Commissioner of Inland Revenue, Mardan Zone, Regional Tax Office, Peshawar Vs M/S Imran Ahmad M/S Green Hill CNG Station Bypass Road, Malakand

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JUDGMENT SHEET

PESHAWAR HIGH COURT. PESHAWAR

JUDICIAL DEPARTMENT

Tax Ref No.09-P/2021

Commissioner of Inland Revenue, Mardan Zone' Regional Tax Office, Peshawar Vs' Mr' Imran Ahhad M/S Green Hill CNG Station By Pass Road, Malakand.

Date of hearing 21.06.2023.

Barrister Asad-ul-Mullq for the petitioner' Nemo for the resPondent.

.TUDGMENT

judgment of us is SYED ARSHAD ALI. J. This consolidated aimed to dispose of the present Tax Reference as well as the

common connected Tax Reference No.l0-P/2021 because questions of law has been raised by the department in all the

tax references.

2.Brieflystatedfactsofthecaseasevidentfromrecord arethatthetaxpayerlrespondent,anindividual,deriving Pass Road income from running a CNG Filling Station at By Thana, Malakand filed return for the ta>< year under

consideration claiming refund of Rs'863'261/- and

allowed Rs.345,859/- respectively, on the basis of exemption under clause 126-F of 2d Schedule to the Income Tax

ordinance, 2oo1 (,,ordinance,,) which was treated to be an

assessmentorderintermsofSectionl20oftheordinance.

Though, the refund claimed was issued to the

taxpayerhespondent, but subsequently, the Additional Commissioner Inland Revenue found the deemed assessment order e11oneous in so far as prejudicial to the interest of revenue in view of the judgment of Appellate Tribunal o'Iul/s delivered in the case of Inter-Construct (Pv) Ltd and clarification circular" dated 07.06.2013 issued by the FBR.

Accordingly, he amended the deemed assessment order by resorting to provisions of section 122(5A) of the ordinance by considering case of the taxpayer being not entitled to exemption as the commission income fell under the Presumptive Tax Regime (PTR). Feeling aggrieved, the taxpayerftespondent preferred appeal before Commissioner Inland Revenue (Appeals), Peshawar who vide order dated 31.07.2017 allowed the appeal of the respondent and annulled the order of the Additional Commissioner, Mardan.

3.Against that, the department filed appeal before the learned Appellate Tribunal and the learned Tribunal dismissed the appeal; hence the instant Tax Reference.

L Arguments heard and record of the case was perused'

5.The essential issue is the entitlement of exemption to 2 the respondent in terms of clause 126-F ibid. clause 126-F was inserted in Part-I of the 20d schedule of the ordinance through Finance Act, 2OlO to grant fiscal relief to the taxpayers whose business were adversely effected in the Province of Khyber Pakhtunkhwa, Federal Administered Tribal Area and Provincial Administered Tribal Area for a

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period of three years with effect from tax yeat 2010. The said clause reads as under: -

"(126-F) ProJix and gains derived by a taxpayer located in the most affected and moderately affected dreas of Khyber PaWttunkhwa, FATA and PATAfor a period of three years starting from the tax year

Provided that this concession shall not be avoilable to the manufacturers and suppliers of cement, sugar, beverages and cigarettes. "

6.The Federal Board of Revenue to further clariff the position had issued Circular No.l4 of 20ll on 06.10.2011 which is reproduced as under: -

Circular No. 14 of 2011

(Income Taxl

Subject: Exemotion under Clause (126F1of Part I of Second Schedule to the Income Tax Ordinance, 200I - Clarifications Reeardine

clause (126F) was inserted in Part I of second schedule to the Income Tm Ordinance, 2001, through Finance Act, 2010, to grant fiscal relief to the tcapayers whose businesses were *adversely fficted during the ongoing strife in the -Khyber Pa*ttunkhwa (KPK), Federally Administered Tribal Areas (FATA), and the Provincially Administered Tribal Areas (PATA), .for a period of three years w.e.f. Tax Year 2010' In follow up -thereto, o ru*b* of communications were issued by the Board to define and clarify the parameters of Clause (126F) including SROJ, Circulars, and letters, which being prone to varying interpretations, may have caused certain degree of cortfusion in some respects.

2.Queries hcne been received in the Board as regards the *ittotitity of exemption under Clause (126F) with reference to the location-of the- taxpayer, the location of the business, and other allied matters. In supersession of all earlier clarifications issued by the Board, in brder to streamline the operation of

-(126F),

clause and ensure its standardized implementation ) across tie board, the instructions as contained in the succeeding paragraphs will henceforth apply.

7f

3.The word "located" as used in Clause (126F) can possibly have more than one dimension. The relevant scenario along with the corresponding exemption/taxable status are outlined below:

Situation Exemption/TaxabilitY ^Sr#

(i)The t$epqyer is Exempt located inside the fficted and moderately affected areas (hereinafier 'the specified areas'), and his business is also carried on inside the specified areas.

(ii)The ta,\pqyer is Exempt located outside the specified oreas but his business is carried on within the specified areas.

(ii)The taxpayer li Tawhle located inside the specified areos, but his business is carried on outside the specified areos.

(iv)The taxpcryenr Exempl to the extent of the income located outside the attributable to the business specified areos, but operations carried on inside the his business is partlY specified areas.

carried on inside the specified areas.

4.Thus, it is apparent that the provisions of Clause (126F) have to be applied keeping in view the facts of each case.

5.Accordingly, thefieldformation moy decide eoch case on merit in the light ojthe above instructions uponfiling of a claim in this regard by the taxPaYer.

sd_ (S h ah idMe hmoo d S h eikh) S ecretary- IR (E xemPtio n s/Rule s)

7.As evident from the facts of the case that the respondent was issued adjustment/refund of income tax for an amount of Rs.863,261l- and Rs. 345,8591- for the tax period 2010 2 relating to tax deducted under Section 234-Athrough an order of refund in terms of Section 126-F ibid. The said order was amended by withdrawing the said refund from the respondent

on the ground that since the taxability of the respondent falls in the final tax regime (234'A of the Ordinance); hence, the provision of 126-F ibid is not applicable to the case of petitioner. The said opinion was formed by the assessing officer in view of the judgement passed by the Hon'ble Lahore High Court in the case of *lWS Sarwar Co.

(Pvtt Ltd Vs. The Aooellate Tribunal Inland Revenue etc (PTR No.71 of 2014)" and the subsequent law laid down by the Apex Court in the case of ooHusnain Cotex Limited h Commissioner Inlsnd Revenue, Lahore (2017 SCMR 822) affirming the judgment of the Hon'ble Lahore High Court. We have perused the judgment of 'Husnain Cotex Limited' which is inapplicable to the present case because the said issue relates to the refund of advance tax deducted from the contractor who were located in Lahore, however, were providing services in the Province of Khyber Pakhtunkhwa.

The issue was later elaborately decided by the Apex court in the case of "Commissioner Inland R Secretarv Revenue Division and others (2020 SCMR 2055)" wherein; the law relating to exemption under Clause 126-F was expounded in the following manner: -

6.A perusal of Husnain Cotex shows, in our view, that rather than supporting the case of the department in the facts and circumstances of the present case, it is rather the case of the respondent-taxpayer that is made out. This position clearly emerges, in particular, the portion that has been -emphasized from in the extracts taken above. We may note that the term "located" os used in the exemption clause was considered in the context if various scenarios in para 3 of

Circular 14, whichwas asfollows: "3. The word "located" as used in Clause (126F) can possibly have more than one dimension. The relevant scenario[sJ along with the corresPonding exemption/taxable status are outlined below :' Sr. No. Situation Exemption/ TaxabiliA o The tacpayer is located inside Exempt the affected and moderatelY affected areas (hereinafter 'the speci/ied areas') and his business is also carried on inside the specilied areqs.

(it)The taxpayer is located outside Exempt the speci/ied areas but his business is carried on wilhin the speci/ied areas.

(ii, The taxpayer is located inside Taxable the speci/ied areas, but his business is carried on outside the speci/ied areas.

(iv)The taxpayer is located outside Exempt to the extent of the speci/ied areas, but his the income attributable business is partlY carried on to the business inside the speci/ied areas. operations carried on inside the speciJied areas.

It ,r clear that the facts and circumstances of the taxpayers in Husnain Cotex came within the scope of situations (ii) ond/or (iv) and this was the basis on which they claimed exemption. However, this Court took a contrary view and held that the interpretation put by the department on the exemption clause was not correct. We fully agree. On the other hand, the case of the present respondent falls squarely within situation (i) of the aforementioned table. It is clear that the department itself regarded the income of such taxpoyers as entitled to the bene/it of the exemption clause. This scenario has been clearly confirmed in para 7 of the judgment in Husnain Cotex, where such persons have been described as the "affictees" of the "adverse business environment" for whom the exemption clause was intended. In our view, the facts and circumstances of the respondent's case come within the scope of the exemption clause. We come to this view independently of what was said in Circular 14, and regardless of whether or not the department subsequently ') took a contrary view. We may also note that the sentence appearing in para 7, i-e., that "These taxpayers could only be the ones who { was not, -in under the 'normal tox regime"' fall our view, germane to the analysis and conclusions arrived at by the Court' In parttcular, it cannot be tal@n to mean that even those taxpayers who otherwise came squarely within the scope of situation -(i) (i'e', the "offictees" of the "qdverse business

v environment") had also (and only) to be those from whom tax was not being deducted as a final tax. That would credte an anomalous situation by creating two classes both falling within the scope of the exemption clause in the facts and circumstances of their cose, and yet the benefit thereof being extended only to the one and not the other. In our view, such a conclusion would not merely defeat the exemption clause but would also run against the tenor of Husnain Cotex when read as a whole. We may also note, with respect, that the decision in Husnain Cotex was a leave refusing order. It is now the jurisprudence of this Court that such orders do not constitute binding authority. Thus, on any view of the matter, the reliance placed by learned counsel for the department on certain portions of the judgment is, with respect, not correct,"

8.In view of the above, we hold that the income of the respondent for the tax years 2010 was exempt from payment of income tax in tenns of Entry 126'F of Part I to the 2nd schedule to the ordinance and thus the respondent was entitled to the refund of the minimum tax charged under section 153 sub-section 3(b) of the ordinance. Thus, this Tax Reference is as well as connected Tax Reference is answer in in negative. copy of the judgment be sent to the learned Appellate Tribunal for information.

Announced 21.06.2023 rflr

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ruD9+

JUDGE

Arshad Ali tlai&r Shah SSS (DB) Hon'ble Mr Justi@ AHul Shakoor & Hon'ble Mr' Justi@ Syed