Payments for goods and services

2022 PTD 893 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss.113(3)(b), 133(1), 153(6) & first provisoPayments for goods and servicesMaximum taxScopeDispute was with regard to applicability of proviso added to S.153(6) of Income Tax Ordinance, 2001Appellate Tribunal Inland Revenue set aside orders passed by two forums belowValidity

Turnover, in terms of re-enacted S.113(3)(b) of Income Tax Ordinance, 2001, meant gross fees for rendering of services other than those covered by final discharge of tax liability, for which tax was separately paid or payable

Insertion of third proviso, in the wake of re-enacted S.113 of Income Tax Ordinance, 2001, was unnecessary

With insertion of sub-clause (iii) to second proviso, tax deducted on transactions covered under S.153(1)(b) of Income Tax Ordinance, 2001, was out of the ambit of Final Tax Regime (FTR) and was classified as income under Normal Tax Regime (NTR)

Exclusion from ambit of FTR otherwise brought income under NTR, which was liable to minimum tax, provided conditions in S.113 of Income Tax Ordinance, 2001 were met

No express or implied repeal of first proviso to S.153 of Income Tax Ordinance, 2001, which exclusively dealt with the companies and third proviso to sub-clause (iii) to second proviso covered person(s), except the companies

Reference was disposed of accordingly.

2016 PTD 1146 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss. 133 & 153ReferencePayments for goods and servicesOmission of word 'professional' from S.153(9)(b), Income Tax Ordinance, 2001Effect

Income tax authorities contended that exclusion from federal tax regime was only for 'professional' services and not for other services

Validity

If legislature intended to restrict the provision only for professional services, for taxation under federal tax regime, there was no need to omit the word 'professional' from S.153(9)(b) of Income Tax Ordinance, 2001

Sale of goods under clause (a) and services under clause (b) of S. 153(9) of Income Tax Ordinance, 2001, were specifically excluded in 153(9)(c) of Income Tax Ordinance, 2001

Authorities while interpreting S. 153(9)(c) of Income Tax Ordinance, 2001, in their own manner were ignoring grammatical rule that phrase 'other than a contract for' would also be read as the phrase 'the rendering of or providing of services', besides reading it with the phrase 'the sale of goods'

Expression 'rendering of or providing of services under a contract' would be excluded from clause (c) of S. 153(9) of Income Tax Ordinance, 2001

Reference was dismissed in circumstances.

2014 PTD 484 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.153 (6)(iii) provisosPayments for goods and servicesCorporate sectorTaxation ofNormal taxationMinimum tax

Proviso to S.153(6)(iii) pertained to the exclusion which was evident from the "placement" of the proviso which related exclusively to subsection (iii) of subsection (6) of S.153 of the Income Tax Ordinance, 2001 and not generally

Said proviso had been appended to Sub-clause (iii) which referred to exclusion of services rendered by non-corporate sector only as the corporate sector stood already excluded through first proviso

Position with respect to 'corporate sector' remained unchanged being covered by the first proviso and taxable otherwise on net income basis

Taxation of corporate service providers (generally )continued to be governed by normal taxation and on net income basis and as such minimum tax regime was not applicable.

2014 PTD 484 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.153(1)(b)Payments for goods and servicesCorporate sector

Clarification dated 26-4-2011 by Federal Board of Revenue could be read to refer to the amendment exclusively applicable to those service providers which, prior to amendments, were taxable under final tax regime

Corporate service providers were not covered by the final tax regime under existing law therefore the amendment/clarification did not apply to such service providers.

2014 PTD 484 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.153(6) ProvisosPayments for goods and services

Number of 'provisos' had been given with reference to subsection (6) of S.156 of the Income Tax Ordinance, 2001 and need to be interpreted under the principles of 'harmonized construction'

'Proviso' was generally something engrafted on the main enactment

Role and function of a 'proviso' was to create an exception out of a previous enactment in an earlier part of section, something which but for the 'proviso' would have fallen within the scope of enactment

Proviso must be considered only in relation to, and harmoniously with, the principal matter to which it stood as a 'proviso' and not a qualifying or modifying some other enactment

Proper cannon of constructing a section which had several 'provisos' was to read the section and the 'provisos' as a whole and try to reconcile them and give a meaning to the whole of the section along with the 'provisos' with its comprehensive and logical meanings.

2014 PTD 484 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.153Payments for goods and servicesMinimum tax

Entire S.153 of the Income Tax Ordinance, 2001 was redrafted under Finance Act, 2011 and as such the service sector, comprising both corporate and non corporate service providers, were brought into a minimum tax regime.

2014 PTD 484 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.153 (6), provisosFBR Circular No.3 of 2009 dated 17-7-2009Payments for goods and services

No modification/alteration had been made regarding the scheme of taxation applicable to corporate service providers and amendment only applied to non-corporate service providers.

2014 PTD 484 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 153(6)(iii) & 113Payments for goods and servicesCorporate sectorNon corporate sector

'Minimum tax regime' introduced through S.153 of the Income Tax Ordinance, 2001 could not be said to be applicable to 'corporate sector' because the minimum tax regime was already in placed in terms of S.113 of the Income Tax Ordinance, 2001 which was (then) restricted to corporate taxpayers only

Such minimum tax regime under S.153 of the Income Tax Ordinance, 2001 was applicable to non-corporate taxpayer/service providers who were otherwise not the subject matter of S.113 of the Income Tax Ordinance, 2001

If the position was to be otherwise, legislature could have incorporated some exclusion in S.113 of the Income Tax Ordinance, 2001 to provide that in such cases minimum taxation would be governed by S.153 of the Income Tax Ordinance, 2001.

2014 PTD 484 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 153(6)(iii), third proviso, 113, 221 & Second Sched: Part-IV, Cl.79FBR Circular No.6 of 2009 dated 18-8-2009FBR Circular No.3 of 2009 dated 17-7-2009FBR letter C.No.1(25)WHT/2009 dated 26-4-2001Corporate sectorPayments for goods and servicesMinimum tax liability

Taxpayer contented that Taxation Officer erred in applying the third proviso to Cl.(iii) of subsection (6) of S.153 of the Income Tax Ordinance, 2001 in case of corporate sector; and that actual tax was deducted considering the tax deductible under S.153(1) of the Income Tax Ordinance, 2001 to be minimum tax

Validity

Through insertion of Cl.79 in Part-IV of the Second Schedule to the Income Tax Ordinance, 2001, corporate service providers were taken out of minimum tax regime reinstating the position that was generally understood to be applicable prior to the same

Understanding expressed in Circular No.6 of 2009 was not contrary to the provisions of law

If the understanding expressed in Circular No.6 of 2009 was so patently contrary to law that could have been withdrawn soon after

Clarifications issued both prior to and subsequent to issuance of Circular No.6 of 2009 did not unequivocally clarified to the contrary

Amendment in both the clarifications was made to such service providers which were previously covered by the final tax regime

Corporate service providers being previously covered by the normal tax regime, the text of said clarifications could be construed to suggest that the amendment only altered the tax regime in cases where previously final tax regime was applicable

Position, even after the amendment introduced vide Finance Act, 2011, had not changed since the insertion of Cl.79 in Part-IV of the Second Schedule of the Income Tax Ordinance, 2001 had reinstated the position for corporate service providers in a manner that in such cases tax liability would be governed by the normal tax regime without any cap, or ceiling

Order of the two authorities below were found to be suffering from legal as well as factual infirmities

Appeal filed by the tax payer was accepted by the Appellate Tribunal.