NAZIR AHMAD, (CHAIRMAN).---This Full Bench has been constituted in the titled appeals to decide the issue that as to whether the contractors falling under the category of Final Tax Regime (FTR) are entitled to exemption under Clause 126F of the Income Tax Ordinance, 2001 (hereinafter called 'the Ordinance') or not. Since, common question of law is involved in all the titled appeals, therefore, this single order shall disposed of the same.
2. The facts in brief leading to the instant appeals are that the appellants are the contractors falling under the preview of FTR by virtue section 153(1)(c) read with section 169(b) of the Ordinance. They were required to file statement under section 115(4) of the Ordinance and they did so but later on they also filed normal returns under section 114 of the A Ordinance and claimed refund, which was paid. Subsequently, the cases were treated to be erroneous in so far as prejudicial to the interest of revenue by virtue of exemption from levy of income tax under clause 126F was not available with the taxpayer under FTR as income of such cases did not fall under the definition of profit and gains and resultantly were amended accordingly. Feeling aggrieved, the taxpayers preferred appeal before CIR (Appeals), which was accepted only in the case of Messrs Karcon (Pvt.) Limited by way of annulment of amended assessm ent order whereas in respect of the other above titled cases, the appeals were rejected. Against the relief allowed by the first appellate authority in the case of Messrs Karcon (Pvt.) Limited, the department has come up in further appeal before this Tribunal whereas against rejection of first appeals, the taxpayers have preferred appeals before this Tribunal.
3. Mr. Faisal Rasheed, learned AR while arguing his case submitted that the taxpayer had filed statement under section 115(4) of the Ordinance and the statements falling under the said section cannot be subjected to action under section 122(5A) of the Ordinance. He also placed reliance on the judgment of Honourable Sindh High Court in this respect reported as 2000 PTD 734. However, in reply to question by the court, he admitted that the taxpayer has subsequently filed normal return under section 114 of the Ordinance to claim the refund. Concluding his arguments, he submitted that FTR cases are entitled to exemption under clause 126-F.
4. Mr. Muhammad Shafi Jan, Advocate took the plea that the proceedings initiated by the department under section 122(5A) of the Ordinance tantamount to change of opinion. While elaborating his view point he submitted that refund was issued by the department with the approval of the Additional Commissioner and therefore, the Additional Commissioner while proceedings under section 122(5A) of the Ordinance has changed his opinion, which is illegal in the light of judgment of this Tribunal dated 05.12.1994 recorded in I.T.A. No.4(PB) of 1993-94, wherein it was held as under:-- "that when the IAC was all along associated with the reassessment, subsequently he was estopped to change the view the IAC could not exercise his powers under section 66-A by revising the order."
5. Mr. Raheem Khan, Advocate appearing in the case of M/s. Sarwar Construction Company has adopted the same line of arguments, which was adopted by him before the first appellate authority and has been carefully perused by us.
6. On the other hand, the learned DR appearing on behalf of the department has apprised the court that all the appellants filed statements under section 115(4) of the Ordinance but subsequently they also filed returns under section 114 of the Ordinance claiming refund, which, was inadvertently issued to them by the Revenue Authorities despite the fact that being contractors and falling under the category of FTR, they were not entitled to file return under section 114 or to claim exemption under clause 126F of the Ordinance. He has emphasized that issuance of the refund to the appellants is contrary to the ratio settled by the Honourable Lahore High Court in PTR No.71 of 2014 in the case, titled as Messrs Sarwar Construction Co. (Pvt.) Ltd. v. The ATIR etc. wherein the FTR cases have been held not entitled to exemption under clause 126F of the Ordinance. This view point of the Honourable Lahore High Court was subsequently endorsed by the August Supreme Court of Pakistan vide its judgment date 26.01.2017 recorded in C.Ps. Nos.3147-L to 3149-L of 2016 in the case titled as Messrs Sarwar and Company (Pvt.) Ltd., Lahore v. The ATIR etc. On the strength of these assertions, he seeks rejection of instant taxpayers' appeals.
7. Arguments heard and record perused.
8. As far as, the contention of Mr. Muhammad Shafi Jan learned counsel regarding change of opinion while taking action under section 122(5A) of the Ordinance is concerned, we have gone through the orders relied on by him and observed that in this case the order under section 62 of the repealed Income Tax Ordinance, 1979 (hereinafter called 'the repealed Ordinance'), was passed by the taxation officer with the approval of Inspecting Additional Commissioner (IAC).
Subsequently, the order was subjected to proceedings under section 66A of the repealed Ordinance by the IAC. In that appeal, the Tribunal declared the action of IAC as change of opinion as he was also associated in earlier approval proceedings to the tax authority. The AR argues that while taking action under section 66A of the repealed Ordinance, which is equivalent to section 122(5A) of the prevailing Ordinance, he had changed his opinion. However, we find that in the instant case the situation is quite different as returns were filed by the contractors under sections 114 and 115 of the Ordinance, which were deemed to be assessment orders in terms of section 120(1) of the Ordinance subject to subsection (3) where defects are pointed out after receiving the return and in case of non-compliance the return is treated as defective. Under section 122(5A) of the Ordinance, the proceedings are to be initiated by the Commissioner where he finds that the assessm ent order is erroneous in so far it is prejudicial to the interest of revenue. The stance of the learned counsel that the Additional Commissioner was involved in issuance of refund to the taxpayer is not acceptable because approval of refund is an administrative function and not a judicial one whereas the action taken by the Additional Commissioner under section 122(5A) of the Ordinance is a statutory power and the Additional Commissioner under delegation of power in terms of sections 210 and 211 of the Ordinance has passed the order. Therefore, the case Law relied on by the learned counsel is distinguishable with the instant case. In the referred judgment the IAC was involved in assessm ent proceedings as he was consulted for obtaining approval whereas in the case in hand no such involvement exists. Therefore, action of the Additional Commissioner for invoking provisions of section 122(5A) of the Ordinance cannot be termed as change of opinion.
9. Admittedly, the appellants of the instant case being contractors and falling under FTR by virtue of section 153(1)(c) read with section 169(b) of the Ordinance, were required to only file statements under section 115(4) of the Ordinance, which were duly filed by them but subsequently they also filed normal returns under section 114 of the Ordinance purely for the purpose of claiming refund by following the procedure of Normal Tax Regime (NTR). In our considered opinion, the returns filed under normal law i.e. under section 114 of the Ordinance in these cases were altogether illegal and against the scheme of Law. Being contractor and falling under the category of FTR they were only required to file statements under section 115(4) of the Ordinance without claiming any deductions in the light of latest judgment of Honourable Lahore High Court recorded in PTR No.71 of 2014 in the case titled as Messrs Sarwar Construction Co. (Pvt.) Ltd. v. The Appellate Tribunal Inland Revenue etc. wherein it has been held in unequivocal manner that the FTR cases are not entitled to exemption under Clause 126F, as per findings given below:-- "22. To crystallize the opinion arrived at, supra, we intend to resettle the question of law, before answering the proposition of law, in following words:-- Whether under the facts and circumstances of the case, taxpayers falling under Presumptive Tax Regime are entitled to exemption under section 126F?
Our answer to the resettled question is in Negative. The petitions filed by the department are decided in its favour, whereas petitions filed by the taxpayers are decided against them."
10.The view taken by the Honourable Lahore High Court was subsequently endorsed by the Honourable Supreme Court of Pakistan vide its judgment dated 26.01.2017 recorded in C.Ps.
Nos.3147-L to 3149-L of 2016 in the case titled Messrs Sarwar and Company (Pvt.) Ltd., Lahore v. The Appellate Tribunal Inland Revenue etc. by holding as under:-- "We, therefore, conclude that the tax exemption granted in the year 2010 under Clause 126F from its tenor could only have been intended for the taxpayers falling under the domain of `normal tax regime' whose profitability while doing business in the affected areas had diminished in the past on account of an external factor i.e. political strife that affected the profitability of doing business there. The exemption was never meant for the taxpayers like the petitioners whose businesses fall within the domain of 'final tax regime' for whom the question of experiencing loss of business opportunity on account of internal strife does not arise. They made their presence in the affected area only when they had in their hands a business opportunity to make profits and gains in the form of contracts to be executed there. The income tax department shall accordingly proceed to recover the income tax that has been wrongly refunded to any of the petitioners."
11. In the presence of above mentioned landmark judgments given by the Honourable Lahore High Court as well as August Supreme Court of Pakistan having binding effect on this Tribunal in terms of Article 201 of the Constitution of Islamic Republic of Pakistan, 1973, we find no justification for further discussion at our end. Therefore, by respectfully following the said judgments, we reject the appeals of the taxpayers and accept the appeals of the department. We order accordingly.