Law: Income Tax Ordinance, 2001

Section: 2(29C),97(4)(b)(1),113C,120(1)(b),122(5A ),122(9),148,210,211,211(2)

INCOME TAX ORDINANCE, 2001 (XLIX OF 2001)----Sections: 2(29), 97, 113C, 120(1)(b), 122(5A), 122(9) 148 & 210 - Amendment of assessments - Alternative Corporate Tax - Imports - Delegation - Filing of tax return by Appellant declaring losses – Non-payment of tax of gain arising on disposal of assets - Non-payment of due tax u/s 113C, incorrect claim of brought forward depreciation and amortization loss, inadmissible claim of being an industrial undertaking, Incorrect claim of tax deducted u/s 148 as adjustable and proposed computation of super tax - Show Cause Notice - Amendment of assessment by CIR after dislodging contention of appellant - Confirmation of order of CIR by CIR(A) in appeal - Retention of power by CIR after delegating same to OIR u/s 210 - Declaration of transaction made by Appellant Company with Subsidiary Company, not qualifying u/s 97 - Appellant’s business not falling within purview of the term Industrial Undertaking - Validity -

FACTS
The facts, in brief, are that the Appellant Company is engaged in deriving income from providing cellular telecom services. Return of income for tax year 2018 was filed on 14.12.2018 declaring loss at (Rs.80,891,094,920), which was treated to be an assessment order under section 120(1)(b) of the Income Tax Ordinance, 2001 (“the Ordinance”). During the course of exanimation of the appellant’s record for tax year 2018, the Commissioner Inland Revenue (CIR) observed certain discrepancies in the deemed assessment order which, in his opinion, rendered the same as erroneous in so far as prejudicial to the interest of revenue warranting remedial action under section 122(5A) of the Ordinance. Accordingly, a show cause notice under section 122(9) read with section 122(5A) was issued confronting the appellant inter alia on taxation of gain arising on disposal of assets, non-payment of due tax under section 113C of the Ordinance on accounting gain recognized, incorrect claim of brought forward depreciation and amortization losses, inadmissible claim of being an industrial undertaking. Incorrect claim of tax deducted under section 148 of the Ordinance as adjustable and proposed computation of Super Tax. In response thereto, the Appellant submitted its written reply and attempted to defend the case. After having examined the reply of the Appellant, the learned CIR issued another notice wherein the arguments advanced by the Appellant were rebutted. In response, the Appellant through its AR, filed a written reply and reiterated its stance. The learned CIR, being unconvinced with the explanation offered by the Appellant on certain issues, proceeded to amend the deemed assessment order under section 122(5A) of the Ordinance wherein taxable income for Tax Year 2018 has been determined at Rs.78,004,012,513 while balance tax payable has been determined at Rs.22,032,622,231. Being aggrieved, the Appellant preferred the appeal before the learned CIR (A) who vide Order in Appeal 248/2020 dated 03.02.2020 confirmed the order of the Assessing Officer. Aggrieved with this order, the Appellant has preferred appeal before this Tribunal and assailed the impugned appellate order on a number of grounds.

ARGUMENTS
The Department argues in favour of preservation of powers and conversely, the learned AR for the Appellant Company argues against the same. In arguing so, the learned AR maintains that without withdrawing the delegation made under section 210 of the Ordinance, the CIR had no jurisdiction to issue a show cause notice or pass an amended assessment order under section 122(5A) of the Ordinance. In this regard, he has made detailed written submissions and we intend to deal with the same in our findings below.

The learned counsel argues that in case of a contractual delegation the delegator retains his power concurrently; whereas, this principle is not applicable to statutory delegation.

The learned AR for the Appellant submits that according to the definition of “industrial undertaking” given in section 2(29C) of the Ordinance means an undertaking which is setup in Pakistan and employs ten or more persons in Pakistan and involves the use of electrical energy and which is engaged in the subjection of material to any process which substantially changes their original condition. Appellant is engaged in the provision of telecommunication services. The process of provision of telecommunication services involves subjection of voice and data to a process which changes their nature for transmission into different materials and then re-converts them to voice and data at the time of delivery to the recipients. This process of conversion and reconversion of voice and data renders these materials to undergo a change that substantially changes their original condition.

The learned counsel also inter alia submitted that in the telephone exchanges electrical energy is converted into electro-magnetic waves to provide service to its customers. As a sequitur, it was contended that a new product is manufactured. It was also canvassed that the activities of the appellant are in the nature of business and trade. It was argued that this being so, the activities squarely fall within the definition of the term “Industrial Undertaking” as defined in section 2(29C) of the Ordinance.

DECISION
(a) Legal issues - Framing of - After considering the arguments advanced by both the parties and perusal of the record, we now frame the following issues for our adjudication: -

i) Whether a Commissioner Inland Revenue (CIR) as delegator retains his power under the Ordinance after delegating the same to an Officer of Inland Revenue under section 210 of the Ordinance?

ii) Whether under the facts and in the circumstances of the case, the transactions made by the Appellant Company with its wholly owned subsidiary Deodar (Private) limited (DPL) qualifies to be accepted under section 97 of the Ordinance?

If the answer to the question No.(ii) is in the affirmative, then whether the Appellant Company is obliged to pay tax under section 113C of the Ordinance?

iii) Whether the business of the Appellant Company i.e telecommunication services falls within the purview of the term ‘Industrial undertaking’ as defined in section 2(29C) of the Ordinance?

iv) Depreciation and Amortization Losses.

(b) Exercise of Powers by CIR u/s 122(5A) after delegating same to OIR - - In our opinion, there is no ambiguity in the plain legislative text and it may simply be held that the CIR always holds concurrent powers to exercise jurisdiction under section 122(5A) of the Ordinance. However, the Commissioner may exercise such power before he becomes bound by the act of its delegate.

(c) Making of transaction with other company u/s 97 - Scope – For what has been discussed above, it may be concluded that the Appellant Company does not meet the requirement of clause (a) of sub-section (1) read with clause (b) of sub- section (4) of section 97 of the Ordinance because of admission of the learned AR that not all the companies forming the group are resident Companies.

(d) Industrial undertaking - definition of - It is an admitted fact that the primary and dominant object of the Appellant Company is to providing and rendering of telecommunication services to the customers. The Appellant has also been paying sales tax and excise duty on its services therefore, it cannot be said that the Appellant Company falls under the definition of an industrial undertaking.

(e) Adjust or claim of refund - Entitlement - Scope - The activities of the Appellant Company do not fall within the purview of “industrial undertaking” and as such, the tax collected under section 148 is a final tax and the appellant is not entitled to adjust or claim refund thereof.

(f) Depreciation and Amortization losses - Admissibility We have not been able to take any exception to the reasoning of the impugned judgment and are of the view that it does not warrant any interference.

The learned CIR(A) has refused the claim on facts and grounds of lack of evidence by the appellant. We regret to note that no such evidence has been produced in the Tribunal as well. Therefore, the appeal of the appellant also fails on this issue as well.

For what has been discussed above, the appeal of the Appellant company is dismissed being devoid of merits.

[Case-law referred.]

O R D E R