M/S Lucky Cement Limited Company deriving dividend, royalty income and profit on debt. Return of income for tax year, 2013 was filed, declaring total loss at Rs.248,777,

000. On examination of accounts of the company, taxation officer observed that the appellant had declared dividend income at Rs.140,262,000 and profit on debt at Rs.2,964,000, which were claimed exempt under Clause 103(A) of Part-I of the Second Schedule to the Income Tax Ordinance, 2001, therefore, the deemed assessment order under section 120 of the Ordinance was found erroneous as well as prejudicial to the interest of revenue in the sense that the company's main source of income fell under the head "Business or Profession" as laid down under section 18 of the Ordinance and on claim of income exempt under the aforementioned clause the dividend income and profit on debt were part of the turnover and liable to charge of minimum tax under section 113 of the Ordinance. After confronting the appellant on charging minimum tax and after receipt of reply by the appellant, taxation officer rejected the same and amended the assessment under section 122(5A) and charged minimum tax as under:-- Declared turnover for the year: Rs.140,262,000 Profit on debt (for other companies) Rs.2,964,000 Total: Rs.143,226,000 Tax under section 113 I@ 0.5%: Rs.716,

130. Feeling aggrieved by the above treatment, the appellant went in appeal before the learned CIR(A) who rejected the same, hence this second appeal before this forum on the following grounds: (1) That orders of both the officers below are wrong and illegal and against the facts of the case. (2) That the amended ex parte order is based on conjectures and surmises, hence liable to be set aside. (3) The as the show-cause notice and documents on the basis of which show-cause notice is issued, have not been provided to the appellant, therefore, entire proceedings are nullity in the eyes of law. (4) That the impugned order of learned CIR(A) imposing 10% final discharge liability under section 169 is unjust and uncalled for as no notice of the same was given to the appellant.

3. I have heard arguments of the parties and have perused the impugned orders as well as the grounds of appeal furnished by the taxpayer. The main issue in this case is the imposition of minimum tax on dividend and profit on debt. The original adjudicating authority has included the dividend income as well as profit on debts in the turnover of the taxpayer and subjected the same to the minimum tax under section 113 of the Ordinance. The learned departmental representative defended the orders of both the officers below, however, the learned AR pleaded that the dividend income and profit on debt being subject of final tax has been excluded from the purview of section 113 of the Ordinance. In order to understand the plea of the AR of the taxpayer, the relevant portion of section 113(3) is reproduced as Under:-- "

113. Minimum tax on the income of certain persons.

(3) "turnover" means,-- (a) The gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods and also excluding any amount taken as deemed income and is assessed as final discharge of the tax liability for which tax is already paid or payable; (b) The gross fees for the rendering of services for giving benefits including commissions; except covered by final discharge of tax liability for which tax is separately paid or payable; (c) The gross receipts from the execution of contracts except covered by final discharge of tax liability of which tax is separately paid or payable; and (d) The company's share of the amounts stated above of any association of persons of which the company is a member."

4. In order to ascertain whether profit on debt and dividend income are the subject of final taxation, it will be more important to examine the contents of section 169 of the Ordinance, which specify tax collected or deducted as final tax. For convenience section 169 of the Ordinance is reproduced as under:-- "

169. Tax collected or deducted as final tax.

(1) This section shall apply where- (a) The collection of advance tax is a final tax under subsection (7) of section 148 or subsection (5) of section 234 or section 234A on the income to which it relates; or (b) The deduction of tax is a final tax under clauses (a), (b) and (d) of subsection (1) of section 151, subsection (1B) or sub section (1BB) of section 152, subsection (6) of section 153, section 153A, subsection (4) of section 154, section 155, subsection (3) of section 156, subsection (2) of section 156A or subsections (1) and (3) of section 233 on the income from which it has been deducted."

5. The tax deductible on profit on debt is under section 151 of the Ordinance and the same is very much reflected in section 169 of the Ordinance as final tax. However, the tax deduction from dividend income is under section 150 of the Ordinance, which is not reflected in the mentioned provisions of section 169 of the Ordinance, hence in view of this aspect it cannot be excluded from the turnover of the taxpayer. However, the AR of taxpayer has pleaded that Messrs Lucky Holding is an Inter-Corporate entity and is registered with the Security Exchange Commission of Pakistan as holding company is exempt under Clause 103A to the Second Schedule to the Ordinance. For convenience contents of Clause 103A are reproduced as under:-- (103A). Any income derived from inter-corporate dividend within the group companies entitled to group taxation under section 59AA or section 59B.

5. However, the taxation officer is directed to verify the plea of the taxpayer whether it is inter-corporate entity or otherwise. The AR is also directed to submit complete details to the taxation officer in this respect and if the plea of the taxpayer is found documented then in that case the dividend income may be excluded from the turnover as the same is exempt under Clause 103A to the Second Schedule of the Ordinance, if not so, the dividend income should be straight away subjected to tax under section 150 of the Ordinance. The same treatment, in case of failure on the part of taxpayer, may also be advanced to profit on debt and the same should be subjected to tax under section 151 of the Ordinance.

6. The AR of taxpayer further pleaded that the dividend income is also exempt under Clause 11B of Part-IV of the Second Schedule to the Ordinance. For convenience contents of clause 11B are reproduced as under:-- "(11B) The provisions of section 150 shall not apply in respect of inter-corporate dividend within the group companies entitled to group taxation under section 59AA or section 59B."

7. It is reiterated that it is to be seen by the taxation officer as to whether the appellant is inter-corporate entity or otherwise. As a result, this appeal succeeds as above. HBT/94/Tax(Trib.) Order accordingly.