This order shall dispose of Income Tax Appeals bearing Nos. 89/99, 526/99 titled CIT, Gujranwala Vs. M/s. Fragrance Traders, 466/2000 CIT/Gujranwala Vs. G.M. Traders, 359/99 CIT, Gujranwala Vs. M/s. Walter Impex and 15, 16 and 17 of 1999 CIT, Sialkot Vs. M/y. Citizen Sports involving almost common/identical question of law.
2. Respondent/assessee in ITA No. 374/1999, is engaged, inter alia, in the business of export of various items, and during the course of the assessment, the declared net income derived from the export on (GIF) basis was rejected and the Assessing Officer purported to covert the CIF sales into FOB sales by deducting of insurance and freight charges and applying the GP (gross profit) rate thereupon. Aggrieved thereby, the assessee-respondent filed an appeal before the CIT (Appeals which was accepted and the impugned order was set aside with a direction to apply the appropriate GP rate on the sales/export declared on CIF basis. The department challenged the order of the CIT before the ITAT by way of appeal, which was dismissed by means of order under these further appeals.
3. It is contended on behalf of the appellant that the following questions of law arise from the order of the ITAT namely:- "Whether on facts and circumstances of the case, the learned ITAT was justified in directing that while computing the income of the assessee "CIF" sales be adopted"?
"Whether the learned ITAT was justified in giving the above directions to adopt "CIF" sales in spite of provisions of sub-section (3) of Section 32 of the Ordinance and Rule _216(3)(a) when the trading results are discarded by the Assessing Officer?"
4. The contentions raised by the learned counsel for the appellant in brief are that Section 32 of the 1TO, 1979 and rule 216 of the IT Rules, 1982 enjoined the assessing authority to compute the tax liability on FOB basis and not on CIF basis. And by. Deduction of the cost of insurance and freight, CIF price stands converted into FOB as has been rightly done by the assessing authority.
5. Term CIF and FOB are the abbreviation of two categories of contracts of international trade, which have been in vogue for a considerable period of time and their meaning and scope are now well-settled. CIF (Cost, Insurance and Freight) refers to a contract, whereby the seller assumes the responsibility to make available the goods at the port of loading of the ship on which ?He goods are to be dispatched, make payment of all handling transport and insurance charges upto the time the goods are loaded on the ship, and thereafter meet the charges including insurance and freight incurred in connection with the goods till the same are unloaded at their destination. The property in the goods may pass on shipment or tender. The possession usually does not pass to the seller until documents of shipment are handed over in exchange for the price.
6. On the other hand, FOB (free on board) relates to a category of contracts whereby the seller assumes the responsibility for all charges incurred till the goods are loaded on to the slip at the port of loading, where after the buyer alone is responsible for all subsequent charges such as storage on board, freight, insurance and unloading charges.
7. The two terms CIF and FOB pertain to two types of contract relating to sale and purchase of exported goods determining the nature and extent of the responsibilities and liabilities of the buyer and seller and the events whereupon the property in the goods is transferred from the buyer to the seller. The nature of the contract has no nexus or connection to the method of accounting for determining the income, profits or gains derived therefrom.
8. That Section 32 of the 1TO, 1979 pertains to the method of accounting to be employed for determining the income, profits and gains in various eventualities. The method of accounting is a manner in which the incomes and expenses are recorded in the books of account of any business venture. Two principle methods of accounting are employed commonly referred to as the cash system or the mercantile system, In the former, only the actual receipts and disbursement are recorded in the books of account while in the latter in addition to the actual receipts, liabilities incurred are also recorded. The method of accounting primarily refers to the mode for maintaining the books of account and incorporating the entries of the business activity therein, It is only the tool or a system for keeping accounts and financial record, In the above perspective, Section 32 of the 1TO including sub-section (3) thereof, refers and deals with the method of accounting to be employed and does not deal with the nature of the contract, under which the business has been carried out. While on the other hand, FOB and CIF contracts have no connection to the method of accounting to be employed, therefore, Section 32 of the 1TO has no nexus with the determining of the liability of the assessee/respondent whose liability for payment of income tax would be determined by Sections 60 to 65 of the Ordinance and other related provisions.
9. In the above circumstances, the questions of law purported to be raised do not arise in the facts and circumstances of the case requiring the expression of an opinion by this Court. We are fortified in this view by the judgment of this Court reported as 1999 PTD 1329 (The Commissioner of Income Tax Zone, Gujranwala Vs. Messrs Anwar Enterprises, Sialkot) wherein similar questions of law were attempted to be raised in the context of CIF sales and were examined in juxtaposition of Section 32 of the Ordinance, In the aforesaid case, the Court came to the conclusion that no questions of law in the similar facts and circumstances arose from the assessment or the order of the ITAT.
10. Adverting To the connected appeals, referred to hereinabove, suffice it to add that in all these cases the appellate department in tact attempted to raise almost identical or legally similar questions of law with reference to CIF sales as also Section 32 of the Ordinance, and after careful consideration of the facts and circumstances emerging therefrom, we hardly find any question of law capable of being answered by this Court and consequently, for the reasons enumerated ibid, ITA Nos. 89/99, 526/99, 359/99,y 466/2000, 15, 16 and 17 of 1999 are also dismissed alongwith the present Appeal No. 374/99 and the CMs in these appeals.