2013 PLP (Trib (PTD)

JAWAID MASOOD TAHIR BHATTI, CHAIRMAN.

The above captioned appeal has been filed against impugned order dated 30-6-2011 passed by Commissioner Inland Revenue (Appeals-I), Karachi for the tax year 2009. The appellant has assailed the appeal on following Grounds of Appeal:-- "(2) That The Commissioner Inland Revenue (Appeals-I), Karachi was not justified in confirming the order passed under sections 161(1)/ 205(3) of Income Tax Ordinance, 2001 on totally incorrect appraisal and as well as incorrect interpretations of law. The order passed under sections 161/205 and confirmed in appeal is liable to be cancelled and annulled. (3) That the Commissioner Inland Revenue (Appeals-I), Karachi has not only erred but has also misdirected himself in law and on facts of the case while incorrectly interpreting the provision of section 156(1) and has further erred in confirming the application of section 156(1) of Income Tax Ordinance, 2001 in the case of the appellant. The order confirmed in appeal is not sustainable in law and is liable to be cancelled and annulled. (4) That the appellant had distributed free samples of their manufactured goods of "general public" through their distributors, the Commissioner Inland Revenue (Appeals-I) has not only erred but has also totally misdirected himself by treating and confirming the free distribution as "prize" within the meaning and for application of section 156(1) in the case of appellant. The treatment accorded and the addition confirmed in appeal on the basis of incorrect interpretation of law is not sustainable in law and is liable to be deleted. The order confirmed in appeal is liable to be cancelled and annulled. (5) Whether the Commissioner Inland Revenue (Appeals-I) had acted judicially and in accordance with law while confirming the order passed under sections 161/205 whereby "free distribution of manufactured goods to general public" were treated as prize within the meaning of section 156(1) and whether tax, @ 20% was correctly levied and confirmed in appeal. There being "no" nexus between free distribution to general public and "prize" as defined and the intention envisaged, nature and application of section 156, the treatment accorded and levy of tax confirmed @ 20% on free distribution besides being totally unjustified, without any basis and on incorrect, misinterpretation of law, the tax levied and the order passed are not sustainable in law and are liable to be cancelled and annulled. (6) That the being no evidence either with the Taxation Officer, or with the Commissioner Inland Revenue (Appeals-1) of any goods "offered", by the appellant tinder the prize scheme or as prize, nor the appellant having offered or distributed any goods under any prize or lottery scheme through ballot or lucky winner, both the officers have neither acted judicially nor in accordance with law by stretching the meaning of "free distribution to general public" through distributor as prize for the purpose of levy of tax under section 156 of Ordinance, 2001. (7) That the Commissioner Inland Revenue (Appeal-I) has erred and misdirected himself in law and on facts by confirming the levy of tax @ 20% on free distribution and thereby confirming the tax at Rs.3,617,438 the quantum of the levied and confirming in appeal besides being totally unjustified is also without any basis and is liable to be cancelled and deleted. (8) That the Commissioner Inland Revenue (Appeals-I) has erred in confirming of Additional tax under section 205 at Rs.669,

573. The quantum of Additional tax levied and confirmed in appeal is liable to be cancelled and annulled.

2. Briefly stated, facts of this case as explained by the learned Counsel for appellant are that, appellant is a manufacturer of various sugar confectionary items, biscuits, potato chips, candy land items etc. Income tax return for tax year 2009 was filed on the due date along with audited accounts etc. The Deputy Commissioner Inland Revenue, Unit-12, E & C Division-II, LTU, Karachi had issued notice under section 176 for initiating proceedings under section 161(1) of Ordinance, 2001. Appellant had filed the required details and evidences along with explanation letter 23-12-2010 which was summarily rejected without considering the correct facts of the case and evidence produced before the Assessing Officer. Order under sections 161/205 was passed on 18-1-2011 whereby, free samples distributed at random to children in various schools throughout Pakistan and also to general public in various shopping malls and other entertainment places were taxed under section 156 as prizes. Income tax @ 20% was levied under section 161 along with additional tax under section 205 on the basis of decision of Appellate Tribunal reported as 2010 PTD 2178 (Trib.). The Commissioner Inland Revenue (Appeals-I), Karachi had confirmed the treatment accorded by the Assessing Officer on the basis of decision of Appellate Tribunal without considering the facts of the case, nor had considered whether free samples distributed by the Appellant falls within the ambit of Section 156, nor had appreciated that as facts of the case decided by the Appellate Tribunal are totally different, the said decision is not applicable to the case of appellant. According to learned counsel, the provision of section 156 is not applicable in this case, as the appellant has not offered any prize through any scheme, nor any prize has been offered to a wining person on the basis of any competition or through a lucky draw or any other scheme, nor free samples have been awarded as a prize to a particular distributor on achievement of specified target sales, nor as an incentive to any particular distributors under any scheme. There is no such adverse finding in the order passed under section

161. The learned A.R. has further asserted that from the inception of manufacturing activities, the appellant has always utilized the services of distributors for random distribution to individual as free samples to various consumers. As, main consumer of confectionary and other items are children, the distribution of free samples to individual children in various schools throughout Pakistan and also to general public in various shopping malls and other places is purely a random distribution and does not fall within the ambit of "prize" as envisaged in section 156 of Ordinance, 2001. Although, during the proceedings under section 161, the Representative of appellant had explained the above facts as had also produced photographs to justify their assertion that free distribution as samples to children in various schools throughout Pakistan is purely a random distribution and has not been awaited through competition or to any lucky winner, but both the Officers have not appreciated the distinguished facts of appellant case for the solitary reason that such action has been confirmed by Appellate Tribunal. The learned counsel has also referred to section 156 of Ordinance, 2001 and after reading the said provision, he had asserted that there is no specific scheme of offering prizes, nor the random distribution of free samples to children in various schools throughout Pakistan or to general public at large in various shopping malls and other places has been executed in or through any competition, hence such free distribution does not fall within the ambit of intention as specified by legislature from the words, "prize offered by companies for promotion of sales" used in section 156 of Ordinance, 2001, nor the appellant company has given any free items to any of the distributors on their achieving the sales target. According to learned A.R., the word prize and samples have not been defined in Income Tax Ordinance, but as per definition in various dictionaries, both the words prize and samples carry totally different meaning. He has referred to various dictionaries. The word prize has been defined and referred to as a "reward" or "success" or won in competition, contest, granted in recognition of excellence whereas the word sample carry a totally different meaning and is not referred to as a prize, hence, provision of Section 156 is not applicable on free sample distributed on random basis amongst children of various schools throughout Pakistan and also in various shopping malls etc, nor can he assumed as prize. The learned A.R. has explained that both the Officers have incorrectly rejected the contention of appellant and have misdirected themselves by relying on the decision of Appellate Tribunal reported as 2010 PTD 2178 (Trib.) without considering the facts which are totally different from facts in appellant case. According to A.R., appellant had neither offered any prizes to their distributors, nor on achieving sales target or as an incentive to distributor, nor any free units were given to distributors, the Commissioner Inland Revenue (Appeals) was not justified in dismissing the appeal without considering facts of appellant case and as well as evidences produced before both the Officers. The A.R. has again asserted that reported decision of Appellate Tribunal can only be relied upon if facts of both the cases are identical, but as neither of the Officers have disputed the facts of appellant case, nor there is any finding that appellant had allowed free samples to the distributors on achieving sales target. Thus, the decision of Appellate Tribunal is not applicable in the case of appellant, for the reason that from the evidence available on record, entire samples were distributed to children in various schools throughout Pakistan and not through any competition or as prize through lucky draw. Appellant had never introduced any such scheme for distributors or to lucky and regular consumer. The learned A.R. has finally pleaded to cancel the orders of the officer below and delete the addition and tax levied under section 156 of Ordinance, 2001.

3. The learned Departmental Representative Mr. Abdul Aziz Narejo has supported the orders passed by both the Officers and have correctly relied on reported decision of Appellate Tribunal. However, after hearing the arguments of learned A.R. and evidence produced before the Bench, the learned D.R. has not disputed the assertions of learned counsel for appellant but was of the opinion that the case may be remanded to the Assessing Officer for re-examination of details and evidence and as well as whether section 156 of Ordinance, 2001 is applicable or not in view of distinguished facts of appellant case.

4. We have heard the arguments advanced by both the sides and have also perused both the impugned order of the learned CIR(A), order passed by the DCIR under sections 161(1)/205(3) of the Ordinance, the decision of this Tribunal reported as 2010 PTD 2178 and as well as evidence produced by the counsel for appellant before the Bench. The main dispute is, whether the appellant was required to deduct income tax on random distribution of samples and whether such distribution represents prize offered by companies for promotion of sales and the intention of legislature as envisaged from the language and words used in section 156 of Ordinance. 2001. The main contention of appellant as asserted before the Assessing Officer and also emphasized by the learned Counsel for the appellant before us is that from the inception of manufacturing, entire free distribution of samples is carried out through various distributors throughout Pakistan. These samples have neither been sold nor awarded to distributors on achieving sales target, nor on any other basis, but have been distributed at random to children in various schools and shopping malls etc. in all the cities and villages throughout Pakistan. This random distribution of samples is not on the basis of any competition or winning of draw and also without any exception. These facts have neither been disputed by the Assessing Officer, nor by the D.R. Moreover, during the proceedings under section 161, appellant had also emphasized in their explanation letter that during the year appellant had also started production and sale of potato chips under the brand name of snack city and other items. In order to obtain opinion of children and also of general public for improving the quality, taste, flavors etc. of various manufactured items, these are regularly distributed through various distributors in school and other places. In order to prove this contention, the learned counsel for appellant has again produced details and photographs before the Bench which have been perused by us and as well as the learned D.R., but while passing the order under section 161, the Assessing Officer had rejected the contention entirely on the basis of reported decision of Appellate Tribunal. We have also perused the decision of this Tribunal which was in the case of a Pharmaceutical Company. Although, the application of Section 156 was confirmed, but we are of the view that this decision is not applicable as the facts are different as the Assessing Officer in that case had recorded a finding of fact that extra goods or units were awarded to distributor on achieving sales target and other incentive. The finding of facts in the said decision is being disputed as incorrect on the basis of separate application. Whereas, in the case of appellant, the facts of this case are totally different as claim of sales promotion does not represent award of extra units to any of the distributors throughout Pakistan on achieving sales target. Thus, the reported decision of Appellate Tribunal is not applicable in the case of appellant and was incorrectly relied upon by both the Officers. The question that requires our consideration in this case is whether on the basis of facts of this case as discussed above, the random distribution of free samples of various products amongst children in various schools and in shopping malls etc. throughout Pakistan through various distributors represents: "prize" within the language and intention of legislature for application of section

156. We have consulted the definition of word "prize" from various dictionaries provided by the learned Counsel for the appellant. In all the dictionaries, the word has unanimously defined and referred to, as a reward, or symbol of success offered or won in some competition by contest or granted in recognition of excellence. It has also been vehemently argued by the learned counsel that the free distribution as samples throughout Pakistan is not on the basis of any competition amongst school children or any quiz or winning draw in schools or in shopping malls etc. but is entirely and purely a random distribution to each and every children in schools and shopping malls etc. and this fact has not been disputed. After considering all the above facts and evidences, the appellant is a manufacturer of various confectionary products, candy land, potato chips, chocolates and such other items which are consumed by children, we are of the considered opinion that free samples distributed by the appellant at random to all the children in various schools and other places throughout Pakistan cannot be termed as a distribution of prize or prize offered within the meaning of section 156 of Ordinance, 2001. Another aspect worth consideration is the monetary value of gift per unit and the category of recipients. We are positively sure that unit price of a single gift i.e. candy/potato chips etc. is very meager and the large scale split of free samples amongst places and people to promote brand name, sales-target, market share or under any other business exigency, the provisions of section 156 would not be applicable in such circumstances. The orders passed by both the Officers below are cancelled and tax levied under sections 161 and 205 in the case of appellant are deleted. The appeal is disposed of as above. CMA/143/Tax(Trib.) Appeal accepted.