' These appeals have been filed by the taxpayer against the orders Nos.1964, 1965/2013 dated 24.04.2013 passed by the learned Commissioner Inland Revenue (Appeals-I), Islamabad for the Tax Years 2010 and 2011 on the following common grounds:--
1. "That the appellate orders Nos.1964, 1965/2013 dated 24th April, 2013 of the learned Commissioner Inland Revenue (Appeals-I), Islamabad under section 129 of the Income Tax Ordinance, 2001 is bad in law and contrary to the fats of the case.
2. That the learned Commissioner Inland Revenue (Appeals) is not justified in upholding the action of Additional Commissioner Inland Revenue, Audit, Zone-III, who has overstepped her jurisdiction by amending the assessm ent framed under section 120 of the Ordinance. The action of the ACIR is illegal and is against the legal precedence settled by the honorable appellate courts in a number of judicial pronouncements.
3. That without prejudice to Ground No,2 above, the learned CIR(A) is not justified in upholding the action of the ACIR to amend the assessment by charging minimum tax on subsidy which constitutes change of opinion and hence is outside the preview of section 122(5A) of the Ordinance.
4. That without prejudice to Grounds Nos.2 to 4 above, the learned CIR(A) is not justified in upholding computation of minimum tax under section 113 of the Ordinance by treating subsidy as part of "turnover" of the appellant. The action of the ACIR is not only against the definition of the term "turnover" as laid down in section 113 of the Ordinance but also against the judicial pronouncements on the subject matter.
' That without prejudice to Grounds Nos.2 and 4, the learned CIR(A) is not justified in endorsing the treatment of ACIR that treating subsidy as part of the turnover for computation of minimum tax which is sell explanatory as well as the ACIR has not disputed the exemption to subsidy under clause 102A of Part-I of the Second Schedule to the Ordinance and on the other hand, the CIR (A) and ACIR has held that the subject amount is not in the nature of subsidy but a "price differential".
The position taken by the lower forums is also against the spirit of FBR Circular No,01 of 2006 dated 01 July, 2006.
6. That the learned CIR (A) is not justified in not accepting the decision of the Federal High Court in case of Broadcasting Corporation regarding the matter of chargeability of minimum tax on ,subsidy by trying to distinguish it from the case of the appellant, whereas there is no such distinction.
7. That without prejudice to Grounds Nos.2 and 6 above, the learned CIR (A) is not justified upholding the charge of minimum tax which is against the spirit of the proviso to section 113(1)(e) of the Ordinance after re-introduction of section 113 of the Ordinance through the Finance Act, 2009.
8. That the appellant craves permission to add, alter or amend any of the above grounds before or at the time of hearing."
2. Brief facts of the case are that the taxpayer Messrs Islamabad Electricity Supply Company (IESCO) engaged in the business of electric power, transmission and distribution. Return for the tax years 2010 and 2011 were filed declaring loss at (Rs,41,241,373,583/- and Rs, 15,025,526,279/-) which constituted a deemed assessm ent under under section 120(1) of the Income Tax Ordinance, 2001.
Subsequently, it was observed that the assessment finalized under section 120(1) ibid was erroneous as well as prejudicial to the interest of revenue, therefore a show cause notice for amendment of assessm ent under section 122(9) read with section 122(5A) ibid was issued.
3. Being aggrieved the appellant filed appeal before the learned Commissioner Inland Revenue (Appeals) who decided the case vide Orders Nos.1964, 1965/2013 dated 24.04.2013 against the appellant declaring that the appellant was liable to minimum tax. Aggrieved with this order, the taxpayer has preferred appeal before this forum.
4. These cases were heard on 06.10.2015. Learned AR reiterated the contentions already submitted in the grounds of appeal and supported his arguments with the case law of this Tribunal in the .,case of chargeability of sales tax on subsidy. Learned DR opposed the appeal on the ground that learned Commissioner (Appeals) had passed a speaking order and there was no illegality or lacuna in his order.
5. We have heard both the parties to the case. The learned AR supported his argument on the basis of the learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore's judgment in S.T.A.
No,874/LB/2013 para-72 of the judgment reproduced as follows:-- '72. We have heard both the sides, examined the record and given serious consideration to the material as well as the decisions relied upon the opposing counsels. In our considered opinion, the averment raised on behalf of the revenue that there is no specific provision of law giving exemption to subsidy granted by the Federal Government, in the form of tariff differential, is grossly misplaced.
The specification of exemption in law is necessary where the amount is otherwise chargeable to tax under the law. If the amount is not chargeable to tax there is no point in providing for exemption in the statute. Here, the fundamental question is whether the subsidy otherwise is covered by the charging provisions of the statue, which the learned counsel for the taxpayer has argued not to be the case. In our opinion the Federal Government granted subsidy to the consumers and not the taxpayer. The differential tariff subsidy is directly passed on to the consumers as it is not made part of Bill (invoice in term of Section 23 of the Act) and charge of Sales Tax is curtailed to the "Sales Tax actually billed to the consumer or purchasers" under Rule 14 of the Sales Tax Special Procedure Rules, 2007. Where the language of law is clear and explicit, nothing further is to be implied and in this respect, reliance of the taxpayer on the judgment of the Hon'ble Supreme Court of Pakistan cited as PLD 1990 SC 68 is quite will placed."
' The learned AR also relied upon on the judgment of the learned Appellate Tribunal Inland Revenue, Headquarter Bench in S.T.A. No,96/PB/2013 and T.A. No,170/PB/2011 para-23 of this judgment is reproduced as follows: - "23. The next issue in these cross appeals is the declaration of less sales in sales tax returns as compared with annual accounts short payment of sales tax (Rs,4,031,662,444/-) subsidy paid by the Government. This issue relates to levy of sales tax on the subsidy paid by the government to the power distribution companies. The learned LA for the Department has argued that this amount has been paid with reference to cost of electricity and is hence taxable. However the Counsel for the PESCO has explained that subsidy falls outside the scope of value of taxable supply Under section 2
(46) and hence sales tax cannot be levied on such welfare payment by the government to keep the prices of electricity at a lower level.
' Taxability of amount received as subsidy by a power distribution company has been thoroughly examined and decided in favour of taxpayer by this Tribunal, Lahore Bench vide S.T.A.
No,874/LB/2013 and STA No,950/LB/2013 between RTO, Faisalabad and Faisalabad Electric Supply Company. Following the judgment given in exactly similar and comparable circumstances, it is held that sales tax is not payable on the subsidy received by PESCO from the Government of Pakistan."
6. We have perused the judgments relied upon by the learned AR. Both the judgments of this learned Tribunal discussed by the learned AR pertained to the issue of chargeability of' sales tax in respect of subsidy paid by the government to the power distribution companies. In both the judgments, it was held that the subsidy did not constitute the value of taxable supply in terms of section 2 (46) of the Sales Tax Act, 1990 hence sales tax could not be levied on subsidy payment the benefit of which was passed on to the consumers. These judgments contain a finding that the concerned power distribution companies had passed the burden of sales tax on the amount of subsidy portion of the total cost of electricity billed to consumers. It is thus evident that the case law relied upon by the learned AR is in the context of chargeability of sales tax on the amount of subsidy which was passed on to the consumers and the sales tax on the amount which represented subsidy was also not charged from consumers. On the other hand, the issue arising from these appeals and the pleadings at bar is whether the subsidy received by the appellant as tariff differential is characterizable as "gross receipt" within the meanings of the phrase "turnover" envisaged in subsection (3) of section 113 ibid. The text of section 113 ibid so far as applicable to the issue involved in these appeals is reproduced as follows:- "113. Minimum tax on the income of certain person. ---(1) This section shall apply to a resident company where, for any reason whatsoever allowed under this Ordinance, including any other law for the time being in force:--
(a) loss for the year;
(b) the setting off of a loss of an earlier year;
(c) exemption from tax;
(d) the application of credits or rebates; or
(e) the claiming of allowances or deductions (including depreciation and amortization deductions) no tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a tax year is less than 3[one] per cent of the amount representing the person's turnover from all sources for that year: ' Provided that this subsection shall not apply in the case of a company, which has declared gross loss before set off of depreciation and other inadmissible expenses under the Ordinance. If the loss is arrived at by setting off the aforesaid cr changing accounting pattern, the Commissioner may ignore such claim and proceed to compute the tax as per historical accounting pattern and provision of this Ordinance and all other provisions of the Ordinance shall apply accordingly.
(2) Where this section applies:
(a) the aggregate of the person's turnover as defined in subsection (3) for the tax year shall be treated as the income of the person for the year chargeable to tax;
(b) the person shall pay as income tax for the tax year (instead of the actual tax payable under this Ordinance), an amount equal to l[one] per cent of the person's turnover for the year;
(c) where tax paid under subsection (1) exceeds the actual tax payable under Part I, Division II of the First Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under the aforesaid Part of the subsequent tax yea: ' Provided that the amount under this clause shall be carried forward and adjusted against tax liability for [five] tax years immediately succeeding the tax year for which the amount was paid.
(3) "turnover" means,-
(a) the 3[gross sales or] gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods, and also excluding any amount taken as deemed income and is assessed as final discharge of the tax liability for which tax is already paid or payable;
(b) the gross fees for the rendering of services for giving benefits including commissions; except covered by final discharge of tax liability for which tax is separately paid or payable;
(c) the gross receipts from the execution of contracts; except covered by final discharge of tax liability for which tax is separately paid or payable; and
(d) the company's share of the amounts stated above of any association of persons of which the company is a member.]"
A careful analysis of the expression "turnover" used in subsection (3) of section 113 ibid has transpired that the "turnover" means gross receipts, gross sales (inserted through Finance Act, 2011) derived from sale of goods. Given the definition of "turnover", it follows that the subsidy received by the appellant is an essential component of the gross receipts from the appellant company's sale of electricity to the consumers and be that as it may, constitutes integral part of the turnover which is 6hargeable to minimum tax in terms of section 113 ibid. The simple reason for applicability of section 113 ibid is that the appellant declared loss for the tax year in question. In other words, if the appellant has not declared loss, the provision of section 113 ibid relating to chargeability of minimum tax would not have been applicable.
7. The second issue in these appeals is whether the subsidy in question is exempt from levy of tax under clause 102-A of the Part-I of the 2nd Schedule to the Income Tax Ordinance, 2001. Clause 102A of the Part-I to the 2nd Schedule which lists all the exemptions from chargeability of income tax is reproduced as follows:- "(102A). Income of a person as represents a subsidy granted to him by the Federal Government for the purposes of implementation of any orders of the Federal Government in this behalf."
The analysis of this issue requires reading of clause 102A of Part-I of the 2nd Schedule to the Income Tax Ordinance, 2001 in conjunction with the provisions of section 113 ibid. A careful reading of the clause 102A in juxtaposition with section 113 ibid, suggests that whilst a subsidy granted to a company or legal person by the Federal Government for purposes implementation of a social policy measure or any order of the Federal Government in this behalf is undoubtedly exempt from tax but if the loss is declared, the tax exemption will not be available and in turn the provision of section 113 would become applicable. Infact, section 113 ibid contains a set of conditions for its applicability and one of those conditions given in clause (c) of subsection (1) of section 113 ibid is the situation where exemption from tax is claimed. This means that the appellant's whose gross receipts of subsidy which is otherwise exempt from tax under clause 102A of the Part-I of the 2nd Schedule to the Income Tax Ordinance, 2001 would attract application of minimum tax because appellant's declaration of loss. Had the appellant not declared loss, the subsidy received by it would have been eligible for tax exemption in terms of clause 102A of the Part-I of the 2nd Schedule to the Income Tax Ordinance, 2001 and that being the case the minimum tax would not have been applicable.
8. The foregoing discussion brings us to yet another issue and analysis of the appellant's eligibility to claim exemption from minimum tax in terms of the provisions of clause 11A of Part-IV of the 2nd Schedule to the Income Tax Ordinance, 2001. A careful review of this provision has informed us that the IESCO (the appellant company) is not qualified for exemption from minimum tax because the criteria for exemption under the aforesaid clause is the applicability of clause 132 Part-I of the 2nd Schedule to the Income Tax Ordinance, 2001. The clause 132 Part-I of the 2nd Schedule to the Income Tax Ordinance, 2001 provides exemption to power generation companies and does not apply to power distribution companies.
9. In view of the foregoing analysis, it is concluded that the subsidy received by the appellant is chargeable to minimum tax under section 113 ibid for the reasons given above. Therefore, the orders passed by the learned forums below are found to be in accordance with the law on the subject matter of this case, hence, sustained. The appeals are eventually determined to be without merit, hence dismissed.
10. This order consists (07) pages each page bears my signature.