PLJ 2023 Quetta 60 (DB)
Present : MUHAMMAD HASHIM KHAN KAKAR AND ABDUL HAMEED BALOCH , JJ.
COMMISSIONER INLAND REVENUE ZONE -I, REGIONAL TAX OFFICE, QUETTA--
Applicant
versus
M/s. QUETTA ELECTRIC SUPPLY COMPANY LIMITED,
QUETTA --Respondent
I.T.R. Appln. No. 2 of 2021, decided on 22.8.2022.
Income Tax Ordinance, 2001 (XLIX of 2001) --
----Ss. 113, 120(1)(b) & 122(5)(A) --Filing of income tax return --Claim for exemption being tariff
differential subsidy-- Amended assessment order --Total sale was determined --Issuance of show -
cause notice --Appeal --Dismissed --Second appeal --Rejected --Subsidy--TDS is amount receivable
from Government of Pakistan on account of difference between lower than NE PRA Tariff price
charged from consumers and price notified by NEPRA --Thus is not a subsidy or grant given to
QESCO as a bailout package--Electric supply companies were exempt from minimum tax under
Section 113 from date of their creation upto date of compl etion of process of corporatization i.e .
till tariff is notified --Such period has already lapsed under Part IV of Second Schedule to
Ordinance, no exemption from minimum tax is available to electric supply companies at present -
-Amount receivable by electri c power supply companies from Government of Pakistan on
account of difference between lower than NEPRA Tariff rate charged to consumers and rate notified by NEPRA is not subsidy--It is balance price of electricity which is paid by Government on behalf of e lectricity consumers to provide relief to such consumers --Such total amount
constitute gross revenue on account of sale of electricity and such revenue is liable to minimum tax under Section Ordinance unless a specific exemption is brought into part IV of second Schedule to Ordinance --Tribunal has erroneously referred to Clause (102A) Part I of Second
Schedule to Ordinance while discussing exemption from minimum tax because Part I of Second Schedule provides exemption from total income only and it has no concern with exemption from specific provision which is covered in Part IV of Second Schedule to Ordinance. [Pp. 74 & 75]
B, C, D, E & F
Electric Power Act, 1997 --
----Preamble-- An Act to provide for regulation of generation, transmission and distribution of
electric power. [P. 71] A
Mr. Sohail Ansari , Advocate for Applicant.
M/s. Zahoor Hassan Jamot, Muhammad Ali Kanrani and Hakeemullah, Advocates for Respondent.
Date of hearing: 21.6.2022.
JUDGMENT
Muhammad Hashim Khan Kakar, J.--This Income Tax Reference A pplication has been filed
under Section 133 of the Income Tax Ordinance, 2001 (hereinafter referred to as the
“Ordinance”) by the Department and the questions of law stated to have arisen out of order in
ITA Nos. 3222/LB/2017, 2795/LB/2018, 2417/LB/2017, 2671/LB/2017, 473/LB/2020, 474/LB/2020, 1480/LB/2017 and 221/LB/2020 dated 07.04.2021 in the cases of electric power supply companies passed by a full bench of the learned Appellate Tribunal Inland Revenue of
Pakistan, Lahore (hereinafter referred to as the “Tribunal”) proposed for our consideration are as
follows: --
“1) Whether on the facts and circumstances of the case Appellate Tribunal has erred in
holding that the subsidy cannot be made part of turnover as defined in Section 113 of the Income
Tax Ordinance, 2001?
2) Whether the ‘Tariff Differential Subsidy, paid by the Government to the taxpayer is in
lieu of consideration for sale of electricity to the consumer at the rate below the fixed tariff for such sale?
3) Whether the consideration for sale of e lectricity received from the Government in the
form of ‘Tariff Differential Subsidy’ is part of turnover for the purpose of Section 113 of the
Income Tax Ordinance, 2001?”
4) Whether on the facts and circumstances of the case Appellate Tribunal was justifi ed not
to dilate upon the full bench judgment of the ATIR reported as 2019 PTCL 731 on the charge of the subsidy on sales tax and the concept of value of supply under Section 2(46) of the Sales Tax Act 1990 terming it distinguishable?
2. The facts, in brief, are that the taxpayer M/s. Quetta Electric Supply Company is a limited company deriving income from the sale, transmission, and distribution of electric power. The
return of income filed for the tax year 2015 declared net revenue/sa les at
Rs. 50,924,357,178/ -. Out of these sales/net revenue, sales of
Rs. 7,646,515,648/ - was claimed as exempt being “Tariff Differential Subsidy” (hereinafter
referred to as the “TDS”), while sales/revenue subject to normal tax was declared at Rs.
43,277,841,530/ -(excluding the TDS of Rs. 7,646,515,648/ -). The return, which constituted
deemed assessment order under Section 120(1)(b) of the Ordinance was considered by the Additional Commissioner Inland Revenue (hereinafter referred to as the “ADCIR”) as erroneous
insofar as prejudicial to the interest of revenue, for the reason that the taxpayer had declared consumer sales liable to tax at Rs. 43,277,841,530/ -in the income tax return, whereas the TDS of
Rs. 7,646,515,648/ -declared in the audited accounts had not been included in the sales liable to
tax on the ground that said amount was paid by the Government to the taxpayer company as
subsidy, hence it was exempt from tax. The ADCIR was of the opinion that in the case of the
taxpayer, a power distribution Company, the amount received by the taxpayer from the
Government as TDS is characterized as gross receipts within the meaning of “turnover” as
defined in sub- section (3) of Section 113 of the Ordinance. The ADCIR considered the amount
received by the taxp ayer as an essential component of gross receipts and an integral part of the
turnover hence chargeable to minimum tax under Section 113 of the Ordinance. Both the
consumer sales and the TDS amounts i.e . Rs. 43,277,841,530 and Rs. 7,646,515,648 attracted the
provisions of Section 113 of the Ordinance. The ADCIR accordingly issue show -cause notice to
the Respondent/Taxpayer and the deemed assessment was amended accordingly under Section
122(5A) of the Ordinance,
vide order dated 02.12.2016 whereby total sale s were determined at
Rs. 50,924,357,178/ - that also included the TDS and entire sales were made chargeable to
minimum tax under Section 113 of the Ordinance, and tax demand at Rs. 494,486,702/ - was
created. The ADCIR also based his order on the omission of Clause (5) of Part III of the Second Schedule to the Ordinance by the Finance Act, 2014 whereby the exemption from minimum tax under Section 113 of the Ordinance to the corporatized entities of Pakistan Water and Power Development Authority (DISCOs) and National Transmission and Dispatch Company (NTDC) on the purchase price of electricity available up to the tax year 2013 was withdrawn. The taxpayer aggrieved with the amended assessment order passed by the ADCIR under Section 122(5A) of the Ordinance file d appeal before the Learned Commissioner IR (Appeals) Quetta,
Who dismissed the appeal of the taxpayer and upheld the order passed by the Department vide
Appeal Order No. 115 -2016/IT dated 09.01.2017. Being dissatisfied with the order of the learned
CIR (A ppeals), the taxpayer preferred Second Appeal vide ITA.No. 221/LB/2020. A full Bench
of the Tribunal was constituted to decide the common prime issue whether the amount of the TDS received by the electricity distribution companies from the Government and not from the consumers constituted “turnover” liable to the charge of minimum tax under Section 113 of the Income Tax Ordinance 2001. The Department had created demand holding that the TDS was part of turnover as per the legal provisions and settled law. The mandate of the full bench was
confined to the issue of TDS only.
3. The learned Full Bench of the Tribunal passed its combined order in favor of the electric
power supply companies and held that since neither sale of goods has been made to the Government , nor has the Government purchased electricity from these companies, hence TDS is
exempt from minimum tax under Section 113 of the Ordinance. The Tribunal further held that the Government as a regulator and to provide relief to the general public has place d a restriction
on the sale price to be charged from the consumers hence the payment made by the Government to the electric power supply companies cannot be termed as gross sales and turnover in the hands of these companies. To be turnover, the receipts must be for the sale of goods. The TDS can be termed as trade discount and would not make part of turnover, consequently not liable to minimum tax under Section 113 of the Ordinance. It is also held by the Tribunal that TDS paid by the Government to the elec tric power supply companies is a subsidy to these companies and
not to the consumers, hence exempt under the provisions of clause (102A) of Part 1 of the Second Schedule to the Ordinance. The Tribunal has referred to decision of another full bench of the T ribunal reported as 2019 PTCL 731 wherein the issue of TDS has been discussed under the
Sales Tax Act 1990 (hereinafter referred to as “the Act”) with reference to the concept of value of supply under Section 2(46) of the Act but held said decision as dist inguishable. The learned
Tribunal after examining the facts of the case and considering relevant provisions of the law decided the issue in favour of the electric power supply companies and rejected appeal filed by the Applicant/ Department with following observations:
“18. For what has been discussed above it is concluded that the minimum tax u/S. 113 of
the Ordinance 2001 is chargeable on the amount billed and received from the consumers of electricity and the amount received as subsidy provided by the Government to el ectric
supply distribution companies is not chargeable to minimum tax u/S. 113 of the Ordinance 2001.
This order decides the appeals of the department as well as those of the taxpayers only to the extent of the issue of charge of minimum tax on the Tariff Differential Subsidy (TDS)
received from the Government. The AR roster is, therefore, directed to place the files before the division bench(s) of competent jurisdiction to decide the other issues and grounds, if any, involved in respective appeals through separate orders.”
4. Mr. Sohail Ansari, learned counsel for the applicant/ Department assailed the order of the learned Tribunal and argued that the amended assessment orders were correctly passed, and the price paid by the Government to the electric powe r supply companies was part of “turnover”. He
argued that the taxpayer’s audited accounts show that the amount in question as “gross receipts”, and he pointed out that clause (102A) of Part I of Second Schedule does not apply to minimum tax demand under Se ction 113 of the Ordinance and also because no exemption has been allowed
from the provision of Section 113 under clause (11A) Part IV of the Second Schedule to the Ordinance. He submitted that as per electricity bills issued by the electric power supply companies price of electricity is determined by the National Electric Power Regulatory Authority
(NEPRA) and the power distribution companies receive one portion of the price from the consumers while another portion from the Government in the form of TDS which is subsidy provided by the Government to the consumers. He further argued that no subsidy was allowed to the taxpayer company, and the taxpayer received the amount as per the NEPRA tariff, and the figure of gross receipts are those declared in the audi ted accounts. He further argued that when
the definition of “turnover” is specifically provided in Section 113 and the transaction falls within its meaning then the minimum tax liability is clearly established. He also argued that the order of the Tribunal in ITA 1480/LB/2015 in the case of the LESCO is distinguishable and per
in curium. The counsel further argued that the amount of TDS was declared by the taxpayer company in its audited accounts as receipts and it makes no difference whether the payment is
received against the supply of electricity partly from the consumers or partly from the Government. He also argued that in any case the taxpayer got the full payment against the sale of electricity. The receipts are on account of supply of electricity, therefore, constitute turnover on the gross amount received for the supply of electricity. He argued that the receipts are split between the receipts from consumer paying the per unit price at subsidized rate and lower than the rate as per NEPRA Triff, while the balance per unit price as per NEPRA Tariff is paid by the Government on behalf of consumers to the company. The counsel further argued that the company has received full amount of electricity sold to consumers hence the company cannot claim that its turnover will only be the payments received from the consumers at subsidized rates and not the amount paid by the Government on behalf of the consumers. The counsel therefore prayed that the charge of minimum tax under Section 113 may be held in accordance with provisions of law and questions of law raised may be answered accordingly.
5. Mr. Hakeemullah Advocate, learned counsel of the Respondent/Taxpayer supported the order
of the Tribunal. The learned counsel contended that the Tribunal has rightly held TD S as exempt
and not a part of turnover and also that the respondent company is not liable to minimum tax
under Section 113 of the Ordinance. The learned counsel explained that in the computation of total income every receipt and payment is accounted for, a nd therefore, the taxpayer rightly
declared the receipts of subsidy to compute its income and in the declared total income the Government subsidy was duly accounted for. He argued that for levy of minimum tax under
Section 113 the TDS. cannot be included i n the “turnover” which has a specific meaning as
defined in Section 113 of the Ordinance, therefore the Tribunal has applied the correct law by
holding that the minimum tax was not attracted on the subsidy received from the Government namely TDS. The learn ed counsel also referred Clause (102A) of the Second Schedule to the
Ordinance and argued that by virtue of said clause subsidy is exempt from application of Section 113 of the Ordinance. The learned counsel of the taxpayer also relied upon the decisions of the Honorable Supreme Court of Pakistan reported as 2016 PTD 1393, of the Honorable Islamabad High Court reported as 2010 PTD 1119 and of the Honorable Lahore High Court reported as 2006 PTD 2638. In the light of these decisions the learned counsel conte nded that subsidy or
grant from the Government to a Government controlled entity is exempt from minimum tax under Section 113 of the Ordinance. The learned Counsel further contended that since the Respondent/Taxpayer is also a Government controlled entity and a recipient of subsidy from the Government, therefore, it is exempt from minimum tax under Section 113 of the Ordinance to the extent of subsidy.
6. We have heard arguments from both the parties, carefully considered the judgments referred
and put -forth before the bench, referred relevant provisions of law and have also perused the
available record. The core issue involved is as to whether the TDS received by the taxpayer from the Government on account of providing electricity to consumers at lower pric es is subsidy and
exempt from minimum tax under Section 113 of the Ordinance or not? To resolve the
controversy, it is expedient to expedient to reproduce hereunder the relevant provisions of law which are Section 113 of the Ordinance, clause (102A) of Par t I of Second Schedule to the
Ordinance, clause (5) of Part III of Second Schedule to the Ordinance, clause (11 A) of Part IV of Second Schedule to the Ordinance and Section 80D of the repealed Income Tax Ordinance, 1979: -
113. Minimum tax on the income of certain persons. --(1) This section shall apply to a
resident company, permanent establishment of a non- resident company, an individual
(having turnover of ten million rupees or above in the tax year 2017 or in any subsequent tax year) and an association of persons (having turnover of ten million rupees or above in the tax year 2017 or in any subsequent tax year) where, for any reason whatsoever, allowed under this Ordinance, including any other law for the time being in force --
(a) loss for the year;
(b) the setting off of a loss of an earlier year;
(c) exemption from tax;
(d) the application of credits or rebates; or
(e) the claiming of allowances or deductions (including depreciation and amortization
deductions) no tax is payable or paid by the person for a tax year or the tax payable or paid by
the person for a tax year is less than the percentage as specified in column (3) of the Table in
Division IX of Part -I of the First Schedule of the amount representing the person’s turnover from
all sources for that year:
Explanation.--For the purpose of this sub- section, the expression “tax payable or paid”
does not include -
(a) tax already paid or payable in respect of deemed income which is assessed as final
discharge of the tax liability under Section 169 or under any other provision of this Ordinance;
and
(b) tax payable or paid under Section 4B.
(3) Where this section applies:
(c) the aggregate of the person’s turnover as defined in sub- section (3) for the tax year shall
be treated as the income of the person for the year chargeable to tax;
(d) the person shall pay as income tax for the tax year (instead of the actual tax payable
under this Ordinance), minimum tax computed on the basis of rates as specified in Division IX of
Part 1 of First Schedule;
(e) where tax paid under sub -section (1) exceeds the actual tax payable under Part 1, 4
[clause (1) of Division I, or] Division II of the First Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under the aforesaid Part of the subsequent tax year;
Provided that the amount under this clause shall be carried forward and adjusted
against tax liability for 5[five] tax years immediately succeeding the tax year for which the amount was paid.
(4) “turnover” means,--
(a) the gross sales or gross receipts, exclusive of Sales Tax and Federal Excise duty or any
trade discounts shown on invoices,
or bills, derived from the sale of goods, and also excluding any amount taken as deemed
income and is assessed as final discharge of the tax liability for which tax is already paid or
payable;
(b) the gross fees for the rendering of services for giving benefits including commissions;
except covered by final discharge of tax liability for which tax is separately paid or payable;
(c) the gross receipts from the execution of contracts; except covered by final discharge of
tax liability for which tax is separately paid or payable; and
(d) the company’s share of the amounts stated above of any association of persons of which
the company is a member.
Clause (102A) of Part I of Second Schedule to the Ordinance:
(Part I provides exemptions from total income)
(102A) Income of a person as represents a subsidy granted to him by the Federal
Government for the purposes of implementation of any orders of the Federal Government in this behalf.
(Clause (102A) was inserted by Finance Act, 2006) Clause (5) of Part III of Second Schedule to the Ordinance: (Part III provides reduction in tax liability)
“(5) Where the corporatized entities of Pakistan Water and Power Development Authority (DISCOs) and National Transmission and Dispatch Company (NTDC), are required to pay minimum tax under Section 113, the purchase price of electricity shall be excluded from the turnover liable to minimum tax up to the tax year 2013.
(Clause (5) was inserted in 2008 and omitted in 2014)
Clause (11 A) of Part IV of Second Schedule to the Ordinance:
(Part IV provides exemption from specific provisions)
(11A)The provisions of Section 113, regarding minimum tax, s hall not apply to,--
(i) National Investment (Unit) Trust or a collective investment scheme authorized or
registered under the Non -banking Finance Companies (Establishment and Regulation)
Rules, 2003 or a Real estate investment trust approved and authorize d under the Real
Estate Investment Trust 2 [“Regulations, 2015”] 3[or a pension fund registered under
the Voluntary Pension System Rules, 2005] or any other company in respect of turnover representing transactions in shares, or securities listed on a regis tered stock exchange;
(ii) petroleum dealers, insofar as they relate to turnover on account of sale of petroleum and petroleum products, notwithstanding their status as a company, a registered firm or an individual, engaged in retail sale of petroleum and petroleum products through petrol pumps for the purposes of assessment of their income and determination of tax thereon:
Provided that this exemption shall not apply to the sale of petroleum and petroleum products through petrol pumps which are directly operated or managed by companies engaged in distribution of petroleum and petroleum products.
Explanation.- For the removal of doubt it is declared that the companies engaged in
distribution of petroleum and petroleum products other than through petrol pumps shall
not be entitled to the benefits of this exemption;
(iii)………………………….
………………………….
………………………….
(xv) The corporatized entities of Pakistan Water and Power Development Authority, so
far as they relate to their receipts on account of sales of electricity, from the date of their creation upto the date of completion of the process of corporatization i.e. till the tariff is notified;
(xvi)......
………………………….
………………………….
………………………….
(Clause (11 A) was inserted by Finance Act, 2009)
80D. Minimum tax on income of certain persons. (1) Notwithstanding anything
contained in this Ordinance or any other law for the time being in force, where no tax is payable [or paid] by a company or a registered firm [, an individual, an association of persons, an unregistered firm or a Hindu undivided family which, not being a company, does not qualify for assessment under the self assessment s cheme under sub -section (1) of
Section 5.9] resident in Pakistan or the tax payable or paid is less than on- half per cent
of the amount representing its turnover from all sources, the aggregate of the declared turnover be deemed to be the income of the said company or a registered firm [,an individual, an association of persons, an unregistered firm or a Hindu undivided family which, not being a company, does not qualify for assessment under the self assessment scheme under sub -section (1) of Section 59] and tax thereon shall be charged in the
manner specified in sub- section (2).
Explanation.--For the removal of doubt, it is declared that the expression “where no tax is payable or paid” and “or the tax payable or paid” apply to all cases where tax is not payable or paid for any reason whatsoever including any loss of income, profits or gains or set off of loss of earlier years, exemption from tax, credits or rebates in tax, and allowances and deductions (including depreciation) admissible under any provision of this Ordinance or any other law for the time being in forced.]
(2) The company or a registered firm [, an individual, an association of persons, an unregistered firm or a Hindu undivided family which, not being a company, does not qualify for assessment under the self assessment scheme under sub -section (1) of Section
59] referred to in sub- section (1) shall pay as income tax
(a) an amount, where no tax is payable or paid equal to one -half per cent of the said
turnover; and
(b) an amount, where the tax payable or paid is less than one -half per cent of the said
turnover, equal to the difference between the tax payable [or paid] and the amount
calculated in accordance with clause (a).
Explanation : For the removal of doubt it is declared that “turnover” means the gross
receipts, exclusive of trade discount shown on invoices or bills, derived from the sale of
goods or from rendering, giving or supplying services or benefits or from execution of contracts.
(3) Nothing in this section shall apply to an individual, an association of persons, an
unregistered firm or a Hindu undivided family in respect of any assessment year commencing on, or after, the first day of July, 2001.
7. Besides perusal of 102 and 103 of repealed Act, we have also gone through the relevant
provisions of the Regulation of Generation, Transmission and Distribution of Electric Power Act,
1997 under which the National Electric Power Regulatory Authority (the NEPRA) has been established. According to preamble of said Act it is “An Act to provide for the regulation of generation, transmission and distribution of electric power”. The NEPRA rates of electricity are different for different power distribution companies for the same consumer’s categories and for different categories of consumers for t he same distribution company. Section 31(2) of the
Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 provides that;
“31. Tariff:
(2) The Authority while determining the standards referred to in sub- section (1) shall --
(a) protect consumers against monopolistic and oligopolistic prices;
(b)………….
(c)…………..
(d)…………..
(e) keep in view the economic and social policy objectives of the Federal Government;
and.
(f) determine tariffs so as to eliminate exploitation and minimize econ omic distortions.”
8. It is under the above provisions of said Act that electric power distribution companies
(DISCOs) charge lower rates for certain consumers and the tariff differential is paid by the
Government to these companies to compensate for charging lower rate than the NEPRA Tariff.
This amount is claimed by the electric power supply companies as subsidy and as exempt from
the minimum tax under Section 113 of the Ordinance. The term subsidy has not been defined in
the Ordinance. The Advance Law Le xicon 3rd Edition Book 4 page 4524 defines subsidy: --
“Subsidy generally means money granted by the State or a public body to keep down the
prices of commodities. Subsidy may be in the nature of direct or indirect Government
grants on production or exportation of goods including any special subsidy on
transportation of any particular product.”
9. The Black’s Law Dictionary defines subsidy as:
“A grant, usually made by the Government, to any enterprise whose promotion is considered to be in the public intere st. Although governments sometimes make direct
payments (such as cash grants), subsidies are usually indirect. They may take the form of research and development support, tax breaks, provision of raw materials at below
market prices, or low -interest loans or low -interest export credits guaranteed by a
government agency.”
10. Subsidy is usually provided to a person to give relief from hardship or to support such person in times of economic crisis. Such person may be an individual or an entity e.g. Government
owned corporation or a limited company. In times of economic crisi s the Government provides
bailout packages or subsidies to avoid collapse of such entities. In case of individuals the Government provides tagrgeted subsidies to provide financial support to people of a certain area
group of income or class of individual i nvolved in specific economic activity. Such subsidies are
being provided by the Government to ordinary consumers as well e.g. subsidies for providing petroleum products, food items etc. at lower than market prices/specified rates.
11. In the instant refere nce subsidy is provided for the purpose of giving relief to consumers of
electric power. The subsidy or TDS is meant to support consumers of electricity i.e . amount is
paid to electric power supply companies to compensate them for providing electricity to
consumers at lower prices below the NEPRA Tariff. Thus the power supply companies are
getting full payment of electricity supplied to consumers which is partly contributed by the
consumers and partly by the Government.
12. To decide the taxability of TDS under the provisions of the Ordinance it is important to
ascertain the nature of TDS and to determine the target of such TDS. If subsidy is meant to provide relief to consumers then it’s treatment will differ from that subsidy which is provided as
a bailout package to an entity. Subsidy is provided total exemption from tax under Clause (102A)
Part I of the Second Schedule to the Ordinance in the hands of recipient if it is targeted to
provide bailout package to such recipient. This view has been upheld by the Honorable Lahore
High Court in judgment reported as 2006 PTD 2638 (Lr HC) in the case of Tourism
Development Corporation Limited Punjab and also by the Honorable Islamabad High Court in judgment reported as 2010 PTD 1119 (H.C. Isl.) in the case of Pakist an Broadcasting
Corporation. However, if such subsidy is meant to provide relief to consumers then such blanket exemption is not available under the provisions of the Ordinance. If such was the case then all the Oil Marketing Companies, Natural Gas Compani es and other business entities would have
been claiming exemption on account of compensation paid to such companies providing goods at controlled prices.
13. Another aspect regarding nature of subsidy is to ascertain whether such subsidy is paid as a
lump sum amount or is it paid in variable mode depending on the number of units sold or with progress of certain transactions. We find that TDS is not paid as lump sum amount to the respondent tax payer rather it is paid in accordance with unit of electricity s old to the consumers
at a rate lower than the NEPRA Tariff.
14 Now coming to the issue of minimum tax on turnover under Section 80D of the repealed Income Tax Ordinance, 1979 or present Section 113 of the Income Tax Ordinance, 2001 it is observed that such tax is charged if for any reason a taxpayer’s tax liablility is less that the rate of minimum tax under Section 80D of the repealed Income Tax Ordinance, 1979 or Section 113 of the Ordinance than such minimum tax shall be charged. The term “any reason” includes losses, exemption from tax, tax credits, rebates, deductions etc. Thus even if income of a taxpayer is exempt from tax then still it is liable to minimum tax.
15. Minimum tax is charged as a percentage of total turnover. The term “turnover” is de fined as
gross receipts from sale of goods, rendering of services and execution of contracts. However the Sales Tax, Federal Excise Duty, trade discount mentioned on invoices and presumptive or final tax regime income are to be excluded from the gross receipts. In the instant reference the taxpayer is engaged into business of sale of electricity to domestic, commercial and industrial consumers. The slabs and rate are determined by the NEPRA. In certain case lesser rates are charged from specific categories of consumers. The electricity supply companies receive certain portion of price of electricity from consumers which is lower than the NEPRA Tariff and the balance is received from the Government in the form of TDS. Thus the TDS is meant for relief to the end consumers. These electric supply companies declare in their audited accounts both the receipts from the consumers and the Government. Note 25 of the audited accounts of the QESCO
for the year ending 30- 06-2018 is as follows:
25. Tariff Differential Subs idy
This represents tariff subsidy receivable from the Government of Pakistan as the difference between the National Electric Power Regulatory Authority (NEPRA) tariff determinations and notifications from time to time and the rates charged to the consumer s in accordance with the tariff notified by the Government of Pakistan.”
16. From the above it is clear that TDS is amount receivable from the Government of Pakistan on account of difference between lower than NEPRA Tariff price charged from the consumers and the price notified by the NEPRA. Thus is not a subsidy or grant given to the QESCO as a bailout package.
17. Now coming to exemption from minimum tax under Section 113 of the Ordinance, we find that an exemption was available under clause (5) of Part III of Second Schedule to the Ordinance
that the corporatized entities of Pakistan Water and Power Development Authority (DICOs) and National Transmission and Dispatch Company (NTDC), which are required to pay minimum tax under Section 113, the purchase pr ice of electricity shall be excluded from the turnover liable to
minimum tax up to the tax ear 2013. Part III of Second Sehedule to the Ordinance provides reduction in tax liability. This Clause (5) was inserted in 2008 and omitted in 2014.
18. Part IV of Second Schedule to the Ordinance provides exemption from specific provisions
and its Clause (11A) provides specific exemption from minimum tax under Section 113 to
certain persons. Sub- clause (xv) of clause (11A) is as follows:
(xv) The corporatized entiti es of Pakistan Water and Power Development Authority, so
far as they relate to their receipts on account of sales of electricity, from the date of their
creation upto the date of completion of the process of corporatization i.e. till the tariff is
notified ;
19. In the light of above the electric supply companies were exempt from minimum tax under
Section 113 from the date of their creation upto the date of completion of the process of corporatization i.e . till the tariff is notified. Since such period has a lready lapsed hence under
Part IV of Second Schedule to the Ordinance, hence no exemption from minimum tax under Section 113 is available to electric supply companies at present.
20. It is settled law that onus of chargeability to tax is on the Tax Departm ent and onus of
claiming exemption from tax is on the tax payer. The learned counsel for the respondent/tax payer has failed to discharge such onus by bringing before us any specific exemption from minimum tax under Section 113 from Part IV of the Second S chedule to the Ordinance.
21. The respondent taxpayer counsel’s reliance on the judgment of the Honorable Supreme Court
of Pakistan reported as 2016 PTD 1393 is misplaced. In the said judgment the issue involved was
whether or not the presumptive income or final tax regime income will be taken into
consideration while calculating minimum tax liability under Section 80D of the repealed Income tax Ordinance, 1979. This issue is not involved in the present reference.
22. For what has been discussed above we ar e of the considered opinion that the amount
received/receivable by electric power supply companies from the Government of Pakistan on
account of difference between lower than the NEPRA Tariff rate charged to consumers and the rate notified by NEPRA is not subsidy. It is the balance price of electricity which is paid by the Government on behalf of electricity consumers to provide relief to such consumers. The electric power supply companies receive their full price of electricity sold to Consumers partly from consumers and partly from the Government. Hence such total amount constitute gross revenue on account of sale of electricity and such revenue is liable to minimum tax under Section 113 of the Ordinance unless a specific exemption is brought into part IV of the second Schedule to the Ordinance. The learned Tribunal has erred in holding TDS as subsidy and exempt from minimum tax under Section 113 of the Ordinance. The learned Tribunal has also erred in treating TDS as trade discount because trade discount a lthough mentioned on sale invoices is not charged
from the buyers. In case of electricity bill no such trade discount is mentioned which is not received from the consumers. Further the learned Tribunal has erroneously referred to Clause (102A) Part I of th e Second Schedule to the Ordinance while discussing exemption from
minimum tax under Section 113 of the Ordinance because Part I of the Second Schedule to the Ordinance provides exemption from total income only and it has no concern with exemption from spe cific provision which is covered in Part IV of the Second Schedule to the Ordinance.
Therefore our answers to the proposed questions are in affirmative i.e . against the
Respondent/Taxpayer and in favour of the Applicant/Department.
A copy of this order is directed to be sent to the Registrar of the learned Tribunal under the seal
of this Court in terms of sub- section (5) of Section 133 of the Income Tax Ordinance, 2001.
(Y.A.) Appeal allowedThis judgment is reproduced from a publicly available source for informational purposes and does not constitute legal advice. If you believe this listing contains an error,
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