2001 PLP (Trib (PTD)

The words as discharge of an obligation or debt' requires our consideration presently. The assessee has rendered construction contracting services and in the performance of such contracts the assessee has used certain materials provided by its clients. As per the terms of contract such materials were to be supplied at a fixed price and the client was to deduct/recover the value of such materials at the same fixed price from the billing rendered by the assessee to the client. A question arises as to whether the assessee-appellant has become the owner of such materials and whether he is receiving payments against such materials. It is nobody's case that the assessee appellant is making the payment to the clients for the supply of these materials. If the assessee-appellant was making the purchase of such material from the client, then the title should pass to the assessee-appellant. However, a perusal of the letter of award, dated 8-9-1996 written by Al-Karam Textile Mills Limited does not show that there was any intention to pass the title in such material to the assessee-appellant. The relevant clause 7 of such letter of award reads as follows:

"

7. You will be supplied following material at site and the amount as rated against each will be recovered from your bills. (i) Cement Rs.4,000 per ton (ii) Plain MS Bars Rs.24,000 per MT (iii) Toresteel Bars Rs.24,500 per MT" We did not find any mention in this letter of intent of passing the title in such materials or to hold the assessee-appellant to be responsible for any losses in such materials. Thus, we did not find any evidence of any obligation which could render this transactions to be a payment as given in the Black's Law Dictionary.

7. A question may arise as to whether such transactions could be deemed to accrue or arise to the assessee-appellant as payment as mentioned in subsection (1) of section 80-C of the Ordinance as already reproduced above. We are not inclined to agree to any such proposal in the absence of an express and clear provision in the law. If the legislature had any such intention, they would have clearly said so in the law itself as they have said in the case of subsection (4A) of section 50 of the Ordinance which reads as follows:

"Section 50(4A).

Any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person, on account of brokerage or commission on behalf of the Government, a local consortium shall deduct tax, at the time of making such payment, at the rate specified in the First Schedule. Provided that where any person receives payment on behalf of his principal and remits it after deducting his commission such commission shall be deemed to have been paid to him and the tax shall be collected by such principal."

8. It is also note worthy that the legislature has added an explanation to subsection (4) of section 50 of the Ordinance so as to extend the scope of supply of goods to include cash purchases. The C.B.R. has no authority to go beyond the law to extend the application of any law unless the law authorises it to do so.

9. Coming back to the facts of the present case and the question whether the element of profit as mentioned in paragraph 4 above has been subjected to tax or not, we would like to reproduce the cost analysis of steel which has been charged to Al-Karam Textile Mills Ltd. at Rs. 29,100 per ton against which the deduction from the bill has been made at Rs.24,500 per ton, the rate at which the client supplied to the assessee:

Hassan Engineers (Pvt.) Limited Steel Rate Analysis Assessment year 1997-98 Cost of Steel per tonne Rs.24,500.00 Expenses: (Unloading & site handling 50.00 Waste - 5% 1,225.00 (Overlaps, chairs, pins & rolling margin). Binding wire @ 16 Kg 448.00 per tonne @ Rs.20 per Kg. Labour 1,600.00 Cement spacer blocks 500.00 3,823.00 Social Security, EQBI; Supervision & Overheads (10% of Rs.3,823) 382.30 10% Profit on 382.30 Rs.3,823.00 4,587.60 4,587.60 Total: 29,087.60 Quoted Rs. 29,100 per tonne for Al-Karam Textile Mills-I, Landi Karachi"

10. A perusal of the assessee's Bill No. AKD/B-4(Final), dated 24-3-1997 shows that the client has been charged at Rs.29,100 per ton for torsteel bars and the deduction from the gross amount for the same material has been shown at Rs,24,500 per ton. Hence it can be safely presumed that the difference of Rs.4,600 per ton in respect of various loading as indicated d above is included in the invoices and consequential in the payment received by the assessee. In any case it is not the case of the department that the assessee has not shown the gross amount less deduction at cost in respect of materials in the receipts. Thus, it would appear that the element of profit added by the assessee in the shape of the loading as given in the steel rate analysis reproduced above is included in the receipts and has been subjected to tax under section 50(4) of the Ordinance.

11. In view of the above discussions we are not inclined to approve the treatment given by the departmental officials in respect of the materials supplied by the client of the assessee treating the same as -part of the receipts taxable under section 80-C of the Ordinance.

12. We would also like to deal with the objection of the assessee with regard to the issuance of the notice under section 61 of the Ordinance. The learned counsel of the assessee has referred to a decision of the Tribunal reported as 1998 PTD (Trib.) 1201 to support his contention that the notice could not be issued in the circumstances of this case. However, we find that the case relied upon by the learned counsel is distinguishable as in that case no other income had been declared whereas in the present case the assessee has declared income frown Defence Saving Certificates although the same has been claimed to be exempt.

13. The assessee's appeal succeeds to the extent that the addition made by the Assessing Officer in respect of the materials supplied by the client of the assessee is hereby deleted. C.M.A./M.A.K.82/Tax (Trib.) Order accordingly.