2008 PLP 604 (PTD)

(c) No maladministration was committed in issuing the said notice under section 61. (d) He further stated that the matter related to the assessment of income for which legal remedy of appeal was available. Therefore, the provision of Section 9(2)(b) bars the jurisdiction of the FTO. This .point of view was upheld by the honourable President of Pakistan in a number of cases, it was further stated.

4. On the merits of the case, the RCIT submitted that the receipts of security guards are in the nature of provision of labour under contract. Hence they would attract the provision of Section 80C of the R.O. The receipts of security agencies are generated on the basis of commission/ contract and as such are contractual receipts. In this connection he quoted C.B.R. Circular No. 11 of 1991 which defined contract and services rendered.

5. The representatives of the two parties are heard and the rival arguments have been considered. The Tribunal in other cases has already decided the issue, which forms the basis for initiating the impugned process, in the following ca'ses holding that receipts of security agencies are from rendering services

(i) 2001 PTD (Trio.) 2969 (A.Y. 1998-99) (ii) I.T.A. No-578/IB of 2000-01 dated 21-8-2002. (iii) I.T.A. No.529/IB of 2000-01 (A.Y 1999-2000) dated 4-9-2002.

6. The Division Bench comprising Chairman, Mr. Inam Ellahi Sheikh and Judicial Member, Khalid Waheed Ahmad while deciding I.T.A. No. 131/IB of 2002 on 17-4-2003 in the case of Inter Risk (Pvt.) Limited, Islamabad against the order of the IAC passed under section 66-A for assessment year 1995-96 held that income of the security agency was from rendering service; hence out of the purview of section 80C of R.O. The Tribunal noted "that for the assessment year 1998-99, the income of the assessees was charged to tax under section 80C of the Ordinance which was set aside by the learned CIT (A) and this setting aside was upheld by the ITAT (reported as 2001 PTD (Trib.) 2969) with the direction that the nature of receipts be properly examined and the issues involved decided as per facts and circumstances of the case and in accordance with provisions of law. The learned AR of the assessee further informed that on the above direction of the ITAT, the re-assessment for the assessment year 1998-99 has been completed under sections 62/132 of the Ordinance and income has been estimated on the basis of income declared by the assessee."

7. The Tribunal further observed, "The nature of receipts have been described by the learned IAC in the impugned order as from providing and maintaining security and surveillance management consultancy services from which it is obvious that the assessee is earning income from rendering services."

8. The Tribunal ultimately held

"We are not inclined to uphold the action taken under section 66A of the Ordinance by the learned IAC in the year under consideration. The income of the assessee for the assessment year 1998-99 was originally charged to tax under section 80C of the Ordinance however having been setting aside by the learned CIT (A) and maintained by the ITAT, the contention of the assessee having been accepted while reframing the assessment under sections 62/132 of the Ordinance there remains no justification to treat the similar payments as chargeable to tax under section 80C of the Ordinance for the assessment year under consideration. The appeal of the assessee, therefore, accepted."

9. Incidentally, a Division Bench comprising Judicial Member, Syed Masoodul Hasan Shah and Accountant Member, Syed Aqeel Zafarul Hasan delivered two contradictory decisions on this issue in I.T.A. No. 529/IB of 2000-01 (A.Y. 1999-2000) on 4-9-2002 in the case of Marine Security Services (Pvt.) Limited holding its income from rendering services and in I.T.A. No.815/IB of 2000-01. (A.Y. 1999-2000) on 11-3-2003 in the case of Comprehensive Security Services, Rawalpindi holding that its income was not from rendering services but from execution of contracts chargeable under section 80C.The Bench followed the decision reported as (2001 PTD (Trib.) 2969) and unreported decision in I.T.A. No. 578/IB of 2000-01 dated 21-8-2002 in the former decision dated 4-9-2002 and in the later ex parte decision dated 11-3-2003 the Bench held: "On the issue of taxing receipts under section 80C, the case (I.T.A. No.691 (KB)/1999-00) relied upon by the Commissioner is not available to us for examination. However, we find that another case bearing I.T.As. Nos. 5314, 5315(LB) of 1999 decided on 31-8-2000, the Tribunal has held that specialized security services provided under a contract which specified risk cover and the extent of such coverage by the security provided by the assessee company, rendered receipts from security service as taxable under section 80C of the Ordinance. In the present case, we find that the assessing officer has not examined this aspect in detail nor has a bifurcation been made admitted to specify receipts attributable to contracts and otherwise. However, since an observation is duly recorded stating that the assessee received income under contractual arrangements, it is clearly taxable under section 80C of the Ordinance in terms of the aforementioned decision of the Lahore Bench of the Tribunal. We accordingly, direct that the assessing officer shall compute the receipts attributable to such contracts where the risk cover and extent of coverage may be recorded and tax the same under section 80C of the Ordinance."

10. The ex parte decision in I.T.A. No.815/IB of 2000-01. (A.Y. 1999-2000) dated 11-3-2003 is obviously per incurium because the Division Bench comprising Judicial Member, Syed Masoodul Hasan Shah and Accountant Member, Syed Aqeel Zafarul Hasan not only forgot their own decision delivered in I.T.A. No. 529/IB' of 2000-01 (A.Y. 1999-2000) on 4-9-2002 in the case of Marine Security Services (Pvt.) Limited and chose to ignore the decision in I.T.A. No.691(KB) of 1999-00) relied upon by the Commissioner but proceeded to rely on a decision in another case bearing I.T.As. Nos. 5314, 5315(LB) of 1999 decided on 31-8-2000. The Division Bench neither distinguished the reason of decision recorded in their own earlier decision with the reasons recorded in the contrary decision ibid which they chose to follow nor did the Bench refer the appeal to the Chairman for constituting the Full Bench to consider the contradictory decisions of Division Benches.

11. Subsequent to the contradictory per in curium decision ibid another Division Bench comprising Chairman, Mr. Inam Ellahi Sheikh and Judicial Member, Khalid Waheed Ahmad while deciding I.T.A. No.131/IB of 2002 on 17-4-2003 in the case of Inter Risk (Pvt.) Limited, Islamabad against the order of the IAC passed under section 66-A for assessment year 1995-96 held that income of the security agency was from rendering service.

12. The question of law on the matter involved in the complaints, that the Punjab High Court, Rawalpindi Bench is ceased with, has been referred, vide R.A. No.67/IB of 2003, by the Income Tax Appellate Tribunal, Islamabad Bench on 4th June, 2003 on the application of the assessee. It is pertinent to record that the Department has not moved a single Reference Application or Appeal against any of the decisions of the Tribunal ibid against the Department. The case remanded by the Tribunal vide decision reported as 2001 PTD (Trib.) 2969 (A.Y. 1998-99) has also been decided by the DCIT holding that the receipts of the Security Agency are from services rendered. Thus the decisions of the Tribunal holding that the receipts of the Security Agency are from services rendered, which the Department has accepted, are binding and not those in which the contrary view has been upheld by the Tribunal per incurium and have been challenged in the High Court.

13. The foregoing findings of investigation prove that the process initiated in complainant's case is contrary to settled law; hence falling under the definition of misadministration specifically included in section 2(3)(i)(a) of the Ordinance XXXV of 2000 which is under the jurisdiction of this forum. The matter does not relate to any of the matters envisaged under Section 9(2) of the Ordinance XXXV of 2000.

14. It is recommended

(a) That the respondent drops the proceedings initiated in contravention of settled law. (b) That compliance is reported within 30 days. C.M.A./316/FTO Order accordingly.