' JAWAID MASOOD TAHIR BHATTI, (CHAIRPERSON).---The appellant is unlisted public limited company and derives its income from assembling and sale of different kinds of Land Rover Vehicles in Pakistan.
2. Through these appeals the appellant has objected against the impugned Order Nos. 678 and 679 relating to Tax Years 2009 and 2010 passed by learned Commissioner Inland Revenue (Appeal- II) who has in Tax Year 2009 remanded back the case on the point of addition of rent and salaries and wages and has confirmed 10% rate as charge of tax on the foreign indenting commission. In Tax Year 2010, the computation of turnover under section 113 and levy of tax rate @ 10% on the foreign indenting commission were contentious issues arisen from Assessment Order.
' The appellant has contested appeal on following grounds:-- Tax Year 2009 "(2) That the learned CIR (Appeals-II) was not justified in remanding back to Officer for making assessm ent afresh.
(3) That the learned CIR (Appeals-II) has patently erred in not allowing Salaries and Wages amounting to Rs,24,132,681 which pertains to employees, fall below taxable limit, and were not liable to withholding tax.
(4) That the learned CIR (Appeal-II) should have allowed rental expense of Rs,14, 409,833 in the presence of sufficient evidence before him. Learned CIR (Appeal-II) has failed to consider the adjustment made through accruals amounting to Rs,8,187,079 and prepayments amounting to Rs,6,222,754.
(5) That the learned CIR (Appeals-II) was wrong in confirming rate on foreign indenting commission @ 10% instead of @ 5%. The rate of Commission @ 5% is postulated in section 154 of the Income Tax Ordinance, 2001. He has also deviated from his earlier order where he has confirmed the rate @ 5 % on foreign commission."
Tax Year 2010 "(3) That the learned CIR (Appeals-II) was not justified for confirming charging tax @ 10% instead of @ 5% on "foreign indenting commission". He has completely disregarded its earlier Order he had annulled the order and the department has not preferred appeal before the. ATIR, in complete disregard to has own binding precedent in earlier previous tax years.
(4) That the learned CIR (Appeals-II) has erred in calculating the Turnover of the appellant. The learned CIR (Appeals-II) has failed to deduct the statutory deduction of amount of Sales Tax and FED which must be deducted statutorily in terms of section 113(3)(a) of the Income Tax Ordinance, 2001. The Taxpayer has correctly mentioned the amount of Turnover Tax under section 113 of the Income Tax Ordinance, 2001."
3. Mr. Tahir Razzaque Khan, FCA learned Authorized Representative of the appellant has submitted that there are three issues which arises from the above grounds of appeal. First issue is relating to add backs, second is chargeability of correct rate of tax on foreign indenting commission, whether 10% or 5% and thirdly, correct amount for computation of turnover.
' Adverting to the first issue in appeal for the tax year 2009 the learned AR of the appellant has produced before the Bench a copy of the Assessment Order, under section 122(1) of the Income Tax Ordinance, 2001 vide No, 391 dated 15-5-2013 which is in pursuance of remand back by the learned CIR(A), the learned Assistant Commissioner Inland Revenue, Audit-V, Large. Taxpayers Unit, Islamabad has allowed the relief on account of deletion of add backs on Salary and wages, other allowance and Rent expenses in the total income of the assessee. Learned AR of the appellant submitted that since relief has been granted by the department, therefore, he does not wish to press these grounds and wants to withdraw the ground of appeal. The learned DR has no objection.
The appeal for the tax year 2009 in the above issues is therefore dismissed as withdrawn.
4. The second issue is relating to taxation of foreign indenting commission. The learned AR has drawn our attention towards the Assessment Order under section 122(1) for the Tax Year 2009 dated 30-9-2011 wherein it is admitted that in the earlier round of. Appeal the rate of tax on indenting commission was assessed @ 5% instead of 10%. There is a clear finding of the learned DCIR as under:-- ' Foreign indenting commission Rs,22,349,356 ' Tax on above @10% charged vide DCR No, 11/45 ' Dated 8-10-2010, however, under section 221 on this Rs,1,117,467 account annulled by the Learned CIR(Appeals-II), Ibd.
He has submitted that keeping in view the previous history the learned CIR (Appeals-II) was not justified to confirm the rate of 10% against the earlier findings in the same case. According to learned AR the learned CIR(A) is bound to follow his earlier findings as in case first appellate authority wanted to deviate from its earlier findings then he was bound to give irrefutable reasons for the chargeability at the higher rate of tax. Since there was no change in the nature of income, therefore, there should be similar treatment under the facts and circumstances. Adverting to nature of foreign indenting commission, he submitted that it is an admitted position that the nature of commission is foreign indenting commission which is received from the foreign principals for sale of their product in Pakistan market, this type of income is subject to taxation @ 5% in terms of Division IV of Part-III of the First Schedule to the Income Tax Ordinance, 2001 and the legislature has made out an exception from section 233.
' Coming to third and last issue in appeal which is the chargeability of minimum tax on the 'turnover'. Learned AR of the appellant submitted that learned .CIR(A), instead of allowing direct relief, has remanded the case to Officer concerned for re-calculation where he has found that the amount of excise duty and sales tax has not allowed as admissible deduction despite of DCIR's admission for such a flagrant error. He requested that instead of remanding back the matter, the direction for deduction should have to be made.
5. The learned DR on the other side supported the impugned orders passed by the authorities below with the contention that the orders were correct. He contended that the foreign indenting commission is just like any other commission and it should be taxed in Part IV of the First Schedule.
On the point of deduction of sales tax and federal excise duty from the gross amount of 'turnover', he submitted that, as the DCIR himself has conceded the fact therefore, there is no point of direct relief because it is an admitted position on part of the department that this mistake has occurred and the point of view of taxpayer is correct.
6. We have heard the learned representative of the parties, perused the impugned orders and relevant record produced before us.
' The first issue is with reference to add backs of rent expense and salaries and wages which has already been settled through order of Assistant Commissioner Inland Revenue, Audit-V, Large Taxpayers Unit, Islamabad vide Order No, 391 dated 15-5-2013. In this order the ACIR has allowed the relief by deleting the additions on account of Rent Expense and Salaries and Wages. Since the grievance of the taxpayer has been re-dressed, therefore, this ground was not pressed.
The second issue is relating to chargeability of rate of tax on foreign indenting commission. There is no cavil as to nature of foreign indenting commission. The foreign indenting commission, in our considered opinion, is chargeable at the rate of 5% in view of rate prescribed under Clause (2) of Division IV of Part-III to the First Schedule to the Income Tax Ordinance, 2001. The provision of section 233 of Income Tax Ordinance, 2001 are not applicable to this transaction because of special nature of transaction. All types of commissions and brokerages are subject to final taxation @ 10% under Division II of Part IV of the Income Tax Ordinance, 2001 with the exception created by the legislatures i,e,, foreign indenting commission as postulated to be taxed in Division IV of Part III to the First Schedule. In the Tax Year 2009, the learned CIR(A) has allowed the appeal and 5% rate of tax was charged on the foreign indenting commission. The learned CIR(A) cannot make out this year as an exception without recording cogent reasons. It is cardinal principle of statutory construction that the exception is intended to restrain the enacting clause from general clause. We have no hesitation in holding that under the facts and circumstances, the foreign indenting commission of the appellant is subject to tax at the rate of 5% in terms of Division IV of Part III of First Schedule to Income Tax Ordinance, 2001.
' The third issue in appeal is regarding deduction of sales tax and federal excise duty from the gross turnover while calculating the amount of minimum tax in terms of section 113 of the Income Tax Ordinance, 2001. The learned CIR(A) has remanded back the matter for further consideration with the observation that "Non-allowance of the amount of sales tax and federal excise duty while calculating the figure of turnover for Tax Year 2010 is correct, even admitted by the DCIR in his comments". He has remanded back the case with direction to re-calculate as per law. We feel that the Assessing Officer was candid in conceding the fact that an floating error has crept in the order, administrative and judicial discipline require that once it has come to the knowledge of the DCIR, he should have passed the rectification order for correction of mistake apparent from record on his own motion, nevertheless, this reflects a casual attitude on part of DCIR making the assessment.
We direct the department to rectify the said mistake for non-allowance of sales tax and federal excise duty within 7 days after the receipt of this Order.
7. Both the Appeals filed by Taxpayer are disposed of in the manner as indicated above.