Income Tax Ordinance (XXXI of 1979)---

----Second Schedule, Part 1, CI. (7)---Income-tax Act (X1 of 1922), S.4(3) (xiii)-- C.B.R. Circular, dated 5th July, 1977---Exemption---Applications filed by assessee for tax exemption in respect of its foreign technicians rejected by assessing officer for want of requisite details/documents---Department stating before the Court that the only deficiency in applications for exemption was that certificates of the Revenue Authorities of the respective foreign countries had not been filed-- Application form prescribed for applying for exemption by assessee does not require the filing of the certificate from the Foreign Revenue Authorities as mandatory---Application for approval could not be rejected for want of said certificate.

Muhammad Sharif and Saleem Z. Khan for Petitioner.

Ikram Ansari Standing Counsel for Respondent No.l.

Shaikh Haider for Respondents Nos. 2 and 3.

Date of hearing: 27th August, 1991.

JUDGMENT

NASIR ASLAM ZAHID, J.---The Petitioner is a Company incorporated under the laws of Panama and registered under the repealed Pakistan Companies Act, 1913,in 1957, as a foreign company and is an income tax assessee under the Pakistan Income Tax Laws.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Tax Authorities for tax exemption in respect of its foreign technicians, firstly, under section 4 (3) (xiii) of the repealed Income Tax Act, 1922, and, after its repeal and promulgation of the Income Tax Ordinance, 1979, under clause (7) of part I of the Second Schedule to tile said 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-1I) 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-1/89-30/43, 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 orders 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. Shaikh Haider, who has appeared on behalf of tile 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 raised 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) ...............................................................................................

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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

(ii) 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;

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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 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; -

(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 license, whichever is earlier;

(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."

3. 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. Shaikh 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. Sheikh Haider, learned counsel for the Income Tax Department, stated that the only deficiency was that the certificates 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 finds 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.

5. We are also surprised at the manner in which these applications have been dealt with by the Commissioner of Income-tax. Admittedly, the impugned orders have been passed after several years of the presentation of such applications. If at all there was any deficiency in the applications inasmuch as any document required to be filed had not been annexed, a routine check made within a reasonable time would have disclosed such deficiency and immediately on such deficiency having been detected, the petitioner informed so that the needful could have been done if required by law.

6. In the circumstances we set aside all the 57 impugned orders passed by the Commissioner of Income-tax (Companies 11) Karachi rejecting the 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 Commissioner of Income-tax. The Commissioner will then grant hearing to the petitioner and pass final orders 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.

Constitutional Petition No. D-1010 of 1990 stands disposed of accordingly with no order as to costs.

M.B.A./S-766/KOrder accordingly.