2015 PLP (Trib (PTD)

NAZIR AHMED (JUDICIAL MEMBER).

These three appeals pertain to a permanent establishment of a non resident person in Pakistan, primarily engaged in the business of manufacture and sale of beverage concentrate. The composition of appeals for the tax year under consideration is such that two of these are cross appeals and impugn the consolidated appellate order dated 23-5-2011 recorded by CIR(Appeals-I) Lahore. For the year under consideration, the underlying proceedings, as were the subject matter of appeals before the first appellate authority, were completed under section 122(5A) of the Income Tax Ordinance, 2001. The remaining one appeal for tax year, 2006 has been filed by the Revenue, one of which impugns appellate order dated 21-3-2012 recorded by the same appellate authority under section 221 of the Income Tax Ordinance, 2001 where under the earlier appellate order 23-5-2011, referred supra, was rectified to correct mistake apparent from record.

2. The facts in brief leading to the instant appeals are that the taxpayer, a non-resident company, filed its return for the tax year, 2006 declaring income at Rs.344,410,336, which was treated as an assessment order in terms of section 120 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance). Subsequently, on examination of record, the original assessment was found erroneous in so far as prejudicial to the interest of Revenue. Therefore, amendment proceedings were initiated by way of issuance of statutory notice under sections 122(9)/122(5A) against which explanation tendered by the taxpayer was treated unsatisfactory. Resultantly, amendment proceedings were culminated in passing of order under section 122(5A) of the Ordinance dated 31-1-2011, wherein following treatment was given to the taxpayer:-- (i) Addition under section 21(c) of the Ordinance amounting to Rs.81,485,343. (ii) Common expenses of the taxpayer company were prorated as per Rule 13 of the Income Tax Rules, 2002. -- Feeling aggrieved, the taxpayer preferred appeal before CIR (Appeals-I) Lahore, who allowed relief to the taxpayer by deleting the additions made on account of proration of expenses under Rule 13 and provision for gratuity. Furthermore, while computing the tax liability, appeal effect was also directed to be given. However, addition made under section 21(c) of the Ordinance was upheld. Against the treatment meted out by the first appellate authority, both the taxpayer as well as department have come up in appeal before this Tribunal on the strength of following grounds taken as per memo of appeal:- TAXPAYER'S GROUNDS OF APPEAL: (i) That the appellate order dated May 23, 2011 (serviced on May 27, 2011) passed by the Commissioner Inland Revenue, Appeals -I, Lahore ['CIR'] under section 129 of the Income Tax Ordinance, 2001 (`Ordinance') for tax year, 2006 is bad in law and against the facts of the case. (ii) That the learned CIR(A) has erred in upholding the disallowance made under section 21(c) of the Ordinance, on account of 'rebate' paid to Messrs McDonalds amounting to Rs.5,388,141, as no withholding tax was deductible thereon, which position has already been confirmed by Honourable Appellate Tribunal Inland Revenue ('ATIR') in appellant's own case for tax year, 2003 through judgment dated December 3,2009. (iii) That without prejudice to ground of Appeal No.2 above, learned CIR(A) has erred in upholding the disallowance of deduction representing rebate paid to Messrs McDonalds under section 21(c) of the Ordinance as the tax liability relating to alleged defaulted amount of withholding tax had already been discharged by M/s. McDonalds. (iv) That learned CIR(A) has erred in not recording any findings in the appellate order dated May 23,2011 in respect of ground of Appeal No.9 taken by the appellant on the issue of non allowance of adjustment of determined refunds available to the appellant to the extent of Rs.16,720,

337. DEPARTMENTAL APPEAL: (i) That the order of the learned CIR(A-IL), Lahore vide No.52 dated 23-5-2011 is bad in law and against the facts of the case. (ii) That the learned CIR(A) was not justified to delete addition made under section 21(c). (iii) That the learned CIR(A) was not justified to delete the addition on account of proration of expenses.

3. Subsequently, rectification was sought by the taxpayer in the appellate order dated 23-5-2011 on following issues:-- (i) Certain grounds of appeal were not adjudicated. (ii) Admissibility of discount paid to Messrs Coca Cola Beverages Limited (CCBPL).

which was accepted by the CIR (Appeals-I) Lahore by way of allowing certain relief to the taxpayer as enumerated in the body of impugned order, against which the department has come up in further appeal before this Tribunal:- (i) That the order of the learned CIR (Appeals-I), Lahore vide Nos.33,34 and 35 dated 21-3-2012 is bad in law and against the facts of the case. (ii) That the learned CIR (Appeals) was not justified to direct that disallowance of discount paid to CCBL in tax years, 2004 and 2006 amounting to Rs.30,019,178 and Rs.76,097,202 should not be added.

4. The memo of appeal, filed by the Revenue, also includes a ground agitating the decision of the learned first appellate authority with regard to action of the taxation officer under section 21(e) of the Ordinance, however, the learned DR sought permission to withdraw the same while submitting that it was included in the memo. as a result of typographical error and as such this issue is not involved in the subject tax year. The request is allowed.

5. We have heard the rival counsel, given earnest consideration to their submissions, minutely perused the available record and have carefully gone through the decision of this Tribunal dated 3-12-2009 delivered in taxpayer's own case in respect of tax year, 2003, heavily relied upon by the learned counsel for the taxpayer. Based on synopsis given above, following issues need to be decided in connection with three titled appeals:-- (i) admissibility or otherwise of rebate amounting to Rs.5.388 million allowed by the taxpayer to Messrs McDonalds Pakistan; (ii) lawfulness of apportionment of expenses, carried out by the learned taxation officer, between two streams of income; and (iii) admissibility or otherwise of rebate/discount amounting to Rs.76.097 million allowed by the taxpayer to Messrs CCBPL.

6. In the context of rebate allowed to Messrs McDonalds Pakistan, the learned counsel for the taxpayer vehemently submitted that authorities below grossly erred in not following the earlier decision of this Tribunal dated 3-12-2009 and treating the same per incurium as this Tribunal, after thorough and exhaustive deliberations, rightfully determined the nature of subject amount as royalty does not attract any incidence of withholding under the provisions of the Ordinance. The learned AR reiterated the arguments earlier raised before this Tribunal and embodied in the order in I.T.A. No. 361/LB/09 dated 3-12-2009 and submitted that the claim is held to be allowable under the law.

7. The learned DR, on the other hand, strongly opposed the arguments of the AR and submitted that both the taxation officer as well as the first appellate authority rightly refused to follow the order dated 3-12-2009 as same contained serious errors and omissions and thus could not have been followed under the principles of stare decisis. It was argued that the amount could not be treated as royalty, proposition determined by this Tribunal in order dated 3-12-2009, and dearly the amount constituted consideration for services attracting withholding tax, which having not been deducted by the taxpayer the authorities below rightly treated the amount inadmissible.

8. The learned AR responding to the averments of the learned DR, submitted a copy of amendment order dated 31-12-2012 passed by the taxation officer in respect of tax year, 2007 i.e. immediately succeeding tax year wherein the taxation officer himself followed the said decision of the Tribunal dated 3-12-2009 in terms of provisions of section 124A of the Ordinance. In this background it was contended that the stance of the Revenue is self-contradictory as at one place they refused to follow the decision treating the same per incurium while at another place, the same is being followed in terms of provisions of section 124A of the Ordinance.

9. In our view, based on following observations recorded by the taxation officer vis- -vis the issue, in amendment order dated 31-12-2012 for tax year, 2007, this is quite a straightforward Issue:-- "Though it is the departmental stance that, transaction, in fact, was a payment made to a non-resident for sales promotion. Hence, tax was required to be deducted and the department has already filed reference before the Honorable Lahore High Court, Lahore, on this question of law, yet for time being no disallowance or addition is made in view of the provisions of section 124A of the Ordinance. In case of reversal of the decision given by ATIR, amount of Rs.8.050 million shall be added back/disallowed."

10. In the background that Revenue has itself followed the earlier, decision of this Tribunal dated 3-12-2009 in tax year, 2007, there is no justification for contradictory and inconsistent treatments, notwithstanding the fact that even otherwise we have observed nothing illegal or unlawful in our earlier order dated 3-12-2009 and as such the same constitutes a valid and a binding precedent for us. In our view, the position determined by this Tribunal vis-a-vis the peculiar facts is absolutely correct and rational. Be that as it may, since we do not subscribe to contradictory orders and the Revenue has itself invoked provisions of section 124A of the Ordinance in succeeding years, therefore, we have no hesitation in vacating the order of the first appellate authority on this point and modifying the order of the taxation officer dated 31-1-2011 in as much as that the issue would be treated to have been settled and decided in favour of the taxpayer by the taxation officer in terms of provisions of section 124A of the Ordinance. Ordered accordingly.

11. The next issue involved in titled appeals, as has been agitated by the Revenue, relates to apportionment of expenses between two income streams. In this respect, both the AR and learned OR reiterated the assertions made before authorities below and prayed for a favorable decision. In our considered view, the learned first appellate authority has rightly followed the earlier decision of this Tribunal dated 3-12-2009 in I.T.A. No. 361/LB/09 which is full of reasoning and logic. No exception could be taken therefrom. Accordingly, by following our earlier decision, referred supra and for the reasons recorded therein, we dismiss the departmental appeal on this point and uphold the order of the learned first appellate authority.

12. The last issue, which has also been raised by the Revenue, relates to allowability to the taxpayer as admissible deduction or otherwise of rebate/discount allowed to Messrs CCBPL. After giving due consideration to the submissions of both the representatives we have no hesitation in concluding that disallowance made by the taxation officer is not sustainable for two reasons. Firstly, even a cursory look at the amendment order dated 31-1-2011 transpires that the aggregate rebate amounting to Rs.81.485 million was disallowed by the taxation officer considering the same to have been made to Messrs McDonalds Pakistan whereas the amount claimed on account of rebate to Messrs McDonalds Pakistan aggregated to Rs.5.388 million. This follows that the admissibility of rebate/discount to M/s CCBPL was never confronted to the taxpayer. It is a trite law that no adverse inference could sustain if a proper opportunity of being heard is not allowed to the accused. On this basis alone there is no justification to disturb the order of the learned first appellate authority. The matter having not been confronted to the taxpayer is simply unlawful. Secondly and more importantly, the amendment order even otherwise does not spell out any basis for treating a rebate allowed to buyer of goods as consideration or services. There is no ambiguity that the rebate is a reduction against sale consideration and hence could not be equated with consideration for services simply for the reason that buyers of goods do not render any service to the seller. Regardless of the contents of show cause notice or the amendment order, there is no logical or sustainable basis to treat reduction against sale price as consideration for services. There is not any iota of doubt that provisions of section 153(1)(b) were not applicable to instant transaction and as such learned first appellate authority rightly deleted the disallowance. Accordingly, we uphold the order of the first appellate authority and dismiss the appeal on this point, being bereft and devoid of any merit.

13. Before parting with this order, we note with concern that the practice of declaring order of Appellate Authorities per incurium by Taxation authorities is creating serious judicial indiscipline. The Tax authorities have no lawful mandate to do so as such practice not only tantamount to flout with orders of higher appellate forums but also does not let the proceedings come to an end. If this is allowed to happen, it would mean that no proceeding would ever come to closure and tax authorities would stick to their version and repeat the same action by treating appellate orders per incurium on the basis of their own whims and motions. It is only the mandate of higher appellate forums to undertake judicial scrutiny of orders and to either approve or disapprove the same. The office is directed to send a copy of this order to the Honourable Chairman FBR, Member Inland Revenue, Member (Admn.) and Member (Legal) with the suggestion to direct the Field Formations dealing with the assessment work to follow the orders of appellate authorities in letter and spirit instead of commenting upon the same.

14. The subject appeals stand disposed of in the manner and to the extent stated above. HBT/75/Tax(Trib.) Order accordingly.