2012 PLP (Trib (PTD)

ABDUL RAUF, (ACCOUNTANT MEMBER).

These two appeals have been filed by an individual against the two separate orders passed by the CIT(Appeals) Gujranwala, Camp at Faisalabad for the tax years 2006 and 2007. Since identical issue is involved in both the years, they are disposed of through this consolidated order. Tax year 2006

2. Brief facts leading to the appeal for the tax year 2006 are that the taxpayer derives income as a Franchisee/commission agent of Messrs Pakistan Mobilink Communication Limited. Statement under section 115(4) for the tax year 2006 was filed declaring commission income at Rs.59,11,

750. Tax deducted under section 233 of the Income Tax Ordinance, 2001 @ 10% at Rs.591,175 was declared as final discharge of liability. Besides, normal return under section 114(4) was also filed disclosing share income from AOP at Rs.61,

250. Subsequently, the taxpayer revised his return declaring commission income (assessable under normal law) at Rs.506,232 and share from AOP at Rs.61,250 totaling to Rs.567,

482. Statement under section 115(4) was also revised to declare presumptive commission income at Rs.18,62,069 as against the originally declared income at Rs.59,11,

750. Tax deducted under section 233(1) to the extent of revised commission income @ 10% was disclosed as final discharge of liability, whereas the balance tax was claimed as adjustable against tax payable on normal law income. The reasons for revision of return as ascertained from the relevant record are that commission receipts to the extent of Rs.40,49,681 were declared to be non-presumptive income on which profit of Rs.506,232 was worked out and offered for tax under normal law.

3. The taxation officer (Additional Commissioner) on examination of record was of the view that there was no provision in the Income Tax Ordinance, 2001 which allows a taxpayer to file normal return in place of statement under section 115(4). Secondly tax deducted under section 233(1) of the Income Tax Ordinance, 2001 on the entire amount of commission constituted final discharge of tax liability. Therefore, the assessment deemed to have been made on the basis of revised statement under section 115(4) of the Income Tax Ordinance, 2001 and revised return was considered to be erroneous in so far as it was prejudicial to the interests of revenue. He, therefore proceeded to initiate action under section 122(5A) of the Income Tax Ordinance, 2001 and issued a show cause notice under section 122(9) confronting the taxpayer with the amendment of assessment on the basis of above-discussed facts. The reply submitted by the taxpayer to the notice under section 122(9) was not considered to be satisfactory and consequently assessment was amended under section 122(5A) of the Income Tax Ordinance, 2001 in the following manner:-- Total Commission Received Rs.59,11,750 Tax liability under section 169(1)(b) @ 10% Rs. 5,91,175 Tax deducted @ 10% under section 233(1) Rs. 5,91,175

4. The taxpayer, being aggrieved, challenged the order passed by the Additional Commissioner under section 122(5A) of the Income Tax Ordinance, 2001 before the CIT(Appeals) on the ground that the order passed under section 122(5A) was illegal because order under section 122(3) which was available at the time of amendment was not considered by the learned Additional Commissioner and it was the assessment finalized under section 120(1) of the Income Tax Ordinance, 2001 by the operation of law which was made the basis of amended assessment order. The taxpayer's AR also pleaded that the taxation officer (Additional Commissioner) erred in law by holding that the entire amount of commission aggregating to Rs.59,11,750 was taxable under the Presumptive Tax Regime, whereas actually commission earned by the appellant was of two types "upfront & residual" which could not be taken as one unit. According to the learned AR upfront commission being subject matter of subsection (2) of section 233 was assessable under normal law and it was precisely for this reason that both the return of income and statement under section 115(4) of the Income Tax Ordinance, 2001 were revised under section 122(3) of the Income Tax Ordinance, 2001 for their assessment in conformity with law. The submission made by the learned AR, however, did not find favour with the CIT(Appeals), who upheld the order passed by the taxation officer (Additional Commissioner) dated 9-3-2009 treating the entire commission receipt of Rs.59,11,750 as assessable under PTR. This has brought the appellant/taxpayer in appeal before us. Tax year 2007

5. Return for the tax year 2007 was filed making the disclosure of income and tax payable thereon as under:-- Other revenue/fee/charges for service Rs.1,11,36,520 Profit and loss expenses Rs. 97,44,396 Net profit Rs. 13,92,124 Income relating to receipts subject to final and fixed tax Rs. 6,32,238 Balance Income Rs. 7,59,886 6 Statement under section 115(4) of the Income Tax Ordinance, 2001 was also filed declaring commission income assessable under Presumptive Tax Regime at Rs.50,57,

690. It was observed by the taxation officer that the taxpayer being a franchisee of Mobilink received commission from the principal company at Rs.1,11,36,520 on which tax of Rs.11,13,652 was deducted under section 233 of the Income Tax Ordinance, 2001. The amount of tax was supported by a certificate issued by the principal company under Rule 42 of Income Tax Rules, 2002. On scrutiny of record the taxation officer (Additional Commissioner) noted that sections 169 and 233 of the Income Tax Ordinance, 2001 stipulated that the tax deducted on commission was final discharge of tax liability whereas the taxpayer had bifurcated the amount of commission into two segments

upfront and residual and offered only the latter type of commission of Rs.50,57,690 under the Presumptive Tax Regime whereas profit on the balance amount called "upfront commission" was computed and offered for taxation under normal law. The assessment finalized under section 120 of the Income Tax Ordinance, 2001 for the tax year 2007 in the manner discussed supra was, however, found to be erroneous in so far as it was prejudicial to the interests of revenue, by the learned taxation officer (Additional Commissioner) who initiated proceedings under section 122(5A) of the Income Tax Ordinance, 2001 and the entire commission income of Rs.1,11,36,520 was assessed under the Presumptive Tax Regime. Consequently, tax liability @ 10% of the aggregate amount of commission receipts was determined at Rs.11,13,

652. Being aggrieved the appellant filed appeal before the CIT(Appeals) who vide his order dated 15-5-2009 upheld the order passed by the taxation officer (Additional Commissioner) under section 122(5A) of the Income Tax Ordinance, 2001 and dismissed the appeal of the taxpayer. This has brought the appellant in further appeal before us.

7. Initiating arguments on the basis of grounds of appeal the learned AR pleaded that the appellant, being an agency holder/franchisee of Mobilink earned two types of commission categorized as "Upfront Commission" and Residual Commission. Elaborating the two types, the learned AR stated that "Upfront" Commission represented fixed percentage of sale proceeds of SIMS and Scratch Cards which the agency holder/franchisee retained as per terms and conditions of the Agreement between the principal and the appellant and remitted the balance amount to the Principal. Other type of commission known as "Residual Commission" was paid by the principal to the franchisee on the basis of the latter's performance and at the time of making payment of the said amount of commission, the principal also deducted tax @ 10% as prescribed in Part-IV of the 1st Schedule to the Income Tax Ordinance, 2001. The learned AR pleaded that the Residual Commission fell within the domain of subsection (i) of section 233 and was assessable under the Presumptive Tax Regime on the basis of provisions of subsection (3) of section 233 of the Income Tax Ordinance, 2001 whereas Upfront Commission, being subject matter of subsection (2) of section 233 was not assessable under PTR because section 233(3) provided for Presumptive Taxation in respect of only those commission receipts which fell within the ambit of subsection (1) of section 233 of the Income Tax Ordinance, 2001. To reinforce his arguments the learned AR also referred to the well known case-laws on the interpretation of fiscal statutes which are briefly discussed hereunder:-- 2007 PTD 512 Deeming clause has to be construed very strictly. 1965 - 55 ITR 741 Legal fiction is created for a definite purpose, it should be limited for that purpose and cannot be extended beyond their legitimate needs. 2009-99 Tax 35 Fiscal law is to be applied, with full rigorous and one has to look merely at about clearly said and there is no room for any intendment. 1999 SCMR 2799 Where two terms/words are used separately, in a Provision or Enactment - Effect use of two terms/words separately in a provision of an Enactment be given full effect for the simple reason that redundancy in that behalf cannot be presumed/countered. (i) 2004 PTD 1460, (ii) 1996 SCMR 1470 and (iii) 2009 SCMR 846 Where two equally acceptable interpretations of provision were possible, then the one favourable to taxpayer should be adopted.

8. The learned DR on the other hand, supported the orders of the authorities below and contended that the commission income was brought within the ambit of Presumptive Taxation through amendment made in section 233 of the Income Tax Ordinance, 2001 by Finance Act, 2004. He further contended that the provisions of subsection 233(2) of the Income Tax Ordinance, 2001 very clearly provide that the retention of commission or brokerage from an amount remitted by the agent, he shall be treated to have been paid by the principal and as such the orders passed by the Additional Commissioner under section 122(5A) of the Income Tax Ordinance, 2001 treating the entire commission as one unit were in accordance with law and had, therefore, been rightly upheld by the CIT(Appeals).

9. We have given due consideration to the arguments of both the sides and have also perused the orders of the authorities below and the case-law relied upon by the learned AR of the taxpayer. Before proceeding further in the matter we deem it appropriate to have a glance at provisions of section 233 of the Income Tax Ordinance, 2001 which, for the sake of reference and convenience are reproduced hereunder:-- "

233. Brokerage and Commission - (1) Where any payment on account of brokerage or commission is made by the Federal Government, a Provincial Government, a local authority, a company or an association of persons constituted by, or under any law (hereinafter called the "principal") to a person (hereinafter called the "agent"), the principal shall deduct advance tax at the rate specified in Part-IV of the First Schedule from such payment. (2) If the agent retains commission or brokerage from any amount remitted by him to the principal, he shall be deemed to have been paid the commission or brokerage by the principal shall collect advance tax from the agent. (3) Where any tax is collected from a person under subsection (1), the tax so collected shall be the final tax on the income of such persons."

10. Thrust of the arguments of the learned AR rests upon the language of section 233(3) of the Income Tax Ordinance, 2001 which provides that the tax collected from a person under subsection (1) of section 233 shall be the final tax on the income of the person from whom the tax is collected. A cursory glance at the withholding provisions of the Income Tax Ordinance makes it abundantly evident that the words "deducted" and "collected" have been used to cover two different situations in the context of the said provisions. In case of "deduction" it is the withholding agent who is the payer as well as deducting authority whereas in the other situation it is the recipient (Collector) of the amount who, acting as a withholding agent collects the amount of tax from the payer. In the first type we can subsume various government authorities who, while making payments in consideration of supplies, services or execution of contracts deduct tax at the rates specified in law while in the case of "Collection" we may include the Collector of Customs who at the time of clearance of imported goods also collects income tax from the importer.

11. From the perusal of the provisions section 233 of the Income Tax Ordinance, 2001 it is quite evident that subsection (1) deals with the deduction of tax whereas subsection (2) pertains to the collection of tax. Referring to subsection (3) the learned AR emphasized that the mention of subsection (1) in subsection (3) makes it abundantly clear that it is only the tax deducted by the Principal from the amount of commission or brokerage paid to the franchise/agency holder under subsection (1) which can be treated as final discharge of tax liability whereas the amount of commission falling under subsection (2) stands excluded from the domain of Presumptive Tax Regime. We, however, do not feel persuaded to agree with the submission of the learned AR because under sub-section (2) of section 233 of the Income Tax Ordinance, 2001, the amount of commission or brokerage retained by the commission agent is also deemed to be a payment made by the principal who has also been made responsible for collection of tax. In other words the nature and character of the amount mentioned in subsection (2) of section 233 of the Income Tax Ordinance, 2001, is also to be treated the same as that of the amount mentioned in subsection (1) i.e. it is also to be treated as paid by the principal. By fiction of law, the entire amount mentioned in subsection (2) thus becomes part and parcel of the amount mentioned in subsection (1) of section 233 of the Income Tax Ordinance, 2001 and consequently taxable in the same manner as the amount mentioned in section 233(1).

12. In arriving at the conclusion recorded in the earlier para, we are fortified by the judgment of the honourable Supreme Court of Pakistan reported as PLD 1985 (sic) 109 wherein it has been categorically ruled that it is the substance of the transaction and not the manner in which it is recorded in the accounts which is significant for the purpose of determination of its nature. There is no rebuttal to the fact that in the instant case relationship which governs the conduct of business is that of the principal and agent and the amount paid by the principal to the agent in consideration of the services rendered by the latter either on the basis of fixed percentage or performance is to be treated as commission.

13. From the perusal of the agreement between the taxpayer and Messrs Pakistan Mobilink Communication Limited, it transpires that the appellant runs his business strictly in conformity with the directions of the principal and as such the income emanating from the conduct of business is nothing but commission as it is dependent upon the relationship of Agent and Principal. It also stands established beyond any shadow of doubt that the entire income earned by the appellant whether falling within the domain of subsection (1) or subsection (2) of section 233 of the Income Tax Ordinance, 2001 is the commission income. Since subsection (2) of section 233 of the Income Tax Ordinance, 2001 also treats the amount retained by the agent as commission or brokerage paid by the principal, the amount mentioned in subsection (2) is thus imbued with all the characteristics of the amount mentioned in subsection (1) and has, therefore, to be treated as an integral part of the amount mentioned in subsection (1) of section 233 for the purpose of taxation.

14. We have also noted that the taxation officer did take cognizance of the revised assessment under section 122(3) of the Income Tax Ordinance, 2001 and on the first page of the amended assessment order he referred to the assessment under section 122(3) of the Income Tax Ordinance, 2001 and held it to be erroneous in so far as it was prejudicial to the interests of revenue. The contention of the learned AR that the taxation officer based his proceedings entirely on the order passed under section 120(1) of the Income Tax Ordinance, 2001 is thus not found to be correct.

15. Consequently we hold that the omission of section 233(2) in section 233(3) does not support the case of the learned AR of the taxpayer because the amount falling within the domain of subsection (2) is also to be treated as an integral part of the amount assessable under subsection (1) of section 233 of the Income Tax Ordinance, 2001. We, therefore, uphold the orders of the CIT(Appeals).

16. The appeal filed by the taxpayer fails. C.M.A./270/Tax(Trib.) Appeal rejected.