SYED ARSHAD ALI J. Through this common judgment, we intend to decide this petition as well as other connected petitions, the detail whereof has been given above, as an identical question of law and facts is involved in all these petitions.
2. All the present petitioners are carrying their business either in their individual or through corporate names, however , all of them claim that they are permanent residents of the erstwhile Provincially Administered Tribal Areas ("PATA") and derive their income from the construction business. They have been awarded construction work through different agreements/ work orders. The location of their work is situated in the erstwhile PATA. All the petitioners have alleged their unanimous grievance against the respondents that despite the fact that their income is exempt from the impost of income tax but the Provincial Government, acting as an collecting agent for the Federal Board of Revenue ("FBR"), is deducting advance income tax from their current bills for the work which they have done within the limits of erstwhile P ATA.
3. Against that the FBR does not dispute the exemption of the respondents from the impost of income tax, however , it has asserted that in order to avail exemption from levy of income tax, all the petitioners are required to approach the Revenue/Commissioner Income Tax for obtaining exemption certificates u/s 159 of the Income Tax Ordinance, 2001 ("Ordinance") . It is after obtaining the said certificates that their entitlement to exemption shall be determined by Commissioner Income Tax.
4. We have heard the arguments of learne d counsels for the parties and perused the record available on case files in light of their able assistance.
5. At this juncture it is pertinent to mention that before the promulgation of 18th amendment through Constitutional Amendment Act No. XXV of 2018 on 24.05.2018, the income of the persons who were settled/located within the territory of the erstwhile PATA were enjoying immunity from payment of income tax provided they were generating their income from their business located within the territory of erstwhile PATA. However , any portion of their income, if was being derived through any activity beyond the limits of erstwhile PATA then the same was subject to the payment of income tax. The aforesaid legal position is by now settled in view of the law laid down by the august Supreme Court of Pakistan in "Pakistan through Chairman FBR and others Vs. Hazrat Hussain and others"
[2018 SCMR 939], "Commissioner Income Tax, Peshawar Vs. M/S Gul Cooking Oil and Vegetable Ghee (Pvt.)
Ltd." [2008 PTD 169] as well as the judgment of this Court in "Messrs Taj Packages Company (Pvt.) Ltd.
Through Manager Vs. The Government of Pakistan through Federal Secretary Finance and Revenue Division and 6 others" [ 2016 PTD 203 ].
6. The aforesaid immunity was available to the persons/corporate entities located within the erstwhile area of PATA as in view of the legal barrier of Article 247 of the Constitution, the provisions of the Ordinance were not extended to the erstwhile P ATA.
7. Upon promulgation of the 25th Constitutional Amendment Act, 2018 on 24.05.20 18, this legal barrier in form of Article 247 of the Constitution was removed and, thus, the provisions of the Ordinance became applicable to all the persons/ corporate entities located within the territory of erstwhile PATA, as such, their income was subject to impost of the income tax under the Ordinance.
8. The Ordinance provides both; the provisions of charging as well the mechanism for collection of tax whereas the word 'income' is defined in Section 2(29) of the Ordinance as: "(29) "income" includes any amount chargeable to tax under this Ordinance, any amount subject to collection or deduction of tax under section 148, 150, 152(1), 153, 154, 156, 156A, 233, 233A, sub-section (5) of section 234 and any amount treated as income under any provision of this Ordinance and any loss of income".
Chapter II of the Ordinance deals with the charging provisions whereas Part I of Chapter III explains taxable income, total income and heads of income. Chapter X of the Ordinance envisages for procedure of filing of return/assessments, adjudication of claims as well as recovery of the income tax dues. The mechanism for deduction and collection of advance tax is provided in Part V of Chapter X of the Ordinance. The Division IV of the said Chapter relates to the grant of exemption from total income tax or issuance of lower rate certificate.
9. Section 53 of the Ordinance empowers the Federal Government not only to grant exemption to any person or class of persons from the payment of income tax but can also exempt/partially exempt any person from the application of the Ordinance. For convenience, section 53 is reproduced as under:
53. Exemptions and tax concessions in the Second Schedule.-(l) The income or classes of income, or persons or classes of persons specified in the Second Schedule shall be -- (a) exempt from tax under this Ordinance, subject to any conditions and to the extent specified therein; (b) subject to tax under this Ordinance at such rates, which are less than the rates specified in the First Schedule, as are specified therein; (c) allowed a reduction in tax liability under this Ordinance, subject to any conditions and to the extent specified therein; or (d) exempted from the operation of any provision of this Ordinance, subject to any conditions and to the extent specified therein.
10. In order to provide exemption to the individuals/corporate entities domiciled/situat ed at erstwhile PATA from the payment of income Tax, clauses No. 144 & 145 were inserted in the Second Schedule to the Ordinance through S.R.O No. 887(1)/ 2018 dated 23.07.2018 thereby granting them exemption from tax on profit and gain of the person/association of persons located in the erstwhile PATA. Similarly , Clause No. 106 was inserted in Part-IV of the Second Schedule to the Ordinance whereby the provisions of sections in Division III of Part-V of Chapter X and Chapter XII were made inapplicable to certain areas forming part of the erstwhile PATA. The aforesaid S.R.O was substituted with S.R.O No. 1213 (1)/2018 dated 05.10.2018 whereby Clauses No. 144 & 145 inserted through S.R.0 No. 887(1)/2018 were omitted and a new Clause No. 146 was inserted in Part-I of the Second Schedule whereas in Part-IV of the said Schedule the earlier inserted Clause No. 106 was omitted and new Clause No. 110 was inserted. For ready reference the newly inserted clauses are reproduced as under .
"(146) Any income which was not chargeable to tax prior to the commencement of the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018 of any individual domiciled or company and association of persons resident in the Tribal Areas forming part of the Provinces of Khyber Pakhtunkhwa and Balochistan under paragraph
(d) of Article 246 of the Constitution with effect from the 1st day of June, 2018 to the 30th day of June, 2013 (both days inclusive"
"(110) The provisions of sections in Division III of Part V of Chapter X and Chapter XII of the Ordinance for deduction or collection of withholding tax which were not applicable prior to commencement of the Constitution (Twenty-fifth Amendment Act, 208 (XXXVII of 2018 shall not apply to individual domiciled or company and association of person resident in the Tribal Areas forming part of the Provinces of Khyber Pakhtunkhwa and Balochistan under paragraph (d) of Article 246 of the Constitution with effect from the 1st day of June, 2018 to the 30th day of June, 2023 (both days inclusive).
11. The effect of newly inserted Clause No.146 is that the income of the individuals and companies etc. domiciled in the erstwhile PATA were held completely immune from the impost of income tax. Similarly , the effect of Clause No. 110 in Part-IV of the Second Schedul e was that the provisions of sections in Division III of Part-V of Chapter-X and Chapter-XII of the Ordinance for deduction or collection of withholding tax were not applicable to the individuals domiciled or the person or association of persons located in the erstwhile Tribal area forming part of the province of Khyber Pakhtunkhwa and Baluchistan under Para (d) of Article 246 of the Constitution. However, the aforesaid immunity/ exemption was available to the aforesaid persons for five years from 1day of June, 2018 to 30th day of June, 2023.
12. From the aforesaid legal discourse, the admitted position is that the income/profit and gain of the individuals domiciled and the corporate entities locat ed within the territorial limits of erstwhile PATA is exempt from the impost of income tax under the Ordinance. However , it is clarified that any income or profit or gain if they derive from any source/business/ activity outside the territorial limits of erstwhile PATA is neither immune nor exempt from impost of income tax in view of the law laid down by august Supreme Court of Pakistan in "Commissioner Income Tax.
Peshawar Vs. Messrs Gul Cooking Oil and Vegetable Ghee (Pvt.) Ltd. Through the Chief Executive and 6 others" reported as 2008 PTD 169, "Pakistan through Chairman FBR and others Vs. Hazrat Hussain and others" reported as 2018 SCMR 939, and "Messrs Taj Packages Company (Pvt.) Ltd. Through Manager Vs. The Government of Pakistan through Federal Secretary Finance and Revenue Division and 6 others" reported as 2016 PTD 203 .
13. Moving on to the crucial issue for determination, which is subject matter of these cases, is the assertions of the Revenue that in order to avail the said immunity/exemption, the present petitioners are required to approach the Commissioner Inland Revenue u/s 159 of the Ordinance. For ready reference Section 159 of the Ordinance is reproduced as under .
159. Exemption or lower rate certificate.-- (1) Where the Commissioner is satisfied that an amount to which Division II or III of this Part 2[or Chapter XII] applies is -
(a) exempt from tax under this Ordinance; or
(b) subject to tax at a rate lower than that specified in the First Schedule 3; or
(c) is subject to hundred percent tax credit under section 100C the Commissioner shall, upon application in writing by the person, issue the person with an exemption or lower rate certificate. 4 (1A) The Commissioner shall, upon application from a person whose income is not likely to be chargeable to tax under this Ordinance, issue exemption certificate for the profit on debt referred to in clause (c) of sub-section (1) of section 151.
(2) A person required to collect advance tax under Division II of this Part or deduct tax from a payment under Division III of this Part or deduct or collect tax under Chapter XII shall collect or deduct the full amount of tax specified in Division II or III or Chapter XII, as the case may be, unless there is in force a certificate issued under sub-section (1) relating to the collection or deduction of such tax, in which case the person shall comply with the certificate.
(6) Notwithstanding omission of sub-sections (3), (4) and (5), 'any notification issued under the said sub-sections and for the time being in force, shall continue to remain in force, unless rescinded by the Board through notificationst in the of ficial Gazette.
The very opening paragraph of Section 159 envisages that this provision is applicable to that amount to which Division II or III of Part 2 or Chapter XII applies. Thus, the income/amount to which Division II or III of Chapter X or XII does not apply then in that case the provision of Section 159 envisaging for exemption certificate or lower certificate would not be applicable. As stated above, since the present petitioners are involved in the business of construction and providing services, therefore, their income is subject to the incident of advance income tax under section 153 of the Ordinance which reads as under .
153. Payments for goods, services and contracts.--(l) 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, except where payment is less than seventy-five thousand Rupees in aggregate, during a financial year;
(b) for the rendering of or providing of services except where payment is less than thirty thousand Rupees in aggregate, during a financial year;
(c) on the execution of a contract, including contract signed by a sportsperson but not including a contract for the sale of goods or the rendering of or providing services, shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division III of Part III of the First Schedule 6; Provided that where the recipient of the payment under clause (b) receives the payment through an agent or any other third person and the agent or, as the case may be, the third person retains service charges or fee, by whatever name called, from the payment remitted to the recipient, the agent or the third person shall be treated to have been paid the service charges or fee by the recipient and the recipient shall collect tax along with the payment received.
(2) Every exporter or an export house 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 perso n for rendering of or providing services of stitching, dying, printing, embroidery , washing, sizing and weaving, shall at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division IV of Part III of the First Schedule.
(3) The tax deductible under clauses (a) and (c) of sub-section (1) and under sub-section (2) of this section, on the income of a resident person or shall be minimum tax.
Provided that,--
(a) tax deducted under clause (a) of sub-s ection (1) shall not be minimum tax where payments are received on sale or supply of goods, by a, --
(i) company being a manufacturer of such goods; or
(ii) public company listed on a registered stock exchange in Pakistan;
(b) tax deductible shall be a minimum tax on transactions referred to in clause (b) of subsection (1).
(c) tax deducted under clause (c) of sub-section (1) shall be adjustable if payments are received by a public company listed on a registered stock exchange in Pakistan, on account of execution of contracts;
(d) tax deducted under clause (c) of sub-section (1) in respect of a sportsperson shall be minimum tax ; and
(e) tax deducted under clause (b) of sub-section (1) by person making payments to electronic and print media for advertising services shall be minimum tax
(4) ------- Indeed, this provision i.e. Section 153 makes the Provincial Government respons ible to deduct advance tax from the contractors involved in the construction of business. Section 149 to Sectio n 158 fall within Division III of Chapter X of the Ordinance and application of sections of Division III of Part-V of Chapter X are not applicable to the individuals domiciled or corporate entities situated within the territorial limits of erstwhile tribal areas in view of Clause 110 in Part-IV of the 2nd Schedule. Thus, when section 159 itself exclu des the amount/ income of the present petitioners for obtaining exemption certificate then the demand of the Revenue/FBR that the present petitioners should obtain exemption certificates from the Commissioner concerned, is beyond comprehension.
14. This issue has been elaborately answered by this Court (His lordship Hon'ble Mr. Justice Rooh-ul-Amin Khan) in his judgment in "Messrs Abid Foundry through authorized representative and another Versus Pakistan through Federal Secretary , Finance and Revenue Division, Islamabad and 5 others" reported as 2019 PTD 1652 . The learned counsel for the Revenue could not convince us to hold a dif ferent view .
15. In view of the above, we hold that: a. The profit and gain/income of the present petitioners from the construction business which is completely located within the territorial limits of erstwhile P ATA is immune from payment of income tax. b. The present petitioners are not required to obtain exemption certificate u/s 159 of the Ordinance from the Commissioner Income Tax/FBR c. The respondent Government has no authority to collect income tax from payment to the petitioners in respect of their work which they are executing within the territorial limits of erstwhile P ATA.