HASHIM BIN SAYEED VS PAKISTAN
1991 P T D 497
[Karachi High Court]
Before Saleem Akhtar and Muhammad Hussain Adil Khatri, JJ
HASHIM BIN SAYEED
versus
PAKISTAN through Secretary, Ministry of Finance and Ex-Office Chairman,
Central Board of Revenue, Islamabad and 2 others
Constitutional Petition No.D-439 of 1990, decided on 28/02/1991.
(a) Income Tax Ordinance (XXXI of 1979)---
-----Second Sched., Cl. 139(6), provisos (i) & (ii) and S.65---Exemption---Central Board of Revenue while referring to the letter of assessee conveyed the approval for purposes of Cl, 139(6) of the Second Sched. to the Ordinance to technical assistance agreement between the assessee and a foreign company---Such approval was, however, subject to the fulfilment of conditions contained in provisos (i) & (ii) of Cl. 139(6) and was effective for the assessment year 1986-87---Assessee, accordingly remitted the amount through bank draft to Pakistan and filed his return of income for assessment year 1986-87 claiming the aforesaid amount and assessment was accordingly completed---Income Tax Officer issued a notice under S.65 for the assessment year 1986-87 stating that assessee had claimed exemption for a fee coming to such an amount which was many times more than the amount covered by the agreement in respect of which approval by the Board for the assessment year 1986-87 was given---Held, if the Central Board of Revenue wanted to restrict exemption only to the agreement, it should have specifically been mentioned in the exemption order---Exemption order seemed to have been granted in pursuance of letter of the assessee dated 29-3-1986 as was mentioned therein and in the absence of any clarification, it would normally be taken to refer to the income under the agreement dated 22-3-1985---Exemption order had thus taken legal effect and acted upon and certain rights had been created in favour of assessee and such an order could not be withdrawn or rescinded to the detriment of those rights---Assessee being entitled to exemption, exemption granted could not be challenged and notice under S.65 was misconceived as the very basis on which it was based had been knocked down.
Pakistan v. Muhammad Himayatullah Farrukh PLD 1969 SC 407 ref.
(b) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Cl. 139(b), provisos (i) & (ii)---"Technical service"-- Connotation---Any service relating to any profession, art, skill or any process or manufacturing in which a specialised knowledge was required may amount to technical service.
Oxford English Dictionary and PLD 1986 SC 200 ref.
Muhammad Naseem for Petitioner.
Shaikh Haider for Respondents.
Dates of hearing: 18th, 19th and 20th December, 1990.
JUDGMENT
SALEEM AKHTAR, J.---The petitioner has been Chief Executives of Pakistan Paper Products Limited for about 35 years and has gained knowledge, experience and qualification to render technical assistance to any enterprise foreign or national engaged in manufacture of paper and paper products and procurement, grading, packing and export of waste paper whose quality control and standard specification are to be strictly adhered to. He claims to be recognized as an expert in the trade by pulp International Magazine published from Sanfrancisco, U.S.A. and was appointed as its National Editor for Pakistan. One company namely M/s. Tee Mac Paper Limited, Sharjah, U.A.E. operating in export of waste paper from UA:E. and Saudi Arabia entered into an agreement with the petitioner who was appointed as its technical director and advisor: The agreement was initially from 1st January, 1982 to 31st December, 1986 for technical assistance at a remuneration of U.A.E. Dh.25,000 per annum which was payable at the end of the year. It is alleged that during the year 1982 and 1983 nominal services were rendered and could not be quantified in terms of output and therefore, by mutual consent no payment was made. However, in later periods bulk of the services were performed and by a supplementary agreement original agreement was changed whereby petitioner's service was availed initially from 1st July 1985 to 30-6-1986 which was liable to be extended for two years on same terms and conditions. The agreement could be terminated. by three monthsu notice by either party. So far remuneration is concerned it was agreed that the petitioner will be paid U.A.E. Dirhams 100,000 for the first year ending 30-6-1986 payable before 30th June 1986. If the contract was extended for further two years he would be paid Dirhams 25,000 per annum from 1st July 1986 onward.
The petitioner approached the Central Board of Revenue by letter dated 20-3-1986 which has not been produced by the petitioner. The petitioner has also not disclosed the contents of the letter. However, on 29-3-1986 he wrote another letter entitled `Tax relief for Technical Services rendered by me' stating that he was submitting revised technical agreement dated 22-3-1985 in lieu of the earlier agreement for their record and necessary action. This letter was replied by Secretary, Central Board of Revenue on 7-4-1986. While referring to letter dated 29-3-1986 it conveyed the approval for purposes of clause 139(b) of the Second Schedule to the Income Tax Ordinance, 1979 to technical assistance agreement between the petitioner and Tee Mac Papers Limited. The approval was subject to the fulfilment of conditions contained in provisos (i) and (ii) of the said clause and was effective for the assessment year 1986-87. The petitioner accordingly remitted DHs.100,000.00 equivalent to Rs.448,430.49 which was received from UA.E. through a bank draft dated 8-5-1985. The petitioner filed his return of income for assessment year 1986-87 claiming the aforesaid amount as exempted and assessment was accordingly completed.
In the assessment year 1987-88 the petitioner wrote a letter dated 7-12-1986 for renewal of the approval asking for exemption in respect of DH.25,000 which was to be paid as technical fee to him. It was also stated that remittance had arrived on 12-11-1986. Respondent No.2 replied by letter dated 11-1-1987 that if the remittance was received against income earned in 1986-87 covered by approval slated 7-4-1986, no separate approval for assessment year 1986-87 was required. Obviously there was a confusion because the petitioner wanted exemption for the year 1987-88 and he accordingly replied on 29-1-1988. No reply was received from the respondents. On 3-5-1988 petitioner again wrote a letter to respondent No.2 seeking approval for the remittance of DH.25,000 being the technical fee for the year ending ?987 covered by assessment year 1988-89. As no approval was received the petitioner issued reminder and in his letter dated 29th September, 1989 giving full details of remittances approval vas sought in respect of assessment years 1987-88 and 1988-89. Respondent No.2 by letter dated 13-10-1988 replied that the approval of Central Board of Revenue was in respect of assessment year 1986-87 for the technical fee of DII.25,000 covered by the agreement dated 22-12-1981 and this amount received on 12-11-1986 was not taxable. It also stated that no other exemption was granted to him to cover Rs.4,48,430.49 and further that the technical fees accruing from 1-1-1982 to 30-6-1985 were not exempted in view of the clause 139(b)(iii) of the Second Schedule. So far approval for the assessment years 1987-88 and 1988-89 was concerned queries were made about the execution of agreement dated 22-3-1985 that whether it was attested by Consulate General of Pakistan, Dubai. Many other queries were raised about the execution of agreement and status of Tee Mac Papers Limited and the proof of providing technical guidance and assistance. The petitioner replied but respondent No.2 by letter dated 21-11-1988 refused to grant approval for the assessment years 1987-88 and 1988-89 as no satisfactory replies were made to the queries raised in their letter of 13-10-1988. It confirmed that the approval dated 7-4-1986 was granted for DH.25,000 covered by agreement dated 22-12-1981. After correspondence between the parties, respondent No.2 by letter dated 9-7-1989 stated that on enquiries conducted it has been revealed that Tec Mac Papers Limited as a small company of three working partners which prima facie does not need technical advice and that although the approval granted earlier for agreement dated- 22-12-1981 could be withdrawn such order has not been passed. The petitioner then replied and produced bank certificate to prove the financial status of the Tec Mac Papers Limited. Respondent No.2 by letter dated 2-9-1989 asked the petitioner to furnish independent evidence of providing agreement dated 22-3-1985 to the Board before 7-4-1986. Thereafter several letters were written by the petitioner without any result. Respondent No.2 on 11-3-1990 again reiterated its stand. Finally respondent No.3 issued a notice dated 26-3-1990 under section 65 of the Income Tax Ordinance for the assessment year 1986-87 stating that petitioner had claimed exemption for a fee amounting to Rs.4,48,430.49 which is many times more than the amount covered by clause 3 of the agreement dated 22-12-1981 in respect of which approval was granted by the Board for the assessment year 1986-87 in respect of Dirhams 25,000 only. The petitioner has challenged the action taken by respondent No.2 and the notice issued by respondent No.3.
The main contention of the learned counsel for the petitioner is that once an exemption was granted by respondent No.2 and the same has been acted upon by the petitioner, the respondents are not entitled to reverse, change, alter or reopen it. The entire controversy is with regard to two agreements dated 22-12-1981 and 22-3-1985. According to the petitioner he had applied for' exemption in respect of the fee earned tinder agreement dated 22-3-1985 while the respondent's contention is that they had allowed exemption only in respect of fee earned under agreement dated 22-12-1981. From the record that has been produced the first letter is dated 29-3-1986 under which agreement dated 22-3-1985 was enclosed and a reference to the personal visit was also mentioned. It was also stated that the agreement dated 22-3-1985 enclosed with this letter was in lieu of earlier agreement. This agreement of 22-3-1985 does not refer to the earlier agreement. It only states that petitioner's services shall be availed for a period of one year initially from 1st July 1985 to 30-6-1986 for which a remuneration of US.DH 100,000 was to be paid and in the subsequent year if extended, the remuneration will be DH.25,000 per month. Petitioner's letter dated 29-3-1986 reads as follows:
"Sub: TAX RELIEF FOR TECHNICAL SERVICE RENDERED BY ME.
Dear Sir,
Reference my visit, Lam submitting herewith a revised technical assistance agreement dated 22nd March, 1985 'which M/s. Tec Mac Papers Ltd is filed in lieu of the earlier agreement.
This is for your record and necessary act.
Thanking you,"
From this it seems that some agreement had been filed earlier which could be none else but the agreement dated 22-12-1981, which was for a period of 5 years from 1st January, 1982 to 31-12-1986. During the course of argument the learned counsel for the respondents filed three documents one of which Annexure (`R/3') is the copy of agreement dated 22-12-1981. This proves that this agreement had been filed by the petitioner with respondent No.2, who granted exemption in respect of assessment year 1986-87 by making specific reference to the letter dated 29-3-1986. Respondent did not specify whether the exemption was allowed in respect of agreement dated 22-12-1981 or agreement dated 22-3-1985. The petitioner, however, remitted DH.100,000 claiming to have been received under agreement dated 22-3-1985, to Pakistan and declared it in his return of income for the assessment year 1986-87. He was accordingly assessed and exemption was granted to him. When the petitioner asked for exemption for subsequent years respondent No.2 took the stand that he had granted the exemption in respect of DH.25,000 covered by agreement dated 22-12-1981. This seems to agitate the controversy between them and thereafter respondent No.2 took up the stand that Tec Mac Paper Ltd. is a small company which prima facie does not need any technical advice. The petitioner applied for subsequent years upto 1989-90 but no such exemption was granted, however, the petitioner obtained the remittance during these years. So far as the exemption granted on 7-4-1986 is concerned it related to assessment year 1986-87. If respondent No.2 wanted to restrict exemption only to the agreement dated 22-12-1981 it should have specifically been mentioned in the exemption order. As the exemption order seems to have been granted in pursuance of letter dated 29-3-1986 as is mentioned therein, in the absence of any clarification, it would normally be taken to refer to the income under the agreement dated 22-3-1985.
Mr. Shaikh Haider the learned counsel contended that the second agreement dated 22-3-1985 was never furnished to the respondent No.2 and no proof of filing the same has, been produced therefore the exemption allowed on 7-4-1986 should be treated in respect of agreement dated 22-12-1981. The contention is not tenable as the letter dated 7-4-1986 speaks of the petitioners letter dated 29-3-1986 under which copy of agreement dated 22-3-1985 was enclosed. On the copy of the letter dated 29-3-1986 there is a signature acknowledging receipt but even if it is ignored the fact remains that the letter dated 7-4-1986 acknowledges the receipt of petitioner's letter dated 29-3-1986.
Objection has also been taken to the agreement dated 22-3-1985 that it is not authenticated by the Embassy of Pakistan but in the photo copy of the agreement produced such endorsement is found which is dated 3-5-1989 and it seems that it was obtained subsequently before filing this petition but the endorsement of the Chambers of Commerce and Industry Sharjah UA.E. is there. Be that as it may, respondent No.2 did not raise this objection before 7-4-1986. The petitioner acting upon the approval brought the money in Pakistan and declared it to be exempted which exemption was granted by the I.T.O. Therefore, if at all there was some misunderstanding, confusion or mistake in intimating the order of exemption to the petitioner, it was the entire responsibility of the respondents. If the order dated 7-4-1986 would have clearly stated that the exemption was in respect of agreement dated 22-12-1981 petitioner may not have remitted the money to Pakistan. In such circumstances when the confusion is due to the mistake of the respondents and the petitioner believing it to be correct has acted upon it and made remittance to Pakistan it is too late for the respondents to challenge it on the ground that they intended to grant exemption in respect of another agreement or that the exemption was granted under mistake. From the course of events that have followed it is clear that the order of exemption has taken legal effect and been acted upon. In pursuance of this order certain rights have been created in favour of the petitioner and such an order cannot be withdrawn or rescinded to the detriment of those rights. In this regard learned counsel for the petitioner has referred to Pakistan v. Muhammad Himayatullah Farrukh P L D 1969 SC 407.
Now the question for consideration is whether for subsequent years the action taken by the respondent in refusing to grant exemption is proper and justified. The refusal seems to be on two grounds namely that Tec Mac Paper is a small company and does not need technical advice and secondly that the advice rendered under the agreement does not amount to technical service. So far the first question is concerned the respondents seem to have relied on some information or private investigation behind the back of the petitioner which is neither proper nor legal.
So far second ground is concerned from the facts stated it seems that the petitioner has vast experience and knowledge about the recycling, processing of different grades of waste paper, storage and packing ere. Assuming that this is correct, question arises whether it can be called a technical service. The learned counsel for the petitioner has referred to the meaning of technical service as given in the Oxford English Dictionary which reads as follows:--
"Of a person. Skilled in or practically conversant with some particular art of subject. Of a thing. Skilfully done or made. Belonging or relating to an art or arts; appropriate or peculiar to, or characteristic of, a particular art, science, profession, or occupation;"
Any service relating to any profession, art, skill or any process or manufacturing in which a specialised knowledge is required may amount to technical service. The learned counsel for the petitioner has referred to P L D 1986 SC 200 in which the definition of technocrat has been considered. This was a special definition provided by the statute and cannot be applied here. From the bio-data and experience furnished by the petitioner and the nature of services required for purposes of grading and recycling process of different grades of waste paper and carrying out laboratory and other tests to ensure correct quality will be covered by the term technical service. However, whether these services were rendered or not is a question of fact which cannot be determined in this petition.
The petitioner has also challenged notice under section 65 of the Income Tax Act for reopening the assessment for assessment year 1985-86. In view of the discussion afore-stated whereby it has been held that the exemption granted cannot be challenged, notice under section 65 is misconceived as the very basis on which it was based has been knocked down. The net result of the above discussion is that we declare that the petitioner is entitled to the exemption granted in respect of assessment year 1986-87 in respect of DH.100,000 and further declare that the notice under section 65 is without lawful authority and of no legal effect. So far assessment years 1987-88, 1988-89 and 1989-90 are concerned respondent No.2; after proper notice to the petitioner and disclosing the material on which it relies and affording proper hearing to the petitioner decide his entitlement for exemption in respect of these assessment years.
Parties to bear their own cost.
M.B.A./H-277/K Order accordingly.