‘Charging fees for rendering services not part of turnover’

LAHORE: A freight forwarding agent has proved that charging fees for rendering services cannot be treated as part of his turnover, as all such charges are reimbursable expenses, incurred at the behest of the recipient of service.

The tax department, on the other hand, was adamant to treat freight charges, terminal charges, shipment handling charges, duties and taxes as part of invoiced amount, which cannot be excluded from the ambit of turnover as defined in the law. Therefore, the department had levied minimum tax on the turnover, which was challenged by the taxpayer.

Sources said the turnover, in terms of clause (b) of subsection (3) of section 113 of the Ordinance, means the gross fees paid for rendering of services other than those covered by final discharge of tax liability, for which tax is separately paid or payable. The contentious question was whether the amounts, comprising of freight charges, terminal charges, shipment handling charges payment of duties and other taxes could be treated as gross receipts.

Factually, they said, the claim of reimbursement of other amounts was not disputed. There was no cavil that the term gross fee, in the context of rendering of or providing of services, would exclude reimbursable expenses for the purposes of ascertaining the volume of the “turnover".

Accordingly, it was held by the relevant forum that the gross fee and not the gross receipts, which shall be treated as part of turnover for the purposes of commuting the minimum tax liability and amounts comprising of freight charges, terminal charges, shipment handling charges payment of duties and other taxes have had to be excluded for the purposes of turnover.

It was further held this was not the case of the department that amounts consisting of freight charges, terminal charges, shipment handling charges payment of duties and other taxes were treated as part of gross receipts for the purposes of deduction of withholding tax.

Copyright Business Recorder, 2024