SHAHID MASOOD MANZAR, JUDICIAL MEMBER. --- The above titled appeals have been filed by tax-payer against consolidated Orders No. 569, 570 & 571/2014 dated 24.03.2014 passed by the learned Commissioner Inland Revenue (Appeals-Ill), Islamabad for tax years 2010 to 2012. The tax-payer 'contested the appeals on the following common grounds:--
(i) That reduced rate of 1% was applicable in the case of appellant in terms of clause (24A) Part 2 of Second Schedule to the Income Tax Ordinance, 2001 whereas the department charged the same @ 3.5%.
(ii) That the appellant has taken plea that he is falling in the ambit of Distributor as explained in Black's Law Dictionary 8th Edition at page 509.
(iii) That the assessing officer as well as learned CIR(Appeals) has without giving any case-law or cogent reasons rejected the claim of appellant which is unjustified, unwarranted & uncalled for .
2. Brief facts of the case are that the tax-payer is a manufacturer and distributor of Pharmaceuticals. Return for the Tax Years 2010 and 2011 were filed claiming refund amounting to Rs. 393,195/- and Rs. 11,92,896/- for the Tax Years 2010 and 2011 respectively . The refund was claimed on the basis of tax reduction under clause (24A) of Part-Il of 2nd Schedule to the income Tax Ordinance, 2001. This claim of tax-payer was not accepted by the Officer Inland Revenue in the order passed u/S. 170(4) of the Ordinance. Aggrieved of this treatment, the taxpayer filed appeal before learned Appeal Commissioner who vide order dated 24.03.2,014 also confirmed the order passed by the Of ficer Inland Revenue on the issue.
3. The above-mentioned appeal of the taxpayer for the tax years 2010 and 2011 were basically decided by this Tribunal vide order dated 16.10.2014 whereby the same were rejected. The case has been remanded back to this Tribunal for de novo decision by the Islamabad High Court, Islamabad on the tax reference filed by the taxpayer u/S. 133 of the Ordinance 2001 vide its judgment dated 18.06.2015. The relevant part of the observations of Honourable Islamabad High Court given in last part of para 4 on page 3 of its judgment dated 18-06-2015 are reproduced as hereunder:-- "The learned Tribunal had to make a determination in the light of clause (2./A) of Part-1 1 of the 2nd Schedule of the Ordinance read with Section 153 ibid. The learned Tribunal for the purposes of section 153(1)(a) had to determine as to who was the "prescribed person" making a payment for the sale of goods. The learned Tribunal unambiguously acknowledged the applic ant as a Distributor besides being a Manufacturer . After determining the status of the applicant as a "Distributor" the learned Tribunal was required to make a further determination whether the applicant was entitled to the reduced rate under clause (24A) of Part-1 1 of the 2nd Schedule read with section 153 of the Ordinance. It ' is evident from the order passed. by the learned Tribuna l dated 16-10-2014, that though the status of the applicant has been accepted as a manufacturer -cum-distributor but there has been no determination whether in the context of section 153 of the Ordinance it was to be treated as a manufacturer or a distributor . In other words it had to be determined whether the transactions related to the status of the applicant as a manufacturer or a distributor ."
4. On the date of hearing Mr. Atif Waheed, Advocate, learned AR appeared on the behalf of the appellant/taxpayer whereas Mr . Waqas Hanif learned D.R. defended the Department.
5. During the course of hearing learned AR has vehemently contended that the taxpayer is entitled to the reduced rate under Clause (24A) of Part-II of the 2nd Schedule in respect of sales falls under the ambit of withholding tax under the provisions of section 153 of the Ordinance, in respect of the goods sold as a distributor . According to learned AR the appellant despite of being a manufacturer is also a Distributor as such is entitled for the Tax reduction under clause (24A) of Second Schedule. He argued that there is no bar for the manufacturer under clause (24A) of Part-II of 2nd Schedule to the Ordinance to claim reduction in tax which is allowable to all Distributors of Pharmaceuticals Products . He further argued that from the langu age of the provisions of clause (24A) of Part-II of 2nd Schedule it is quite clear that the reduction in tax rates under the said clause is generally available to all Distributor of Pharmace uticals and none of the kind of such Distributors whether Importer , manufacturer etc. has been excluded therefrom, He stated that the manufacturing and Distribution are two different kinds of activities. The first one i.e. manufacturing process is an activity related to purchases/cost of sales whereas Distribution is entirely a different kind of activity directly related to sale of goods. The appellant taxpayer is a manufacturer as well as a Distributor as earlier observed by this learned Tribunal in paras 5 and 6 of its judgment dated 16.10.2014 passed in the 1st round of appeal. He further stated that two kinds of functions performed by the appellant/taxpayer i.e. one as a manufact urer and the other as a distributor are entirely of different nature which do not overlap each other . He submitted that the relief under the provisions of clause (24A) of 2nd Schedule is generally available to all distributors irrespective of being an importer or manufacturer or of any other kind in respect of sales coming -under Section 153(1)(a) of the Ordinance.
6. Learned AR also referred to the meanin gs of word "distributor". He stated that the word distributor or distribution is not defined in the Income Tax Ordinance, 2001. He however , cited its meanin g as per various dictionaries by producing the copies of relevant page in the following manner:-- a. Black's Law Dictionary (8th Edition Page 509)
DISTRIBUT OR "A wholesaler ,' jobber , or other MC1 17 ufacturer or supplier that sells chiefly to retailers and commercial users. b. Oxford Dictionary (New 7th Edition Page 44)
DISTRIBUT OR
1. A person or company that supplies goods 'to shops/stores, etc........" c. Wikipedia, the free encyclopedia ; Distribution is the process of making a product or service available for use or consumption by a consumer or business user , using direct means, or using indirect means with intermediaries .
Learned AR contended that in view of the above dictionary meanings of the word "distributor" the appellant taxpayer irrespective of being a manufacturer is entitled to the reduction in tax rates under clause (24A) Part-1 1 of 2nd Schedule in respect of goods sold in the capacity of distributor .
7. Learned AR asserted that the provisions of Section 153(1)(a) of the Ordinance also do not categorize the persons for the purpose of sale of goods . He further asserted that the goods fall under the ambit of clause (a) of sub-section (1) of section 153 are subjected to withholding of tax by the prescribed person irrespective of seller being a manufacturer or importer etc. According to the learned AR the provisions of clause (24A) of Part-II of 2nd Schedule are to be read in isolation but in the context of those of clause (a) of sub-section (1) of section 153 of the Ordinance.
8. Learned AR argued that a manufacturer can also be a distributor and that a distributor is entitled to relief in respect of goods sold which are covered by the provisions of clause (24A) Part-II of 2nd Schedule to the Ordinance.
9. Learned DR on the other hand in his arguments supported the order of the authorities below . According to learned DR the relief under clause (24A) of 2nd Schedule to the Ordinance was not available to the appellant taxpayer who is also a manufacturer of pharmaceuticals. Learned DR contended that reduction in tax rates under the said clause (24A) was available to 'Distributors only and not to the manufacturers of pharmaceuticals.
10. Arguments of learned representatives of both the parties have been heard and provisions of law have also been taken into sideration. Before proceeding further we will like to reproduce here the relevant provisions which are as under:-- Section 153. Payments for goods, services and contracts
(1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or --
(a) for the sale of goods
(b) for the rendering of or providing of services
(c) on the execution of a contract, other than 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 amoun t payable (including Sales Tax if any) at rate specified in Division-III of Part-III of First Schedule of the Income T ax Ordinance, 2001.
The provisions of clause (24A) of Part-II of Second Schedule are reproduced as hereunder:-- (24A) The rate of tax, under clause (a) of sub-section (1) of section 153 from distributors ,of cigarette and pharmaceutical products and for large distribution houses who fulfill all the conditions for a large import house as laid down under clause (d) of sub-section (7) of section 148, for large import houses, shall be 1% of the gross amount of payments.
11. From combined reading of both the above provisions it transpires that under the provisions of section 153(I)(a), tax is required to be deducted on sale of goods, whereas under the provisions of clause (24A) of 2nd Schedule, reduction in rate of tax required to be deducted u/S. 153(1)(a) is allowed to the Distributors on the sale of pharmaceuticals etc. In the present case the taxpayer a manufacturer who undoubtedly is a distributor also entitled to said relief in respect of goods sold which come under the ambit of Section 153(1)(a) of the Ordinance.
12. From the above provisions it also transpires that unqualified relief under clause (24A) of Second Schedule is available to the distributors of pharmaceuticals in respect of sales covered under the provisions of section 153(1)(a) of the Ordinance. We find force in the arguments of learned AR that unqualified reduction under clause '(24A.) of Part-II of 2nd Schedule is available to all distributors"of pharmaceuticals.
13. The activity of a person as a distributor is not affected because of his being a manufacturer , or importer etc. The reduction in rate of tax deductible, u/S. 153(1)(a) of the Ordinance under clause (24A) of Part-II of the 2nd Schedule is available to all distributors of pharmaceuticals products without any pre-qualification of the same. In our considered opinion the appellant taxpayer being a manufacturer- cumdistributor is entitled to relief under the provisions of clause (24A) of Part-II of 2nd Schedule to the extent of sales liable to deduction of tax under clause
(a) of sub-section (I) of section 153 of the Ordinance.
14. The appeals filed by the taxpayer for tax years 2010 and 201 1 succeeds in the manner as indicated above.