NASIM SIKANDAR, J.- This further appeal under Section 136 of the late Income Tax Ordinance, 1979 seeks to challenge an order of the Income Tax Appellate Tribunal, Lahore Bench, dated 23.11.1999.
Following questions of law stated to have arisen out of the said order of the Tribunal:-- "(i) Whether on the facts and circumstances of the case the trade discount allowed could be treated as payment made u/S. 50 attracting Section 52 of the Income Tax Ordinance, 1979?
(ii) Whether the passing of discount from Principal Airline to purchaser and in turn seller at the tail end, could be treated as Commission?
(iii) Whether the recipient of air-tickets price could be treated as payer responsible to deduct income tax u/S. 50(4A) of the Income Tax Ordinance, 1979?
(iv) Whether in the absence of any relationship of agency between the appellant and the purchasers of air-tickets for sale at their end the purchasers could be treated as sub-agents of the appellant?"
2. The appellant/assessee is a private limited company and during the period relevant to the assessm ent year 1997-98 derived income from selling airline tickets on commission basis, In the statement of accounts furnished by the assessee to the Assessing Officer Commission received from the airline was disclosed at Rs. 36,64,443/-. The Assessing Officer opined .That the assessee claimed 'sales promotion expenses' to the tune of Rs. 19,29,350/-. However, it was found that no tax as envisaged under the provisions of Section 50(4A) [Deduction of tax at source] was withheld by the assessee company. On being served with a show-cause notice under Section 52 [Liability of- person failing to deduct or pay tax] of the late Income Tax Ordinance, 1979 as to why it should not be treated as an "assessee in default", the appellant submitted as under:-- "(1) That the assessee-company had not made any cash payment to any sub-agent.
(2) That the assessee-company only sold air tickets to the sub-agents at reduced rates and that the transaction could at the best be regarded as cash discount allowed on sale.
(3) That the assessee-company was factually a recipient and not payer and hence not responsible to deduct tax u/S. 40(4A)."
3. The Assessing Officer, however, found these submissions to be unsatisfactory for the following reasons:--
(1) That since commission was disbursed on account of the assessee-company, the responsibility to withhold tax u/S. 50{4A) was hence vested in the assessee's-company.
(2) That the arrangement made between the assessee-company and the sub-agents regarding passing on sale proceeds of tickets to the assessee-company after deduction of amount of commission, was immaterial, as primarily the responsibility for payment/withholding of tax lied with the company.
(3) That the transaction could not be regarded as cash discount as major portion of the commission was itself claimed by the assessee to have passed on to the sub-agents.
(4) That the sub-agents were rendering service to the assessee and were hence genuinely entitled to commission for the work done by them."
4. Thereafter by proceeding under the said provisions of Section 52 of the late Income Tax Ordinance, 1979 read with Section 50(4A) he proceeded to raise tax demand and also imposed additional tax keeping in view default in terms of days. The assessment order so recorded on 26.12.1998 was challenged unsuccessfully before the Commissioner of Income Tax (Appeals-I), Faisalabad.
5. The learned First Appellate Authority on 29.4.1999 after reproducing the reply as also the basis on which it was rejected, proceeded to approve the treatment meted out to the assessee.
6. On further appeal a Division Bench of the Tribunal by way of the impugned order in similar manner agreed with the Assessing Officer and therefore, maintained both the assessment as well as the Appellate order. However, in the order so recorded the commission receipts shown by the appellant were directed to be bifurcated under the head "commission" and "discount" to reach the exact tax liability. Earlier, the learned Members of the Tribunal agreed in principle with the Revenue authorities, the Assessing Office' as well as CIT (Appeals), that the amount of commission passed on to the sub-agents attracted the provisions of Section 52 and Section 50(4A) of the late Ordinance. Hence the claim of the appellant that the order of the Tribunal gives rise to the aforesaid questions of law.
7. After hearing the learned counsel for the parties, we are of the view that the assessee/appellant has not been treated in accordance with law. Sub-section (4A) of Section 50 at the relevant time provided as under:-- "(4A) Any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person, on account of brokerage or commission on behalf of Government, a local authority, a company, [a registered firm] a foreign contractor or consortium shall deduct advance tax, at the time of making such payment, at the rate specified in the First Schedule and credit for the tax so deducted in any financial year shall, subject to the provisions of Section 53, be given in computing the tax payable by tho recipient for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom Section 72 or Section 81 applies, the assessment year, if any, in which the "'-aid date", as referred to therein, falls, whichever is the later."
8. The above provision when read with Section 52 of the late Income Tax Ordinance leads us to a definite conclusion that the liability of a person to be treated as an "assessee in default" is co- related to the default made under Section 50(4A) as reproduced above. That provision in turn is clear that a person falling in the categories contemplated in the said provisions making any payment in full or in part shall be required to deduct tax at the time of making such payment on the rate specified in the First Schedule. Obviously, in case of default the provisions of Section 52 will come into motion and he shall be deemed to be an "assessee in default" in respect of such tax. In the case in hand it is not disputed that the assessee as an agent of the airline ceded part of its commission to walk in passenger i.e. Tickets sold at the counter as also to other persons who acted as sub-agents directly or indirectly, It is also not disputed that the assessee-company did not make any cash payment to any sub-agent. The question of cash payment to a walk in passenger or over the counter hardly arises at all. The form in which part of the commission was ceded certainly means selling of air tickets at a rate lower than the one on which the assessee was allowed by its principal airline to sell the tickets. Therefore, the contention that at best the ceding of a part of commission was a discount both in case of walk in passengers as well as sub-agents bears weight.
9. Now let us look at the provisions of Section 50(4A) of the late Ordinance once again. The first condition that a person "responsible" for making any payment in full or in part is certainly missing in this case. The assessee as a commission agent was not responsible to make any payment either while selling tickets over the counter or through sub-agents, It is correct that the words "discount" and "commission" have two different connotations and even results, It is that word "commission" generally signifies disbursement of an amount relatable to the total amount involved in a transaction, It can be any percentage or any sub-division of the -amount involved in the transaction. On the other hand, the word "discount" signifies a certain amount of money normally identified by percentage, which is taken away from the face value of the security or property which is subject-matter of the transaction, It is certainly correct that the payment of a sum as "commission" as visualized in the provision by and on behalf of the entitles stated therein is squarely hit by the mischief of the provision. However, in the case of the assessee in hand as a travel agent the term "commission" with its significance is not attracted for the simple reason that his commission from the principal air-lines already stands determined. Whatsoever he is ceding or parting with is a chunk of his own commission earlier allowed to him on every ticket.
10. Also the use of the word "responsible" in the said provision indicates some kind of duty or obligation on the part of the person to make the payment on behalf of the entitles identified in the provision. The word "commission" in that sense signifies that a transaction was reached between two persons, a buyer or a seller of commodities and services etc. Which were done and completed through the medium of a third person who, besides doing many other acts brought the two parties together. Such person or commission agent plays a key role keeping in view the trust and confidence reposed in him both by the seller as well as the purchaser of the commodity or services. Not only that he acts on behalf of both parties but also his judgment as to the qualify, quantity and standard of the thing or services sought to be bargained is accepted by the parties.
The earning of that amount, of course subject to the deduction of admissible expenses is the income of the commission agent. Most significant character of this kind of income is its receipt or payment in cash or in any other form to be categorized as an "amount".
11. On the other hand, in case of a commission agent selling out either the product of his principal or providing services as in the case of a travel agent he does not pay any "amount" either as discount or as commission. Therefore, the basic ingredient to attract the provision i.e. "making any payment in full or in part" is absent in such cases, It further needs to be noted that in cases of subagents though they fall in the same character yet they also like the assessee as travel agent are neither "responsible" to make any payment an air passenger nor any payment is made to them by the travel agent. A sub-agent in this line of business only purchases a ticket from the agent at a rate lesser that the one shown on its fact, In that manner he only shares part of the commission earlier allowed to the agent but does not receive any cash payment from the agent nor he makes any payment to the end customer, i.e. The air passenger.
12. Since the two basic conditions required to attract the provisions of Section 50(4A) i.e. a kind of obligation to pay and secondly the actual payment made on account of brokerage or commission are absent in the case in hand the assessee/appellant was not liable nor he could possibly be treated as an assessee in default.
13. This appeal shall, therefore, be allowed and our answer to all four questions will be in the negative.