IRFAN SAADA T KHAN, J.---- This Income Tax Case (ITC) was filed by the department by raising the following questions of law; which were admitted to regular hearing on 12.04.2005: i) Whether on the facts and circumstances of the case, the learned ITAT was justified in treating an amount of Rs.145.031,000/- as discount instead of commission? ii) Whether on the facts and the circumstances of the case, the learned 'ITAT was justified in ignoring the fact that the assessee has shown the amount of Rs.145,031,000/- as commission in the Profit and Loss Account and subsequently retracted its version by calling it discount? iii) Whether on facts and circumstances of the case, the learned ITAT was justified in ignoring the otherwise binding provision agreement executed between the assessee and distributors?
2. Briefly stated the facts of the case are that the respondent/assessee is a Public Limited Company . The Assessing Authority (AA) while examining the record of the respondent found that the assessee has allowed commission to its distributors but has not deducted the tax upon it, as required under section 50(4A) of the Income Tax Ordinance, 1979 (the repealed Ordinance). The AA thereafter made the assessment Under Section 52 of the repealed Ordinance, by treating the respo ndent as an assessee in default. Being aggrieved with the said order , an appeal was preferred before the Commissioner of Income Tax (Appeals) [CIT(A)] bearing Appeal -No.266, who after finding the order of the AA to be illegal annulled the same through order dated 31.5.1995. Being aggrieved with the said order , an appeal was prefe rred by the department before the Income Tax Appellate Tribunal (ITAT), which also through its order dated 04.10.2001, passed in appeal bearing ITA No.539/KB of 1995-96, upheld the order of the learned CIT(A). Being aggrieved with the said order a Reference Application (RA) bearing R.A.
No.55/KB of 2002, under Section 136(1) of the repealed Ordinance, was preferred by the department. This RA too was dismissed by the ITAT vide order dated 16.04.2002. Thereafter the instant ITC has been preferred before this Court by the Income Tax Department.
3. Mr. Muhammad Aqeel Qureshi, advocate has appeared on behalf of the department and stated that the respondent has misdirected the department by submitting that they have given discount to their distributors, whereas from the record and the documents furnished by the respondent it was evident that they had given commission to them, upon which they were liable to deduct tax at the rate of 10%, under Section 50(4A) of the repealed Ordinance and since the respondent had defaulted in not deducting the said tax at source, they have become an assessee in default, as per Section 52 of the repealed Ordinance. According to Mr. Qureshi, the AA was fully justified in treating the respondent as an assessee in default, who finally submitted that the order of the AA may be restored and that of the CIT(A) and the ITAT may be set aside, by answering all the questions raised in the instant ITC in 'Negative' i.e. in favour of the department and against the taxpayer/assessee.
4. Mr. Arshad Siraj Memon, Advocate has appeared on behalf of the respondent and stated that no commission has been paid by the respondent to its distributors so as to invoke Section 50(4A ) of the repealed Ordinance. He stated that only discount was offered to the distributors, in order to enhance the sales of the respondent company , which could not be considered to be a commission to the said distributors. He stated that the amount offered as trade discount to the distributors was not in the nature of commission hence CIT(A) and ITAT were fully justified in observing that the amount disclosed by the present respondent was nothing but a trade discount rather than commission, as alleged by the department. He stated that no doubt at some place s instead of 'trade discount' the term 'commission' has been used, which is a misnomer and would not change the nature of trade discount to be treated as commission. He stated that it is always the substance which is to be seen and considered rather than the form. In this regard, the learned counsel has placed reliance on the decision given in the case of Habib Insurance Co. Ltd. v. Commissioner of Income Tax Karachi (PLD 1985 SC 109) and Commissioner of Income Tax v. Gammon (Pak) Limited, Karachi [(1966) 14 Tax 304 Karachi]. He further stated that similar questions of law were raised in the cases of other tax payers but the department itself withdrew those ITCs by not pressing the same. Learned counsel in this behalf has placed reliance on the order dated 20.02.2000 passed by this Court in ITC No.243/2001. Learned counsel has also placed on record a copy of the agreement entered between the respondent and one of its distributors to show that the amount represents trade discount and not commission.
5. Learned counsel next submitted that no commission has been paid rather the goods were sold on discounted rate and the transaction has to be considered as', Sale of goods on disco unted rates to those, persons (Distributors) hence the question of payment of commission does not arise on which provision of Section 50(4A) was not attracted. He stated that distributors or the persons, who have purchased the goods from the respondent, have sold the purchased goods on the market value by earning profit which has got nothing to do with the company , as the company (respondent) has already received the amount in advance at the discounted rate from those persons. According to him, this is a simple case of sale of goods on discounted rates and the question of either commission or deduction of tax at source does not arise. In support of his contention, the learned counsel has referred to certain clauses of the agreement between the respondent company and its distributors and has also invited our attention to Section 4 of the Sales of Goods Act, 1930. Learned counsel further stated that in taxing matters substance of the transaction is to be seen rather than the form. He has stated that whatever name is given to a transaction is immaterial rather its taxability , as per the Ordinance, is to be seen and considered. He stated that if a person claims a taxable income to be exempt it would not become exempt but the department would examine the nature of the transaction and thereafter determine its taxability or otherwise. He stated even if for arguments' sake it is assumed that the transaction entered between the present respondent and its distributor has been mentioned as a commission, it would not change the nature of the transaction between the parties. In support of his above contention, the learned counsel has placed reliance on the following decisions:
1. Commissioner of Income T ax v. Messrs Motor and General Store (66 ITR 692 (SC India)].
2. Commissioner of Income T ax v. Messrs Mughal Lines Ltd. [46 ITR 590]
3. 30 TC 1 1
4. Decision of T ribunal in T ax I.T .As. Nos.755-756-KB of 1993-94.
5. Decision of the T ribunal in T ax No.303KB/1993 dated 26.10.1994.
6. 46 ITR 144 (S.C. India)
7. Messrs Habib Insurance Ltd. v . Commissioner of Income T ax [PLD 1985 (SC) 109]
8. Sir Kikanahi Premchand v . Commissioner of Income T ax (Central) Bombay [(1953) 24 ITR 506 (SC India)
6. The learned counsel next contended that the AA treated the distributors of the respondent as agent without making reference to Section 182 of the Contract Act. Learned counsel then read out Section 182 of the Contract Act and submitted that parameters of this section are not attracted in the instant matter as according to him, the distributors were independent persons, who have purchased the goods from the respondent and have become the owner of the said goods and hence the question of agent and principal does not arise in the present proceedings.
In support of his contention, the learned counsel has placed reliance on the decisions given in the following cases:
1. Pakistan Paper Corporation Ltd. v . National T rading Company Ltd. [ 1983 CLC 1695 ]
2. Pakistan Insurance Corporation v . Messrs United Liner Agencies and others [1988 CLC 425],
3. Rehmatullah Khan and others v . Government of Pakistan [ 2003 SCMR 50 ],
4. Concentrate Manufacturing Company of Ireland and 3 others v. Seven-up Bottling Company (rvt.) Ltd. and 3 others [ 2002 CLD 77 ],
5. Bolan Beverages (Pvt.) Limited v . PEPSICO Inc and 4 others [ PLD 2004 SC 860 ]
6. Messrs Caltex Oil (Pakistan) Ltd., Karachi v . Sheikh Rehan-ud-Din [PLD 1957 Lah. 9981,
7. Messrs Caltex Oil (Pakistan) Ltd, Karachi v . Sheikh Rehan-ud-Din [PLD 1958 (W .P) Lahore 63],,
8. Messrs Pak Saudi Fertilizers Limited v . Commissioner of Income T ax and others [2005 PTD 1605],
9. Ahmedabad Stamp V endors v . Union of India [(2002) 257 ITR 202]
10. Harihar Cotton Pressing Factory v . Commissioner of Income T ax [(1960) 39 ITR 594]
11. Commissioner of Income Tax and othe rs v. Ahmedabad Stamp Vendors Asso ciation [(2012) 348 1TR 378 (SC)].
7. The learned counsel next stated that in the present circumstances Section 50(4A) of repealed Ordinance is not attracted as reading of this section according to him would reveal that this provision is attracted only when a person makes payment in full or in part on account of brokerage or commission; whereas according to him in the instant matter no amount has been paid on the account of either brokerage or commission hence neither Section 50(4A) of the repealed Ordinance is attracted nor section 52 of the repealed Ordinance, which is a penal provision and is invoked only on the non-compliance of Section 50 (4A) of the repealed Ordinance. In support of his contention, the learned counsel has placed reliance on the following decisions:
1. Commissioner of Income Tax Companies I, Karachi v. Messrs National Investment Trust Ltd. Karachi (2003 PTD 589 ),
2. Messrs Royal T ravel Services (Pvt.) Ltd v . Income T ax Appellate T ribunal ( 2005 PTD 1 157)
3. Commissioner (Legal Division) v . Novertis Pharma (Pakistan) Ltd. ( 2009 PTD 891 ).
8. The learned counsel finally stated that in view of these facts the instant ITC may be decided in favour of the respondent and against the department by answering all the three questions raised in the instant ITC in 'Affirmative'.
9. We have heard both the learned counsel at some length and have also perused the record and the decisions relied upon by the learned counsel for the respondent.
10. Before proceeding further , we would like to reproduce herein below the relevant provisions of law upon which emphasis is laid by the learned counsel appearing for the parties.
"50(4A ) Any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person, on account of brokerage or commission on behalf of Government, a local authority , a company , registered firm, a foreign contra ctor or consortium shall deduct advance tax, at the time of making such payment at the rate specified in the First Schedule and credit for the tax so dedu cted in any financial year shall, subject to the provisions of Section 53, be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom Section 72 or Section 81 applies, the assessment year, if any, in which the "said date", as referred to therein, falls, whichever is the later ."
"52. Liability of persons failing to deduct or pay tax.- Where any person fails to deduct or collect, or having deducted or collected, as the case may be, fails to pay the tax as required by, or under , Section 50, he shall, without prejudice to any other liability which he may incur under this Ordinance, be deemed to be an assessee in default in respect of such tax."
11. The main emphasis of the learned counsel appearing for the respondent being that agreement entered between the parties was, in fact, a sale agreement through which the products of the compa ny (respondent) were sold to its distributors. It is the claim of the respondent that the entire sale consideration of the products sold to its distributor was received in advance, hence there was no question of making deduction of any amount of tax on the said payment received on behalf of the distributor as only a person who is responsible for making payment of any amount in full or part on account of brokerage and commission is liable to deduct the tax at source, as provided under Section 50(4A) of the Repealed Ordinance, and only in case of default for non-deduction of the said tax at source that the provision of Section 52 of the Repealed Ordinance is attracted. It is the claim of the respondent that when they have not paid any amount by way of brokerage or commission to their distributors, there was neither any question of deduction of tax at source nor a question with regard to being treated as an assessee in default, under Section 52 of the Repealed Ordinance . It is noted that the counsel appearing for the defendant has not controverted or denied the aspect that full amount of sale consideration was received by the respondent from its distributors. From the perusal of the agreement between the parties, it is also noted that payment of cartage/carriage was also the responsibility of the distributors. It is also noted that the distributor would pay octroi, terminal tax, etc.
12. The learned counsel for the respondent has also invited our attention to Section 4 of the Sale of Goods Act, which is reproduced herein below:- "4. Sale and agreement to sell: (I) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another .
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer , the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell
(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred"
A perusal of the above section indicates that a transaction between, the parties culminates when the seller or the transferee agrees to transfer the property to the buyer for a price. In the instant case it has been stated that the product has been delivered by the respondent after receiving full amount in advance from the distributor , hence the aspect of sale of the goods to the distributor has come to an end as the distributor then has become the owner of the said product.
13. If the facts of the instant matter are considered, it may be noted that the appellant has not denied that full amount of the product sold to the distributor was made after which the delivery of the goods took place but the department appears to be swayed away by the term, "commission" used in the agreement, which has been explained to be a misnomer by the respondent. The examination of the matter shows that the goods were transferred to the buyer/distributor after receiving full price by the respondent in the form of demand-draft, which means that the parameters, as enshrined under Section 4 of the Sale of Goods Act and that of the Contract Act, have duly been fulfilled.
14. It is a settled proposition of law that liability of tax depends upon the nature of the transaction irrespective of the name given to it, for example, if a taxpayer claims any expenditure, which by nature is inadmissible, by simply changing narration or heading of the said expenditure, the same would not per-se become a permissible or admissible expenditure but would remain an inadmissible expenditure, as per the relevant law .
15. The decisions relied upon by the learn ed counsel for the respondent with regard to the issue of substance and form appears to support his contention that it is not the name or nomenclature, which is to be considered; rather it is the substance which has to be conside red and applied. If the order of the Tribunal, which is the last fact finding authority , is examined, it could be seen that the Tribunal has affirmed the findings of the learned CIT(A) that the department has not been able to prove that the distributor was an agent of the company after examination of the invoices of the company . The Tribunal has also affirmed the findings of the C1T(A) that the goods were sold to the distributor and full amount was received in advance, which also shows that the goods were sold to the distributor at their cost and risk. The Tribunal has affirmed the findings of facts recorded by the CIT(A), who has reached to the conclusion that the nature of transaction between the company and distributor being that of a trade discount and not that of a commission, therefore, the company was not obliged to deduct tax at source on the payment so made to its distributor , under the provision of Section 50(4A) of the Repealed Ordinance.
16. It may also be noted that the instant matter was admitted for regular hearing on the basis of the Reference Application filed in the case of The Commissioner of Income Tax Com panies-III Karachi v. Messrs Al-Ameen Trading Corporation (Pvt.) Limited (ITC No.245 of 2001) but that ITC subsequently was not pressed by the department on the directions of Central Board of Revenue (now , Federal Board of Revenue) and the said ITC was dismissed as not pressed vide order dated 20.2.2009.
17. It may further be noted that the authorities below have reached to a findin g of fact that the nature of the transaction entered between the respondent with its distributor denotes allowing of trade discount and not commission to the said distributor and no convincing material has been placed either before the CIT(A) or the Tribunal or even before us that the arrangement so entered between the respondent and the distributor , in fact, allows a trade discount and not a commission to the said distributor , hence the provisions of Section 50(4A) of the Repealed Ordinance or that of Section 52 of the Repealed Ordinance are not applicable in the instant matter .
Hence, no interference is warranted in the circumstances of the case.
18. We, therefore, in view of what has been stated above, do not find any illegality or irregularity in the order passed by the learned ITAT so as to hold otherwise, as observed by it. We, therefore, under the circumstances answer all the three questions referred to us in the instant ITC in affirmative i.e. in favour of the respondent/taxpayer and against the appellant/department. The instant ITC stands disposed of in the above manner .
19. Let a copy of this judgment be sent to the Registrar , ITAT, for doing the needful in accordance with law .