2017 PLP (Trib (PTD)

MS. RAANA AHMED (ACCOUNTANT MEMBER).

Through the titled appeal, the Revenue has assailed the impugned order dated 22-02-2012 passed by the learned CIR (Appeals-II), Lahore on the following ground:-- "That the CIR(A) is not justified to hold that minimum tax be charged on aggregate turn over from all the sources of tax payer relying upon Lahore High Court judgment cited as 2009 PTD 1707 since the department has filed CPLA before apex court contesting the issue regarding charging of minimum tax under section 113 of the Income Tax Ordinance, 2001 on aggregate turnover against income derived from all sources."

2. Briefly stated the facts of the case are that the taxpayer/ respondent, a private limited company, filed return for the tax year 2008 declaring income of Rs.2,286,844/- which was treated to be an assessment order in terms of section 120 of the Income Tax Ordinance, 2001. Later on, the return was revised on 07-05-2011 declaring loss of (Rs.7,956,211) which was again treated to be an amended assessment order in term of section 122(3) of the Income Tax Ordinance, 2001. On scrutiny of record, the OIR observed certain discrepancies which rendered the amended assessment order as erroneous and prejudicial to the interest of revenue and warranted further amendment under section 122(5A). After seeking explanation from the taxpayer and examining the available record, the amended order under section 122(3) was further amended under section 122(5A) of the Income Tax Ordinance, 2001 by making certain additions to arrive at loss of (Rs.3,769,951) vide order 15-07-2011. Being aggrieved, the taxpayer filed appeal before the learned CIR(A) who vide order dated 22-02-2012 upheld the treatment with regard to Taxability of Income from Property on yearly basis and Proration of Expenses while on the issue of Calculation of Minimum Tax Liability, he directed to charge minimum on turnover from all sources after giving the effect of tax paid on the property income, keeping in view the reported judgment of Hon'ble Lahore High Court cited as 2009 PTD 1707. Hence, the instant appeal by the appellant/department.

3. The learned DR contended that learned CIR(A) was not justified to hold that minimum tax be charged on aggregate turn over from all sources of tax payer relying upon the judgment of Hon'able Lahore High Court cited as 2009 PTD 1707 since the department has filed CPLA before the apex court contesting the issue.

4. The learned counsel of the taxpayer on the other hand opposed the argument advanced by the learned DR and argued that the learned CIR(A) was justified in giving direction in view of the reported judgment of Hon'ble Lahore High Court, cited supra, that minimum tax be charged on turnover from all sources after giving the effect of tax paid on the property income.

5. The principal argument of the respondent/taxpayer, accepted by the learned CIR(A), is that rent is also a "Source" to be included in "Turnover" for which he relies on the words "the amount representing the person's turnover from all sources" used in the last line of subsection (1) of section 113, before its omission by the Finance Act, 2008. The learned CIR(A) has fatally erred in accepting this argument by reading the word "Sources" used in the last line of subsection (1) of section 113 in isolation, instead of reading it in conjunction with the definition of "Turnover" given in subsection (3) of section 113 which is reproduced hereunder:-- "(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; (b) the gross fees for the rendering or services [or giving benefits], including commissions; (c) the gross receipts from the execution of contracts ; and (d) the company's share of the amounts stated above of any association of persons of which the company is a member." When read together, it becomes crystal clear that the "Sources" referred to in the last line of subsection (1) of section 113 have been specified in clauses (a) through (d) of subsection (1) of section 113 and any amount, not listed therein, cannot be treated as turnover for the purposes of section

113. It may be mentioned here that the legislature has logically and consciously confined the "Sources" to a single "Head" i.e. "Income from Business". The case law relied upon both by the learned CIR(A) actually favors the appellant/department and not the taxpayer/respondent. In the said judgment it is held as under: "sources like import, export, local supply and local sale, etc. all are to be aggregated and minimum tax is to be calculated on its total turnover declared by him from all his sources". (emphasis provided) In the said judgment only such "Sources" which relate to the "Head" "Income from Business". It has not mentioned rent from property as a "Source" to be included in "Turnover".

6. The above noted view is further strengthened by a combined reading of subsection (6) of section 15 and clauses (b) and (c) of subsection (2) of section 113, which are reproduced, respectively, hereunder: "

15. Income from property.- .... (6) Income under this section shall be liable to tax at the rate specified in Division VI of Part I of the First Schedule." (emphasis provided) "

113. Minimum tax on income of certain persons.- .... (2) Where this section applies-- (a) the aggregate of the person's turnover for the tax year shall be treated as the income of the person for the year chargeable to tax; (b) the person shall pay as income tax for the tax year (instead of the actual tax payable under this Ordinance), an amount equal to one-half per cent of the person's turnover for the year; (c) where tax paid under subsection (1) exceeds the actual tax payable under Part I, Division II of the First Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under Part I, Division II of the First Schedule of the subsequent tax year; (emphasis provided) A combined reading of the above noted provisions of law clearly establishes that a person shall pay "minimum tax" instead of "actual tax" payable under Division II of Part I of the First Schedule, and not instead of tax payable under Division VI of Part I of the First Schedule. Hence, income from property, tax chargeable and tax withheld thereon are not relevant for purposes of section 113 and tax on income from property is to be paid in addition to and over and above minimum tax on turnover.

7. In view of the above discussion, on the issue of charge of minimum tax on rent of property as part of turnover, the order of the learned CIR(A) is vacated and the order of the Ad.CIR restored. HBT/103/Tax(Trib.) Appeal allowed.