2025 PLP (Trib (PTD)

ZAHID SIKANDAR, MEMBER.

The titled appeal has been preferred by the taxpayer against order dated 13.12.2023 passed by ACIR, Zone IV, LTO, Lahore whereby the OIR charged super tax under section 4C on the income of the appellant.

2. The factual matrix of the case is that the appellant taxpayer, a private limited company engaged in erection, installation and commissioning of diesel, gas and dual fuel power plants, filed income tax return for tax year 2023 which constituted as deemed assessment order in terms of section 120 of Income Tax Ordinance, 2001. Upon scrutiny, it revealed that the taxpayer failed to discharge the liability of payment of Super tax under section 40 of the ITO. As per return, following heads of income (as disclosed by the taxpayer itself) were liable to chargeability of super tax under section 4C: Description Amount in Rs. Taxable income declared 43,344,627 imputable income under section 154A 15,025,210 Receipts from commission 589,790,559 Profit on debt(Not offered on NTR income) 5,823,238 Total income for the purpose of S.4C 653,983,634 Super tax to be charged under section 4C @10% 65,398,363 Hence, notice under section 4C was issued to the taxpayer by the OIR confronting the non-payment of super tax under section 4C with the intention to recover the same. The taxpayer filed reply contending that its income does not exceed the threshold of Rs.150,000,000/- therefore not liable to chargeability under section 4C as per following heads of income: Description Amount in Rs. Taxable income declared 49,167,866 Imputable income on FTR 70,300,988 Total income liable to 4C 119,468,854 Reply was not found tenable and eventually the OIR framed order u/s 40 creating tax demand of Rs.65,398,363/-. Being aggrieved with the aforesaid treatment, the taxpayer filed appeal under section 127 of the ITO before the Commissioner Inland Revenue(A), however, after the promulgation of Tax Laws (Amendment) Act 2024, instant appeal was transferred to ATIR for adjudication. Written submissions have been filed alongwith certain documents by the learned AR for the appellant. On the other hand, the learned DR assisted the bench on behalf of the FBR department.

3. Heard

4. The main issue involved in this appeal is as to whether the appellant's income for the tax year 2023 exceeds the threshold of 150 million or not for the purpose of chargeability of tax under section 4C as per income defined in this provision. The appellant reiterated the similar contentions before us which were taken before the learned officer below. It is mainly emphasized that the learned OIR Incorrectly computed income of the taxpayer and made addition of Rs.589,790,559/- in respect of receipts from foreign indenting commission received by the appellant as Foreign indent commission is subject to Final Tax according to provisions of section 154 (1 January to 30 June 2022), 154A(1)(da) and 154(2) (1 July 2022 to 31 December 2022) and therefore for the purpose of computing income under section 4C(2), imputable income as described under section 2(28A) should be used in respect of foreign indenting commission due to the appellant. It is asserted that as per section 154(2) tax is deducted at the time of realization of foreign exchange proceeds on account of commission due to an indenting commission agent and this tax is treated as final tax. Further, the OIR incorrectly classified the commission earned by the appellant as "Brokerage and Commission under section 4C(2)(i) of the Ordinance instead of foreign indent commission. As per submissions, the correct total income under section 4C arrives at Rs 119,468,854/- (sum of NTR income at Rs.49,167,866/- and FTR-Imputable income of Rs.70,300,988/-) which is below the threshold of 150 million rupees hence the appellant is not liable to payment of super tax. The appellant has also placed reliance on a decision given by the tribunal in ITA No. 3867/LB/2023 in a case titled as M/s Atlas Copco Pakistan v. CIR, LTO Lahore dated 01.03.2024.

5. Before we dilate upon the matter further, for ease of reference it is imperative to reproduce relevant provisions of section 4C which reads as under: 4C Super tax on high earning persons. (1) A super tax shall be imposed for tax year 2022 and onwards the rates specified in Division IIB of Part I of the First Schedule, on income of every person. (2) For the purposes of this section, income shall be the sum of the following: (i) profit on debt, dividend, capital gains, brokerage and commission; (ii) taxable income (other than brought forward depreciation and brought forward business losses) under section 9 of this Ordinance, excluding amounts specified in clause (i); (iii) imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (1), and (v) income computed, other than brought forward depreciation, brought forward amortization and brought forward business losses under Fourth, Fifth, Seventh and Eighth Schedules." Section 4C of the Ordinance provides for determination of tax liability under said provision which indicates that Super Tax shall be charged on high earning persons at the rates specified in Division IIB of Part I of First Schedule. Subsections (4) and (5) of Section 4C also empowers the Commissioner to determine the super tax liability and to recover the same from the taxpayer. Super tax, by its very nature, related to an additional duty of income tax and such charge had been recognized to exist independent of income tax. Bare perusal of section 4C subsection (2), it can be safely gathered that for the purpose of computing income for levy of super tax, income shall be the sum of (i) profit on debt, Dividends, capital gains, brokerage and commission (ii) taxable income (iii) imputable income and (iv) income computed other than brought forward depreciation, amortization and business losses.

6. A careful examination of section 4C(2)(i) reflects that word 'commission' has been given independent of any classification. We are not fortified with the contentions of the learned AR that the word 'Commission' used in clause (i) of section 4C(2) refers to Commission envisaged in section 233 and not of Section 154 because the legislature has not made any bifurcation or such classification. Nor does the OIR have made any such observation in this regard rather he just added the commission income for the purpose of charging super tax. Without any explicit reference to any particular provision, giving the word 'commission' a restrictive meaning in terms of section 233 is uncalled for.

7. There is neither any dispute nor denying the fact that according to the provisions of S.154A Income against Foreign Indent Commission falls under Final Tax Regime subject to fulfillment of certain conditions given in subsection (2). It is a matter of record as to whether the taxpayer fulfilled all the conditions stipulated therein or not. However, in the context of section 4C(2)(iii) it is to be seen whether income against foreign indent commission (subject to final taxation) is liable to be included as imputable income or the same is separately included under section 4C(2)(i). Section 4C(2)(iii) stipulates that imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i) ibid would be summed up in calculating taxpayer's income. There is clearly an exclusion given in this clause which states that only imputable income not falling any of the heads specified in sub-clause (i) shall be included under sub-clause (iii) and any Income falling in any of the heads specified in sub-clause (i) shall not be included as imputable income. As per definition given in Section 2(28A), imputable income in relation to an amount subject to Final Tax means the Income which would have resulted in the same tax, had this amount not subject to final tax. Clearly means that imputable income is always in relation to amount subject to final tax. Whereas undisputedly payment of tax on commission under section 233 is not subject to Final Tax. If the taxpayer's stance is accepted that the word 'commission' used in clause (i) of section 4C(2) refers to the commission given in Section 233 then question arises that any income which cannot be imputed how can the same be excluded? And which commission income would be excluded as imputable income as stated in Clause (iii). Section 4C(2)(iii) clearly allows those imputable incomes to be included under this provision which do not fall under heads specified in clause (i) which covers the word commission. We are required to Interpret clauses (i) and (iii) on their own language and to arrive at the true interpretation according to the plain and natural meaning of the words used by the Legislature. On its plain interpretation, clauses (i) and (iii) of section 4C(2), when read in juxtaposition, would mean that commission income shall not be included as imputable though may be subject to Final Tax Regime and is required to be included under clause (i) of Section 4C(2) as a sum in the taxpayer's income for the purpose of charging super tax. The contentions of the appellant are not in line with the scheme of law and are misconceived.

8. The earlier referred decision of the tribunal on the issue given in M/s Atlas Copco Pakistan ibid has not even touched upon the exclusion given in Section 4C(2)(iii) rather by simply agreeing with the assertions of the learned AR it was held that export indenting commission has no relation with phrase "Brokerage and Commission" as included in the definition of income under section 4C. Further, export indent commission being chargeable to tax under final tax regime in terms of s.154(2) is only includable in income under section 4C as imputable income in terms of section 4C(2)(iii) and same cannot be included in terms of section 4C(2)(i) of the Ordinance. Not even a single observation has been made in the earlier decision ibid in respect of the later half of the provision S.4C(2)(iii) which excludes amounts specified in clause (i). Since there is no discussion about this primary aspect of the scheme of law, therefore, cannot be said to be a precedent binding. If the relied judgment is found to be either per incuriam or sub-silentio it has no binding effect. We attempted to stand with the reasoning and conclusion drawn however we found that the scheme of law required interpretation differently.

9. The doctrine of per incuriam refers to a judgment of a court which has been decided without reference to or in ignorance of a statute or an earlier judgment/precedence and/or overall dress up of the scheme of law which could have been relevant and therefore such ignorance has affected the result of the case. Some of the factors to be considered while contending that a decision is not a binding precedent and should not be followed or be ignored are summarized hereunder but not limited: I. A decision where the point in issue is not argued or considered by the court or decision rendered without an answer to the argument, without reference to the crucial words of the rules/provisions. II. If a judgment is delivered in ignorance of scheme of law to demonstrate the real intent of legislature will also be recited per incuriam. Legislature's real intent should never be left behind or overshadowed by a judgment rendered per incuriam. The view in M/s Atlas Copco Pakistan (supra) does not take into the account the amounts specified in clause (i) that have been excluded to be added as imputable income under section 4C(2)(iii). The referred case did not discuss this very pertinent question and if the view in the said case is accepted then the phrase "excluding amounts specified in clause (i)" given in 4C(2)(iii) becomes redundant and redundancy cannot be attributed to the legislature. A careful study of the entire scheme of law would lead us to conclude that vital questions escaped adjudication by the earlier bench and has become a case of either sub-silentio or per incuriam or a blend of both. In any of the two events, the binding effect of the judgment is defeated and diluted as the ratio in consideration of the scheme of law pertaining to super tax under section 4C is not settled in the earlier referred judgment. The principles of per incuriam and sub-silentio are exceptions to the doctrine of precedent and permit the court to overrule the ratio decidendi of the incorrect decision or to ignore the same. Reliance is placed on PLD 2023 SC 539.

10. In view of the above analysis of section 4C and other related provisions, the judgment referred in the case of M/s Atlas Copco Pakistan (supra), surfaced as a blend of both per incuriam and sub-silentio, the most appropriate interpretation of section 4C is that commission income shall not be included as imputable though may be subject to Final Tax Regime and is required to be included under clause (1) of Section 4C(2) as a sum in the taxpayer's income for the purpose of charging super tax.

11. The outcome of this taxpayer's appeal is that it has not succeeded and is therefore dismissed. Impugned order is upheld. MQ/35/Tax (Trib) Appeal dismissed.