MUHAMMAD JAWED ZAKARIA, JUDICIAL MEMBER :-The appeal under consideration has been filed by the appellant against the appellate Order No. 35 dated 27-09-2017 passed by the learned Commissioner Inland Revenue (Appeals II) Karachi [the CIR(A)] for the tax year 2011 on the grounds as set-forth in the Memo. of Appeal.
FACTS
2. The brief facts, as gleaned from the records, leading to this appeal are that the appellant is a Private Limited Company driving income from rendering and providing telecommunication network planning services, power distribution services, site designing, installation, commissioning, integration, testing, updating, maintenance / management of equipments and network by providing GSM Technology for trans receiver stations and BTS towers in Pakistan to various customers. The return of income was filed on 13-03-2012 declaring income of Rs.22,225,018/-. The return constituted deemed order under section 120 of the Income Tax Ordinance, 2001 [the Ordinance ] was subsequently amended under section 122(5A) of the Ordinance, by the Additional Commissioner Inland Revenue Audit Range-B, Zone-III, Large Taxpayers Unit, Karachi (AdCIR1 ) vide DC No. 03/131 dated 18.10.2012 considering the tax deducted at Rs.61,873,934/- under Section 153(1)(bl of the Ordinance as adjustable. On examining the record, by the Additional Commissioner Inland Revenue, Audit Range-B, Zone-III, Large Taxpayer's Unit Karachi (AdCIR2 ), it was found by him that the amended order is erroneous in so far as prejudicial to the interest of revenue on the issue that tax deducted under section 153(1)(b) of the Ordinance was to be treated as minimum tax under Third Proviso to subsection (6) of the Section 153 of the Ordinance. The ADCIR confronted the appellant through show-cause notice and after obtaining explanat ion, passed the amended order under section 122(5A)(4) of the Ordinance, vide DC No.94/51 dated 07.06.2017, raising demand of Rs.80,826,907/- treating the tax deducted at Rs.61,873,934/- as minimum tax. Against that order , an appeal was filed before the Commissioner Inland Revenue, (Appeals II), Karachi. Having cons idered the arguments submitted by the learned Counsel of the appellant; the learned CIR(A) confirmed the second amended order through the appellate order bearing No. 35 dated 27-09-2017.
Decision in First appeal [(CIR(A)]
3. The learned CIR(A) while passing the impugned order provided complete history of section 153 of the Ordinance and given comprehensive finding on the issue. Relevant extract of the finding are reproduced for the ease of reference :-
(i) .........................................
(ii)........................................
(iii)....................................
(iv).................................
(v) The Lahore Bench of learned Appellate Tribunal in I.T.A. No. 1856/2013 (Tax year 2010) and I.T.A. No. 1857/2013 (Tax year 2011) dated 29.10.2015 maintained that tax deducted at source for services provided or rendered is minimum tax. The learned ATIR held the view that clause 79 was inserted in law on 31.10.201 1 and was therefore not applicable prior to tax year 2012.
(vi) The undersigned is in agreement with learned AdCIR that amendment introduced through Clause (79) of Part IV of Second Schedule "Exemption from specific provision" relates to exemption and reduction in tax liability the said amendment is a substantive in law and cannot be applied retrospectively .
(vii) Regarding the binding implication of Circular No. 6 of 2009 which was subsequently withdrawn by FBR itself, the Honorable Sindh High Court in recent pronouncement in C.P. No. D-3797/ 2016 dated 16.01.2017 in the case of Port Qasim Authority and C. Ps. Nos. D-2864 to 2865 and 3089 of 2016 in the case of ARY Communication Limited it has been categorically held that any circular/instruction issued while applying the minimum tax on services which is contrary to law, the tax authorities have been directed to decide the matter without having been influenced by any circular or instructions.
(viii) Hence, reliance placed by learned AR of the appellant on reported judgment of ATIR Karachi bench 2014 PTD 484 (Tribunal) cannot be acceded to in the light of judgment, quoted supra to the contrary .
(ix) For the reasons narrated above, I am of the concerted opinion that the learn ed assessing officer has rightly assumed the jurisdiction by invoking section 122(5A) of the Ordinance, treating tax deducted under section 153(1)
(b) as minimum tax in the case of appellant for the tax year in question.
Therefore, 1 decline to interfere with the impugned order and appeal hereby stands dismissed."
4. Being aggrieved and dissatisfied with the above findings of the learned CIR (A), the taxpayer has preferred the instant appeal before this Tribunal.
5. On the date of hearing Mr. Abdul Qadir Memon, A.R., the learned, counsel for the appellant appeared while Mr. Ashfaque Ahmed Awan, D.R. represented the department.
ARGUMENTS OF A.R.
PRELIMINAR Y OBJECTIONS
6. At the very outset, the learned counse l for the appellant raised the legal object ion that the ADCIR-2 had again examined the return while further initiating the amended proceedings under section 122 (5A) read with subsection
(4) of the Income Tax Ordinance, 2001. The returns so filed by fiction of law constituted deemed order under section 120 of the Income Tax Ordinance, 2001 which was amended under section 122(5A) and the deemed assessment order under section 120 had been merged into amended order under section 122(5A) but the ADCIR-2 had further amended under section 122(5A)/4 the return of income/deemed order under section 120 which was no more in the field. Therefore, the further amended proceedings initiated under section 122(5A)/4 is null and void.
7. The learned counsel for the taxpayer has further raised the legal objections that twin conditions should come from admitted facts and not from disputed facts gathered through fishing inquiries. Twin conditions are to be proved at the time of issuance of notice under section 122(5A) and not on the basis of record submitted and subsequent inquiry . He has further pleaded that in the repealed Act, 1922 and Repealed Ordinance, 1979 powers of assessments were with the ITO/DCIT and therefore powers of IAC under sections 34A and 66A were of supervisory authority as quality controller and the scope was large. In the 2001 Ordinance powers are with Commissioner through delegation and therefore, scope of (5A) is narrow . He further explains that in 2001 Ordinance there are two schemes 177-122(1)(5) for inquiries and factual controversies and 122(5A) for legal controversies on admitted facts with twin conditions. He placed reliance on the judgment reported as 113 Tax 53. Learned counsel for the taxpayer further asserted that the words "after making or causing to be made, such enquir es as he deems necessary" are from tax year 2013 and are not retrospec tive, reliance is placed on 2014 PTD (Trib.) 2085. Even after amendment inquiry does not mean inquiry from the taxpayer . The inquiry should be independent and not from tax payer . After insertion of words "if he considers that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. The question arises as to which of the two expression is of a controlling nature to arrive at the correct construction of error of law and its prejud icial effect in terms of revenue. Question also arise as to the scope of the key words "such inquiries" can it be read within the confines of the amendment provision or can it be so enlarged as to equate with and entail all types of factual inquires. If this be the case the whole I scheme of audit under section 177 becomes redundant. Such a conclusion which renders redundant another provision of law is against the principle of harmonious construction of a tax statute. Thus, even after the amendment in section 122(5A), inquiry cannot be conducted from the taxpayer . It only empowers the Additional Commissioner to make independent inquiry at his own end and not from the taxpayer , reliance is placed on the judgment reported as 2014 PTD (Trib.) 2085, In support of his argument he has also relied upon the following reported and unreported case law: (1). 2013 PTD (Trib.) 900, (2). 2013 PTD (Trib.) 788, (3). 2012 PTD (Trib.) 1739, (4). 2010 PTD (Trib.) 111, (5).
2012 PTD (Trib.) 1593, (6). 2013 PTD (Trib) 1557 , (7). 2014 PTD (Trib) 2085 , (8). I.T.A. No.799/KB/2014 and (9).
I.T.A. No.1236/KB/2016.
8. He has further submitted that the impugned further assessments for the year under review had been passed after detailed scrutiny under section 122 (5A) and not under section 177 as such the same cannot be said to be erroneous being prejudicial to the interes t of revenue and recourse cannot be had to under section 122(5A) of the Income Tax Ordinance, 2001 thus, learned ADDL.CIR-2 is debarred and precluded from indulgence in such like position as held by the Hon'ble Superiors Courts. The learned counsel, therefore, vociferously , further went on to stress that in view of the submissions made hereinabove and case laws decided by the Learned ATIR on the subject and principles of interpretation settled by Hon'ble Apex Court, the order under section 122(5A) is not sustainable in law and may be annulled. He further went on to urge that the order passed under section 122(5A) is an illegal order and without jurisdiction as the queries raised and the additions made are in excess of powers vested under section 122(5A). He contended that the Additional Commissioner was not conducting audit proceedings hence, the queries raised are in excess of jurisdiction. The powers under section 122(5A) is restricted and limited to issues resulting in the amended assessment being erroneous and prejudice to the interest of revenue. Thus, the entire superstructure built and income recomputed by way of re-amend assessment order by ADCIR-2 is null and void and without any legal effect. As the order passed unde r section 122(5A) is beyond the scope and jurisdiction, the additions made are liable to be deleted. Reliance is placed on the decisions reported as 2004 PTD (Trib.) 2449 and 2001 PTD (Trib.) 2902. As this issue has been settled by the Tribunal, the order passed under section 122(5A) may kindly be cancelled and annulled. He further objected that prior to initiating proceedings under section 122(5A), the Additional Commissioner has to prove that the earlier amended order passed was erroneous and as well as prejudicial to the interest of revenue which has caused loss of revenue. Thus, both the conditions are to be fulfilled simultaneously . But if either of the conditions are not fulfilled, the order passed under section 122(5A) is not sustainable in law. This issue has already been decided by various forum while adjudicating on proceedings initiated under section 66A of Repealed Ordinance, 1979 which is in pari materia to Section under section 122(5A) of Ordinance, 2001. Further reliance is placed on the following reported decision.
(a) 1992 PTD 932 (SC Pak) Glaxo Laboratories Limited .,
(b) 2004 PTD 330 S.N.H. Industries (Pvt.) Limited v. Income Tax Department and others, (c) 1984 PTD 137 (HC AJ&K) in Messrs United Builders Corporation, Mirpur v. Commissioner of Income Tax, (d) 1999 PTD (Trib.) 700,
(e) 2004 PTD (T rib.) 2449, (f) 2001 PTD (T rib.) 2902 and (g) 1969 PTD (T rib.) 144.
9. In the above decisions it has been held that if both the conditions are not fulfilled simultaneously and there is no loss of revenue or if only one of the conditions are fulfilled, the order passed under section 34A of Repealed Act, 1922, Section 66A of Repealed Ordinance, 1979 and Section under section 122(5A) of Ordinance, 2001 which are in pari materia to each other provisions of law , the order passed has to be cancelled and annulled.
10. The learned counsel further vehemen tly argued that in the case of the taxpayer , as neither of the conditions have not been fulfilled simultaneously and the queries raised and additions made are beyond the jurisdiction and power vested under section 122(5A), the order passed by the Additional Commissioner of Inland Revenue is without and in excess of jurisdiction, nor the earlier amended order was either erroneous, nor the prejudicial to the interest of revenue, the order passed under section 122(5A) is not sustainable in law .
11. Before taking the main factual grounds the learned Counsel of the Appellant Mr. Abdul Qadir Memon brought our attention towards Section 153 of the Ordinance prior to its substitution through the Finance Act, 2011, clarifications issued by the FBR on the matter and history of provisions inserted in section 153(1)(b) read with subsection (6) of the Ordinance and judicial pronouncement on this point of dispute. He referred the following relevant provisions of law .
ARGUMENTS OF THE LEARNED COUNSEL ON F ACTUAL GROUNDS OF APPEAL Relevant Provisions of section 153 of the Income T ax Ordinance, 2001.
12. While arguing on the factual grounds, the leaned counsel for the appellant referred to relevant portion of Clause
(b) of subsections (1) and (6) of section 153 reads as under:--
153. Payment for goods and services 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; and 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 amount payable at the rate specified in Division III of Part II of the First Schedule. .....................
(6) The tax deducted under this section shall be a final tax on the income of a resident person arising from transaction referred to in subsections (1) and (IA):-- Provided that subsection (6) shall not apply to companies in respect of transactions referred to in Clause
(b) of sub-section (1): Provided further that this subsection shall not apply to payments received on account of:-- i) Advertisement services, by owners of newspaper and magazines; ii) Sales of goods and execution of contracts by a public company listed on a registered stock exchange in Pakistan; and iii) The rendering of or providing of services referred to sub-clause (b) of subsection (1)
Provided that tax deducted under sub-clause (b) of subsection (1) of Section 153 shall be minimum tax."
13. The learned counsel submitted that the issue of tax deduction under section 153(1)(b) stands settled in favour of the appellant by the superior courts wherein it has been decided that in the case of a company , for all practical purposes the deductions of tax cannot be treated minimum tax. In support of his contentions he placed reliance on a Judgment of the Hon'ble High Court of Sindh in C.P. No. 3797/2016 in the case of Port Qasim and 2864/2016 in the case of ARY Communication Ltd. The learned counsel further relied on the judgments reported as 2014 PTD (Trib.) 484 passed by the Division Bench of the Tribunal. He further submitted that while passing the impugned order , the learned CIR(A) relied upon unreported judgment of the Tribunal bearing I.T.A. No.1857/2013 (Tax Year 2011) dated 29-10-2015 passed by the Single Bench of the Lahore Tribunal. Learned A.R. submitted that while passing an order the learned single bench should have followed the reported judgment 2014 PTD 484 passed by the Division Bench of this Tribunal. A single bench cannot differ with the Division Bench which was already in field and the same is neither overruled by Full/Larger Bench nor by the superior courts. In support of his argument he placed reliance on the land mark judgment of this Tribunal reported as 2016 PTD 722 titled as Messrs Shell Pakistan Ltd. v . The CIR, L TU, Karachi (one of us is author) wherein it has been held that: "....it is settled that the earlier judgment in taxpayer's own case has not been overruled has to be taken as good law abiding and binding precedent. There was no occasion for any difference of opinion between the two members, since they were convention bound to follow the earlier decision of Division Bench of this Hon'ble Tribunal in this very case of taxpayer . Even under any circumstances the learned Division Bench while deciding later judgment was bound to follow the earlier judgment. Therefore, it goes to establish that in the case of conflicting judgment, the decision which is favourable to the taxpayer should be followed and the subsequent different view is illegal and per incurium. Law of precedent, uniformity and consistency should be honoured. Hence, the earlier judgment bearing S. T.A. No.145/KB of 2011 dated 17.02.2012 covered the entire aspects of the issues involved in this appeal in question and gave the decision accordingly and the same has not been overruled neither by the larger Bench of this Hon'ble Tribunal not by any Superior Courts. Therefore, the earlier judgment is to be taken as good law and binding judgment."
14. In furtherance to above, the learned Counsel of the appellate also argued that the Division Bench of the learned Appellant Tribunal Inland Revenue Karachi in its decision bearing I.T.As. Nos. 202 and 207/KB/2012 dated 27-10- 2015 [Messrs Interflow Communications (Pvt.) Limited] has also relied upon another decision of its fellow bench in I.T.A. No. 1100/KB/201 1 dated 19-03-2012 [(CIR v. Messrs HRSG Outsourcing (Pvt.) Ltd.)] ; wherein same issue has been decided in favour of the taxpay er holding that tax withheld on the payme nts related to services rendered and provided in terms of Section 153(1)(b) of the Income Tax Ordinance, 2001 in the case of corporate taxpayers is not minimum tax in terms of third proviso to section 153(6) of the Income Tax Ordinance, 2001, but is adjustable tax. The same Bench in another decision in I.T.A. No. 1098/KB/201 1 [(CIR v. Messrs United Human Resourc es (Pvt.) Limited)] dated 19-03-2012 has rendered similar findings.
15. The learned counsel further stated that on the contrary the Honorable Federal Tax Ombudsman [FTO] in a suo motu case reported as 2012 PTD 554 and Review of Findings, Recommendatio ns of the Hon'ble FTO dated 10-07- 2013 took a different view and held that tax deducted on income for providing or rendering of services is a minimum tax in the hands of corporate and other taxpayers in the tax years 2009 to 2011. The relevant extract of aforesaid decision in Review Petition is reproduced as under for case of reference:- "33. It is quite intriguing that S.R.O. No. 1003 dated 31.10.201 1 was issued inserting Clause. (79) in the Second Schedule without getting retrospective approval of the amendment in section 153 by the parliament through Finance Act, 2011. Only subsection of section 153 were 'realigned to provide clarity without changing the taxation regime' through Finance Act, 2011 as explained by FBR itself in Para 19 of the Circular 7 of 2011 dated 01-07-201 1. Nor has the approval of the parliament been sought through Finance Act, 2012 or Finance Act, 2013.
34. It is evident the FBR acted beyond its jurisdiction in exempting corporate sector service providers from minimum tax. The FBR's act of issuing Circular No. 6 of 2009, and then inser ting Clause (79) in the Second Schedule effectively amending the provisions of section 153 of the Ordinance without approval of the parliament smacks of improper motive, as also inefficiency , incompetence and ineptitude. The FBR has no authority to issue S. R. Os. /Circulars which contradicts the statutory provisions of tax laws, as held by the Hon'ble Supreme Court. As no amendment in section 153 was approved by the Parliament, the insertion of Clause (79) in the Second Schedule, changing the whole spirit of taxation regime, was clearly and act without jurisdiction.
35. The bumpy and conflicting seque nce of Circulars and S.R.Os. leadin g to insertion of Clause (79) through S.R.O. 1003 dated 31.10.201 1 being wilful and mala fide comes under the definition of mal- administration in terms of section 2(3) of the F .T.O. Ordinance.
36. The Review Application is accordingly rejected in above terms, except that as a related aspect of Recommendation (iv) Para 1] is sub judice in the Honourable Lahore High Court, its implementation will be taken up in due course, I the light of final determination of the matter by the superior judiciary ."
16. The learned counsel continued to argue that against the decision of the Honourable FTO a representation was preferred by the FBR before his Excellency the President of Islamic Republic of Pakistan. After considering the facts and legal position, the issue was decided by His Excellency . The relevant extract of aforesaid decision is reproduced as under for ease of reference: - "7. We also would like to submit that your above view is in contrary to the recent decision of His Excellency President of Islamic Republic of Pakistan in the Representation preferred by the FBR against the decision of Honourable Federal Tax Ombudsman in the case of Messrs Might Solution (Pvt.) Limited, Faisalabad decided vide order No. 01/FT0/2015 dated 30-05-2016. We repro duce hereunder the relevant extract of the aforesaid decision for your ready reference" the perusal of case record indicates that the stance of the agency that the FTO was not justified in questioning the exercise of powers given by the statute in spite of the fact that the court have approved the exercise of these powers within the parameters of law. It is established that the FTO is debarred from interpreting the law as it is the function of the courts.
Hence FTO has gone beyond the scope of his functions under the garb of maladministration despite the agency has brought to the notice of FTO that the courts have approved the law and Circular No. 6 of 2009 was not contrary to the provisions of law and that as it was placed before the National Assembly through the Finance Bill. It was never withdrawn by the FBR and the clarifications issued by the Board did not indicate that the Circular was unlawful. FTO has not power to interpret the law. Even otherwise, the complainant has remedy to file an appeal after expiry of sixty days. In such circumstances, which remedy of appeal was available FTO could not interfere with the matter of assessment of tax and interpretation of law. Thus FTO having gone beyond the scope and powers, the impugned findings are not sustainable.
Consequently , the agency's representation is liable to be accepted. However , the complainant can seek remedy available to him from the relevant forums under the law .
8. Accordingly , the President has been pleased to accept the representation of the Agency/FBR and set aside the impugned recommendations of the learned FT O."
Factual and legal position of the case
17. In respect of factual and legal position of the present appeal the learned Counsel of the Appellant stated that the department has based its stance mainly on the provisions of Section 153(1)(b) of the Ordinance read with third Proviso of Section 153(6) of the Ordinance, various Circular letters/Circulars of FBR issued in this regard from time to time and the findings of the Hon'ble FTO quoted supra; wherein, it was held that after amendment in Section 153 of the Ordinance through the Finance Act, 2009 all NTN holders providing services were ousted from benefit of refund and observed Circular No.6 of 2009 as unlawful. In this regard, the Counsel of appellant further stated that the FBR filed review petition on the ground that, it was not within the power of the Hon'ble FTO to interpret the statutory provisions, which is in the purview of competent forum created by the statute and the opinion of any other person is not relevant. Two judgments have been passed by the Appellate Tribunal Inland Revenue and the view was taken by the FBR that the Hon'ble FTO has no power to declare any law as illegal and cannot interfere with that matter . The Hon'ble FTO; however rejected the review petition on the same ground on which the complaint was accepted. However , His Excellency the President of Islamic Republic of Pakistan after consid ering the facts and legal position, held that in such circumstances, where remedy of appeal was available the FTO would not interfere with the matter of assessment of tax and interpretation of law. Thus FTO having gone beyond the scope and powers, findings are not sustainable.
18. Assailing the order of the learned CIR(A) the Counsel of the appellant stated that the learned CIR (Appeals) relied upon the Single Bench judgment of the Hon'ble Appellant Tribunal Inland Revenue Lahore Bench in I.T.A.
No. 1856/2013 (Tax year 2010) and I.T.A. No. 1857/2013 (Tax year 2011) dated 29.10.2015; whereas the Division Benches of the Appellate Tribunal Inland Revenue prior and at the aforementioned decision have clearly held that the Minimum Tax Regime introduced through section 153 of the Ordinance could not be applicable to the corporate sector . Cases relied upon are reported as 2014 PTD 484, I.T.As. Nos. 202 and 207/KB/2012, 1100/KB/201 1 and 1098/KB/201 1. The AR of the Appellant further argued that the decision of the Division Bench is binding on another Division Bench or subordinate courts including tax authorities and Commissioner Inland Revenue (Appeals). In this regard, the AR of the Appellant heavily relied upon a judgment of Messrs Shell Pakistan Limited Karachi reported as 2016 PTD (T rib.) 722 .
19. The learned counsel for the taxpayer lastly prayed that the orders of the officers below may be vacated and uphold the first amended order passed under 122(5A) vide D.C. No.03/131 dated 18-10-2012 may be upheld.
D.R'S ARGUMENS
20. On the other hand, the learned DR has supported orders passed by officers below . He contested that the learned CIR (Appeals) was justified in rejecting the appeal of appellant on the basis of decision of FTO and judgments of Hon'ble High Court Karachi mentioned in the body of the impugned order , wherein Petition No. D- 3797 of 3027(sic) has been disposed of by observing and directing to the respondent/ Department "to ensure that interpretation of provision of subsection (6) of section 153 of the Income Tax Ordinance, 2001 shall be made strictly in accordance with law without being influenced by any administrative interpretation of legal provisions if any, given by the Board or by any of ficer of FBR, while exercising quasi-judicial proceedings."
FINDINGS/OPINION OF THE COURT
21. We have heard the learned representatives from both the sides and perused the orders of the officers below as well as case laws cited at bar and so also considered and minutely examined the relevant provision of Section 153(1)(b) read with Clause (iii) of second Proviso subsection (6) of the Ordinance, Clauses (79) and (94) of Part
(IV) of the Second Schedule to the Ordinance and clarification issued by the FBR from time to time.
22. First we look at the historical backgro und of Section 153 read with Clauses (79) and (94) of Part IV of Second Schedule to the Ordinance.
Historical Background
23. Referring to section 153 quoted supra, according to Clause (b) of Subsection (1) of Section 153 relates to tax deductions made on payment for of rendering of or providing of services. i) That prior to substitution of subsection (6) by the Finance Act, 2006, the tax deducted under section 153(1)(b) was adjustable by all persons irrespective of their status. However , after substitution of subsection (6) through the Finance Act, 2006, effective from tax year, 2007, the tax deducted under section 153(1)(b) from the receipts of individual and Association of persons (AOP) was considered final tax but in the case of company it was adjustable. ii) Upto tax year 2009 the treatment of tax under this subsection remain un-changed. However thorough the Finance Act, 2009, sub-clause (iii) after second proviso, was inserted that created conflict. Certain person misinterpreted that the tax deducted under section 153(1)(b) even in the case of company is minimum and not adjustable. Therefore, the Federal Board Revenue vide Circular No. 6 of 2009 dated 18.08.2009, clarified that the services rendered by the corporate sector remains unchanged even after the recent amendments as services rendered/provided by the corporate sector remain outside the scope of both the final tax regime as well as the minimum tax regime of section 153 of the Income Tax Ordinance. Following is the relevant extract of the circular for ease of reference:- "Matter has been examined in the light of relevant provisions of law and it is clarified that this interpretation is not based on correct interpretation of law. The amendments, made vide Finance Act, 2009, in section 153, modify the provision of second proviso to subsection (6) to the effect that henceforth the services rendered by the non-corporate taxpayers stand excluded from the ambit of final tax regime and through another proviso the tax deducted under section 153(1)(b) is to be treated as minimum tax.
Previously such services remained subject to final tax pursuant to exclusio n of corporate sector from its ambit through first proviso to subsection (6). The position for services rend ered by the corporate sector remains unchanged even after the recent amendments as services rendered/provided by corporate sector remain outside the scope of both the final tax regime as well as the minimum tax regime of section 153 of the Income T ax Ordinance." iv) That the Federal Board of Revenue also issued following clarification on the matter vide C. No. 1(25) WHT/2009 dated 26th April, 201 1. The relevant extract of the same is as under:- "The matter has been examined against and in order to ensure a correct and uniform treatment, in supersession of earlier instructions issued through Circular No.6 of 2009 dated August 18, 2009, it is clarified that in view of the amendments made through Finance Act, 2009 as referred above, tax deducted on payments made for rendering or providing of services is to be treated as "Minimum Tax" and henceforth taxpayer falling in the ambit of section 153(1)(b) shall file return of income, instead of a statement under Final T ax Regime." v) Upon receiving representations from various quarters the Federal Government notified SRO 1003(1)/201 1 and inserted Clause (79) in Part IV of the Second Schedule to the Income Tax Ordinance, 2001 well before the filing of return of income by the Corpora te Sector for the tax year 2011. Through this insertion corporate service providers were once again taken out of minimum tax regime thus reinstating the position that was generally understood to be applicable prior to this. The aforesaid Clause reads as under:- "(79) The provisions of Clause (b) of the proviso to Subsection (3) of Section 153 shall not be applicable to the tax withheld on payments receive by a Company for providing or rendering of service..." vi) Later on the Appellate Tribunal Inland Revenue (ATIR) in a case reported as 2014 PTD (Trib.) 484 dated March 06, 2013 observed that the tax deducted under section 153(1)(b) read with sub-clause (iii) of Second proviso of subsection (6) of section 153 the deduction of tax in the hands of company is adjustable and in other cases it is minimum. According to the learned Couns el an identical issue came up before the Division Bench of the Appellate Tribunal Inland Revenue Lahore Bench Lahore in I.T.A. No. 1377/KB/2012 dated 06-03-2013 reported as 2014 PTD 484 , inter alia among others, following grounds were taken in the appeal by the taxpayer:- "That the learned officers below erred in applying the third proviso to Clause (iii) of subsection (6) of section 153 in case of the corporate sector .
The officers below in our opinion had erred in law by considering the tax deductible under section 153 to be minimum tax under section 153(6)(iii) of the Ordinance instead of actual tax deducted. vii) The ATIR, after taking into account the chronological history of the prevision of Section 153(1)(b), provisos to various subsections Section 153, especially Section 153(6)(iii) and proviso thereto together with FBR's instructions dated 01-07-2009 to LTU/R TOs, Circular No. 3/2009 dated 18-08-2009, Circular No.6/2009 dated 18- 08-2009, Circular letter C. No. 1(25)WHT/ 2009 dated 26-04-201 1 and S.R.O. 1003(1)/201 1 dated 31.10.201 1, has vividly expounded and eloquently described logical meaning to the multiple provis os of section 153 in the light of the judgments of Hon'ble Supreme Court of Pakistan reported as 1999 SCMR 563, PLD 1971 SC 252, 1977 SCMR 371, PLD 1961 SC 119 and decided the matter in favour of taxpayer (a private limited company). The excerpt of relevant paragraphs of the judgment are appended below:- "7. In order to properly appreciate the legal provisions, it would be appropriate if the relevant provisions of section 153 of the Ordinance are examined/ analyzed as a whole. An analysis of the relevant provisions of law, as reproduced above, suggests that there are number of 'provisos' with reference to subsection (6) and these need to be interpreted under the principles of 'harmonized construction'. It is to be kept in mind that a 'proviso' is generally 'something en-grafted on the main enactment. The role and function of a 'proviso' is to create an exception out of a previous enactment in an earlier part of a section, something which but for the 'proviso' would have fallen within the scope of enactment. It must be considered only in relation to, and harmoniously with, the principal matter to which it stands as a 'proviso' and not as qualifying or modifying some other enactment. The proper canon of constructing a section which has several 'proviso' is to read the section and the 'provisos' as a whole, try to reconcile them and give a meaning to the whole of the section along with the 'provisos' with its comprehensive and logical meanings 1999 SCMR 563 = 1999 PTD 1 173, PLD 1971 SC 252 , 1977 SCMR 371 and PLD 1961 SC 1 19 etc.
8. Under these principles, it follows:-
(i) First of all, the entire subsection (1) covering sales, services and contracts was brought in the final tax regime for all residents [subsection (6)];
(ii) Through first ' proviso' the corporate sector was excluded from the scope of final tax regime to the extent of 'services rendered/ provide--- leaving behind, within the scope of final tax regime, the 'sale' and 'contract' for all resident recipients and services for resident non-corporate sector [first proviso];
(iii) This was followed by another exclusion (this is evident from the fact that the legislature introduced the expression 'Provided further', which means that earlier exclusion remains intact and the latter was in addition to the earlier exclusion) having an ef fect of excluding [Second proviso];
(iv) This was followed by the amendments introduced vide Finance Act, 2009 which modified the aforesaid second proviso (again leading to conc lusion that first proviso remained intact) through insertion of sub- clause (iii) in the second proviso, the effect of which was exclude from the ambit of final tax regime the ' remaining' services (i.e. the services rendered by non-corporate sector---- which were previously there, by default, due to exclusion of corporate sector); and
(v) In connection with aforesaid 'latest' exclusion another proviso was added to state that tax deducted in such cases would be minimum tax (Proviso to Sub-Clause(iii)] ................................................................
10. The aforesaid interpretation derives further strength from Section 113 of the Income Tax Ordinance, 2001. The "Minimum Tax Regime" intro duced through section 153 of the Income Tax Ordinance, 2001 could not be said to be applicable to corpora te sector , because in this case the minimum tax regime was already in place in terms of section 113 of the Ordinance, which was (then) restricted to corporate taxpayers only.
This minimum tax regime under Section 153 of the Income Tax Ordinance, 2001 was applicable to non- corporate taxpayer/service providers who were otherwise not the subject matter of Section 153 of the Ordinance. If the position was otherw ise, clearly legislature could have incorporated some exclusion in Section 113 of the Income Tax Ordinance, 2001 to provide that in such case s minimum taxation would be governed by Section 153 of the Income T ax Ordinance, 2001. ...............................
17. Upon receiving representation from various quarters the Federal Governm ent Notified SRO 1003(I)/201 1 and incorporated Clause 79 in Part IV of the Second Schedule to the Income Tax Ordinance, 2001. Through this insertion corporate service providers were again taken out of minimum tax regime, thus reinstating the position that was generally understood to be applicable prior to this.
On the basis of the above discussion it is concluded that:- "(i) The understanding expressed in Circular No. 6 of 2009 was not contrary to the provisions of law.
Almost all the leading practitioners expressed the same understanding in the commentaries published soon after the placement of Finance Bill before the National Assembly . On the other hand, for arguments sake, if the understanding expressed in the Circular was so patently contrary to law this could have been withdrawn soon after;
(ii) The clarifications issued by the Federal Board of Revenue both prior to and subsequent to issuance of Circular No. 6 of 2009 also did not unequivocally clarified to the contrary . In both the clarifications reference with regard to the amendm ent was made to such service providers, which were previously covered by the final tax regime. Since the corporate service providers were previously covered by the normal tax regime, therefore, the text of these clarifications could be construed to suggest that the amendment only altered the tax regime in cases where previously final tax regime was applicable; and
(iii) The position, even after the amendments introduced vide Finance Act, 2011, has not changed since the issuance of SRO No.1003(I)/201 1 has reinstated the position for corporate service providers in a manner that in such cases tax liability would be governed by the normal tax regime without any cap, or ceiling." xi) That Upto tax year 2015 as per proviso 153(6)(iii) read with Clause (79) of Part IV of the Second Schedule the tax deductible under section 153(1)(b) from the payments to corporate taxpayers was adjustable; however , in the case of other taxpayers it is considered as minimum tax. xii) That the Finance Bill, 2015 proposed to substitute Clause (b) of subsection (3) of section 153 of the Ordinance.
However , the legislature disagreed with the said proposal and on the contrary Clause (79) of Part (IV) of the Second Schedule to the Ordinance was deleted by the Finance Act, 2015, which resulted that the tax deducted under section 153(1)(b) of the Ordinance, became minimum and in the hands of corporate taxpayers it no more remain adjustable for tax year 2016 and onwards. xiii) That the said amendments once again created unrest on the specific issue and disturbed the corporate sector due to their meager margin of profit. Therefore, they approached to the Honorable Finance Minister and Federal Board of Revenue to reconsider the aforementioned amendment. The legislature having considered the recommendations of Corporate Sector promulgated the Ordinance No. XV of 2015 dated 31.10.2015 through which certain amendments have been made in section 153 of the Ordinance besides, inserting Clause (94) in Part (IV) of the Second Schedule to the Ordinance for providing relief to the concerned Corporate Sector . Presently following are the salient features of aforesaid amendments:- a) The provisions of Clause (b) of proviso to subsection (3) of section 153(3) of the Ordinance shall not apply for tax year, 2016 to a company being Filer and engaged in providing or rendering of services for (i) Freight forwarding,
(ii) Air cargo, (iii) Courier , (iv) Manpower outsourcing, (v) Hotel services, (vi) Security-guard, (vii) Software development, (viii) IT and IT enabled (ix) Tracking, (x) Advertising (other than by print or electronic media), (xi)
Share registrar , (xii) Engineering, (xiii) Car rental, (xiv) Building maintenance or (xv) by Pakistan Stock Exchange Limited and Pakistan Mercantile Exchange Ltd., services subject to the conditions as specified in clause (94) of Part IV of the Second Schedule to the Ordinance. b) Proviso of Clause (94) of Part IV of the Second Schedule to the Ordinance provides that the tax paid or payable by any company on the income from providing specific services shall not be less than 2% of the gross amount of its turnover from all sources and the company furnishes in writing an irrevocable undertaking by the fifteenth day of November to present its accounts to the Commissioner within thirty days of filling of return, for audit of its income tax affairs for the respective tax year . c) The aforesaid amendment provided relief to restricted corporate sectors on some harsh conditions which created discrimination between corporate sectors who are providing services other then specified in Clause (94) of Part IV of the Second Schedule to the Ordinance. For enjoying the facility the company shall be bound to get audited its Income T ax affairs each year . d) Section (4A) was also been inserted in section 153 to empower the Commissioner to issue exemption certificate for not deducting of tax under section 153(1) (b) of the Ordinance to those recip ients of corporate sectors who fulfilled the conditions specified in Claus e (94) by an order in writing for a period of three months subject to advance payment of tax equal to 2% of the total turnover of the corresponding period of the immediately preceding tax year .
24. Before arriving at any conclusion on this score, let us summarized the history of taxation provisions of Section 153(1)(b) read with Clause (iii) of second Proviso of and third Proviso of subsection (6) of the Ordinance.
25. First of all, subsection (1), covering sales, services and contracts was brought in the final tax regime for all residents under subsection (6) of Section 153. Through first "Proviso" the corporate sector was excluded from the scope of final tax regime to the extent of services rendered/provided, leaving behind, within the scope of final tax regime, the "Sale" and "Contract" for all resident recipients and services for resident non-corporate sector (First proviso). This was followed by another exclusion (this is evident from the fact that the legislature introduced the expression "Provided further" which means that earlier exclusion remains intact and the latter was in addition to the earlier exclusion) having an ef fect of excluding (Second- Proviso). a) Advertisement services by the owners of newspapers/ magazines (this exclus ion pertained to- resident non- corporate recipients - corporate recipients were already out of final tax regime through first proviso); and b) Sale/contract receipts in the case of listed companies earlier these remained within the scope of final tax regime without being taken out/excluded by first proviso.
(i) This was followed by the amendments introduced vide Finance Act, 2009, which modified the aforesaid second proviso (again leading to conclusion that first proviso remained intact) through insertion of sub-clause (iii) in the second proviso, the effect of which was to exclude from the ambit of final tax regime the "remaining" services (i.e. the services rendered by non-corporate sector , which were previously there, by default, due to exclusion of corporate sector).
(ii) In connection with the aforesaid "Latest" exclusion another proviso (Third) was added to state that tax deducted in such cases would be a minimum tax [proviso to sub-clause (iii)].
(iii) The fact that the latest proviso pertai ned to the most recent exclusion is evident from the "Placement" of the proviso which relates exclusively to sub-clause (iii) and not generally . The proviso had been appended to sub- clause (iii), which referred to exclusion of services rendered by non-corporate sector only as the corporate sector stood already excluded through first proviso. The position with respect to "Corporate Sector" remained unchanged being covered by the first proviso and taxable otherwise on net income basis. Consequently , taxation of corporate service providers (generally) continued to be governed by normal taxation and on net income basis and as such minimum tax regime was not applicable, except provided under section 1 13 of the Ordinance.
(iv) The clarifications issued by the FBR both prior and subsequent to issuance of Circular No. 6 of 2009 also did not unequivocally clarified to the contrary . In both the clarifications reference with regard to the amendment was made to such service providers which were previously covered by the final tax regime. Since the corporate service providers were previously covered by the normal tax regime, therefore, text of these clarifications could be construed to suggest that the amendment only altered the tax regime in the cases where previously final tax regime was applicable; and
(v) The position, even after the amendment introduced vide Finance Act, 2011, has not changed since the issuance of. SRO 1003(1)/201 1 has reinstated the position of the corporate service providers in a manner that in such cases tax liability would be governed by the normal tax regime without any cap or ceiling.
From the above micro and in-depth research and analysis the following principles culled down: a) In the case of corporate service providers (generally) only the first proviso was relevant; b) The second proviso specified exclu sions over and above the first proviso i.e. those not covered by the first proviso; c) The amendments made through the Finance Act, 2009 only modified the second proviso as these did not alter, in any way , the first proviso and exclusions covered therein; d) The amendment providing minimum tax was a proviso to sub-clause (iii), which in itself related to non- corporate service providers; and e) In the case of corporate service providers, the minimum tax regime under section 113 of the Ordinance remained applicable.
26. However , the learned CIR (A) relied upon the single bench decision while the Division Bench Judgment was in the field. The law of precedent clearly embodied that when a judgment of Division Bench is available then it would be applicable to the single bench. Hence, the AR of the Appellant has rightly relied upon a judgment of Messrs Shell Pakistan Limited Karachi reported as 2016 PTD (Trib.) 722. In this case the dispute arose between two members of the Honourable Tribunal was referred to third judicial member (one of us is the author of this judgment), who decided the following question referred by the Division Bench to the referee judge:- "Whether in view of the already decided issues on the similar facts and circumstances in the case of the present taxpayer , the Division Bench of the Tribunal can deviate from the view already taken without distinguishing the facts and case law applicable and declaring the already decided case being per incuriam or otherwise?"
Following are the relevant extract of above judgment decided by the majority view:- "59. The binding nature of a decision is of two types: One is in relation to the facts and the other is in relation to the principles of law. A principle of law declared would be treated as precedent and binding on all. The finding of facts would bind only the parties to the decision itself and it is the ultimate decision that binds.
60. Research and survey of long chains of rulings emerges the following principles:- o ............................................................ o. A judgment delivered by the Tribunal is binding on the subordinate court including tax authorities and CIR(A). They are bound to following the judgment of the Tribunal in its true letter and spirit. The Assessing Officer/OIR being an inferior officer vis--vis the Tribunal, was found by the judgment of the Tribunal and therefore. They should not have tried to distinguish the same on untenable grounds. It is well established tents of precedents that T ribunal decision to be followed by lower authorities. o ...................................................................................................................... o. The settled law that a decision of a Division Bench is binding on another Division Bench and that a Single Bench has not authority not to following a decision of a Division Bench. In this connection, I would like to refer to the decision reported as 1997 PTD 879; wherein Mr. Mujibullah Siddiqui who was Chairman of this Tribunal at that time and now has been retired as a Judge of the Sindh High Court recorded the following findings:- "We have been observing during the last few years with anxiety that due to lack of assistance and several other reasons the law of precedent has not been followed strictly in the administration of Justice. In addition to various other principles, the principles of consistency and certainty occupied from prominent position and these principles should always be adhered to in order to maintain discipline in the administration of justice and maintain discipline in the behalf. Thus, we proposed to consider the principles in this behalf as enunciated and affirmed by the Superior Courts, in the interest of better administration of Justice and to bring certainty in this behalf. It needs no emphasis that the conflict of view by different benches of the same forum is bound to create confusion and ultimately chaos which is not desirable on the fact of it.
In this regard, another case has been referred reported as 3003 PTD (Trib.) 835; wherein a difference of opinion has arisen between the learned members and the matter was referred to third referee member who while placing reliance on the above decision of the T ribunal has recorded the following findings:- "The above discussion leaves no scintilla of doubt that in view of the law and laid down by the superior Courts the decision of a Division Bench is binding on the other Division Benches of the same judicial institution. As already held by the Honourable High Court and Honourable Supreme Court, it is absolutely necessary to observe this principle in order to avoid the conflicting decisions by the Benches of equal strength which is hound to create complications, confusion and chaos which will result in uncertainty and would be ultimately disastrous to the administration of justice." o ...................................................................................... o. If there is difference of opinion between the High Courts, all the subordinate Courts including Benches of the Income Tax. Appellate Tribunal are required to follow the view taken by the High Court within whose jurisdiction they are working. 2005 PTD 2586 [Karachi High Court) before Muhammad Mujeebullah Siddiqui and Khilji Arif Hussain, JJ Messrs Atlas Investment Bank Limited v . Commissioner of Income T ax.
61. In view of the above discussion I fully endorse the findings recorded by the then learned Judicial Member . I hereby , not only approve, but appreciate the stand taken by the Judicial Member in arriving at correct conclusion. Therefore, the appeal of the appellant stands allowed as the appeal has already been decided by the Tribunal in 17-02-2012 for the reason that the circumstances and facts of the case and under the same set of facts and law in the instant appeal are similar and the learned Accountant Member has failed to bring out any distinguishing facts.
62. I am of the view that the difference of opinion should not be invoked in a routine matter and ignoring the settled judgments of the same strength of division bench. However , in this case the learned Accountant Member herself in her personal capacity ignored the already delivered judgment of the Division Bench in the appellant's own case, whereby the issues were obviously settled in favour of the appellant.
69. The above two judgments of the Division Bench of the Tribunal are on an identical point and for the same taxpayer and in the interregnum neither the law and changed nor had the superior court or large bench rendered any decision on the subject. It is settled that the earlier judgment in taxpayer's own case has not been overruled has to be taken as good law abiding and binding precedent. There was no occasion for any difference of opinion between the two members, since they were convention bound to follow the earlier decision of Division Bench of this Honourable Tribunal in this very case of taxpayer . Even under any circumstances, the learned Vision Bench, while deciding later judgment was bound to following the earlier judgment. Therefore, it goes to estab lish that in case of conflicting judgments, the decision which is favourable to the taxpayer should be followed and the subsequent different view taken is illegal and per incurium. Law of precedent, uniformity and consistency should be honoured. Hence, the earlier judgment bearing S.T.A. No. 145/KB of 2011 dated 17-02-2012 covered the entire aspects of the issues involved in this appeal in question and gave the decision accordingly and the same has not been overruled neither by the large Bench of this Honourable Tribunal nor by any Superior Courts. Therefore, the earlier judgment is to taken as good law and binding judgment.
For the detailed reasons discussed supra, I concurred with the findings of the learned Judicial Member in its entirety . Therefore, we answer the question in negative and in favour of the appellant.
Consequently , the appeal is hereby allowed."
27. In view of above discussion and the decisions relied upon by the AR of the Appellant, we respectfully following the judgment quoted supra reported as 2016 PTD (Trib.) 722; it is held the learned CIR (Appeals) was bound to follow the judgment of Division Bench of the Appellate Tribunal Inland Revenue reported as 2014 PTD (Trib.) 484; wherein, it is held that the understanding expressed in Circular No.6 of 2009 is in accordance with the provisions of law and the services rendered or provided by the Corporate taxpayer shall remain outside the scope of final as well as minimum tax regime for the tax years 2009 to 2015.
28. The issue of tax deduction under Section 153(1)(b) read with Clause (iii) of Second Proviso of subsection (6) of Section 153 of the Ordinance, Clause (79) of Part IV of Second Schedule to the Ordinance has been settled by the Division Benches of Tribunal and by the Honourable High Court Karachi in the decisions quoted supra. Therefore, we also held that tax deducted under Section 153(1)(b) read with Clause (iii) of second proviso and third proviso of subsection (6) of the Ordinance are adjustable for tax yens 2009 to 2015 in the hands of Corporate taxpayers.
29. We have also found that while passin g the first amended order , the ADCIR-1 has already examined the return of income filed by the taxpayer , the ADCIR-2 again by resorting to section 122 (5A) the return/deemed order was examined which is tantamount to change of opinion which is not permissible under the law .
30. Accordingly , we quash the impugned appellate order and amended order passed by the ADCIR-2 under Section 122(5A) vide D.C. No. 94/51 dated 7-06-2017 and uphold the first amended order passed under Section 122(5A) vide D.C. No. 03/131 dated 18-10-2012.
31. Before parting with this judgment, we may add few words that the courts exist for doing justice to the persons who are affected. The Tribunals / Courts, and in particular the High Courts and the Supreme Court, are the sentinel of justice and have been vested with extraordinary powers of judicial review and supervision to ensure that the rights of the citizen are duly protected. The Courts and the Tribunal and Hon'ble superior courts, have had to issue appropriate directions from time to time to ensure that the authorities performed at least such duties as they were required to perform under the various statutes and orders passed by the administration.
32. The appeal is hereby allowed to the extent and in the manner indicated above.