Presumptive tax regime

2023 SCMR 1595 SUPREME-COURT Judicial Precedent

S. 80-CContract Act (IX of 1872), S. 182Sale of Goods Act (III of 1930), Ss. 19 & 20Presumptive tax regimeFertilizer manufacturing company and marketing companyWhether principal-agent relationship

Income Tax Appellate Tribunal held that as marketing company was an agent of the fertilizer manufacturing company, hence, keeping in view the relationship of agent and principal, the manufacturing company could not claim any benefits under the presumptive tax regime provided under section 80-C of the Income Tax Ordinance, 1979 ('ITO 1979') and was liable to dealt with through normal assessment under section 62 of the I.T.O., 1979

High Court, however, held that the agreement between the two companies envisaged the outright sale of fertilizers manufactured by the manufacturing company to the marketing company, thus, the advance income tax deducted under section 50(4) of the I.T.O., 1979 upon the payments made by the latter to the former qualified to be treated as the income of the manufacturing company under section 80-C of the I.T.O., 1979 and the assessment should be finalized for the year in question under section 80-C of the I.T.O., 1979

Held, that survey and analysis of the terms and conditions of the 'Agreement' between the two companies showed that it was an agreement for outright sale by means of which the payments were being made in full after deduction of the advance income tax by the marketing company for settlement of invoices

Neither substratum of the agreement under lined any characteristics of agency nor contained any provision for agency commission

Even if issue of relationship between the companies was left to one side, section 80-C of the I.T.O., 1979 articulates that any amount received under which tax was deductible under Section 50(4) was deemed to be the total income tax liability of the assessee which was not disputed or resisted by the tax department in the present case, therefore, the amount received after deduction under section 50(4) was rightly deemed to be the total income tax liability and for all practical and legal purposes, the manufacturing company could not be deprived of the benefit of section 80-C of I.T.O., 1979

No irregularity or perversity was found in the impugned judgments passed by the High Court

Appeals were dismissed.

2023 SCMR 939 SUPREME-COURT Judicial Precedent

S. 7Input taxPresumptive tax regimeScope

Presumptive tax regime denotes that the tax so deducted or paid is treated as a final discharge of tax liability whereas the production capacity is reckoned by the Department according to the notified and applicable sales tax rates vis-à-vis the production as per comparative past and present physical production data including the machine ratings

Presumptive tax regime predominantly encompasses the usage of indirect means to determine tax liability, which diverges from the normal rules founded on the taxpayer's accounts to indicate a legal presumption that the tax liability is not less than the amount occasioning from the application of the indirect method.

2023 PTD 1550 SUPREME-COURT Judicial Precedent

S. 80-CContract Act (IX of 1872), S. 182Sale of Goods Act (III of 1930), Ss. 19 & 20Presumptive tax regimeFertilizer manufacturing company and marketing companyWhether principal-agent relationship

Income Tax Appellate Tribunal held that as marketing company was an agent of the fertilizer manufacturing company, hence, keeping in view the relationship of agent and principal, the manufacturing company could not claim any benefits under the presumptive tax regime provided under section 80-C of the Income Tax Ordinance, 1979 ('ITO 1979') and was liable to dealt with through normal assessment under section 62 of the I.T.O., 1979

High Court, however, held that the agreement between the two companies envisaged the outright sale of fertilizers manufactured by the manufacturing company to the marketing company, thus, the advance income tax deducted under section 50(4) of the I.T.O., 1979 upon the payments made by the latter to the former qualified to be treated as the income of the manufacturing company under section 80-C of the I.T.O., 1979 and the assessment should be finalized for the year in question under section 80-C of the I.T.O., 1979

Held, that survey and analysis of the terms and conditions of the 'Agreement' between the two companies showed that it was an agreement for outright sale by means of which the payments were being made in full after deduction of the advance income tax by the marketing company for settlement of invoices

Neither substratum of the agreement under lined any characteristics of agency nor contained any provision for agency commission

Even if issue of relationship between the companies was left to one side, section 80-C of the I.T.O., 1979 articulates that any amount received under which tax was deductible under Section 50(4) was deemed to be the total income tax liability of the assessee which was not disputed or resisted by the tax department in the present case, therefore, the amount received after deduction under section 50(4) was rightly deemed to be the total income tax liability and for all practical and legal purposes, the manufacturing company could not be deprived of the benefit of section 80-C of I.T.O., 1979

No irregularity or perversity was found in the impugned judgments passed by the High Court

Appeals were dismissed.

2023 CLD 559 SUPREME-COURT Judicial Precedent

S. 7Input taxPresumptive tax regimeScope

Presumptive tax regime denotes that the tax so deducted or paid is treated as a final discharge of tax liability whereas the production capacity is reckoned by the Department according to the notified and applicable sales tax rates vis-à-vis the production as per comparative past and present physical production data including the machine ratings

Presumptive tax regime predominantly encompasses the usage of indirect means to determine tax liability, which diverges from the normal rules founded on the taxpayer's accounts to indicate a legal presumption that the tax liability is not less than the amount occasioning from the application of the indirect method.

2023 PTD 1342 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss.133, 115(4), 169(1)(b) & 233(3) [as amended by Finance Act, 2004]CBR's Circular No. 7 of 2004 dated 1-7-2004Withholding taxAdvance taxTax withheld from commission paid to Travel and Insurance AgentsPresumptive tax regimeFinal taxScope

Loss was declared in annual return by the Tax payer/travel agent who was engaged in sale of air tickets on behalf of Travel Air Lines (Principal Company)

Authorities/applicant assailed order of Tribunal passed in favour of the taxpayer/respondent, contending that the commission earned by the Travel Agent from the principal company fell within the purview of Presumptive Tax Regime

Held, that the Travel and Insurance agents ('agents') were subjected to withholding taxes under subsection (3) of S.233 of Income Tax Ordinance, 2001 ('the Ordinance 2001')through an amendment introduced by Finance Act, 2004 and the tax withheld from commission paid to the agents was brought in the Presumptive Tax Regime under subsection (4)

Amendment made in subsection (b) of S. 169 of the Ordinance 2001 clearly provided that tax withheld from agents under S. 233(3) of the Ordinance, 2001 was to be treated as final tax

Section 115(4) of the Ordinance, 2001, was also amended to provide that the tax withheld from agents was the final tax and they were not required to furnish return of income for the tax year 2005 and onward

Said (amended) provision was also clarified vide CBR's Circular No. 7 of 2004, dated 1-7-2004

Tribunal, while misconstruing said provisions of law as well as circular, had concluded in the impugned order that the income of agents did not fall in the ambit of final tax for the year 2005

Tax deducted on payments on account of commission made by the principal to a Travel Agent @ 10% would be treated final discharge of tax liability for tax year 2005 and onward

Ordinance, 2001 used the term 'Advance Tax' for withholding tax because normally income tax was to be paid after the end of tax year accounting period but the withholding tax was deducted/collected during the tax year, hence, was in nature of tax paid in advance

Judgment passed by the Appellate Tribunal was set-aside

Reference application was allowed.

2021 SCMR 1362 SUPREME-COURT Judicial Precedent

S. 80C & Second Sched., Pt IV, Cl. 9 [as amended by the Finance Act, 1996]Presumptive tax regime

Finance Act, 1996 amended Cl. (9) of Part IV of the Second Schedule to the Income Tax Ordinance, 1979 ("Clause 9") by substituting the words "who opts out of" the presumptive tax regime, with the words "unless he opts for" the presumptive tax regime

Question as to whether or not the amendment made to "Clause 9" by the Finance Act, 1996 was procedural in nature and hence would have retrospective effect

Held, that as originally inserted, Cl. 9 gave the choice of opting out of S. 80C of the Income Tax Ordinance, 1979 ('the 1979 Ordinance') if the option, as given in terms of the first proviso, was properly exercised

Thus, S. 80C applied unless the "opt-out" was triggered

In other words, the legal meaning of income stood altered in respect of the payments within the ambit of S. 80C unless the assessee concerned took steps to the contrary

Amendment made to Cl. 9 made by the Finance Act, 1996 reversed this position, and now provided that it was only if the option given in terms of the proviso was exercised that S. 80C applied

In other words, the assessee had to "opt-in" into the Presumptive Tax Regime

If the option was not exercised, the legal meaning of income, even in respect of the payments within the ambit of S. 80C, was not altered

Prior to the amendment, the legal meaning of income stood altered to the extent of S. 80C unless the assessee did something; after the amendment, the legal meaning of income did not stand altered unless the assessee did something

Said two resultant situations were starkly different, and each had a substantive effect that was diametrically opposed to the other

In such circumstances the amendment made to Cl. 9 by the Finance Act, 1996 could not be regarded as procedural, having retrospective effect.

2021 PTD 1315 SUPREME-COURT Judicial Precedent

S. 80C & Second Sched., Pt IV, Cl. 9 [as amended by the Finance Act, 1996]Presumptive tax regime

Finance Act, 1996 amended Cl. (9) of Part IV of the Second Sched. to the Income Tax Ordinance, 1979 ("Clause 9") by substituting the words "who opts out of" the presumptive tax regime, with the words "unless he opts for" the presumptive tax regime

Question as to whether or not the amendment made to "Clause 9" by the Finance Act, 1996 was procedural in nature and hence would have retrospective effect

Held, that as originally inserted, Cl. 9 gave the choice of opting out of S. 80C of the Income Tax Ordinance, 1979 ('the 1979 Ordinance') if the option, as given in terms of the first proviso, was properly exercised

Thus, S. 80C applied unless the "opt-out" was triggered

In other words, the legal meaning of income stood altered in respect of the payments within the ambit of S. 80C unless the assessee concerned took steps to the contrary

Amendment made to Cl. 9 made by the Finance Act, 1996 reversed this position, and now provided that it was only if the option given in terms of the proviso was exercised that S. 80C applied

In other words, the assessee had to "opt-in" into the Presumptive Tax Regime

If the option was not exercised, the legal meaning of income, even in respect of the payments within the ambit of S. 80C, was not altered

Prior to the amendment, the legal meaning of income stood altered to the extent of S. 80C unless the assessee did something; after the amendment, the legal meaning of income did not stand altered unless the assessee did something

Said two resultant situations were starkly different, and each had a substantive effect that was diametrically opposed to the other

In such circumstances the amendment made to Cl. 9 by the Finance Act, 1996 could not be regarded as procedural, having retrospective effect.

2019 PTD 60 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss. 177, 169(3), 154,120, 115(4) & 114Presumptive tax regimeTax-payer filing statement in terms of S. 115(4) of the Income Tax Ordinance, 2001Question as to whether accounts of such person could be audited

Petitioner/tax-payer contended that he had filed a statement under S. 115(4) of the Ordinance which would constitute "full and final discharge of its tax liability", therefore, he was neither required to file a return of income under S. 114 of the Income Tax Ordinance, 2001 nor its accounts could be audited under the provisions of S. 177 of the Ordinance

Validity

Petitioner had not referred to any provision, including S. 177 of the Ordinance, which prohibited the conduct of audit in the case of an tax-payer who had filed a statement under S. 115 and not a return of income under S. 114 of the Ordinance, therefore, any challenge on such basis was without any lawful justification and the impugned notices could not be struck down being invalid and illegal

Tax-payer was an exporter and tax required to be deducted was a final tax under S. 154 of the Ordinance on the income from which it was deductible

Section 169(3) of the Ordinance was triggered, in the case of tax-payer, and upon filing of the statement, assessment would be treated to have been made under S. 120 and would be taken to be an assessment order for the purposes of the Ordinance

Taxpayer could not consider itself immune from the applicability of S. 177 of the Ordinance and beyond its mischief merely on the hypotheses that the tax deductible under S. 154 was the final tax on the income

Final tax on the income of a person merely absolved that person of the obligation to file a return of income and no more ; the same did not follow that income tax affairs of such person were no more prone to audit proceedings

For purpose of conducting audit, any person was liable to be proceeded against, irrespective of whether he filed a return under S. 114 or a statement in terms of S. 115 of the Ordinance

Constitutional petition was dismissed accordingly.

2017 SCMR 197 SUPREME-COURT Judicial Precedent

Ss. 80-C(4) & 89Presumptive Tax RegimeCharge of additional tax for failure to pay tax or penaltyScope

Section 89 of the Income Tax Ordinance, 1979 empowered the department to levy and recover additional tax only in case an assessee failed to pay the whole or any part of tax levied under Chapter VII or the whole or any part of the penalty levied under Chapter XI of the Income Tax Ordinance, 1979.

2017 PTD 1540 SUPREME-COURT Judicial Precedent

Ss. 80-C(4) & 89Presumptive Tax RegimeCharge of additional tax for failure to pay tax or penaltyScope

Section 89 of the Income Tax Ordinance, 1979 empowered the department to levy and recover additional tax only in case an assessee failed to pay the whole or any part of tax levied under Chapter VII or the whole or any part of the penalty levied under Chapter XI of the Income Tax Ordinance, 1979.

2012 PTD 1981 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.22 (5) (b), 23, 32, 34 & 169(2)(a)Depreciation and initial allowancePresumptive tax regime

Observation of Taxation Officer that "company was assessed to tax under presumptive tax regime during tax years 2003, 2004 and 2005 and it was required to deducf the amount of depreciation and initial allowance allowed during the said tax years from opening written down value for tax year 2006, resulting in reduced allowance of depreciation in subsequent tax years" was confirmed by the First Appellate Authority

Taxpayer contended that reducing depreciation and initial allowance from written down value, pertaining to period of presumptive tax regime, was not lawful and written down value at the beginning of a tax year was determined by reducing the cost by the amount of depreciation and initial allowance allowed during previous tax years in the normal tax resume; that in the present case, no depreciation was allowed during tax years 2003, 2004 and 2005 and there was no room for intendment, in the absence of any express provision of law to the contrary; and depreciation and initial allowance was allowed under the provisions of Income Tax Ordinance, 2001 on `actually allowed basis' and not under 'deemed allowed' basis

Validity

Under presumptive tax regime, a fixed amount of tax was paid in Government Exchequer

To furnish the account of income or expense was not necessary

Whatever was spent that stood allowed and it was not to be questioned by the Department

Tax paid under presumptive tax regime had to remain the same

Depreciation remained frozen while other expense did not freeze

Section 169 of the Income Tax Ordinance, 2001 dealing with presumptive tax regime cases provided that no deduction would be allowable which did not mean that depreciation shall remain frozen

No express provision in law existed for freezing of depreciation in the Income Tax Ordinance, 2001

Similarly written down value at the beginning of a tax year was determined by reducing the cost by the amount of depreciation and initial allowance allowed during the previous tax year of course, it was true but the depreciation and other expenses already stood allowed in presumptive tax regime

Presumptive tax regime was a contract inter se State and taxpayer which provid"rl him concession of lower tax rate, saving front audit scrutiny and production of accounts for purposes of amending the assessment

In such contract whatever was spent that stood allowed because there was no concept of enhancing the income

Income under presumptive tax regime was neither to be reduced nor to be enhanced

Expenses in this contract whatever might be stood allowed so these we, not allowed

Depreciation along with other expenses stood allowed and could not be considered as frozen

View of authorities below was based on just and fair treatment which was upheld by the Appellate Tribunal.