SAIF ULLAH KHAN, (ACCOUNT ANT MEMBER).--- This appeal has been filed by the Depar tment against Order No, 171 dated 27.02.2015, passed by the learned CIR (Appeals), Quetta, whereby he allowed the appeal of the respondent/taxpayer . The grounds of appeal contested are as under:
(1) That the order passed by the learned CIR(A), Quetta is bad in law and on facts.
(2) That the learned CIR(A), Quetta was not justified in allowing relief to the taxpayer on the grounds that PTR receipts (Income) does not fall in the ambit of taxable income as arrived at out of total income from the head as described under section 1 1 of the Income T ax Ordinance, 2001.
(3) The Taxpayer is entitled to pay statutory liability of IDP tax for the Tax Year 2009 as envisaged in Part-I of the First Schedule to the Income Tax Ordinance, 2001 because the IDP tax is leviable on the tax payable on the taxable income of one million rupees or more 5% and the taxpayer has declared PTR income of Rs,515,085,931/-
(4) All the taxpayers are entitled to pay IDP tax only one time whose taxable income is Rs,1 (m) or above for the tax year 2009. In this context case law W.P. No,2420/2010 is supporting the payment of IDP tax by all taxpayers having income of Rs,1 million and above for the tax year 2009.
2. Brief facts of the case are that the appellant/taxpayer is an individual, deriving income from "Other Revenues/ Fee/ Charges for Professional and Other Services / Commission", from supplies and from execution of contracts.
The Assessing Officer on the basis of return of income filed for the Tax Year 2009 calculated 'taxable income at Rs,515,085,931/- and tax payable at Rs,30,597,71 1/- and charged Internally Displaced Persons Tax (IDPT) @ 5% at Rs,1,529,889/- on said tax payable through order passed under section 122(5A) of the Income Tax Ordinance, 2001.
3. Being aggrieved, the respondent/taxpayer filed appeal before the learned CIR(A), Quetta, who vide order supra, allowed appeal of the respondent/taxpayer and held that IDPT is not chargeable hence the instant appeal has been filed by the appellant/department before this Tribunal.
4. On the date of hearing Mr. Mukhtar Ahmed Shar appeared on behalf of the Department while Mr. Udha Ram Rajput, Advocate appeared on behalf of the respondent.
5. The learned DR argued Department's appeal on the basis of the grounds of appeal mentioned above. The DR contested that taxpayer is liable to IDPT as taxable income is more than Rs,1 million. The DR relied upon case law in W.P. No,2420/2010.
6. The learned AR, however , supported the order of the learned CIR(A), Quetta and contended that the learned CIR(A) has rightly held that taxpayer is not liable to IDPT as its income comprises FTR receipts which are not to be included in taxable income by virtue of Section 4(5) of the Income Tax Ordinance, 2001. The AR further stated that PTR receipts do not fall in to the ambit of taxable income because such income is not chargeable under any head of income as enumerated under section 11 of the Income Tax Ordinance, 2001 by virtue of section 169(2)(a) of 'the said Ordinance. He further argued that the taxpayer was not entitled to pay statutory liability of IDP tax for the Tax Year 2009 as envisaged in Part-I of the First Schedule to the Income Tax Ordinance, 2001 because the IDP tax was leviable @ 5% on the tax payable on the taxable income of one million rupees or more whereas the taxpayer's income mostly comprised of PTR income. The AR also filed copy of return of income for tax year 2009 which shows that taxpayer has declared PTR receipts of Rs,12,487,840/- on accoun t of supplies, PTR receipts of Rs,502,277,291/- on account of execution of contracts and Rs,320,800/- as net normal income. The learned AR also relied on and produced copy of the order of a Single Bench of this Tribunal in I.T.A. No,356/KB/2015 (Tax year 2009) and specifically referred to its paras-7 to 1 1 which are as under: "7. While highlighting the key words of taxable income, the learned counsel invited my attention towards subsection
(4) of section 4 which deals with separate tax system for Final T ax Regime and reads as under: "Certain classes of income (including income of certain classes or persons) may be subject to:
(a) Separate taxation as provided in sections 5, 6, and 7 or
(b) Collection of tax under Division II of Part-V of Chapter X or deduction of tax under Division III of Part-V of Chapter X as a final tax on the income of the person.
Subsection (5) of section 4 says: "Income referred to in subsection (4) shall be subject to tax as provided in sections 5, 6, 7 or Part-V of Chapter X, as the case may be, and shall not be included in computation of taxable income in accordance with section 8 or section 169 as the case may be":
8. The learned counsel for the taxpayer further argued that the cumulative study of section 4 specifically says that the income, upon which tax deducted, becomes a final discharge of liability , is to be dealt with separately and cannot be treated towards taxable income. The taxpayer's source of income declared for the tax year 2009 fall within the ambit of FTR therefore no IDPT can be levied as the IDPT can only been charged on taxable income and that has no connection/effect on FTR income. Further section 169(2) has also a clear impact which says as under: Section 169(2) Where the section applies---
(a) The income shall not be chargeable to tax under any head of income in computing the taxable income of the person.
9. While commenting upon the case law in W.P. No, 2420/2010 as quoted by learned DR, it is submitted that the said case law relates to the imposition of Internally Displaced Persons Tax (IDPT) on the cases falling under the Normal Tax Regime whereas facts and circumstances of the instant case are quite distinguishable, hence the said case law is squarely not applicable. He finally prayed to maintain the order of the learned (Appeals).
10. Heard the learned representatives from both the sides and have perused the impugned order of learned CIR (Appeals) as well as order passed by the Additional Commissioner -IR. The learned CIR (Appeals), while adjudicating the matter , has observed as under: The appellant derives income from the execution of contracts for which tax is deducted at source from the bill payments received so for. Section 153 stipulates esparto tax system which is quite different from normal taxation.
Further section 153 also describes the finality to the income attracting withholding of tax deducted. It is therefore the income of such nature does not fall in the ambit of taxable income as arrived at out of total income from the head as described under section 11 of the Ordinance. It is quite significant that section 169 of the Ordinance has also excluded PTR/FTR receipts from the scope of taxable income, hence no IDPT can be charged on the tax deducted on the receipts of FTR/PTR nature.
It is therefore, directed that no IDPT be charged in the case of appellant.
11. After perusing facts of the case, I find that the learned CIR (Appeals) has inadvertently stated nature of business from the execution of contract, whereas the taxpayer is deriving incom e from Petroleum Commission which also comes within the ambit of FTR. The appeal is purely on legal score as to whether IDPT can be charge on the income which fails under the Final Tax Regime. While finding force in the arguments of the learned counsel, I do not find any justification to interfere with the findings of the learned Comm issioner -IR (Appeals) as stated above. The learned Commissioner -IR (Appeals) has discussed each and every aspect of the case, now before me and judiciously adjudicated the matter in the light of prevalent law. As a result, the order passed by the learned Commissioner -IR (Appeals) is hereby maintained and the appeal filed by the appellant/department is dismissed and disposed of in the manner as indicated above."
7. Finally the AR contended that the IDPT has been declared unconstitutional by the Honourable High Court of Sindh in judgment reported as 2010 PTD 1924 in the case of Syed Nasir Ali v. Pakistan Secretary Ministry of Law .
8. We have heard the arguments advanced by the learned representatives of both the parties and also carefully gone through the relevant record available on file. Before proceeding further , we think it beneficial to reproduce the operative part of the impugned order of the learned CIR(A), Quetta, which reads as under:-- Quote
5. After considering the arguments and the law as referred by the counsel the proposition as drawn up by the counsel is found correct and perfect.
6. The appellant derives income from the execution of contracts for which tax is deducted at source from the bill payments received so for. Section 153 stipulates esparto tax system which is quite different from normal taxation.
Further section 153 also describes the finality to the income attracting withholding of tax deducted. It is therefore the income of such nature does not fall in the ambit of taxable income as arrived at out of total income from the head as described under section 11 of the Ordinance. It is quite significant that Section 169 of the Ordinance has also excluded PTR/FTR receipts from the scope of taxable income, hence no IDPT can be charged on the tax deducted on the receipts of FTR/PTR nature."
6. It is therefore, directed that no IDP Tax be charged in the case of appellant.
Unquote
9. The crux of the matter is that whether IDPT is leviable on PTR income or not while the Assessing Officer and the learned DR are of the opinion that IDPT is chargeable both on normal as well as PTR income. The learned AR and the learned CIR(A) have treated it as leviable only on normal taxable income. Before deciding the matter it is appropriate to discuss the relevant provision of law. The IDPT was introduced through Finance Act, 2009 when provisos to section 12(2) of the Income Tax Ordinance, 2001, proviso to clause (1) and proviso to clause (1A) of Division I of Part I of the First Schedule to the Income Tax Ordinance, 2001 were added to the statute which are reproduced below:- Proviso to Section 12(2)
"Provided that any bonus paid or payable to corporate employee receiving salary income of one million rupees or more (excluding bonus) in tax year 2010 shall be chargeable to tax at the rate provided in paragraph (2) of Division 1 of Part 1 of the First Schedule."
Proviso to clause (1) of Division 1 of Part I of the First Schedule: - "Provided further that Internally Displaced Persons Tax (IDPT), treated as income tax, on the tax payable on the taxable income of the one million rupees or more, shall be levied at the rate of 5% of such tax, for tax year 2009"
Proviso to clause (1A) of Division I of Part I of the First Schedule: - "Provided further that Internally Displaced Persons Tax (IDPT), treated as income tax, on the tax payable on the taxable income of the one million rupees or more, shall be levied at the rate of 5% of such tax, for tax year 2009"
10. A reading of above provisions dearly shows that IDPT was introduced as "income tax" on the tax payers on their "taxable income" of one million rupees or more. The term "taxable income" is specifically defined in Section 2(64) read with section 9 of the Incom e Tax Ordinance, 2001. Section 9(5) of the said Ordinance provides exclusion of certain amounts from the computation of "taxable income" in accordance with Sections 8 and 169 of the Ordinance. Such exclusion restricts levy of IDPT to income tax chargeable on normal income or incomes other than those covered under FTR/PTR.
11. The levy of IDPT was challenged both before the Honourable High Court of Sindh and Lahore High Court. The Honourable Sindh High Court in its judgment reported as 2010 PTD 1924 upheld the levy of IDPT through a proviso in First Schedule to the Income Tax Ordinance, 2001 however the Honourable High Court held void ab initio the levy of IDPT on bonus paid / payable to corporate employees only as being discriminatory and in violation of Article 25 of the constitution. The relevant part of the judgement as under:- "45. The upshot of the above discussion is that we dismiss these petitions so far as the imposition of IDPT is concerned, however , the imposition of tax on bonus, being discriminatory and in violation of Article 25 of the Constitution, the petitions are allowed to the extent that the imposition of tax on bonus paid or payable to the corporate employees drawing salary of one million rupees or more is held to be illegal, of no legal effect and void ab initio. However , there shall be no order as to costs."
12. The above judgement of the Honourable Sindh High Court clearly show that the reliance of the AR is misplaced because the imposition of the IDPT has been upheld.
13. The Honourable Lahore High Court in its judgment in W.P.No,2420/2010 also upheld imposition of IDPT . The relevant portion of judgment is as under: "3. I have heard the learned counsel for the petitioners that the imposition of the Tax in question is held to be illegal because it is discriminatory on the ground that its imposed on those only Taxable income is Rs, 1 million or more than imposition of all other T axes will not escaped this allegation .
4. A large number of the people of Pakistan have been internally displaced on account of internal strife between various factions. The physical and mental agony of the direct sufferers has to be shared by those who are away from epicenters of various turmoils. However the respondents would ensure that the imposition of tax is not perpetuated. I should be abolished as soon as the situation normalizes. The Tax neither is illegal nor is discriminatory . I do not see any force in this petition. It is liable dismissed in-limine ."
14. The above judgment shows that Honourable High Court has upheld imposition of IDPT and declared it a as non discriminatory however it has not allowed imposition of IDPT on PTR/FTR income hence reliance of the DR on said judgment in instant case is misplaced.
15. In the light of above discussion it is clear that IDPT is liable on income tax chargeable on taxable income of more than one million rupees. In the instant case the taxpayer has declared normal taxable income of only Rs,320,800/- which is less than one million rupees. The balance amount treated by the Assessing Officer as taxable income is PTR income which has erroneously been included in taxable income.
16. Before parting we deem it appropriate to mention that through Finance Act, 2015 Super Tax for rehabilitation of temporarily displaced persons have been imposed on income of every person under section 4A(1) of the Income Tax Ordinance, 2001 and imputable incom e pertaining to FTR/PTR has specifically been included in income under section 4A(2)(c) of the Ordinance. Had it been the intention of legislative to impose IDPT on PTR/FTR income then it would have been specifically included in taxable income in line with section 4A of the Income Tax Ordinance, 2001.
17. In the light of above legal and factual position we find no reason to interfere and upheld the order of the learned CIR(A).
18. The appeal is disposed of f as above.