' The department through these two appeals has objected against the impugned Orders-in- Appeal No.66 dated 18-7-2014 and appeal order No.76 dated 25-7-2014 related to tax years 2012 and 2013, respectively, passed by the learned CIR(A) on filing the following common grounds for both the tax years (different to the only extent that the order for tax year 2012 is passed by the Deputy Commissioner, while Order for tax year 2013 is passed by the Additional Commissioner IR):- - "(1) That the order passed by the CIR (Appeal-II), under section 29 of the Income Tax Ordinance, 2001 is bad in law and facts of the case.
(2) The learned CIR (Appeals-II) has grossly erred in law by not appreciating that the receipts of the taxpayer were under a composite including import of machinery, erection, installation, civil works and connected service thereto.
(3) That the learned Commissioner Inland Revenue (Appeals-II) was not justified to vacate impugned order of the Additional Commissioner IR and to hold that the transactions undertaken by the taxpayer cannot be termed as contractual receipts as the sale of imported machinery and equipment and services rendered have been separately shown in the return of income.
(4) The learned CIR (Appeals-II) was not justified to hold that the treatment of the DCIR treating the sales of import machinery and the services there-under were under contractual receipts failing in FTR is not sustainable under the law.
(5) The learned CIR (Appeals-IL) was not justified to vacate the order of the Additional Commissioner IR who had lawfully treated the receipts as contract receipts taxing the contractual receipts under ITR after affording proper opportunity of being heard to the taxpayer.
(6) That the appellant craves permission to add, alter or amend all or any of the grounds(s) of appeal on or before or the time of hearing of appeal."
2. We have heard the learned representatives for both the sides and have perused the impugned orders of the officers below and the available relevant record of the case. Since common issues are involved in both the tax years, therefore, both the appeals are decided in this combined order.
Order for tax year 2012 was originally made under section 122(1) of the Income Tax Ordinance, 2001 while the order for the tax year 2013 was made under section 122(5A) of the Income Tax Ordinance, 2001.
3. The respondent/taxpayer in this case is a private limited company and engaged in the business of import and supply of Reverse-osmosis Water Desalination Plants and their installation, erection and maintenance. The returns filed for the tax years were completed under section 120 of the Income Tax Ordinance, 2001. Subsequently, for the tax year 2012 action was taken under section 122(1) read, with section 214C of the Income Tax Ordinance, 2001 whereas action was taken under section 122(5A) of the Income Tax Ordinance, 2001 in which the sales of imported plant and machinery and its installation, erection and maintenance was considered as contractual receipts and brought to tax under Final Tax Regime (FTR) and further demand was created for both the tax years.
' Being aggrieved with the treatment meted out under sections 122(1) and 122(5A) of the Income Tax Ordinance, 2001 for tax years 2012 and 2013, respectively, the respondent/taxpayer filed first appeals before the learned CIR(A) who reversed the treatment meted out in the original orders and the plea of the respondent/taxpayer was accepted as declared in the returns for both the tax years.
' The appellant/department being aggrieved with the above treatment have filed these appeals.
The learned DR representing the Appellant/Department contended that the learned CIR(A) has grossly erred in law by not appreciating that the receipts of the taxpayer were under a composite contract including import of machinery, erection, installation civil, works and connected services thereto. He has argued that learned CIR(A) was not justified to vacate the impugned orders made by the Additional Commissioner and the Deputy Commissioner for the tax years 2013 and 2012, respectively. He further contended that learned CIR(A) was not justified to hold that the treatment of the officers below treating the sales of imported machinery and services under contractual receipts are not falling in FTR. The learned DR requested for restoration of the orders made by the Additional Commissioner and the Deputy Commissioner made under sections 122(1) and 122(5A) of the Income Tax Ordinance, 2001 for the tax years 2012 and 2013, respectively and to vacate the impugned order of the learned CIR(A) for both the years.
4. On the other hand the learned AR, of the taxpayer defended the relief allowed by the learned CIR(A) who has decided the issues in accordance with the law. On the merit and considering the case-law presented during the arguments he has requested for the confirmation of the treatment of the learned CIR(A) for both the years under review. The erudite Legal advisor also averred that the department has not allowed appeal effects under section 124 of the Income Tax Ordinance, 2001 yet in-spite of expiry of considerable time and the coercive and unjustified recovery of tax in pursuance of recovery has not been refunded, which is nothing more than sheer violation of law and procedures and in contravention of natural justice, fair play. The tax payer is entitled to appeal effect as per the provision of section 124 of Income Tax Ordinance, 2001, issuance of refund under section 170 of Income Tax Ordinance, 2001 along with compensation under section 171 of Income Tax Ordinance, 2001, from the date of the actual appeal effect order, which has not yet been passed.
5. We have considered the submissions made by both the sides and have also gone through the amended orders under sections 122(1) and 122(5A) of the Income Tax Ordinance, 2001 related to tax years 2012 and 2013, respectively vis-a-vis the impugned orders of the learned Commissioner IR (Appeal-II), Karachi, as well case-laws referred for this purpose. Accordingly, our findings are recorded in the foregoing paras.
We have found that the respondent/taxpayer has received payments under contract of works effected with various government departments for supply of imported machinery and equipment (reverse osmosis plants) and for its design, supply, installation, erection and maintenance. The question arises whether the imported machinery and equipment has been sold independently or separately and the tax collected at the import stage is full and final discharge of tax liability and whether the designing, installation and erection and maintenance is tantamount to value addition as contemplated in section 153(5)(a) of the Income Tax Ordinance, 2001 or whether the same falls under services rendered being a subsequent and independent activity falling under section 153(1)
(b) of the Income Tax Ordinance, 2001.
' The respondent/taxpayer has supplied imported machinery to the tune of Rs.6,691,166,525 without any value addition and has rendered services amounting to Rs.136,184,653 as per note 15 of the audited financial statements of accounts for the year ended June 30, 2012 relevant to tax year 2012.
It is noted that 98% of the total payments received by the taxpayer from their customers pertain to supply of imported machinery whereas only a meager amount of two percent was received on account of services rendered. The respondent/taxpayer has supplied imported machinery to the tune of Rs. 4,251,936,690 without any value addition and has rendered services amounting to Rs.191,561,005 as per note 16 of the audited financial statements of accounts for the year ended June 30, 2013 relevant to tax year 2013. It is noted that 95.69% of the total payments received by the appellants from their customers pertain to supply of imported machinery, whereas only 4.31% pertains to services. The "sale/supply" of imported machinery and equipment is a separate transaction and the "services rendered" in connection with installation, erection and maintenance is a separate transaction. Similar issue came up for the consideration before the Honorable High Court Lahore in the case reported as 2008 PTD 1243 the relevant part of which is extracted by the learned appellate commissioner on page 11 of his impugned appellate order which states that all the services be that of any form are held to be chargeable under general tax provision and not as full final discharge of tax liability.
' Furthermore, the difference between contractors, suppliers and the services rendered has been provided in the case-laws reported as 2001 PTD (Trib.) 2969 (relevant page 2928) in which it was held that the expressions "services rendered" relate to all resident persons who are not contractors or suppliers of goods mentioned in clause (a) of subsection (4) of section 50 of the Ordinance. This distinction can only be made when the facts and circumstances of each case are properly appreciated on the basis of supportive material and a definite conclusion is drawn to maintain the desired difference between the payments made to a resident person on account of services rendered by him and the payments on which tax is deductible under section 50(4) on account of supply of goods or for the execution of other contracts. In the said case it has further been held by learned Tribunal as under:-- "...So even if the services rendered were in the execution of the agreement and were deemed to have been covered by the term "services rendered..."
' It is important to note that section 50(4) read with section 80C of the Income Tax, 1979 (repealed) has the same concept of taxation as provided in section 153(1) of the Income Tax Ordinance, 2001 We have found that the appellant has imported the plants/ machinery on which the income tax under section 148 of the Income Tax Ordinance, 2001 has been collected at the custom stage and tax so collected is a final tax as provided under subsection (7) of section 148 of the Income Tax Ordinance, 2001 read with section 169 (2) which states that the- income shall not be chargeable to tax under any head of income in computing the taxable income of the person. It is concluded that income from imports and its sale/supply is one complete transaction and the transaction ends there when the sale is made. 'It can not be taxed again and again. As per scheme of the Income Tax Ordinance, 2001 the imports and its supply is one complete transaction as imports are made 'for subsequent sale and not for retaining by the importer. Likewise purchases made locally and subsequently sold locally or exported is also one complete transaction for the purpose of taxation.
For this reason law has provided protection to the taxpayer that its income should not be taxed twice and therefore, it has been provided in clause (a) of subsection (5) of section 153 of the Income Tax Ordinance, 2001 that the sale of imported goods shall not be subjected to deduction under section 153(1)(a) of the Income Tax Ordinance, 2001. This provision of law is also extracted hereinbelow:-- "153. Paym ents 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 -
(a) for the sale of goods;
(b) for the rendering of or providing of services;
(c) on the execution of a contract, including contract signed by a sportsperson but not including .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 payable at the rate specified in Division III of Part III of the First Schedule."
' Subsection (5) states as under:-- "(a) a sale of goods where the sale is made by the importer of the goods and tax under section 148 in respect of such goods has been paid and goods are sold in the same condition as they were when imported."
(ii) It is pertinent to held without hesitation that clause (c) of subsection (1) of section 153 of the Income Tax Ordinance, 2001 has specifically excluded the contacts for the "supply of goods" and for "rendering or providing services" . This piece of legislation is again extracted hereinbelow: "(c) on the execution of a contract, other than contract for the sale of goods or rendering of or providing of services."
We are of the view that the transactions undertaken by the respondent/taxpayer cannot be termed as contractual receipts. The sale of imported machinery and equipment and' services rendered have duly been separately shown in the return of income supported with computation of income and as per Note 15 (tax year 2012) and note 16 (tax year 2013), of the audited accounts with proration of expenses against the respective heads. It can not be equated with value addition as the importer has no know how and knowledge and technology to make the machinery and equipment amended or make some addition or alteration in the said machinery as such technology is not available in Pakistan. In the Return of income imports of machinery and equipment has been shown correctly in column related to FTR (Final Tax Regime) and services rendered under NTR (Normal Tax Regime). The exclusion provided under clauses (a) and (b) of subsection (1) of section 153 of the Income Tax Ordinance, 2001 is applicable in this case. Therefore, the treatment of the assessing officers bringing the sales of imported machinery and the services rendered under contract receipts under falling in FTR. Is not sustainable under the law and the, impugned order of the learned CIR(A) rejecting the treatments of the both the officers below are in accordance with law and no exception can be taken to the findings recorded by the learned CIR(A) for the tax years wider review i.e. 2012 and 2013 which are confirmed accordingly.
6. We have further observed that the Deputy Commissioner has amended the order for tax year 2012 under section 122(1) of the Income Tax Ordinance, 2001 as a result of selection under section 214C of the Income Tax Ordinance, 2001 and no trading results related to trading account or profit and loss account or other items of balance sheet were touched upon and no any notice was issued for this purpose. It is surprising that as a result of the amended order the respondent/taxpayer was given clean chit that all of his trading results were free from any sort of un-verifiability. The officer has amended the order in a very causal way and this type of treatment of the FBR's officer collecting revenue cannot be appreciated.
7. Resultantly, both the departmental appeals stand dismissed in the manner indicated above.