' JAWAID MASOOD TAHIR BHATTI, CHAIRMAN.---Both the titled appeals have been filed at the instance of the taxpayer. In I.T.A. No,1908/LB of 2013, the taxpayer has challenged the impugned order dated 16-9-2013 passed by the learned CIR (Appeals-1), Lahore for the tax year 2007. While in I.T.A. No,1924/LB of 2013, the taxpayer has challenged the impugned order dated 19-9-2013 passed by the learned CIR (Appeals-1), Lahore for the tax year 2012. The following grounds have been taken for the two years under appeal:-- Assessment Year 2012.
"2. That the Commissioner Inland Revenue Appeals-I remain unable to appreciate that main crux in appeal lies in the determination of definition of "Turn over" for the proration of expenses. He relied upon the judgment reported as 2013 PTD 2095, which is not directly applicable to this case because the said judgment has dissimilar facts with the taxpayer's case.
3. That the learned Commissioner Inland Revenue Appeals-I has erred in disallowing the tax credit under section 65-A of the Income Tax Ordinance, 2001.
4. That the learned Commissioner Inland Revenue Appeals-I was not justified in confirming the order of the Additional-Commissioner Inland Revenue with respect to classifying contractual receipts under the head services.
5. That the tax levied by the tax officer amounting to Rs,29,561,940 and confirmed by Commissioner Inland Revenue Appeals is unjust and unfair."
ASSESSMENT YEAR 2007.
"2. That the Commissioner Inland Revenue Appeals remain unable to appreciate that main crux in appeal lies in the determination of definition of "Turn over" for the proration of expenses. He relied upon the judgment reported as 2013 PTD 2095, which is not directly applicable to this case because the said judgment has dissimilar facts with the taxpayer's case.
3. That the Commissioner Inland Revenue Appeals-I, Lahore was not justified to confirm the amended assessm ent order under section 122(5A) of the Income Tax Ordinance, 2001, as it was barred by the time limitation.
4. That the tax levied by the tax officer amounting to Rs,11,144,373 and confirmed by Commissioner Inland Revenue Appeals is unjust and unfair."
2. Briefly stated the facts of the case are that the taxpayer is an unquoted public limited company, registered in SECP on 26-1-1989 and its name was changed to CITROPAK LIMITED on 10-11-2000. The principal activity of the company is, "manufacture and sale of frozen concentrate citrus juice and other fruit pulps and purees". The taxpayer company has declared total income at Rs, 56,058,521 for Tax Year 2007 and Rs, 193,356,383 for the tax year 2012 in its Income Tax Returns. Statutory notices under sections 122(9)/122(5A) were issued. Reply was properly filed on due date.
'According to the Taxation Officer as per Income Tax Return, local income has been declared at Rs,56,058,521 by wrong proration of expenses, whereas, correct income has been worked out by the Taxation Officer at Rs,91,518,934 as per section 67 read with Rule 13. On the other hand, according to Taxpayer as per Rule 231, export related expenses are net off from export after Gross Profit. FOB price based export sales should be adopted as a basis for allocation of common expenses. FOB Price means, total export sales less, freight paid. A Meaning thereby that, for computation of export profit and tax attributable to export sales, FOB, value of export should be considered for allocation of G.P and proration of expenses. Taxpayer stated that similarly, under the same Rule, local sale should be taken as ex- factory price. The term Ex-factory price includes Sales Tax inclusive value thereof all. It is the contention of the Taxpayer that the Common expenses will be deducted on the basis of sale value including Sales Tax. Reliance is placed on the decision of this Tribunal dated 24- 9-2012 in I.T.A. No,1347/LB/2012.
' The reply of taxpayer according to Taxation Officer was not convincing due to the following reasons:--
(1) There were no Contractual Receipts falling under section 153(1)(c). These are under the ambit of Services instead of Contractual Receipts.
(2) For apportionment of expenses, Rule 13 is applicable with relevant law of section 67 instead of Rule 231.
(3) In the repealed Ordinance, Rule 216 of the Income Tax Rules, 1980 was applicable but as per new Ordinance, 2001, Rule 216 was retained in the shape of Rule 231. There are conflicting judgments for application of Rule 231 or Rule 13.
(4) In the case of "Messrs Treat Corporation Limited, Lahore", the learned ITAT, Lahore Bench, Lahore held that "Apportionment is to be made in accordance with Rule 13 read-with section 67 of the Income Tax Ordinance, 2001 and not in accordance of Rule 231.
(5) Prior to re-insertion, Rule 231 was faulty and not applicable in totally.
(6) Taxpayer derives income from multiple sources i,e, Exports and Local Sales, services and Other Sources, for which Rule 231 is not applicable due to its limited scope.
(7) Case-Law 2003 PTD (Trib.) 1053 relied by taxpayer is distinguished clue to the reason that this relates to the Income Tax Ordinance, 1979.
' The Taxation Officer due to above reasons justified the apportionment of expenses and order under section 122(5A) for Tax Years 2007 and were passed. The Taxpayer filed appeal before the Learned CIR(A) where the contention regarding Time Barred order for the tax year 2007 was rejected. The learned Commissioner Inland Revenue (Appeals) also rejected the taxpayer contention on proration of expenses. In view of the judgment of the Hon'ble Karachi High Court, reported as 2013 PTD 1274 by which, it has been held that for apportionment of expenses, Rule 13 read-with section 67 shall be applicable as per new Income Tax Ordinance, 2001. Contention of the Taxpayer regarding Contractual Receipts at Rs,44,997,600 for the tax year 2012 which have been assessed as Receipts, were also rejected by the CIR(Appeals). On the issue of Tax Credit under section 65A, no order was passed by the learned CIR(A) for Tax Year 2012. Contention of the Taxpayer regarding the issue of Tax Credit under section 65B was however accepted by the learned CIR(A) and allowed this credit for Tax Year 2012. Now the Taxpayer has filed these appeals against the impugned orders before this Tribunal. Since the common issues are involved hence these are being disposed of through this common order.
3. The learned counsel of the taxpayer submitted that the taxpayer company has declared total income at Rs,56,058,521 for Tax Year 2007 in its Income Tax Return, which was properly filed on 14-1- 2008, whereas, order has been passed after five years from the date of filing of return on 29-6-2013, which is time barred under the provision of section 122(2) of the Income Tax Ordinance, 2001.
Hence, all the proceedings on this barred by time limitation order are liable to be cancelled/ annulled. It was further argued that the impugned order. Has illegally been amended under the provisions of section 122(5A) on 29-6-2013 for Tax Year 2007, the same order being barred by tifne under section 122 of the said Ordinance is not sustainable under the law due to the reason that this impugned order has unlawfully been amended, in the light of amendment, made through Finance Act, 2009, which amendment was effective from 1-7-2009, and could not be applied retrospectively. Hence, order being barred by time is liable to be cancelled/annulled. It is further explained that the Assessing Officer has no lawful justification to amend the order, by which, vested, accrued rights of the taxpayer/ appellant have damaged, denied and destroyed without legal force and support. Reliance is placed on the judgment by the Tribunal dated 30-3-2012 in cross Income Tax Appeals vide I.T.As. Nos.1393/LB/2010 and No,1409/LB/2010 in respect of Messrs Master Paint Industry (Pvt.) Limited v. CIR, LTU, Lahore wherein the Tribunal has held that:-- "Law applicable on the first day of assessment will apply and not the one coming into being by the subsequent legislation.
' In the case in hand, at the time of filing of Income Tax Return, the taxpayer acquired the vested rights of five years time limitation for amending the assessment by resorting to provisions of section 122(5A) of the Ordinance, which cannot be snatched by subsequent legislation, wherein extended time limitation for amendment has been provided as retrospective operation of law would only apply, if vested rights were not disturbed. In view of the foregoing discussion, we are of the considered opinion that since, at the time of filing of Income Tax Return on 30th December 2004, which was taken to be an assessment order in terms of section 120(1) of the Ordinance, the limitation for amending such assessment order was provided by the legislature as five years, therefore, amended assessment order under section 122(5A) of the Ordinance recorded on 31- 12-2009 is absolutely time-barred being passed after the time limitation of five years, which in the instant case expired on 29-12-2009, therefore, we are left with no other option except to vacate the orders passed by both the authorities below by way of acceptance of appeal preferred by the taxpayer. We ordered accordingly."
'In view of above, it is submitted that the taxpayer company has filed its Income Tax Return on 14-1- 2008, whereas, amended order under section 122(5A) has been passed after five years from the date of filing of return on 29-6-2013, which has become time barred under the provisions of section 122(2) of the Income Tax Ordinance, 2001, being the law applicable on the first day of assessment will apply and not the one coming into being by the subsequent legislation. Hence, it is contended that time barred order entails cancellation on this score only.
4. It is contended that for both these years the taxpayer has already followed Rule 13 of the Income Tax Rules, 2002 while computing its taxable income. It is stated that Rule 231 deals with apportionment of profits whereas Rule 13 states that first allow directly attributable expenses and then apportion the common expenses on the basis of relevant source of turnover. It was further argued that in the instant 2 years under consideration, taxpayer has deducted directly attributable expenses from its relevant source of revenue and common expenses are apportioned on the basis of relevant turnover. The only difference in the tax computation of tax department and tax payer lies in the question what constitutes the term "Turnover" for the purposes of Export Sales and Local Supplies. This term is not clarified in rule 13 of the Income Tax Rules, 2002. It is common knowledge that in case any definition is not available under the law then its literal meaning are taken to know the intention of legislature. It is further explained that if for the sake of argument it is assumed that Rule 13 is applied then firstly, in this. Rule there is no definition of Turnover, whereas, the assessing officer has already adopted this Turnover term in his amended order and secondly, in Rule 13, the word "Gross Receipts" are mentioned and the words "Gross Receipts" could not be applied as term of "Turnover". For the definition of "Turnover", Rule 231 shall be applicable.
' It is also explained that due to absence of any definition of turnover, it is essential to follow the legislative history. He argued that since the repealed ordinance to the Income Tax Ordinance to date, a special Rule [Rule 216 under the Repealed Rules and Rule 231 in the Income Tax Rules 2002] was inserted whereby a very clear definition of Export sales and local supplies was given while apportioning the expenses. In this regard the judgments of this Tribunal reported as 2003 PTD (Trib.) 1053 in the case of Messrs Shezan International Ltd.
' According to learned AR this Tribunal vide order dated 24-9-2012 in a case bearing I.T.A.
No,1347/LB/2012 dated 24-9-2012 has held that at the time of apportionment of expenses, FOB value shall be taken in the case of Export Sales whereas Ex-Factory Price will be taken for the purposes of Local Supplies. It is further stated that for the purposes of Export sales, FOB price means sales less Ocean Freight whereas Ex-factory price always includes Sales Tax and Sales Tax will be allowed as directly, attributable expense from the Local Supplies.
' It is argued that the Taxpayer has rightly computed its tax liability and it cannot be burdened with impugned tax demand on wrong interpretation of law. Regarding the Judgment of the Hon'ble Sindh High Court in the case reported as 2013 PTD 1274 it is submitted that nowhere any bar on adoption of these basis of turnover while doing computation under Rule 13 of the Rules while computing the taxable income in the case of manufacturer cum exporter has been made.
However, bare perusal of the said Rule nowhere it gives any definition of turnover. Accordingly, for guidance from the legislative history such as Rule 231, judgments quoted by the AR are to be followed. He has argued that the legislature placed a specific definition of turnover in case of manufacturer-cum-exporter on legislation and it is still placed on the law. Hence, turnover in the case of manufacturer-cum-exporter will be taken as FOB value in the case of Exports whereas local supplies will be taken as Ex-Factory Price as well as Ocean freight is rightly deducted from export sales to arrive at FOB value whereas Sales Tax inclusive value will be treated as Ex-Factory Price to arrive at Ex-Factory Sales. Whereas Sales Tax will be deducted as directly attributable expense.
According to Learned Counsel keeping in view of above discussion, demand raised by the Tax department on this account should be deleted.
' The learned counsel of the taxpayer regarding Contractual Receipts (2012) submitted that the taxpayer company had claimed Contract Receipts of Rs,44,997,600 for that tax year 2012, which has wrongly and unlawfully been treated as Receipts only on the basis of presumptions as well as without evolving any basis. It was argued that the learned Commissioner Inland Revenue (Appeals) has rejected the taxpayer contention on this point without bringing any material or evidence on record by which, these contract receipts have been turned in terms of Receipts.
' The learned counsel of the taxpayer company regarding addition under section 65A for the Tax Year 2012 has submitted that the taxpayer had claimed Tax Credit at Rs,1,691,868 which has unlawfully been disallowed on the basis of presumptions. It was argued that the learned Additional Commissioner Inland Revenue has wrongly calculated the percentage at (53%.) of total sales, whereas, the taxpayer has already made 95% of Local Sale amounting to Rs, 825,642,553 to the registered customers. It was argued that the assessing officer has deliberately/ intentionally taken the gross aggregate sale inclusive of export, while, actually, he was required to calculate the percentage on local sales of Rs,870,640,151 only, whereas, the taxpayer has already declared above 90% of local sales exclusive of export sales. It was averred at the bar that the learned CIR(A) has not discussed the application of this credit. It was argued that this credit shall be charged for only one year or can be extended for every year. Non discussion of this issue clearly shows that taxpayer's contention regarding tax credit under section 65A is correct. The learned counsel submitted that the taxpayer has claimed this tax credit only against the tax liability covered under Normal Tax Regime and on this issue, the Additional CIR did not raise any objection, which clearly shows that this tax credit has rightly been claimed. It is contended that in view of above, the claim of the taxpayer should have to be allowed.
5. We have heard the Learned Representatives from both the sides and have also perused the impugned orders, the amended order passed by the Taxation Officer, the available record of the case, the relevant provisions of law and the case-law referred. We are of the view that amended order for the tax year 2007 in this case has been passed after the period allowed under the law which is barred by time. Reliance in this regard is placed on the decision of this Tribunal dated 30- 3-2012 in I.T.A. Nos.1393 and 1409/LB of 2010 in the case of Messrs Master Paint Industry (Pvt.) Limited, which is at all four applicable in this case. The impugned order of the learned CIR(A) for the tax year 2007 is, therefore, vacated and the amended order is cancelled.
' The Appeal for the tax year 2007 is allowed.
6. Contention of the Learned Counsel regarding the proration of expenses for both the years under review has been considered. We find force in the contentions of the Learned A.R that the Judgment of the Hon'ble High Court is not applicable to this case because the facts of the instant case are different from the referred Judgment. We are of the view that as it has been held by the Tribunal in a case reported as 2003 PTD (Trib) 1053 that where clear definition of Export Sales and Local Supplies was given while apportioning the expenses the rules in this respect should have to be adopted. Likewise this Tribunal in order dated 24-9-2012 in I.T.A. No,1347/LB/2012 has held that at the time of apportionment of expenses, FOB value shall be taken in the cases of Exports Sales whereas Ex-Factory Price will be taken for the purpose of local supplies. Demand raised in this respect by the Tax Department on this account is, therefore, deleted as the FBR itself vide Circular No,5-2000 has directed to prorate on FOB real value with Rule 216 of the Income Tax Rules in the cases of exporters.
The appeal on this issue is, therefore, allowed.
7. Regarding the Contractual Receipts we have found that the Appellant Company had claimed contract receipts for the tax year 2012 which has been treated as Receipts without giving any basis.
It is, therefore, directed that the claimed contractual receipts be accepted as such being raised on the basis of contract with Messrs Nestle Ltd.
' Regarding the addition under section 65A for the tax year 2012 we have found that the Tax Credit claimed at Rs,1,691,868 has been disallowed by the Taxation Officer and the Learned CIR(A) on this issue has not given any findings. It is contended that the Taxpayer claimed this tax credit only against the tax liability covered under Normal Tax Regime and the Taxation Officer during proceedings raised no any objections but has disallowed the claim without any justification and learned CIR(A) has given no finding in this respect. The matter is, therefore, remanded back to Taxation Officer for consideration with direction to allow the claim of the Tax Credit otherwise to give reasons for not allowing the Tax Credit.
8. The appeal filed by the Taxpayer for the tax year 2007 is allowed while the appeal for the tax year 2012 is partially allowed to the extent and in the manner supra.