(a) Interpretation of statutes---

---- Statute or section beginning with non obstante clause---Effect---Where a statute or a part or section of a statute begins with non-obstante clause anything contained in any other statute or other part(s) or section(s) of the same statute is not to be read into the statute or part or section beginning with non obstante clause.

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

----First Sched., Part I & Part IV---Provision of First Sched., Part I cannot be read into what is written in Part IV of the said Sched.

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

----S. 11---Expressions "total income of a non-resident" and "total world income of a non-resident"---Meaning.--[Words and phrases].

The entire income of a person not resident in Pakistan is not taxable under the Income Tax Ordinance, 1979. Under the Ordinance only such income of a person not resident in Pakistan is assessable to tax as is referred to in clause (b) of subsection (1) of section 11 of the Ordinance.

The income of a person not resident in Pakistan as defined in section 11 has, been referred to in the Ordinance as "total income of a non resident" and, the expression "total world income of a non-resident", means the total income as defined plus any other income that accrued to that person beyond Pakistan.

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

----First Sched., Part IV, Para. A (3)(a)(b)---Income of a non-resident-- Taxability---Mode of computation---Tax payable by a person not resident in Pakistan who opts to be assessed with reference to his total world income shall be computed at the rates specified in Part I of the First Sched.---Need for redrafting sub-para. (3) of Para. A of Part IV of the First Sched. so that it conveys the intention of the Legislature clearly emphasised and suggestions made.

If the application of Part I of the First Schedule to compute income tax payable by a person who is not resident in Pakistan is excluded the only rate at which the tax payable by such person shall be determinable is that provided for in clause (a) and (b) of sub-paragraph (3) of paragraph A of Part IV of the First Schedule. Therefore, where such a person has, through a notice to the ITO, declared that the tax payable by him in respect of his "total income" shall be determined with reference to his "total world income" what the assessing officer shall be required to do will be that he would club both the incomes i.e. "total income" and the income that arose to the assessee beyond Pakistan and compute the tax on the total sum of both the incomes and apportion the said tax in respect of the "total income" and "other income" in the same ratio as the total income bears to the world income. If the above view is the correct view then the very purpose of the proviso asking a non-resident assessee to file declaration seems to be meaningless. Because if any such assessee would file the declaration, the chances are that he is taxed at higher amount rather than to get any benefit for filing the declaration. To illustrate the point taking the rate of tax prescribed for the assessment year 1991-92 of a non-resident besides having an income of Rs.300,000 that arose or accrued to him in Pakistan, and has an income of Rs.100,000 that arose or accrued to him outside Pakistan opts to be taxed with reference to his total world income his tax liability even in respect of the income that arose to him in Pakistan will be more than 30% of the said income but if he does not opt as aforesaid it will be equal to 30%.

Under the circumstances, it seems manifestly absurd to suppose that the intention of the legislation was that the person not resident in Pakistan who files a declaration for the determination of the amount of tax payable by him with reference to his world income should be subject to higher tax rate. The manifest intention of the legislation appears to be that the tax liability of a person not resident in Pakistan who opts to be taxed on the basis of his world income should be lesser than that who does not opt to file any declaration and that is possible only if the amount of the tax payable by him is determined in accordance with the provisions of Part I of the First Schedule. It is true that the presumption that every word in the statute must be given some effective meaning is very strong and to declare any word in a statute as surplus age should be avoided as far as possible. But, the Courts can disregard particular words or phrases in the statute when by giving effect to them the operation of the statute would be rendered insensible, absurd or ineffective to achieve its evident purpose.

It is a canon of construction that, if it be possible, effect must be given to every word of Act of Parliament or other document; but that, if there be a word or phrase therein, to which no sensible meaning be given, it must be eliminated.

To find the purpose of any legislation in any such case the history of the statute is the most instructive guide. The precursor of the provisions of sub paragraph (3) of paragraph A of Part IV of the First Schedule was subsection (1) of section 17 of the Income Tax Act, 1922. The said subsection, as it existed before 1965, classified non-residents into two classes: Firstly, who were the citizens of Pakistan and secondly, who were not citizens of Pakistan. According to that subsection if the assessee of the first class would opt to be taxed on the basis of his total world income, the tax was computed at the rates applicable to persons residents in Pakistan and then it was apportioned between the income liable to tax in Pakistan and income not liable to tax in Pakistan and the assessee was required to pay only that amount of the tax that was relatable to his income in Pakistan. The assessee of second class was required to pay the tax in respect of his income in Pakistan on special rates. There was no option for him. Subsection (1) of section 17 of the 1922 Act was substituted in 1965 and in its substituted form the distinction between Pakistani/non-resident and a non-Pakistani non-resident was abolished and .the assessees of both the classes were unified and given the option to have their tax determined with reference to their total world income. Since the section did not contain non obstante provision, the view was that the tax payable by any non-resident assessee who opts to be taxed with reference to his world income shall be determined at the rates applicable to residents. It appears that when the provisions of subsection (1) of section 13 of the 1922 Act were re-enacted in 1979 and put in the form of sub-paragraph (3) of paragraph A of Part IV of the First Schedule, the draftsman omitted to note that the Part IV of the First Schedule begins with non obstante clause and the existence of that clause would exclude the application of Part I of the First Schedule. Sub-paragraph (3) of paragraph A of Part IV of the First Schedule can be saved from being destroyed only if the non obstante clause is ignored. In this way the provisions of the said Part can be harmonised with minimum inteference. The tax payable by a person not resident in Pakistan who opts to be assessed with reference to his total world income shall be computed at the rates specified in Part I of the First Schedule.

There is a need that sub-paragraph (3) of paragraph A of Part IV of the First Schedule is re-drafted so that it conveys the intention of the Legislature clearly. If the intention of the Legislature is that the tax payable by a person not resident in Pakistan who opts to be taxed on the basis of his world income, shall be computed at the rates specified in Part I of the First Schedule, the first provision needs to be suitably amended to say clearly that the tax shall be computed at the said rates. But, if the intention is that the tax on total income of a person non-resident in Pakistan is to be determined at the rates specified in clauses (a) and (b), sub-paragraph (3) of paragraph A of Part IV of the First Schedule then there is absolutely no necessity of having provisos to the said paragraph. They need to be omitted.

(e) Interpretation of statues---

----When Court can disregard particular words or phrases in the statute.

It is true that the presumption that every word in the statute must be given some effective meaning is very strong and to declare any word in a statute as surplus age should be avoided as far as possible. But the Courts can disregard particular words or phrases in the statute when by giving effect to them the operation of the statute would be rendered insensible, absurd or ineffective to achieve its evident purpose.

It is a canon of construction that, if it be possible, effect must be given to every word of Act of parliament or other documents; but that, if there be a word or phrase therein, to which no sensible meaning be given, it must be eliminated.

Stone v. Vetvil Corpn. (1876); Muhammad Shafi v. Deputy Superintendent of Police PLD 1992 Lah. 178; Province of West Pakistan v. Mahbub Ali PLD 1976 SC 463; Macmonagle v. Westminstral City Council (1990) 2 WLR 823 and Owens Bank Ltd. Cerard Gauche (1989) 1 WLR 559 ref.

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

----First Sched., Part IV, Para. A(3)(a)(b) and S.11---Assessee having not declared any income other than that referred to in SA1(1)(b) of 'the Ordinance and having not declared the world income as defined in S. 11. she was not entitled to claim any benefit of the first proviso to sub-para. (3) of para. A of Part IV of the First Sched.

Khalid Majeed, F.CA. for Appellant.

Noor Muhammad, D.R. for Respondent.

Date of hearing: 4th May, 1992.

ORDER

The assessee, a non-resident individual, derives income from house property in Pakistan.

2. In the return of income for the assessment year 1990-91, the assessee declared the income of Rs.29,425 as one-fourth share in the income from house property in respect of a house in Islamabad.

3. It appears that the assessment year 1989-90 was the first occasion on which the assessee was assessable to tax in respect of the income from house property in respect of the aforesaid house. It also appears that the assessee in accordance with the provisions of the first Proviso to sub-paragraph (3) of paragraph A of Part IV of the First Schedule to the Income Tax Ordinance, 1979 (hereinafter referred to as the First Schedule) by a notice in writing given to the Income Tax Officer, declared that the tax payable by her in respect of her total income shall be determined with reference to her total world income. On the basis of the said declaration, the assessee demanded that the income tax payable by her in respect of her income from house property shall be calculated under Part I of the First Schedule. Although the assessee had, through the notice to the ITO, declared that she would like her income-tax is determined with reference to her world income but she did not declare any income other than that that accrued to her in Pakistan. The assessee contended that the income that accrued to her in Pakistan, was in fact, her total world income. In view of the fact that the assessee had not declared any income except that which had accrued to her in Pakistan, the Assessing officer computed the income-tax payable by the assessee

in accordance with clause (a) of sub-paragraph (3) of paragraph A of Part IV of the First Schedule and made the assessment accordingly. That assessment was not agitated further.

4. In relation to the return of income for the assessment year 1990-91 the assessed, still being a person not resident in Pakistan, again claimed that the amount of tax payable by her in respect of her income from house property shall be determined at the rate specified in Part I of First Schedule, and accordingly a sum of Rs.30,000 shall be excluded from her assessable income as is done in the cases of persons resident in Pakistan. In brief the contention of the assessee is that on the basis of the declaration she has filed in respect of the assessment year 1989-90, the tax payable by her in respect of her income from house property shall be computed as if she was a person resident in Pakistan. The assessing officer again has declined to determine the tax as claimed by the assessee and has determined the same at the rate of 30% of the income under clause (a) of sub-paragraph (3) of paragraph A of Part IV of the First Schedule. The appeal of the assessee against the assessment made by the Assessing Officer was rejected by the Appellate Assistant Commissioner by his order, dated 27-8-1991.

5. The assessed has objected to the orders of the tax authorities through this appeal on the same ground that was urged before the said authorities.

6. I have heard Mr. Khalid Majid, FCA for the assessee and Mr. Noor Muhammad, DR for the Department.

7. The most intriguing question that arises in this appeal is whether the tax payable by a person not resident in Pakistan who has filed the declaration referred to in the first proviso to sub-paragraph (3) of paragraph A of Part IV of the First Schedule is to be calculated at the rates and in the manner given in Part I of the First Schedule or at the rates given in clauses (a) and (b) of the aforesaid sub-paragraph. It may be noticed at the very outset that Part IV of the First Schedule begins with non obstante clause (i.e. notwithstanding anything contained ... ... ... .. ..), and, where a statute or a part or section of a statute begins with non obstante clause anything contained in any other statute or other part (s) or section (s) of the same statute is not to be read into the statute or part or section beginning with non obstante clause. With the above prelude, one may conclude that the provisions of Part I of the First Schedule cannot be read into what is written in Part IV of the First Schedule. Since we have to find the answer to the question relating to the applicability of the rates at which the tax payable by a person not resident in Pakistan from within the language used in Part IV of the First Schedule, it will be of advantage to reproduce so far as material, the relevant part of the same which reads as follows:---

"PART IV

A. Notwithstanding anything contained in the Schedule,--

(1)................................................

(2) .................................................

(3)Where a person, not being a company, is not resident in Pakistan, the tax, including super-tax payable by him or on his behalf on his total income shall be an amount equal to---

(a)the income tax which would be payable on his total income at the rate of thirty per cent. or the income-tax which would be payable on his total income if it were the total income of the person resident in Pakistan whichever is greater; plus

(b)the super-tax which would be payable on his total income if it were the total income of the person resident in Pakistan:

Provided that any such person may, on the first occasion subsequent to the thirty-first of March, 1957, on which he is, under this Ordinance or the repealed Act, assessable for any year by notice in writing given to the Income Tax Officer before the thirtieth day of September in the year of assessment declare (such declaration being final and being applicable to all assessments thereafter) that the tax, payable by him or on his behalf on his total income shall be determined with reference to his total world income, and thereupon such tax shall be an amount bearing to the total amount of tax, which would have been payable on his total world income had it been his total income, the same proportion as his total income bears to his total world income."

7. It. may be stated that the entire income of a person not resident in Pakistan is not taxable under the Income Tax Ordinance, 1979. Under the Ordinance only such income of a person not resident in Pakistan is assessable to tax as is referred to in clause (b) of subsection (1) of section 11 of the Ordinance which reads as follows: --

"Section 11, Scope of total income.--(1) Subject to the provisions of this Ordinance, the total income in relation to any assessment year, of a person,--

(a).. ... ... ... ... ... ... ... ... ... ... ... ...

(b) who is a non-resident, include all income from whatever source derived, which--

(i) is received or is deemed to be received, in Pakistan in the income year by, or on behalf of, such person; or

(ii) accrues or arises, or is deemed to accrue or arise, to him in Pakistan during such year.

8. Before proceeding further, it may also be advantageous to note that the income of a person not resident in Pakistan as defined in section 11 ibid has been referred to in the Ordinance as "total income of a non-resident" and, the expression "total world income of a non-resident" means the total income as defined above plus any other income that accrued to that person beyond Pakistan.

9. If the application of Part I of the First Schedule to compute income -tax payable by a person who is not resident in Pakistan is excluded the only rate at which the tax payable by such person shall be determinable is that provided for in clauses (a) and (b) of sub-paragraph (3) of paragraph A of Part IV of the First Schedule. Therefore, where such a person has, through a notice to the ITO, declared that the tax payable by him in respect of his "total income" shall be determined with reference to his "total world income" what the assessing officer shall be required to do will be that he would club the both incomes i.e. "total income" and the income that arose to the assessee beyond Pakistan and compute the tax on the total sum of both the incomes anti apportion the said tax in respect of the "total income" and "other income" in the same ratio as the total income bears to the world income. If the above view is the correct view then the very purpose of the proviso asking a non-resident assessee to file declaration seems to be meaningless. Because if any such assessee would rile the declaration, the chances are that he is taxed at higher amount rather than to get any benefit for filing the declaration. To illustrate the point taking the rate of tax prescribed for the assessment year 1991-92 if a non-resident besides having an income of Rs.300,000 that arose or accrued to him in Pakistan, and has an income of Rs.100,000 that arose or accrued to him outside Pakistan opts to be taxed with reference to his total world income his tax liability even in respect of the income that arose to him in Pakistan will be more than 30% of the said income but if he does not opt as aforesaid it will be equal to 30%.

10. Under the circumstances, it seems manifestly absurd to suppose that the intention of the legislation was that the person not resident in Pakistan who files a declaration for the determination of the amount of tax payable by him with reference to his world income should be subject to higher tax rate. The manifest intention of the legislation appears to be that the tax liability of a person not resident in Pakistan who opts to be taxed on the basis of his world income should be lesser than that who does not opt to file any declaration and that is possible only if the amount of the tax payable by him is determined in accordance with the provisions of Part I of the First Schedule. For the above reasons, I entertain no doubt in my mind that I should be giving effect to the true intention of the legislation if I could avoid the absurdity by treating non abstante clause by which Part IV of the First Schedule begins as surplus age. It is true that the presumption that every word in the statute must be given some effective meaning is very strong and to declare any word in a statute as surplus age should be avoided as far as possible. But, the Courts have on occasions been driven to disregard particular words or phrases in the statute when by giving effect to them the operation of the statute would be rendered insensible, absurd or ineffective to achieve its evident purpose. The above principle was stated by Brett, J. in Stone v. Veovil Corpn. (1876) as follows: --

"It is a canon of construction that, if it be possible, effect must be given to every word of Act of Parliament or other document; but that, if there be a word or phrase therein, to which no sensible meaning be given; it must be eliminated."

11. The above principle has been followed in numerous cases decided by our superior Courts of which the last in the series that may be referred to with advantage is the seminal judgment of a Full Bench of the Lahore High Court in a case Muhammad Shafi v. Deputy Superintendent of Police reported as PLD 1992 Lah. 178. The High Court has found that the literal rule of the interpretation of statute is by and large giving way to purposive approach. Under the literal rule the words of the statute are sufficient to determine every question that arises under it no matter how absurd and unjust consequence may be. On the other hand, the essence of the purposive approach is the Court has to answer the question what is the purpose of the statute. And, the `purpose' of the statute means why the statute was made or why any provision was included in the statute. The Supreme Court of Pakistan in a case Province of West Pakistan v. Mahbub Ali PLD 1976 SC 463, remarked that the whole purpose of the interpretation of statute is to ascertain the intention of the law- makers and to make it effective. The intention of the legislation can be ascertained only to find out the purpose for which the law was made and the object which was intended to be achieved by putting any word into the statute. The House of Lords in a quite recent judgment in case Macmonagle v. Westminstral City Council reported as (1990) 2 Weekly Law Report 823 has approved the principle that if no sensible meaning can be given to any word or phrase in a statute, keeping in view the purpose of the statute, the word or the phrase may be eliminated. In another recently decided case the Privy. Council in case Owens Bank Ltd. Gerard Cauche reported as (1989) 1 Weekly Law Report 559 has held that in case of irreconcilable inconsistency in two provisions of the statute the Court has to give effect to the leading provision keeping in view the purpose of the statute.

12. To find the purpose of any legislation in any such case the history of the statute is the most instructive guide. The precursor of the provisions of sub paragraph (3) of paragraph A of Part IV of the First Schedule was subsection (1) of section 17 of the Income Tax Act, 1922. The said subsection as it existed before 1965, classified non-residents into two classes. Firstly, who were the citizens of Pakistan and secondly, who were not citizens of Pakistan. According to that subsection if the assessee of the first class would opt to be taxed on the basis of his total world income, the tax was computed at the rates applicable to persons residents in Pakistan and then it was apportioned between the income liable to tax in Pakistan and income not liable to tax in Pakistan and the assessee was required to pay only that amount of the tax that was relatable to his income in Pakistan. The assessees of second class was required to pay the tax in respect of his income in Pakistan on special rates. There was no option for him. Subsection (1) of section 17 of the 1922 Act was substituted in 1965 and in its substituted form the distinction between Pakistani/non-resident and a non-Pakistani non-resident was abolished and the assessees of both the classes were unified and given the option to have their tax determined with reference to their total world income. Since the section did not contain non obstante provision, the view was that the tax payable by any non-resident assessee who opts to be taxed with reference to his world income shall be determined at the rates applicable to residents. It appears that when the provisions of subsection (1) of section 13 of the 1922 Act were re-enacted in 1979 and put in the form of sub-paragraph (3) of paragraph A of Part IV of the First Schedule, the draftsman omitted to note that the Part IV of the First Schedule begins with non obstante clause and the existence of that clause would exclude the application of Part I of the First Schedule. In my opinion sub-paragraph (3) of paragraph A of Part IV of the First Schedule can be saved from being destroyed only if the, non obstante clause is ignored. In this way the provisions of the said Part can be harmonised with minimum interference. I would answer the question that the tax payable by a person not resident in Pakistan who opts to be assessed with reference to his total world income shall be computed at the rates specified in Part I of the First Schedule.

13. Whether I am right or wrong in my above holding, I strongly feel that there is a need that sub-paragraph (3) of paragraph A of Part IV of the First Schedule is re-drafted so that it conveys the intention of the legislature clearly. If the intention of the legislature is that the tax payable by a person not resident in Pakistan who opts to be taxed on the basis of his world income, shall be computed at the rates specified in Part I of the First Schedule, the first provision needs to be suitably amended to say clearly that the tax shall be computed at the said rates. But, if the intention is that the tax on total income of a person non-resident in Pakistan is to be determined at the rates specified in clauses (a) and (b), sub-paragraph (3) of paragraph A of Part IV of the First Schedule then there is absolutely no necessity of having provisos to the said paragraph. They need to be omitted. It is hoped that the matter will be looked into by-the Central Board of Revenue for appropriate remedial steps.

14. Now coming to the present case I would agree with the tax authorities that since the assessee has not declared any income other than that referred to in clause (b) of subsection (1) of section 11 and has not declared the world income as defined earlier, she is not entitled to claim any benefit of the first proviso to sub-Paragraph (3) of paragraph A of Part IV of the First Schedule. Consequently, this appeal is rejected.

15. A copy of this order shell be sent to the Central Board of Revenue for examining the provisions of sub-paragraph (3) of paragraph A of Part IV of the First Schedule to the Income Tax Ordinance, 1979, in the light of observations contained in the order.

M.BA./1931/TOrder accordingly.