These three appeals have been filed by the revenue against the consolidated order of CIT(A), dated 5.5.2010 on the following common grounds:--
(a) That the learned CIR(A) was not justified to calculate tax liability in accordance with formula given by the taxpayer.
(b) That the learned CIR(A) was not justified in directing to calculate tax liability after deducting tax deduction against export and others.
2. Facts of the case leading to the instant appeals are that the respondent company filed returns of income for the tax years 2005 to 2007 which were treated to be assessment orders in terms of Section 120 of the Income Tax Ordinance, 2001. Subsequently the taxation officer noted that the company while calculating its tax liability under Section 113 of the Income Tax Ordinance, 2001 (minimum tax on turnover) clubbed export sales with the local sales and worked out minimum tax under the said Section on combined turnover. The taxation officer, on the contrary, was of the view that the export proceeds, being separate block of income, were assessable under the presumptive tax regime and tax withheld from the export proceeds constituted final discharge of liability under Section 169 of the Income Tax Ordinance, 2001. The export sales, being separately assessable, could, therefore, .Not be clubbed with the local sales for the purpose "of calculating minimum tax under Section 113 of the Income Tax Ordinance, 2001 nor could the credit of tax withheld from the export proceeds under Section 154 be given against the minimum tax payable under Section 113 of the Income Tax Ordinance, 2001. He accordingly issued notice under Section 221 of the Income Tax Ordinance, 2001 confronting the taxpayer with his intention of charging tax on export sales and local sales separately in accordance with the provisions of Sections 154/169 and 113 of the Income Tax Ordinance, 2001 respectively. Reply submitted by the taxpayer company contending that it had worked out its minimum tax liability under Section 113 of the Income Tax Ordinance, 2001 on the aggregate of presumptive and non- presumptive sales correctly and there was no mistake apparent from record to warrant action under Section 221 of the Income Tax Ordinance, 2001 did not, however, impress the taxation officer who proceeded to determine the minimum tax under Section 113 on local sales only whereas export sales were held to be taxable separately under the PTR. Tax deducted from the export proceeds was considered to be final' tax in respect of export sales only whereas minimum tax payable under Section 113 of the Income Tax Ordinance, 2001 was determined in respect of local sales over and above the tax on exports.
3. Being aggrieved, the respondent company filed appeal before the CIT(A) who, relying upon Board's Circular No. 10 of 1991, dated 30.6.1991 held that the minimum tax under Section 113 was payable on the aggregate turnover which, of course included both presumptive and non- presumptive sales. Since the tax under Section 113 was to be charged on combined turnover, tax withheld from the PTR income was to be adjusted against minimum tax payable under Section 113 of the Income Tax Ordinance, 2001.
4. Now the revenue feeling dissatisfied with the direction of the first appellate authority has come up in appeal before us on the grounds quoted supra. The learned DR supported the order of the taxation officer and contended that the methodology of determination of taxability on export and local sales separately was correct and as such there was no justification on the part of the first appellate authority to hold that for the purpose of working out minimum tax under Section 113 of the Income Tax Ordinance, 2001 both types of turnovers were to be clubbed and the credit of tax deducted in respect of presumptive income was to be allowed against the minimum tax payable under Section 113 of the Income Tax Ordinance, 2001. The learned D.R. Further contended that through Finance Act, 2009, law was amended and Presumptive Sales were excluded from the definition of turnover for the purpose of calculating minimum tax under Section 113 of the Income Tax Ordinance, 2001, Through this amendment of the definition of turn-over the legislature clarified that presumptive and non-presumptive sales were to be treated as distinct and separate blocks of income and as such there was no legal justification in clubbing the two for the purpose of calculating minimum tax under Section 113. He argued that the taxation officer had charged minimum tax strictly in accordance with the substituted definition. He vehemently contended that there was no justification on the part of the first appellate authority to allow relief to the taxpayer by holding that the minimum tax under Section 113 of the Income Tax Ordinance, 2001 could be worked out only on the combined turnover including presumptive and non-presumptive sales. The learned AR, on the other hand, supported the order of the first appellate authority and contended that the treatment meted out by the first appellate authority was unexceptionable.
5. We have given due consideration to the rival arguments from both the sides and also perused the orders of the authorities below. Before proceeding further, it will be beneficial to reproduce the definition of turnover as contained in the explanation to Section 80-D of the repealed Ordinance of 1979 and sub-section (3) of the Section 113 of the Income Tax Ordinance, 2001:- Explanation to Section 80-D "For the removal of doubt it is declared that "turnover" means the gross receipts, exclusive of trade discount shown on invoices or bills, derived from the sale of goods or from rendering, giving or supplying services or benefits or from execution of Contracts"
Section 113(31 of the Income Tax Ordinance, 2001 "(3) In this Section, "turnover" means:-
(a) the gross receipts, exclusive of 4[sales tax and 5[Federal] excise duty or] any trade discounts shown on invoices or bills, derived from the sale of goods;
(b) the gross fees for the rendering of services 6[or giving benefits], including commissions;
(c) the gross receipts from the execution of contracts; and
(d) the company's share of the amounts stated above of any association of persons of which the company is a member."
From the comparison of the above-quoted provisions contained in both the statutes it transpires that the definition of turnover for the purpose of working out minimum tax under Section 80-D of the repealed Ordinance, 1979 and 113 of the Income Tax Ordinance, 2001 is more or less the same.
The Income Tax Ordinance, 2001 has rather enlarged the scope of turnover through Section 113(3)
(d) quoted supra. Controversy between the department and the taxpayers regarding the calculation of tax under Section 80- D of the repealed Ordinance, 1979-whether minimum tax was chargeable on the aggregate turnover including the presumptive sales or was it to be worked out exclusively on local sales-was set at rest by the Lahore High Court, Lahore through its judgment reported as 20n TTD 1707. For the sake of reference the relevant part of the judgment of the High Court is reproduced as under:- "(25) An accumulative reading of the Section 80D gives an impression that the said charge has been created in respect of person including company, a registered firm an individual etc. On his turnover from all sources. The provision does not end there. The charge is on the aggregate of declared turnover. The legislature has intendedly and advisedly used the word 'aggregate' as it can only be of more than one sources. The legislature would have never used this connotation if intention was to charge it separately in respect of each source of the individual or company etc. The word 'aggregate' has been defined as follows:- "Concise Oxford English Dictionary"
(1) "a whole formed by the combining several disparate elements; (2) a total score of a player or team in a picture comprising more than one game or round; "Law Terms and Phrases"
'Meaning of Aggregate' means a collection of things in order to form a whole, Mushtaq Textile Mills Limited v. Karachi Metropolitan Corporation (1994 CLC 1516).
(26) the use of language 'amount representing its turnover from all sources' and then followed by the words the aggregate of the declared turnover shall be deemed to be income' leaves no doubt that the sources like import, export, local supply and local sale etc. All are to be aggregate and 1/2 per cent minimum tax is to be calculated on its total turnover declared by him from all his sources.
Thus if after said calculation the tax deducted or paid in any of the source falls higher than 1/2 per cent of the aggregate turnover from all sources no more tax is required to be paid.
(27) Obviously there was no restriction on the legislature to use the language in the manner to provide this 1/2 per cent charge on each source separately.
(28) the above discussion leaves no doubt that Section 80D cannot be applied on each and every source of income of a taxpayer separately and it has to be on the aggregate of the turnover of the taxpayer from all sources. The direction of the Income Tax Appellate Tribunal to charge it on the aggregate of Section 80C or 80CC after inclusion of the turnover from other sources like local sale etc., which is not subject to withholding tax, needs no exception.
Since the definition of turnover in both the, statutes i.e. The repealed Ordinance of 1979 and Ordinance, 2001 is more or less the same, we, on the basis of judgment of the Lahore High Court, Lahore uphold the findings of the first appellate authority and hold that for the purpose of calculation of minimum tax under Section 113 . Of the Income Tax Ordinance, 2001 turnover from all sources means aggregate turnover from all sources and includes both presumptive and non- presumptive sales.
6. Now we would like to advent to the contention of the learned DR to the effect that the definition of turnover was amended by the Finance Act, 2009 and the amended definition of turnover was substituted which was applicable to the years under appeal. For the sake of reference the substituted definition of turnover is reproduced hereunder:- 73) "turnover" means
(a) the gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods, and also excluding any amount taken as deemed income and is assessed as final discharge of the tax liability for which tax is already paid or payable;
(b) the gross fees for the rendering of services for giving benefits including commissions; except covered by final discharge of tax liability for which tax is separately paid or payable;
(c) the gross receipts from the execution of contracts; except covered by final discharge of tax liability for which tax is separately paid or payable; and
(d) the company's share of the amounts stated above of any association of persons of which the company is a member."
The learned DR was of the view that the substituted subsection (3) of Section 113 of the Income Tax Ordinance, 2001 clarified the procedure regarding the charge of minimum tax under Section 113 of the Income Tax Ordinance, 2001 and was therefore, retrospective in its effect and applicability. He contended that -the tax on . Presumptive and non-presumptive tax had been charged separately by the taxation officer strictly in accordance with the substituted sub-section (3) of Section 113 of the Income Tax Ordinance, 2001 and there was no justification on the part of the CIT (Appeals) to hold that the minimum tax was to be charged on the combined turnover including both presumptive and non-presumptive sales. We, express our inability to acceded to the argument of the learned DR because it is a-well-known principle of interpretation of fiscal statutes recognized all over the world that an enactment creating liability/obligation against the taxpayer ' is a substantive law which will always be prospective in its application. The very fact that the definition of turnover for the purpose of charging tax under Section 113 was modified through Finance Act, 2009 is a conclusive evidence of the fact that the law applicable to the prior years was different from its amended shape. Since the provisions of Section 80- D of the Repealed Ordinance 1979 and Section 113 of the Income Tax Ordinance, 2001, prior to the amendment made through Finance Act, 2009, were similar vis-a-vis the definition of Turnover, the ratio of judgment of the Lahore High Court, Lahore quoted supra is also fully applicable to all the years under appeal.
7. Appeal filed by the revenue for all the years fails.