2011 PLP (Trib (PTD)

JAWAID MASOOD TAHIR BHATTI, JUDICIAL MEMBER.

The appellate through this appeal has objected against the impugned order of the learned CIR(A) dated 22-7-2010 on the following grounds:-- "(2) That Taxation Officer was not justified to tax service charges under section 233 of the Income Tax Ordinance, 2001 and Commissioner Inland Revenue (Appeals-I) is not justified to confirm the same."

2. The appellant in this case is a private limited company in the business of air transport services. The case of the appellant was selected for the audit subsequently after scrutinizing and examining record of the case and the spot visits conducted by the department officials in terms of section 175 of the Ordinance and examination of books of accounts and the documents the appellant was confronted by the Taxation Officer as follow:-- "In your sales an amount of Rs.4572972 appears as commission income. The same falls/under provision of section 233 of the Income Tax Ordinance, 2001. You are requested to explain the nature of this commission supported by documentary evidence. Further you are also requested to produce tax deduction certificates failing which this amount shall be treated as your income and it would be charged at the rate as specified in Part-IV of the 1st Schedule of Income Tax Ordinance. (2) Break-up of the sales/services also reveals an amount of Rs.64303650 under the head "Charge Income". As per discussion conducted with your AR sand Finance Manager from time to time for the understanding of the business, the undersigned is of the view that you are in agreement with different parties which hire Aircraft from your Company from time to time. Viewed in this perspective this amount shown as "Charter income" is basically your contractual receipts and the undersigned intends to treat it as such in the light of section 153 of subsection. (1) Clause (C)."

3. The Taxpayer submitted his reply but the contention of the appellant were not accepted by the Taxation Officer and subsequently order was passed under section 122(5A) of the Ordinance which was agitated before the Learned CIR(A) who has upheld the same. The learned counsel representing the appellant has contended that the appellant is engaged in the business of providing of air transport services and the amount of Rs.4572972 represent payment received as service charges from Army Welfare Trust on account of services rendered for Charter of flights secured by Army Welfare Trust and does not attract the provision of section 233 of the Income Tax Ordinance, 2001. He has in this respect placed before this Bench the agreement executed between the appellant and the Askari Chartered Services/Army Welfare Trust wherein at para. 2 under the head "consideration", it has been provided that " In consideration of the services i.e. co-ordination with troops and aircrafts companies cargo handling, passenger handling and dealing with suppliers etc., provided by the 2nd party to the 1st party, the 1st party shall pay service charges @ 5% of profit subject to a maximum limit of Rs.500.000 for each contract in addition to the actual expenses incurred by the 2nd party in consideration to duties performed by the 2 party." The learned counsel of appellant has contended that in view of the above referred agreement the officers below were not justified to tax service charges under section 233 of the Ordinance, 2011. It is argued that the appellant is engaged in the business of provision of air transport services and the amount in this respect represent payment received as service charges from Army Welfare Trust on account of service rendered for Charter of flights secured by Army Welfare Trust and it does not attract the provision of section 233 of the Ordinance, 2001.

4. On the other hand the learned D.R is supporting the impugned orders of the officers below. He has contended that the officers below have rightly held that the payments made by the Army Welfare Trust to the appellant fall within the definition of commission income. As such they are covered by section 233 of the Income Tax Ordinance, 2001 and the Taxation Officer has rightly taxed the amount as a separate block of income (a) 10% and has also allowed proportionate expenses. According to learned DR the Learned CIR.(A) has rightly upheld the treatment meted out by the Taxation Officer.

5. I have heard the learned representatives from both the sides and have also perused the impugned order of the learned CIR(A), the order passed by the Taxation Officer under section 122(5) and other relevant available record of the case. After considering the submissions made from both the sides and perusal of the record and the above referred agreement placed before this. Bench by the learned counsel representing the appellant executed between Askari Chartered Services/Army Welfare Trust and the appellant Askari Aviation (Pvt.) Ltd., dated 3-11-2004. I have noted that the Taxation Officer in the above reproduced notice has mentioned that the Sales amounting to Rs.4572972 'appears' as commission income, which clearly shows that the Taxation Officer himself was not sure that referred amount as a commission income. On the other hand in the agreement referred above between the appellant and the Army Welfare Trust, it has specifically been mentioned that the second party which is appellant in consideration of the services i.e. co-ordination with troops and aircrafts companies, cargo handling passenger handling and dealing with suppliers etc. will be paid by the first party the Askari Chartered Services, Army Welfare Trust, service charges @ 5% of profit subject to a maximum limit of Rs.500,000 for each contract, in addition to actual expenses. I am of the view that the section 233 of the Ordinance is regarding brokerage and commission but as per the above referred agreement the appellant has not received the brokerage or commission but the received amount as per the agreement executed between the parties has been described as service charges and the mode of payment of which has also been mentioned in the agreement. In view of these legal as well as factual position I find no justification for taxing the referred amount as the separate block of income. The impugned order of the learned CIR(A) is therefore vacated and the order passed by the Taxation Officer is annulled. The appeal filed by the Taxpayer is allowed. H.B.T./69/Tax(Trib.) Appeal allowed.