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Petitioner: SCHLUMBERGER SEACO INC., ISLAMABAD VS Respondent: COMMISSIONER OF INCOME TAX JUDGMENT
Court Name: Sindh High Court Judge(s): Nasir Aslam Zahid, Akhtar Ali G. Kazi Title:SCHLUMBERGER SEACO INC., ISLAMABAD vs COMMISSIONER OF INCOME TAX
JUDGMENT
Reported As: 1993 PTD 85 Result: Order accordingly Judgment JUDGMENT ' NASIR ALSAM ZAHID, C.J.---The petitioner, a foreign company, had filed an earlier Constitutional petition being No,D-1010 of 1990 against the Income Tax Department and the said petition was disposed of by the judgment, dated 27th August, 1991, and the matter was remanded to the Commissioner of Income Tax for fresh decisions. After remand, fresh identical orders have been passed, all dated 30-12-1991 by the Commissioner of Income Tax (Companies-II), Karachi, which are now impugned in the present Constitutional petition. We have heard Mr. Muhammad Sharif, learned counsel for the petitioner and Mr. Shaik Haider for the Income Tax Department. Mr. Ikram Ahmed Ansari, Deputy Attorney-General was also present on notice. ' The relevant facts are given in our previous judgment dated 27-8-1991 disposing of Petition No,D- 1010/1990 and, for convenience, we are reproducing here paras. 1 to 4 of our previous judgment dated 27-8-1991: "1. The petitioner is a Company incorporated under the laws of Panama and registered under the repealed Pakistan Companies Act, 1913, in 1957, as a foreign company and is an income-tax assessee under the Pakistan Income Tax Laws. According to the petitioner, it employs technicians from foreign countries who serve for fixed periods in Pakistan with the petitioner and then they either leave the service of the petitioner or are transferred by the petitioner to other foreign locations. From the inception of its operations in Pakistan, the petitioner has been applying to the concerned Income Tax Authorities for tax exemption in respect of its foreign technicians, firstly under section 4(3) (xiii) of the repealed Income Tax Act, 1922, and, after its repeal and promulgation of the Income Tax Ordinance, 1979, under clause 7 of Part I of the Second Schedule to the said
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Ordinance. Approval had all along been granted by the Department by acceptance of the applications for tax exemption but, according to the petitioner, grant of such applications used to take several years and in the meantime the concerned foreign technicians employed by the petitioner used to leave Pakistan. However, in 1988 and 1989, 57 applications filed by the petitioner for grant of exemption were rejected by identical orders passed by the Commissioner Income Tax (Companies-H), Karachi as follows:- `Please refer to the above. In this connection I am directed to say that the requisite details/documents called for vide this Office Letter No,Cos.II/Jud-I/89-30/43, dated 1-7-1989 have not been filed. In view of this fact the approval of the contract of service under clause 7 cannot be acceded to.' ' The aforesaid impugned order of the Commissioner of Income Tax declining to approve the contracts of service have been impugned in this Constitutional petition. We have heard Mr. Muhammad Sharif learned counsel for the petitioner and Mr. Shaik Haider, who has appeared on behalf of the Department. 2. It is an admitted position that no appeal or revision lies under the Income Tax Laws against the impugned orders and as such no objection has been taken that these Constitutional petitions are not maintainable. The relevant provisions of the repealed Income Tax Act, 1922 and Income Tax Ordinance, 1979, are reproduced here:- `Income Tax Act, 1922 Section 4(3) (xiii)... ' Provided that this clause shall not apply-- (i) in the case of an undertaking the profits and gains of which are liable to be computed in accordance with the rules contained in the Second Schedule to this Act, after the commencement of commercial production or the expiration of a period of five years from the date of issue of the exploration licence whichever is earlier, and in the case of other undertakings, after the expiration of a period of five years from the date of the setting up or commencement of the undertaking; (iii) in respect of any remuneration, or any part thereof, as is subject to tax outside Pakistan or in respect of which the technician does not get credit for the tax which would, but form the exemption under this clause, have been payable in Pakistan, or the tax payable outside Pakistan, whichever is the less;. ' Income Tax Ordinance, 1979 Second Schedule: PART I Clause (7) (7) Any income chargeable under the head 'salary' received by, or due to, any person (who is neither a citizen of Pakistan nor was resident in Pakistan in any of the four years immediately in Pakistan) for a period not exceeding three years from the date of his arrival in Pakistan, as remuneration for services rendered by him during such period, as a technician under a contract of service approved, on an application made before the commencement of his service or within one year of such commencement, by the Commissioner for the purposes of this clause, employed whether before or after the commencement of commercial production, the employment before the commencement of commercial production being for the purposes of the supervision of the erection of the factory building, the installation of plant and machinery or the trial production in an approved undertaking-- ' Provided that this clause shall not apply-- (i) in the case of an undertaking the profits and gains of which are liable to be computed in accordance with the rules contained in Part I of the Fifth Schedule, after the commencement of commercial production or the expiration of a period of five years from the date of issue of the exploration licence, whichever is earlier;
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(ii) in the case of other undertakings, after the expiration of a period of five years from the date of the commencement of commercial production; and (iii) in respect of any remuneration, or any part thereof, as is subject to tax outside Pakistan or in respect of which the technician does not get credit for the tax which would, but for the exemption under this clause, have been payable in Pakistan, or the tax payable outside Pakistan, whichever is the less. ' Pursuant to section 4(3) (xiii) of the Income Tax Act, a Circular dated 5-7-1977 was issued by the Central Board of Revenue and, under the said Circular, certain forms were prescribed including the form of application. According to the learned counsel for the petitioner, the said Circular as well as the forms have been retained even after the repeal of the Income Tax Act, 1922, and the promulgation of the Income Tax Ordinance, 1979. This was not denied by Mr. Shaik Haider. 4. As observed, the Income Tax Commissioner has rejected the 57 applications moved by the petitioner on the ground that the relevant documents required to be furnished with the applications as specified in the aforesaid Circular dated 5-7-1977 of the Central Board of Revenue have not been filed. The details of the documents required have not been mentioned in the impugned orders, but, in reply to a question from the Court, Mr. Shaik Haider, learned counsel for the Income Tax Department, stated that the only deficiency was that the certificate of the Revenue Authorities of the respective foreign country had not been filed. ' According to learned counsel for the petitioner, neither under section 4(3) (xiii) of the repealed Income Tax Act, 1922, nor under clause 7, Part I of Second Schedule to the Income Tax Ordinance, 1979, there is any mandatory requirement for filing such a certificate from the foreign revenue authorities. We have gone through the aforesaid provisions and we agree with the contention raised on behalf of the petitioner that the concerned provisions of law do not make it mandatory for the petitioner to file such a certificate and that, without such certificate, the application for approval is liable to be rejected. The contention raised on behalf of the petitioner also feds support from the Circular itself. The application form prescribed under the aforesaid circular does not require the filing of the certificate from the foreign revenue authorities as mandatory. Learned counsel rightly laid emphasis on the word 'preferably' used in column 11 of the prescribed application form which is still in use and has not been replaced by another form." ' The previous impugned order's passed by the Commissioner of Income Tax (Companies-H), Karachi, rejecting the applications for approval filed by the petitioner were accordingly set aside and the applications were remanded for fresh decisions to the Commissioner of Income Tax, after hearing the petitioner with permission granted to the petitioner to file further documents if considered necessary. After hearing the petitioner, orders dated 30-12-1991 impugned in this petition were passed. Certain observations made in our previous judgment dated 27-8-1991, which we consider relevant for purposes of deciding the present Constitutional petition, may be referred to here:-- (a) The department's stand, taken without any qualification or reservation, was that the application had been rejected solely on the ground that the certificate of the revenue authorities of the respective foreign countries had not been filed. While rejecting the applications by earlier orders passed in 1988-89, no reference had been made to the documents which were required by the department. In this context, reference may be made to our following observation in para. 4 already reproduced hereinabove:-- "The details of the documents required have not been mentioned in the impugned orders, but, in reply to a question from the Court, Mr. Shaik Haider, learned counsel for the Income Tax Department, stated that the only deficiency was that the certificate of the revenue authorities of the respective foreign countries had not been filed."
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(b) As regards the necessity of producing the certificate of the revenue authorities of the concerned foreign country, we had taken note of the contentions raised in the previous petition that neither under section 4(3)(xiii) of the repealed Income Tax Act, 1922, nor under clause (7) of para. 1 of the IInd Schedule to the Income Tax Ordinance, 1979, there is any mandatory requirement for filing such a certificate from the foreign revenue authorities. ' After hearing arguments on this point from the counsel for the petitioner and of Mr. Shaik Haider on behalf of the department, we gave our opinion on this question as follows:-- "We have gone through the aforesaid provisions and we agree with the contention raised on behalf of the petitioner that the concerned provisions of law do not make it mandatory for the petitioner to file such a certificate and that, without such certificate, the application for approval is liable to be rejected. The contention raised on behalf of the petitioner also finds support from the Circular (dated 5-7-1977 of the CBR) itself. The application form prescribed under the aforesaid Circular does not require the filing of the certificate from the foreign revenue authorities as mandatory. Learned counsel (for the petitioner) rightly laid emphasis on the word 'preferably' used in column 11 of the prescribed application form which is still in use and has not been replaced by any other form." 2. After perusing the orders dated 30-12-1991, impugned in the present Constitutional petition, we are of the view that the basic reason for rejection of the applications by the Commissioner of Income Tax is that certificates from the revenue authorities of the concerned foreign countries have not been produced. We can only observe that the Commissioner of Income Tax failed to understand the import of our judgment, dated 27-8-1991, passed in the previous Constitution petition. It had been made clear, as observed, in our previous judgment that production of the certificate from the foreign revenue authorities is not necessary but, in the orders dated 30-12-1991, impugned in the present petition, we find that time and again the Commissioner of Income Tax has pointed out the same deficiency and that is that the certificate from the foreign revenue authorities has not been produced. Reference has been made in the impugned orders to the CBR Circular dated 5-7-1977. In our previous judgment, we have already held that neither this Circular nor the provisions of the repealed Income Tax Act as well as that of the Income Tax Ordinance, 1979, require that the applications are liable to be dismissed in case certificates from the foreign revenue authorities are not produced. We may again, observe that we have clearly held in our previous judgment that it is not mandatory either under the Income Tax Laws or under the CBR Circular dated 5-7-1977 that production of the certificate from the revenue authorities is mandatory. The Commissioner of Income Tax, in his impugned orders, has gone to the extent of accepting the stand taken by the department that, "only competent revenue authority (of the foreign country) could be in a position to certify that his income in his home country was not taxable", despite our decision in the previous Constitutional petition that production of such a certificate was not mandatory. 3. As observed, we had also placed reliance on the word "preferably" used in the form prescribed by the CBR Circular in support of our view that the CBE's aforesaid Circular the foreign revenue authority as a mandatory condition for the grant of the applications. In spite of our aforesaid observation, the Commissioner of Income Tax observed as follows:-- "It was made clear by the department that the application form is only a means to glean certain information. This does not undermine the significance of CBR Circular No,1(7)IT-V/77 dated 5-7-1977 which requires the production of a certificate from the revenue authority. In fact the said circular had the governing position in the matter." ' We may again observe that apparently the Commissioner of Income Tax was not able to understand what was held by us in this context in very clear terms.
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4. In the hearing before us in the present Constitutional petition, Mr. Shaik Haider, learned counsel for the Income Tax Department, however, on instructions, did not press the stand taken by the department and also in the impugned orders about the production of certificate from the competent revenue authorities of the foreign countries as mandatory. In fact, on merits Mr. Shaik Haider did not contest the case of the petitioner company. If the position now taken up on merits on behalf of the department had been taken up during the hearing of the previous C.P.No,D- 1010/90, when the solitary point taken on behalf of the department by Mr. Shaik Haider in supporting the then impugned orders for rejection of the applications of the petitioner was that the only deficiency was non-production of the certificates of the Revenue Authorities from the foreign countries, there would have been no question of passing an order of remand for fresh hearing and full relief would have been granted to the petitioner. 5. However, in the present Constitutional petition, Mr. Shaik Haider has very vehemently argued and contested this petition supporting the impugned orders of the Commissioner of Income Tax on the ground that the petitioner company is not an "approved undertaking and as such the question of grant of petitioner's applications did not arise. What we understood from the submissions of Mr. Shaik Haider is that the department was not challenging the case of the petitioner on merits but, as held by the Commissioner of Income Tax in his impugned orders, the case of the department is that the petitioner company is not an "approved undertaking" and as such not entitled to any relief under the relevant law. ' This point had not been raised in the previous Petition No,D-1010 of 1990 on behalf of the department. In the circumstances, Mr. Muhammad Sharif, learned counsel for the petitioner, very strongly contended that on remand this new point could not be made the basis for rejection of the applications moved on behalf of the petitioner. According to Mr. Muhammad Sharif, the entire judgment dated 27-8-1991 disposing of previous Petition No,D-1010 of 1990 should be read as a whole, and on remand, the Commissioner of Income Tax could only decide the applications on merits in the light of the previous judgment of this Court and the statement made on behalf of the department that the only deficiency which resulted in the dismissal of the applications was non- production of the certificates of revenue department of foreign countries. ' The submission made by Mr. Muhammad Sharif appears to be weighty on its face but Mr. Shaik Haider, learned counsel for the department, is correct in his submission that the operative part of the judgment ' dated 27-8-1991 in the previous Petition No,D-1010 of 1990 did not place any restriction on the Commissioner of Income Tax and the stand taken by the department in the previous petition did not, in any way, restrict the Commissioner of Income Tax, on remand of the cases, from considering other questions which arose during the hearing. According to Mr. Shaik Haider, if this Court wanted to restrict the scope of the fresh hearing by the Commissioner of Income Tax on remand, the previous judgment would have ordered or observed so and as it was not done and the entire matter was remanded, no illegality has been committed by the Commissioner of Income Tax in considering and deciding the question relating to the petitioner not being an approved undertaking. ' No doubt, in our view, in the previous judgment dated 27-8-1991, we had noted the submission of Mr. Shaik Haider that the only deficiency which resulted in the dismissal of the applications of the petitioner was that certificates from revenue departments of foreign countries had not been produced, yet in para. 6 of our judgment--operative paragraph the previous petition was disposed of as follows:-- "In the circumstances, we set aside all the 57 impugned orders passed by the Commissioner of Income Tax (Companies-II) Karachi, rejecting applications for approval filed by the petitioner and remand the applications to the Commissioner of Income Tax for fresh decisions after hearing the petitioner. Within one month, the petitioner may file further documents, if required, before the
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Commissioner of Income Tax. The Commissioner will then grant hearing to the petitioner and pass final order within three months from today. It is also directed that, in case the applications are not granted, reasons for not approving or granting the applications should be spelt out clearly in the orders to be passed by the Commissioner of Income Tax. ' C.P.No,D-1010 of 1990 stands disposed of accordingly with no order as to costs." ' It may be repeated that no restriction was placed on the Commissioner of Income Tax through the remand order passed in the previous Constitution petition and as such, we are of the view that no illegality has been committed by the Commissioner of Income Tax in considering and deciding the applications on the question of "approved undertaking". 6. The only question which, therefore, requires our decision in the present Constitutional petition is whether the petitioner company is an "approved undertaking" or not as the exemption envisaged under clause 7 of Part I of the lInd Schedule to the Income Tax Ordinance, 1979 is available only to technicians employed by an "approved undertaking". ' Part I of the IInd Schedule is titled as "EXEMP' IONS FROM TOTAL INCOME." It is provided in Part I of the IInd Schedule that incomes, or classes of income, or persons or classes of persons enumerated therein shall be exempt from tax, subject to the conditions and to the extent specified in Part I. Clause 7 of Part I of the IInd Schedule to the Income Tax Ordinance, 1979, is relevant for consideration of the question and is reproduced in full here:-- "(7) Any income chargeable under the head 'Salary received by or due to any person (who is neither a citizen of Pakistan nor was resident in Pakistan in any of the four years immediately preceding the year in which he arrived in Pakistan) for a period not exceeding three years from the date of his arrival in Pakistan, as remuneration for services rendered by him during such period, as a technician under a contract of service approved, on an application made before the commencement of his service or within one year of such commencement, by the Commissioner for the purposes of this clause, employed whether before or after the commencement of commercial production, the employment before the commencement of commercial production being for the purposes of the supervision of the erection of the factory building the installation of plant and machinery or the trial production in an approved undertaking: ' Provided that this clause shall not apply-- (1) in the case of an undertaking the profits and gains of which are liable to be computed in accordance with the rules contained in Part I of the Fifth Schedule, after the commencement of commercial production or the expiration of a period of five years from the date of issue of the exploration licence, whichever is earlier; (ii) in the case of other undertakings, after the expiration of period of five years from the date of the commencement of commercial production; (iii) in respect of any remuneration, or any part thereof, as is subject to tax outside Pakistan or in respect of which the technician does not get credit for the tax which would, but for the exemption under this clause, have been payable in Pakistan, or the tax payable outside Pakistan, whichever is the less; and (iv) in respect of any contract of service made on or after the first day of July, 1988. Explanation.--As used in this clause and clause (8): (1) 'approved undertaking' means an undertaking: (a) which is set up in Pakistan after the 14th day of August, 1947; and (b) which fulfils the conditions specified in clauses (a), (d) and (e) of subsection (2) of section 48; or (c) any other undertaking which is approved by the Central Board of Revenue for the purposes of the clause; and includes: (i) any such undertaking to which the Fifth Schedule applies; and
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(ii) any other such undertaking which is set up by a Pakistani company provided the share-capital of such company is owned (wholly or in part by the Federal Government and the management of its affairs is controlled, directly or indirectly by the Federal Government, and in each case, such undertaking is approved by the Central Board of Revenue for the purposes of this clause; and (2) 'technician' means an individual who possesses specialised knowledge in industrial arts and sciences and has experience in industrial practice and whose employement in Pakistan, irrespective of its designation, is in a capacity in which such specialised knowledge and experience are brought into play." ' The relevant part of the impugned order dated 30-12-1991 of the Commissioner of Income (Companies-II), Karachi, dealing with this question of an "approved undertaking" is reproduced here:-- "Is the Company an Approved Undertaking? ' Regarding the contention that the Company with which the technician is employed with is an approved undertaking the contention of the applicant Company is again not correct. The exemption envisaged under clause 7 of the Second Schedule is available only to technicians employed by an 'approved undertaking' as defined in the Explanation to the said clause. The said Explanation is reproduced as under:-- ' Explanation.--As used in this clause and clause(8): (1) 'approved undertaking' means an undertaking: (a) which is set up in Pakistan after the 14th day of August, 1947; and (b) which fulfills the conditions specified in clauses (a), (d) and (e) of subsection (2) of section 48; or (c) any other undertaking which is approved by the Central Board of Revenue for the purposes of this clause; and includes-- (i) any such undertaking to which the Fifth Schedule applies; and (ii) any other such undertaking which is set up by a Pakistani company provided the share-capital of such company is owned (wholly or in part) by the Federal Government and the management of its affairs is controlled, directly or indirectly by the Federal Government and in each case, such undertaking is approved by the Central Board of Revenue for the purposes of this clause; and ' Further, in the application form submitted for claim of exemption against column No,18 soliciting information 'under which explanation of clause 7 of the Second Schedule to the Income Tax Ordinance, 1979 does the undertaking fall', the employer has referred to clause 1(c) of the above quoted Explanation, further elaborated in the annexure with the application as under:-- "The undertaking is under contract to perform oil well logging and perforating…
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