Prizes and winnings

Free samples distributed by taxpayer at random to children in various schools throughout Pakistan and also to general public in various shopping malls and other entertainment places were taxed under S.156 of the Income Tax Ordinance, 2001 as prizes, and tax @ 20% was levied under S.161 along with additional tax under S.205 of the Income Tax Ordinance, 2001

Taxpayer contended that provision of S.156 of the Income Tax Ordinance, 2001 was not applicable in the case, as the taxpayer had not offered any prize through any scheme, nor any prize had been offered to a wining person on the basis of any competition or through a lucky draw or any other scheme, nor free samples had been awarded as a prize to a particular distributor on achievement of specified target sales, nor as an incentive to any particular distributors under any scheme; that there was no such adverse finding in the order passed under S.161 of the Income Tax Ordinance, 2001; that from the inception of manufacturing activities, the taxpayer had always utilized the services of distributors for random distribution to individuals as free samples to various consumers and that as main consumer of confectionary and other items were children, the distribution of free samples to individual children in various schools throughout Pakistan and also to general public in various shopping malls and other places was purely a random distribution and did not fall within the ambit of "prize" as envisaged in S.156 of the Income Tax Ordinance, 2001

Validity

Word 'prize" had been unanimously defined in all the dictionaries and referred to as a reward, or symbol of success offered or won in some competition by contest or granted in recognition of excellence

Free distribution as samples throughout Pakistan was not on the basis of any competition amongst school children or any quiz or winning draw in schools or in shopping malls etc. but was entirely and purely a random distribution to each and every children in schools and shopping malls etc. and this fact had not been disputed

Taxpayer was manufacturer of various confectionary products, candy, potato chips, chocolates and such other items which were consumed by children

Free samples distributed by the taxpayer at random to the children in various schools and other places throughout Pakistan could not be termed as a "distribution of prize or prize offered" within the meaning of S.156 of the Income Tax Ordinance, 2001

Unit price of a single gift i.e. candy/potato chips etc was very meager and the large scale split of free samples amongst places and people to promote brand name, sales-target, market share or under any other business exigency, the provisions of S.156 of the Income Tax Ordinance, 2001 would not be applicable in such circumstances

Order passed by both the officers below were cancelled by the Appellate Tribunal and tax levied under Ss.161 & 205 of the Income Tax Ordinance, 2001 was deleted.