Judgment Sheet IN THE PESHAWAR HIGH COURT, PESHAWAR. JUDICIAL DEPARTMENT Tax Reference N0-46/2010 JUDGMENT Date of hearing…………23.6.2015………………………….................... Petitioner (s)(Commissioner of Income Tax) By Mr. Rehmanullah, Advocate. Respondent (s)( M/s Sher Akbar Khan Work Force Contractor) By Mr. Muhammad Ijaz Sabi, Advocate. YAHYA AFRIDI, J.- Through this single judgment, this Court shall render its opinion on the three References, as common questions of law have been raised therein. The particulars of which are as under: 1. Tax Reference N0-46/2010. (Commissioner of Inland Revenue (legal) regional Tax Office, Peshawar..vs..M/S Sher Akbar Khan Work Force Contractor, Par Hoti, Mardan). (Tax Year 2004 ) 2. Tax Reference N0-47/2010 . (Commissioner of Inland Revenue (legal) regional Tax Office, Peshawar..vs..M/S Sher Akbar Khan Work Force Contractor, Par Hoti, Mardan. (Tax Year 2003) 3. Tax Reference N0-48/2010 . (Commissioner of Inland Revenue (legal) regional Tax Office, Peshawar..vs..M/S Sher Akbar Khan Work Force Contractor, Par Hoti, Mardan. (Tax Year 2005)
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Judgment Sheet
IN THE PESHAWAR HIGH COURT, PESHAWAR.
JUDICIAL DEPARTMENT
Tax Reference N0-46/2010
JUDGMENT
Date of hearing…………23.6.2015…………………………....................
Petitioner (s)(Commissioner of Income Tax) By Mr. Rehmanullah,
Advocate.
Respondent (s)( M/s Sher Akbar Khan Work Force Contractor)
By Mr. Muhammad Ijaz Sabi, Advocate.
YAHYA AFRIDI, J.- Through this single judgment, this
Court shall render its opinion on the three References, as
common questions of law have been raised therein. The
particulars of which are as under:
1. Tax Reference N0-46/2010. (Commissioner of Inland
Revenue (legal) regional Tax Office,
Peshawar..vs..M/S Sher Akbar Khan Work Force
Contractor, Par Hoti, Mardan). (Tax Year 2004)
2. Tax Reference N0-47/2010. (Commissioner of Inland
Revenue (legal) regional Tax Office,
Peshawar..vs..M/S Sher Akbar Khan Work Force
Contractor, Par Hoti, Mardan. (Tax Year 2003)
3. Tax Reference N0-48/2010. (Commissioner of Inland
Revenue (legal) regional Tax Office,
Peshawar..vs..M/S Sher Akbar Khan Work Force
Contractor, Par Hoti, Mardan. (Tax Year 2005)
2
Questions of law.
2. The common questions of law raised in all the three
References are as under:
(i) “Whether on the facts and circumstances of the
case the learned Tribunal was justified in holding
that the receipts from labour contract do not fall
within the ambit of section 153(1)(c) without
taking cognizance of the fact that the definition of
services as provided in section 159(9) only
includes services of skilled/professional persons i.e
accountants, architects, dentists, doctors,
engineers, interior decorators and lawyers and
that too otherwise than as an employee?
(ii) Whether on the facts and circumstances of the
case the Tribunal was justified in holding that the
receipts from labour contract fall within the ambit
of section 153(1)(b) when the legislature has
intentionally included the services of only
skilled/professional persons in the definition of
services as provided in section 159(9) of the
Income Tax Ordinance, 2001?
(iii) Whether on the facts and circumstances of the
case the Tribunal was justified in holding that the
receipts from labour contract do not relate to
contractual receipts falling within the ambit of
section 153(1)(c) of Income Tax Ordinance, 2001?
(iv) Whether on the facts and circumstances of the
case the Tribunal was justified to ignore the
explanation of the word “services” in pursuance
of section 153(9) that services includes the services
of accountants, architects, dentists, doctors,
engineers interior decorators and lawyers,
otherwise than as an employee?
(v) Whether on the facts and circumstances of the
case the Tribunal was justified to classify
providing of labour force under the contract as
services and holding that providing labour force is
the same as rendering of services whereas the
words “rendered” and “provided” connote two
different meanings?” .
3
FACTS
3. The brief and essential facts, which are relevant for
rendering our opinion on the questions of law raised herein
have been appropriately recapitulated in the decision of the
First Appellate Authority in terms that:
“These appeals have been filed by an individual, deriving income
as Labour Contractor provided services to Pakistan Tobacco
Company Limited. Brief facts leading to these appeals are that
Returns/Statement u/s 115(4) for Tax year 2003 to 2005 were
filed and claimed refund of Rs.33,276/-, Rs.420,078/- and
Rs.352,408/ respectively and the declared versions were accepted
u/s 120(1) of the Income Tax Ordinance, 2001. Subsequently, the
Additional Commissioner (Audit) observed that the appellant has
wrongly filed Statement u/s 115(4) under normal law, as the
payment received by the appellant on account of Labour contract
is a final tax liability. According, Assessments were amended u/s
122(5A) of the Income Tax Ordinance, 2001 and the appellant
was assessed under Presumptive Tax Regime and tax deducted
was treated as Final Tax liability.”
“Call notice was issued to response AR of the appellant
attended the office and pleaded the case as per grounds of
appeal. The main issue in the case is that the appellant is a
Labour Contractor providing labours under a contract to
Pakistan Tobacco Company. The appellant filed his
Returns/Statement u/s 115(4) under normal law and claiming
Refund of Rs.334,276/-, Rs.420,078/- and Rs.352,408/- for Tax
Years 2003, 2004 and 2005 respectively. The assessing officer
has rejected this arrangement with his findings that
………..…..
It was only through Finance Act, 2005 that “providing of
services” was made a subject of clause (b) of sub-section (1) of
Section 153, which is effective for the tax year 2006 onwards,
while the relevant period being earlier to this amendment, does
not suffer this change of law.
That “Services” have been defined in sub section (9) of
Section 153, as follows:
“Services” includes the services of accountants,
architects, dentists, doctors, engineers, interior decorators and
lawyers, otherwise than as an employee.”
4
I have examined the case in detail and I feel no hesitation
to endorse the findings of the assessing officer as he has rightly
amended the order u/s 122(5A) of the Income Tax Ordinance,
2001, to retrieve the loss of revenue.”
The present respondent being aggrieved challenged the
decisions of the Commissioner (Appeals) before the learned
Appellate Tribunal, which was accepted. Hence, the present
References moved by the Revenue.
SUBMISSIONS
4. The worthy counsel for the Revenue vehemently argued
that the case of M/s. Sher Akbar Khan, came within the
purview of clause (c) and not (b) of subsection (1) of Section
153 and thus the tax deducted shall be the final tax as envisaged
under subsection (6) of section 153. He further argued that the
services provided by M/s. Sher Akbar Khan were not
professional hence, did not come within the purview of clause
(b) of subsection (1) of Section 153 and thus the decision of the
worthy Tribunal warranted to be corrected. In this regard,
reliance was sought on M/S Premier Mercantile Services (Pvt)
Ltd’s case (2007 PTD 2521).
5
5. In rebuttal, the worthy counsel for M/s. Sher Akbar Khan
contended that the decision of the worthy Tribunal was in
accordance with law, as amendments introduced in section 153
were explanatory in nature. The same were to have
retrospective effect. In particular, he emphasized that the
amendments introduced vide Finance Act, 2005, finally
introduced the term providing of which catered for the services
rendered by M/s. Sher Akbar Khan. Thus, the amendments
introduced in 2005 were to have retrospective effect and would
apply to the case of M/s. Sher Akbar Khan for the Tax Year
2003 to 2005, which was the subject of consideration of the
present references. In this regard, the worthy counsel sought
reliance upon M/s Ever Green Trading Company’s case (2011
PTD 549), M/S Rehman Enterprises case (2008 PTD 1897),
M/S Criss Gas’ case ( 2010 PTD 2349), Khurshid Ahmed’s
case (2008 PTD 1243), and Mehboob Ali’s case ( PLD 1976
S.C 483).
6
OPINION.
6. The questions of law raised in the instant references
revolve around the scope, extent and the true import of the
amendments introduced in section 153 of the Ordinance. In
order to appreciate the implication of the amendments
introduced in the said provision, it would be appropriate to trace
the stages through which the provisions of section 153 supra
have evolved, the same are reproduced as under:
STAGE-I,
Income Tax Ordinance, 2001, as originally enacted
(1st July 2001-till 30
th June, 2002).
153. Payments for goods and services.- (1) 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 professional services;
c) on the execution of a contract, other than a contract for the
supply of goods or the rendering of professional 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 III of
the First Schedule.
(emphasis provided)
7
STAGE-II
Finance Act, 2002
(1st July 2002-till 30
th June 2005).
153. Payments for goods and services.- (1) 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 services; (The word ‘Professional’ was
omitted)
c) on the execution of a contract, other than a contract for the
supply of goods or the rendering of professional 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 III 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 transactions
referred to in clause (a) or (c) of sub-section (1).
9). In this section,
“prescribed person” means
………….
“Professional Services” includes the services of accountants,