' The Department has filed these appeals against the combined order dated 9-5-2009 passed by CIT(Appeals-I), Islamabad for the tax years 2003, 2004 and 2005 on the following ground:-
(i) That the learned CIT(A) is not justified to annul the order under section 122(5A) as the same was made because taxpayer wrongly claimed tax deduction under section 148 as adjustable whereas the tax deducted under section 148 falls under the ambit of PTR.
2. Brief facts leading to the appeals are that the assessee, a Private Limited Company which derives income from execution of turnkey contracts in the telecom sector and the only source of income other than contractual receipts is interest on PLS bank accounts. Fabrication and Erection of exchanges/BTS sites etc. Is carried out by Company for PTCL and other customers. The assessee filed its returns for tax years 2003, 2004 and 2005 by returning contractual receipts in statement of final tax filed under section 114 of the Ordinance and offering the gross interest income (without claiming any deduction) in the normal return of income. No expense whatsoever was claimed in the aforesaid tax years. Assessm ents were amended by the Taxation Officer under section 122(5A) by treating the Company as a commercial importer as well as a turnkey contractor. Being dissatisfied with this treatment the assessee went into appeal before the learned CIT(A) whereby he held that impugned orders under section 122 of the Income Tax Ordinance are void ab-initio for the years under appeal and annulled the same as being legally not tenable with the following observation:-- "After having gone through the contents of the show cause notice as well as arguments furnished by the AR, 1 am of the considered opinion that the Assessing Officer did not bother at all to understand and appreciate the facts of the case rather he preferred to create infractuous huge demands. I honestly feel that he should have sought guidance from his senior officers to proceed in the case because it appears from the impugned order that the Taxation Officer was quite unable to understand the Company's nature of business. It is because of this deficiency that he has authored such a defective order which is not sustainable in law. The grounds taken and arguments put forth by AR carry substantial weight. Matter of the fact is that appellant company had declared income from two sources i,e, Contract and related receipts 'subject to PTR and interest income subject to tax at normal rate. Besides, the appellant company had declared no other income nor claimed any loss or expense. The Taxation Officer failed to appreciate the facts and figures of the returned version and wrongly applied the provisions of section 122 of the Income Tax Ordinance to appellant company. The only sources of income are contractual and related receipts which are covered by PTR and tax deduction thereon is full and final discharge of the appellant's tax liability, the other income as declared is interest income, which is liable to be taxed at normal rate. Since the impugned orders under section 122 of the Income Tax Ordinance are void ab-initio, they are hereby annulled".
' Being dissatisfied with the treatment accorded by the learned CIT(A) the department has come up in appeal before the Tribunal on the ground raised in para 1.
3. It is argued by learned DR that in case of the assessee both the taxes paid i,e, at the time of Import and amount received against contractual receipts are final tax liability. Section 148(7) of the Income Tax Ordinance, 2001 clarifies the position of finality of tax collection at import stage by commercial importer and adjustable in cases where raw material has imported by industrial undertaking for their own consumption. The learned DR further argued that AR of the Assessee has admitted that Assessee Company is engaged in number of turnkey contracts the items imported constitute part of the company's turnkey contractual obligation. Supply of goods and execution of contract are separately described in section 153 of the Income Tax Ordinance, 2001. Tax deductible against contractual receipts is discharge of final tax liability. No element of supply is involved in this case.
4. On the other hand learned AR has argued that Company's assessment for the assessment year 2002-2003 was framed vide order dated December 26, 2003 whereby contractual receipts as returned were accepted. As the credit for taxes paid/suffered was short allowed accordingly, the rectification application was made and rectified assessment order was passed on February 18, 2003 and no adverse inference was made with regard to income returned by the Company. The Assessing Officer instead of following the established history preferred to pass the impugned orders. The learned AR has further argued that section 153(5) (iii) of the Income Tax Ordinance states that goods should sold in the same condition they were in when imported. In the case under consideration, the imported goods are not sold in the state in which they were imported and became part of the overall turnkey contracts, whereby they are consumed/used in furtherance of the contracts reached between the Company and its customers, thus by any stretch of imagination of the goods imported for consumption/use in furtherance of contractual obligations cannot be termed as commercial imports. The learned AR also relied on provisions of section 153 of the Ordinance which state that the tax-suffered at source from the receipts against contract is final discharge of tax liability.
"153. Payments for goods and services.---(1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person--- ' On the execution of a contract, other than a contract for the sale of goods or the rendering of or providing of services, ' Shall at the time of making the payment deduct tax from the gross amount #TBS Subsection (1) shall not apply to--- #TBE #TBS (a) a sale of goods where--- #TBE #TBS (5) #TBE ' The goods are sold in the same condition they were in when imported;
(b) a refund of any security deposit;
(6) The tax deducted under this .Section shall be a final tax on the income of a resident person arising from transactions referred to in clause (a) or (c) of subsection (1)."
Learned AR has also stated that the contracts executed by the company are chargeable to tax under section 153 of the Ordinance and the incidence of taxation would be at the stage of receipts in accordance with the terms of the respective contracts and not under section 148 of the Ordinance when items/ spare parts etc. Required for aforesaid contracts are imported. Assessing Officer has not extended any plausible reason for treating the company as a commercial importer without appreciating the facts of the case and usage/consumption of the items being imported.
5. We have heard the respective submissions of both parties, perused the relevant record. We are of the considered opinion that learned CIT(A) has rightly recorded the finding that Assessing Officer did not bother to understand and appreciate the facts of the case and he should have sought guidance from his senior officers. The assessee Company has various contracts and raw material is imported for usage in these contracts. Thus it cannot be taxed twice, one, at the time of import stage and against at the stage of fulfilling contractual obligation. Full and final discharge of tax liability is to be applied at the final stage i,e, at the time of contractual payments and tax deducted at import stage is to be adjusted. With these findings we fully endrose view of the learned CIT(A).
6. The order passed by the learned first appellate authority is not open to any exception. It is upheld and maintained. The departmental appeals being without any merit hereby stand dismissed.