Out of these two appeals one appeal has been filed by the taxpayer for Tax Year 2007 and the other one has been filed by the Income Tax Department against order passed by Commissioner Inland Revenue (Appeals) vide Order No,12 dated 12-5-2011.
2. The taxpayer has raised the following grounds:--- Grounds of Appeals--
1. That proceedings under sections 161/205(3) have wrongly been initiated hence order is liable to be cancelled.
2. That Commissioner Inland Revenue (Appeals-I) is not justified to confirm the tax charged under section 161 on account of payment made to foreign commission agents amounting to Rs,273,981.
3. That Commissioner Inland Revenue (Appeals-I) is not justified to remand the issue on account of payment of freight and forwarding made to clearing and forwarding agents.
3. The department has raised the following grounds;- Grounds of Appeals
1. That the learned CIR(A) was not justified in setting-aside the addition made on account of payment of Freight to Clearing and Forwarding Agent as the powers of the C1R(Appeals) to set aside have already been withdrawn through Finance Act, 2005.
2. That the learned ,C1R(A) was not justified in deleting the chargeability of tax under section 161 on account of Newspaper and Periodicals and Purchase of Yarn.
3. That the appellant may be allowed to add, alter or amend any me or more grounds of appeal at the time of hearing.
4. Briefly stated facts of the case as explained by the learned representatives for both the parties are that the taxpayer in this case is a private limited Company deriving income from manufacturing and sales of embroidered cloth and dying services. Proceeding under sections 161/ 205 of Income Tax Ordinance, 2001 was completed vide order dated 13-5-2010 creating a demand of Rs,1,548,339 against which the appellant filed appeal before the learned CIR(Appeals) who deciding the case vide the impugned order No, 12 dated 12-5-2011, allowed partial relief. The taxpayer has filed appeal before, this forum against order of the learned CIR(Appeals) and the Department also filed cross appeal against relief allowed by the learned CIR(Appeals).
5. The learned AR of the appellant argued that demand under section 161 on account of payment to Foreign Commission Agent was wrongly created as the taxpayer was not required to deduct tax on A account of payment made to non-residents regarding foreign commission paid to foreign agents because the income of the foreign agents is not chargeable to tax in Pakistan. In this regard be placed reliance on the decision of the Honourable High Court reported as 2010 PTD 1159 (Karachi High Court). Relevant Para No, 20 at pages 72-73 is reproduced as under: "We are therefore, of the view that unless it is established that the payment is chargeable to tax in Pakistan, action under section 161 of the Ordinance against the taxpayer cannot be taken merely for the reason that he has not obtained approval from the Commissioner in terms of section 152(5) of the Ordinance as discussed above."
He has also placed reliance on the decision of this Tribunal in I.T.A. No, 207/LB of 2009 and I.T.A. No 629/LB of 2010 dated 23-11-2010 relevant portion of which is also reproduced as under:-- "We are therefore, of the view unless it is established that the payment is chargeable to tax in Pakistan, action under section 161 of the Ordinance against the taxpayer cannot be taken merely for the reason that he has not obtained approval from the Commissioner in terms of section 152(5) of the Ordinance as discussed above.
The above judgment of the High Court was challenged in the Supreme Court of Pakistan. However, at the time of hearing attorney of the Revenue did not press the appeal consequently the appeal filed by the revenue was dismissed by the Apex Court".
The learned AR of the taxpayer argued that demand created on account of tax under sections 161/205 of Income Tax Ordinance, 2001 on account of foreign commission agents is wrong and liable to be deleted as the name of the persons on whose behalf tax has not been deducted are not mentioned in the assessm ent order. He further raised the question that who will get credit of this amount as it is an advance tax of the person on whose behalf it is recovered or tax has not been deducted. In this respect, the learned AR of the taxpayer relied upon a decision of this Tribunal reported as 2012 PTD (Trib)
122. Relevant para reads as under:-- "5. I have carefully examined both the orders under consideration and have perused the provisions of sections 161 and 153 of the Income Tax Ordinance, 2001. Though taxation officer has given some reasons for holding the respondent taxpayer as personally liable, yet I am persuaded by opinion of learned Commissioner (Appeals). I agree with his observations that without identifying names and addresses of the parties or persons from whom and how much tax was to be deducted, provisions of section 161 could not be invoked. It appears that taxation officer was in old frame of mind and could not appreciate that the tax referred to be deducted under section 161 has to be of some identified taxpayer/person and a taxpayer can be declared personally liable only after establishing that he was a withholding agent; who failed to withhold the tax from a transaction, liable to such tax. In this case details and documentary evidence about the transaction in question was disbelieved and discarded by the taxation officer for his own reasons.
He misunderstood the spirit of section 161 of the Income Tax Ordinance, 2001 as he himself has observed, in his order under section 161, that proceedings were initiated to ascertain the compliance level. He could only see whether withholding, as per return and statutory statements, was made or not and that any transaction, liable to withholding, had not escaped taxation. It is reiterated that no transaction can be held to have escaped deduction under section 161, unless it is established that; (i) taxpayer is withholding agent, (ii) a particular transaction is liable to deduction/withholding and (iii) that a specified tax of a specific person was to be withheld, who could take credit of the tax recoverable under section 161. These findings are fortified by subsections (IB) and (2) of section 161. Under the subsection (IB) if the amount of tax, required to be deducted, is paid meanwhile by the person, who's tax was to be deducted, then the taxpayer proceeded under section 161 shall pay, only default surcharge of the period, he failed to deduct tax till it was paid by that person. Subsection (2) declares that a person held personally liable under section 161 shall be entitled to recover the tax from the person, from whom the lax should have been collected or deducted. These provisions shall become redundant, if a person is held personally liable without identifying the person who's tax was not collected or deducted and without identifying the amount of such tax."
The learned AR of the appellant has further argued that the Assessing Officer wrongly charged tax on account of payment made to forwarding agents and the learned CIR(Appeals) has wrongly remanded back the issue of charging of tax on account of freight and forwarding as the taxpayer has duly deducted and deposited the tax on account of services rendered by the clearing agents and other payments on which tax has not been deducted related to duties and taxes etc on which the provision of withholding tax is not applicable therefore the same is liable to be deleted.
6. On the other hand, the learned DR argued that tax under section 161 of Income Tax Ordinance, 2001 on account of commission paid to agents has rightly been charged and confirmed by the learned CIR(Appeals) as the issue has thoroughly been discussed in the order of the learned CIR(Appeals) in the impugned order and the learned CIR(Appeals) while placing reliance on section 101 of Income Tax Ordinance, 2001 regarding geographical source of income has held that the taxpayer was required to deduct the tax.
7. Regarding departmental appeal, the learned DR has argued that the learned CIR(Appeals) was not justified to remand the issue on account of payment to forwarding agents to the assessing officer as the power of remand has been withdrawn by Finance Act, 2005. Regarding deletion of tax charged on account of repair and maintenance travelling and conveyance allowance and entertainment, the learned DR has argued that the assessing officer already gave margin to the taxpayer regarding below taxable limit purchases, therefore, the order is fully justified and reasonable. Regarding deletion of tax charged on account of Newspaper and periodicals and purchase of Yarn, the learned DR has argued that the Assessing Officer has rightly charged tax @ 5% which has wrongly been deleted by the learned CIR(Appeals) without giving any reasons. He has, therefore, requested to uphold' the order of the Taxation Officer.
8. The learned AR of the taxpayer while rebutting the contentions made by the learned DR has submitted that the assessing officer wrongly disallowed 30% of the claim in an arbitrary manner on account of repair and maintenance, travelling and conveyance allowance and entertainment expenses which has rightly been deleted by the learned CIR(A). Further the AR submitted that tax charged on account of newspaper and periodical and purchase of yarn @ 5% has also rightly been deleted by the learned CIR(A) as these payments do not come under the category of services as the assessing officer charged tax under the head services. He has, therefore, requested to uphold the impugned order of the learned CIR(A) in this respect.
9. We have considered the submissions from both the sides and have perused the impugned order of the learned CIR(A), the order passed by the Taxation Officer, case-law referred, the relevant provisions of law and the available record of the case.
Keeping in view the case-law referred by the learned AR of the taxpayer and the relevant provisions of law, we are of the considered opinion that tax has wrongly been charged on account of foreign commission paid to non-residents and tax has also wrongly been charged on account of freight and forwarding agents and the learned CIR(A) was not justified to remand the same which is hereby ordered to be deleted as the issue has already been decided by the Honourable High Court and this Tribunal.
The order of the learned CIR(Appeals) on the issue of Repair and Maintenance, Travelling and Conveyance and Entertainment and Newspapers is well reasoned and does not require any interference as the full justification in this regard has been given and the Taxation Officer has made the additions without legal reasons.
10. The Appeal of the taxpayer is accepted and the departmental appeal is dismissed as indicated above.