1993 P T D 85

[Karachi High Court]

Before Nasir Aslam Zahid C.J. and Akhtar Ali G. Kazi, J

SCHLUMBERGER SEACO INC., ISLAMABAD

Versus

COMMISSIONER OF INCOME TAX (COMPANIES II), KARACHI

C.P. No. 96 of 1992, decided on 24/09/1992.

(a) Income-tax Act (XI of 1922)---

---S. 4(3)(ii)---Income Tax Ordinance (XXXI of 1979), Second Sched. Part I, cl. (7)---C.B.R. Circular No.l(7)-IT-V/77, dated 5-7-1977---C.B.R. Circular No.18 of 1986 dated 21-10-1986---Exemptions from tax in respect of foreign employees---Requirements---Production of certificate from Revenue Authorities of concerned foreign countries, whether mandatory for grant of exemption ---Assessee (petitioner), a foreign company registered in 1957 under Companies Act, 1913 and an assessee under Pakistan Income-tax Laws, employed technicians from foreign countries for fixed periods in Pakistan-- Assessee applying for tax exemption in respect of such employees first under SA(3)(xii) of the Income-tax Act, 1922 and after its repeal under cl.(7), Part I of the Second Sched. to Income Tax Ordinance, 1979, to Income-tax Authorities---Such exemption had all along been granted to the assessee company in the past but exemption applications in respect of 57 technicians was, however, refused in the year 1988-89 on the ground that a "certificate of Revenue Authorities of the respective foreign country" had not been supplied--Validity of such refusal---Production of certificate from the Revenue Authorities of concerned foreign country was not mandatory, either under the repealed Income-tax Act, 1922 or under the relevant provisions of Income Tax Ordinance, 1979 nor it was an absolute legal requirement under the C.B.R, Circular dated 5-7-1977 read with C.B.R. Circular No. 18 of 1986, dated 21-10-1986---Rejection of applications for exemption on the ground of non -production of such certificates was thus not warranted in law.

(b) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Part I, cl. (7)---C.B.R. Circular No. 18 of 1986, dated 21-10-1986, cl. (d)---Applications for exemption from tax--Approved undertaking", connotation---Construction of cls. (b) & (c) of Explanation to proviso to cl. (7) of Part I of Second Sched. to Income Tax Ordinance, 1979-- Interpretation of cls. (b), (c) & (d) of C.B.R. Circular No.18 of 1986, dated 21-10-1986---Commissioner of Income Tax on remand of case dismissed applications of assessee for exemption from tax in respect of foreign technicians employed by it on entirely a new ground namely that assessee company was not an "approved undertaking" as defined in the Explanation to cl. (7) of Part I of Second Sched. to Income Tax Ordinance, 1979, as it was admittedly not engaged in drilling/production of petroleum and its income was not computed under the Fifth Sched. to the Ordinance, 1979 and the assessee company only rendered technical services to various oil companies and its services were only incidental to exploration and production of petroleum-- Explanation to proviso to cl. (7) of Part I of Second Sched. to Income Tax Ordinance, 1979, held, did not require that an undertaking to be considered as an "approved undertaking" must fulfil all the conditions laid down in sub cls. (a), (b) & (c)---Clause (d) of C.B.R. Circular No.18, dated 21-10-1986 provided that contractors/sub-contractors already treated as "approved undertaking" on the basis of C.B.R. Circular, dated 5-7-1977 would not be affected by the conditions placed in cl. (c) of the C.B.R. Circular No.18 of 1986---Prior to issuance of Circular No.18 of 1986 assessee company had been treated as an "approved undertaking" inasmuch as a large number of applications in respect of expartriate technicians had been allowed by the Income tax Authorities and it had never been challenged that assessee company was not an "approved undertaking"---Even if the assessee was not an "approved undertaking" under C.B.R. Circular No.18 of 1986 but had been treated as an approved undertaking in view of cl. (d) of the said Circular, the company would not come within the mischief of cl. (c) and the case would be covered by cl. (b) of Circular No.18 of 1986---Contention of Department was accordingly repelled.

(c) Income-tax---

----Constitution of Pakistan (1973), Art.199---New plea ---Admissibility---Respondent department, at the hearing of petition raising a new point that income-tax exemption was valid only for a maximum period of 5 years from the date of commencement of commercial production---Such point having not been considered or decided by the Commissioner of income-tax, in the impugned orders, High Court in its Constitutional jurisdiction declined to examine the same.

(d) Income-tax Act (XI of 1922)---

----S. 4(3)(xii)---Income Tax Ordinance (XXXI of 1979), Second Sched. Part 1, cl. 7---Re-assessment of assessee company was made after rejection of its applications for exemption from tax in respect of foreign technicians employed by it---Such order of rejection was set aside by the High Court---Effect on assessments---Where entire basis of reassessment was the impugned orders rejecting the applications for exemption and where such orders were set aside and applications for exemption were granted, the entire superstructure of reassessment built upon the impugned orders would fall to ground.

Where the Legislature clothes an order with finality, it always assumes that the order which it declares to be final is within the powers of the authority making it and no party can plead as final an order made in excess of process of the authority making it in the eye of the law such order being void and non existent. And if, on the basis of the void order subsequent orders have been passed either by the same authority or by other authorities, the whole series of suborders, together with the superstructure of rights and obligations built upon them, must, unless some statute or principle of law recognizing as legal he changed position of the parties is in operation, fall to the ground because such orders have as little legal foundation as the void order on which they are founded.

Impugned orders passed by the Commissioner of Income-tax and the re-assessments for the assessment years 1982 to 1987-88 of the assessee company were accordingly set aside.

Yousuf Ali v. Muhammad Aslam Zia PLD 1958 SC 104; Jeson International (Pvt.) Limited v. Income Tax Officer 1989 PTD 1141 and Walayat Shah v. Muzaffar Khan PLD 1971 SC 184 ref.

Muhammad Sharif and Salim Zulfiqar Khan for Petitioner.

Shaik Haider for Respondent.

Ikram Ahmed Ansari, Dy. A.-G. (on Notice).

Dates of hearing: 7th, 9th, 14th,15th and 16th September, 1992.

JUDGMENT

NASIR ASLAM ZAHID, CJ. ---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-11), 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-&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 Ordinance. " Approval had all along been granted by the Department by acceptance of the applications fox 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 thee 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-II), 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 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

(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; ... .... ... ... ... ... ... ... ... ... ... ... ... ...

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;

(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 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."

The previous impugned orders passed by the Commissioner of Income Tax (Companies-11), 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

(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 2nd 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 provision's 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.

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 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, m 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 IInd 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 "EXEMPTIONS 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--

(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;

(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

(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 employment 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 services to some oil operating companies who have been granted concessions by the Government of Pakistan for exploration of petroleum in Pakistan ..In the terms of the contract, tax exemption has also been granted to the expartiate technicians of the contractor and sub-contractors employed by oil well prospecting companies'.

During the course of-discussion the Counsel for the Company also referred to clauses 2(b) and 2(d) of Circular No.18 of 1986 dated 21-10-1986 which clarified the applicability and scope of Circular C.No.l(7) IT-V/77 dated 5-7-1977 subsequent to the promulgation of Income Tax Ordinance, 1979. The two clauses are reproduced as under: --

(b)Operating Companies (and their contractors/sub-contractors) engaged in exploration and production of Petroleum will be considered as `approved undertaking' for the purposes of clause (7) Ibid and separate approval of the Board will not be required in such cases.

(d)Contractors/sub-contractors already treated as `approved undertaking' on the basis of aforesaid Circular shall not be affected by the conditions set out in clause (c) above.

The above contentions do not lend any weight to the claim of the applicant as the very basis on which the claim of exemption of employees' remuneration hinges is incorrect and untenable. The employer company has claimed itself to be contractor to some oil prospecting companies and hence entitled to be treated as an approved undertaking. However, clause (c) of the said Circular 18 of 1986 clearly explains the term contractors/sub-contractors as under:--

(c)As used in clause (b) above, the term `contractors/sub-contractors' will include only such persons/entities engaged in actual operation i.e. exploration and production of petroleum (such as drilling operations) and will not include persons/entities performing, technical or professional services incidental to exploration and production of petroleum. In such cases, each contractor/sub-contractor performing sub-services will have to apply to the Board for approval as "approved undertaking". in terms of clause (7) ibid.

It is an admitted fact that the Company is not engaged in drilling operation/production of petroleum and its income is not computed under the 5th Schedule of the Income tax Ordinance. The company in fact renders technical services to various oil exploration companies. Its services are only incidental to exploration and production of petroleum. It cannot, therefore, be treated as an approved undertaking, nor it had ever been formally approved as such by the competent authority i.e. CBR. Since it neither qualifies to be a contractor nor sub-contractor its case also does not fall under clauses 2(b) and 2(d) of the Circular. If in the absence of necessary clarification about the correct legal position an incorrect status has been accorded previously and. relief is allowed wrongly by the department it cannot be made the basis for a similar view when the legal position is explained later on by the departmental authority i.e. Central Board of Revenue. In fact the superior Courts have held in a number of cases that in such situations the issue can be examined afresh. As has already been discussed, the company so far has not produced any evidence of having been granted the status of approved undertaking by the Central Board of Revenue and has instead been working under a self-assumed status of being a contractor/sub contractor to oil exploration companies which in fact it is not. It is therefore not entitled to claim exemption on this ground in respect of its foreign technician's salaries and remunerations paid by it to them for their services in Pakistan."

7. The decision of the question whether the petitioner is entitled to the grant of the applications, therefore, depends on whether it falls within the meaning of "approved undertaking" as defined in the Explanation in clause 7 of Part I of IInd Schedule to the Income Tax Ordinance, as on merits the case has been conceded on behalf of the department by Mr. Shaik Haider. For being an "approved undertaking" to be entitled to exemption from Income Tax in respect of the applications for the foreign technicians, the petitioner had to satisfy the conditions laid down in sub-clause (a) and either sub-clause (b) or sub-clause (c) of clause 1 of the said Explanation. There was no contest from the department in respect of petitioner's case that it fulfils the conditions laid down in sub-clause (a) that it has been set up in Pakistan after the 14th day of August, 1947. However, the main controversy revolved around sub-clauses (b) and (c) of clause 1 of the Explanation. Sub-clause (b) requires the undertaking to fulfil the conditions specified in clauses (a), (d) and (e) of subsection (2) of section 48, and sub-clause (c) covers any other undertaking which is approved by the Central Board of Revenue for the purposes of clause 7.

Apparently the case of the petitioner does not fall under sub-clause (b) of clause 1 of the Explanation in clause 7 of Part I of the IInd Schedule to the Income Tax Ordinance, 1979. However, as observed earlier, the Explanation does not require that an undertaking to be considered as "an approved undertaking" must fulfil all the conditions laid down in sub-clauses (a), (b) and (c), as, after sub-clause (a), the word "and" is used and, after sub clause (b), the word `or' is used, and this indicates the intention of the legislature that the requirement in sub-clause (a) is in any case to be fulfilled and, apart from this, either the requirements of sub-clause (b) or sub clause (c) have to be fulfilled.

8. In our view, the petitioner fulfils the requirements of sub-clause (c) of clause (1) of the explanation. For this purpose, reference may be made to the Circular Letter C.No.l (7)IT-V/77 dated 5-7-1977 of the Central Board of Revenue which refers to the delegation of the powers of approval of the contract between Expatriate Technicians employed by an approved undertaking to the Commissioners of Income Tax by the Finance Act, 1977, and lays down conditions explaining the procedure to be followed for the approval of the contract and grant of exemption from the payment of income- tax to the Expartriate Technicians so as to ensure that a uniform policy is followed all over the department.

There is another Circular No.18 of 1986 dated 21-10-1986 regarding approval for exemption, which may be reproduced in toto: --

"Certain queries have been received in the Board regarding the applicability and scope of the Board's Circular Letter C.No.l(7)IT V/77, dated 5th July, 1977 (copy enclosed). The following questions have been raised:--

(a) Whether the said circular is still applicable after the promulgation of Income Tax Ordinance, 1979?

(b) Whether the operating companies, contractors and sub-contractors to companies engaged in the exploration and production of petroleum need to apply to the Board for approval as `approved undertaking' by the Board in each case, for purposes of clause (7) of Part I of the Second Schedule to the Income Tax Ordinance, 1979?

(2) The position is clarified as under: --

(a) The said circular is still valid in the context of clause (7) of Part I of the Second Schedule to the Income Tax Ordinance, 1979.

(b) Operating companies (and their contractors/sub-contractors) engaged in the exploration and production of petroleum will be considered as `approved undertaking' for purposes of clause (7) ibid, and separate approval of the Board will not be required in each case.

(c) As used in clause (b) above, the term "contractors/sub-contractors" will include only such persons/ entities engaged in actual operation i.e. exploration and production of pertroleum (such as drilling operations) and will not include persons/entities performing technical or professional services incidental to exploration and production of petroleum. In such cases, each contractor/sub-contractor performing such services will have to apply to the Board for approval as `approved undertaking', in terms of clause (7) ibid.

(d) Contractors/sub-contractors already treated as `approved undertaking' on the basis of the aforesaid circular shall not be affected by the conditions set out in clause (c) above."

Circular No.18 of 1986 dated 21-10-1986, therefore, clarified that the earlier Circular dated 5-7-1977 was still valid in the context of clause (7) of Part I of the Second Schedule to the Income Tax Ordinance, 1979. Sub -clause (b) of Clause 2 of Circular No.18 of 1986 has provided that operating companies, and their contractors/sub-contractors engaged in the exploration and production of petroleum will be considered as an "approved undertaking" for purpose of clause (7) and separate approval of the Board will not be required in each case. In the impugned orders dated 30-12-1991, the entire basis for reaching the conclusion that the petitioner company is not an "approved company" is that the case of the company comes within the mischief of clause (c) of Circular No.18 of 1986. In fact Mr. Shaik Haider also heavily relied on clause (c) of. Circular No:18 of 1986 arguing that advantage of clause (b) of that Circular cannot be taken by the petitioner as they themselves had admitted in para. 1 of their petition that they are contractors/sub contractors for the provision of Wire-line Logging arid related services to operating companies engaged in the exploration and production of Hydro Carbons, whereas, according to clause (c), benefit of clause (b) is only extended to contractors/sub-contractors who are engaged in actual operation i.e. exploration and production of petroleum such as drilling operations and do not include contractors/sub-contractor performing technical or professional services incidental to exploration and production of petroleum in which case each contractor performing such services will have to apply to the Board for approval as an approved undertaking. According to Mr. Shaik Haider, admittedly the petitioner has not obtained any spec or separate approval as approved undertaking in terms of clause 7 and, in view of clause (c), benefit of clause (b) of Circular of 1986 cannot be extended to the petitioner.

However, Mr. Muhammad Sharif, learned counsel for the petitioner relied on clause (d) of Circular No.18 of 1986 which provides that contractors/sub-contractors already treated as "approved undertaking" on the basis of Circular dated 5-7-1977 shall not be affected by the conditions set out in clause (c).

In our view the submission of Mr. Muhammad Sharif is correct. Prior to the issuance of Circular No.18 of 1986, petitioner had been treated as an `approved undertaking' inasmuch as a large number of applications in respect of Expatriate Technicians had been allowed by the concerned departmental authorities and previously at no point of time it had been challenged that the petitioner was not an approved undertaking. Even if the petitioner was not an approved undertaking under Circular 18 of 1986 but had been "treated" as an approved undertaking, in view of clause (d) of Circular No.18 of 1986, the case of the petitioner will not come within the mischief of clause (c) and petitioner's case would be covered by clause (b) which provides that contractors/sub contractors of operating companies engaged in the exploration and production of petroleum will be considered as approved undertaking for purposes of clause 7 and separate approval of the Board will not be required in each case.

9. As the petitioner company has all along been treated as approved undertaking prior to the issuance of Circular No.18 of 1986, and it is a contractor/sub-contractor of an operating company, the condition that the petitioner must be engaged in actual operations i.e. exploration and production of petroleum such as drilling operations, is not applicable to the petitioner. Having been treated as an approved undertaking on the basis of the earlier Circular dated 5-7-1977, it is not affected by the new condition, imposed by clause (c) of Circular No. 18 of 1986 in view of clause (d) of the Circular.

10. Apart from deciding that as the petitioner company was not involved in actual exploration or production of petroleum like drilling operations and as such it did not fall within the meaning of "approved undertaking" given in the Explanation in clause 7 of Part I of the I1nd Schedule to the Income Tax Ordinance, 1979, no other reason (apart from merits on which, as observed, Mr. Shaik Haider had already conceded) has been given by the Commissioner of Income Tax in the impugned order for rejection of the applications for exemption from income-tax filed by the petitioner in respect of the foreign technicians. However, before us Mr. Shaik Haider raised another submission that, in any case, the income-tax exemption was valid for a maximum period of 5 years from the date of commencement of commercial production. This point was neither considered nor decided by the Commissioner of Income Tax. The Commissioner of Income Tax by the impugned orders has not dismissed the applications of the petitioner on this ground. Mr. Muhammad Sharif, counsel for the petitioner, inter alia, submitted that in each case the exemption was not sought for any period after the expiry of 5 years from the date of commencement of commercial production. At this stage, we are not inclined to accept the submission made by Mr. Shaik Haider as this involves a factual determination for which no basis is found in the impugned orders passed by the Commissioner of Income-tax. As observed, the applications of the petitioner have not been rejected on this ground and as a matter of fact this point has neither been considered nor decided by the Commissioner of Income Tax.

11. The only other point which requires consideration in this Constitutional petition is about the status of the re-assessments for the assessment years 1982-83 to 1987-88 of the petitioner made by the departmental authorities consequent to the impugned orders rejecting the exemption applications. According to Mr. Muhammad Sharif, the entire basis of re-assessments are the impugned orders rejecting the applications for exemption and if the impugned orders are set aside and the applications for exemption stand granted, the entire superstructure of re-assessment orders built upon the impugned orders will fall to the ground. Learned counsel referred to the case of Yousuf Ali v. Aslam Zia PLD 1958 SC 104. Reliance was placed on the following principle laid down by the Supreme Court in Yousuf Ali's case:---

"Where the Legislature clothes an order with finality, it always assumes that the order which it declares to be final is within the powers of the authority making it and no party can plead as final an order made in excess of powers of the authority making it in the eye of the law such order being void and non-existent. And if, on the basis of the void order subsequent orders have been passed either by the same authority or by other authorities, the whole series of such orders, together with the superstructure of rights and obligations built upon them, must, unless some statute or principle of law recognizing as legal the changed position of the parties is in operation, fall to the ground because such orders have as little legal foundation as the void order on which they are founded."

Mr. Muhammad Sharif also relied upon two other judgments in this regard. First is the judgment of a Division Bench of this Court in the case Jeson International (Pvt.) Limited v. Income Tax Officer 1989 PTD 1141. In this case, this Court came to the conclusion that a part of the notice under section 65 of the Income Tax Ordinance issued to the assessee was illegal and then observed as follows: ---

"We, therefore, declare the impugned show-cause notice relating to purchase of plots and salary of Engineers and storekeepers is without jurisdiction and of no legal effect. Therefore, the fresh assessment order which has been placed on record passed in pursuance of the illegal notice relating to the purchase of plots is also illegal, without lawful authority and of no legal effect."

The other case relied upon by Mr. Muhammad Sharif is Walayat Shah v. Muzaffar Khan PLD 1971 SC 184 where it was held that if the Deputy Settlement Commissioner had exercised a jurisdiction he did not possess, the High Court was quite competent to quash it and all successive orders based upon it.

12. Mr. Shaik Haider had, on the other hand, argued that re-assessment orders will not be affected even if the impugned orders, dated 30-12-1991 of the Commissioner of Income Tax were quashed. He referred to sections 132(3), 135(7) and 136(5) of the Income Tax Ordinance, 1979. According to learned counsel for the department, the re-assessment orders had to be specifically challenged and, in the absence of specific challenge to the reassessment orders, the same will not fall down even if the impugned orders are set aside. Reference was also made to sections 50 and 52 of the Income Tax Ordinance, 1979 and it was submitted that orders should not be passed to defeat the provisions of these sections.

13. In our view, in case the impugned orders are set aside, the reassessment orders passed by the Income Tax Authorities will also fall as the basis of the re-assessment orders are the impugned orders, dated 30-12-1992. It may be added that in fact the re-assessment orders have been challenged and a prayer to that effect has been made in the memo of the petition as follows:---

"(d) direct the respondent to withdraw the re-assessments for the assessment years 1982-83 to 1987-88 made by the respondents subordinates consequent to the orders of rejection of exemption applications challenged and set aside in C.P. No. 1010 of 1990."

14. As a result, this Constitution petition succeeds to the extent that the impugned orders dated 30-12-1991 of the Commissioner of Income Tax (Companies 11), Karachi rejecting the applications for exemption filed by the petitioner are declared to be without lawful authority and to be of no legal effect. It is further declared that the re-assessments for the assessment years 1982-83 to 1987-88 of the petitioner company made by the Income Tax Authorities consequent to the orders of rejection of exemption applications are also without lawful authority and to be of no legal effect. The respondent is also directed to issue exemption certificates in respect of the 57 Expartriate Technicians whose applications had been rejected without lawful authority by the impugned orders.

There will be no order as to the costs.

M.BA./S-947/KOrder accordingly.