M/S. FLOPETROL INTERNATIONAL, SA, ISLAMABAD VS THE CENTRAL BOARD OF REVENUE, ISLAMABAD, 1994 PTD-SUPREME-COURT 1370 (1993)

(a) Regulation of Mines and Oilfields and Mineral Development (Government Control) Act (XXIV of 1948)---

----S. 3-B [as amended by Regulation of Mines and Oil fields and Mineral Development (Government Control) (Amendment) Act (LXXXIII of 1976)],---Schedule, Para. 13---Income Tax Ordinance (XXXI of 1979), Preamble---Exemption from payment of income-tax ---Entitlement-- Exemption from payment of income-tax was available not only to the foreign nationals approved by licensee but also to the employees of a contractor of the licensee or lessee as per provisions of S. 3-B, Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948 and para. 13 of the Sched. thereof---Provisions of S. 3-B of the said Act would operate notwithstanding anything contained in any law for the time being in force-- Concession from payment of income-tax being granted by provision of S. 3-B of the Act and para. 13 of the Sched. thereof, would be in addition to any other concession for the time being in force which would include Income Tax Ordinance, 1979.

A & B Food Industries Ltd. v. Commissioner of Income Tax/Sales, Karachi 1992 SCIG4R 663; Nawabzada Muhammad Amir Khan v. The Controller of Estate Duty etc. PLD 1961 SC 119; Pir Bakhsh v. Ajaib Gul and others PLD 1962 Pesh. 61; Arshad Akram & Co. and 8 others v. Divisional Superintendent Pakistan Railways, Rawalpindi and 5 others PLD 1982 Lah. 109 and Muhammad Jamil v. Muhammad Rahim 1987 CLC 176 ref.

(b) Regulation of Mines and Oilfields and Mineral Development (Government Control) Act (XXIV of 1948)--

----S. 3-B [(as amended by Regulation of Mines and Oilfields and Mineral Development (Government Control) (Amendment) Act (LXXXII of 1976)] & Sched. para. 13---No conflict between S. 3-$ of the Act and para. 13 of the Sched. thereof---Combined reading of the two provisions (S. 3-B and Sched. para. 13) of the Act indicates that concession from payment of income-tax was not only available to licensees and lessees but also to its contractors.

(c) Interpretation of statutes---

---- Where Sched. of an Act was in conflict with the provisions of the Act itself, the Sched. must yield to the main provisions.

(d) Interpretation of statutes---

---- Various provisions in an enactment must be harmoniously construed with a view to avoid any repugnancy.

(e) Interpretation of statutes--

---- Schedule to a statute is as much a part of an enactment as any other provision.

Bindra's Interpretation of Statutes, 7th Edition page 89 rel.

(f) Income Tax Act (XI of 1922)---

----S.4(3)---Income Tax Ordinance (XXXI of 1979), Second Sched., Part I, Para. 7---CBR Circular No. 1(7)-IT-4/77, dated 5th July 1977---CBR Circular No.18 of 1986 dated 21-10-1986---Exemption from payment of income-tax-- Conjuctive reading of two Circulars dated 5th July 1977 and 21-10-1986, indicated that all operating companies alongwith their contractors and sub contractors who were engaged in exploration of production of petroleum were considered as "approved undertaking" for the purpose of clause (7) of Second Sched. to Income Tax Ordinance, 1979 and were entitled without any other formalities to the exemption from payment of income-tax.

(g) Regulation of Mines and Oilfields and Mineral Development (Government Control) Act (XXIV of 1948)--

----S. 3-B [(as amended by Regulation of Mines and Oilfields and Mineral Development (Government Control) (Amendment) Act (LXXXIII of 1976)) & Sched. para. 13---Constitution of Pakistan (1973), Art. 199---Petitioners were entitled to grant of exemption from payment of income-tax as per terms of S.3-B & Sched. para. 13, Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 194&--Refusal of department to allow petitioners exemption from payment of income-tax being against law, was not sustainable---Order of Department refusing grant of exemption from income-tax (to which petitioners were entitled) was declared to be without lawful authority and of no legal effect.

Abdul Qayyum Bhatti and Saleem Zulfiqar for Petitioners.

Mansoor Ahmed for Respondents.

Date of hearing: 29th November, 1993.

JUDGMENT

MALIK MUHAMMAD QAYYUM, J: --This judgment shall dispose of W.Ps. Nos. 344/93 and 345/93 as both these petitions involve interpretation of section 3-B of the Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, (XXIV of 1948) as amended by Act LXXXIII of 1976 and clause VII of Second Schedule to the Income Tax Ordinance, 1979.

2. The background in which the dispute between the parties has arisen is that petitioner No. 1, which is a Company incorporated as a Joint Stock Company in Panama entered into agreements to render highly sophisticated and technical services in connection with operation, exploration and production of petroleum at the well-head site with Occidental of Pakistan Incorporated, Union Taxas (Pakistan), Incorporated, Oil and Gas Corporation (Pakistan), Limited, Pakistan Oilfields Limited, Attock Oilfields Ltd. all of which have been granted licences for exploration of oil. Petitioners Nos. 2 to 52 are Technicians, who are employed by petitioner No. 1 for rendering services in connection. with loan the work allocated to them. The petitioners claim that salaries paid to petitioners Nos. 2 to 52 by petitioner No. 1 are exempt from payment of tax. Their grievance is that though previously such exemption was being allowed by the respondents but it has been refused on the ground that as the petitioner No. 1 was not approved undertaking within the meaning of clause (vii) of Second Schedule of the Income Tax Ordinance, 1979, they are not entitled to any exemption in the absence of approval by the Central Board of Revenue. On 2-2-1986, the petitioners filed an application for approval which was rejected on 28-3-1986. Again on 13-4-1988, respondent No. 2 declined to allow relief in respect of petitioners Nos. 2 to 52 vide order Annexure B-2.

3. The petitioners invoked the Constitutional jurisdiction of this Court by filing W.P. No. 546/88 which was disposed of on 10-2-1993. The learned Division Bench of this Court was pleased to set aside the order of the respondent and remitted the case back to respondent No. 2 for decision afresh in accordance with law after remand, again on 10-3-1993, respondent No. 2 declined to grant approval to the contract of services of petitioners Nos. 2 to 52 on the ground that petitioner No. 1 was not an "approved undertaking". In these petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, this order has now been assailed by the petitioners.

4. In support of these petitions, the learned counsel for the petitioners has strongly relied on section 3-B of the Regulation of Mines and Oilfields and Mineral Development (Government Control) Act XXIV of 1948 as amended by Act LXXX of 1976 read with paragraphs 9, 10,11,12 and 13 of the Schedule thereto to contend that as petitioners Nos. 2 to 52 are foreign nationals employed by the Contractor of a licensee, no income tax can be charged on their income for a period of three years from the date of their arrival in Pakistan. The learned counsel has pointed out that section 3-B of the Act, the Rules and the orders made thereunder have been given overriding effect over all laws by section 4 of the aforesaid Act.

5. The learned counsel also relied upon the Circulars issued by the Central Board of Revenue on 5-7-1977 and 21-10-1986 to show that according to interpretation of the Board itself the petitioners were entitled to grant exemption from payment of income tax and respondent No. 2, who is Commissioner of Income Tax has no jurisdiction to override the decision of the Central Board of Revenue as contained in these circulars.

6. Mr. Mansoor Ahmed, learned Standing Counsel for Pakistan, who appeared for the respondents, has opposed these petitions with great vehemance. According to him, as petitioner No. 1 is not a licencee or a lessee from the Government of Pakistan but is a Contractor of the lessee/licencee, its employees are not entitled to grant of any concession. The learned Standing counsel was of the view that under section 3-B of the Regulation of Mines and Oil-fields and' Mineral Development (Government Control) Act, 1948, concession can only be allowed subject to and in accordance with the provisions of the Income Tax Ordinance, .1979 and as the petitioners do not fulfil the requirements of clause (7) of the Second Schedule to the Income Tax Ordinance, 1979, their income was not exempt from payment of income tax. The learned Standing counsel relying on A & B Food Industries Ltd. v. Commissioner of Income Tax/Sales,. Karachi (1992 SCMR 663) submitted that the provisions in the nature of exemption are strictly to be construed. It was also argued by the learned standing counsel that as section 3-B itself does not entitle the Contractor of lessee or licensee to avail of the benefit of exemption from income tax, the Schedule which purports to do so, is in conflict with the Act and has, therefore, yielded to it. Reliance has been placed on Nawabzada Muhammad Amir Khan v. The Controller of Estate Duty etc. (PLD 1961 SC 119), Pir Bakhsh v. Ajaib Gul and others (PLD 1962 Peshawar 61) Arshad Akram & Co. and 8 others v. Divisional Superintendent Pakistan Railways, Rawalpindi and 5 others (PLD -1982 Lahore 109) and Muhammad Jamil v. Muhammad Rahim (1987 CLC 176).

7. As is evident from the above, there is no dispute as regards the facts. The admitted position is that petitioner No. 1 is a Company which has entered into agreements with various other Companies which has been granted licence under the Act XXIV of 1948 by the President/Federal Government for the purpose of exploration of Petroleum. It is also a common ground between the parties that petitioners Nos. 2 to 52 are Technicians employed by petitioner No. 1 and are rendering services in connection with the exploration of Oil. Section 3-B of the Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948 as amended by Act LXXX of 1976 on which reliance has been placed by the petitioners reads as under:--

"3-B: Concessions to petroleum exploration companies:--

(1) Notwithstanding anything contained in any other law for the time being in force, even company whether incorporated in Pakistan or outside Pakistan, to whom a licence or a lease to explore prospect and mine petroleum is granted under this Act, not being a company such as is referred to in subsection (1) of section 3-A, shall be entitled to the concessions specified in the Schedule in addition to any concessions for the time being admissible to it under any other law or the Rules made under this Act."

Similarly paragraphs 9, 10, 11, 12 and 13 of the Schedule to the Act which are of relevance are reproduced hereunder-

"9. No custom-duty or sales taut shall be levied on the import of machinery and equipment specified in the agreement for the purposes. of exploration and drilling prior to commercial discovery.

10. A concessionary consolidated rate of 5.25 per cent customs duty and valorem, including sales tax and any surcharge related thereto, shall be charged on import of machinery and equipment' required for development of each commercial discovery until twenty-four months from the effective date of the mining lease granted with respect to each such discovery, and thereafter the normal rate of custom duty, sales tax and any other duty shall be applicable.

11. Foreign nationals employed by a licensee or lessee or its contractor shall be allowed to import commissary goods free of customs duty and sales tax to the extent of $ 530 per annum, subject to the condition that the sale shall not be sold or otherwise disposed of in Pakistan.

12. Foreign nationals employed by a licensee or lessee or its contractor shall be allowed to import used and bone fide personal and house hold effects, excluding motor vehicles, free of customs-duty and sales tax subject to the condition that the same shall not be sold or otherwise disposed of in Pakistan.

13. Foreign Nationals Employed by a licensee or lessee or its contractor shall not be charged Income Tax for a period of 3 years from the date of their arrival in Pakistan in accordance with and subject. to the provisions of clauses (xiii) and (xiii) (a) of subsection (3) of section 4 of the Income Tax Act, 1922 as in force on the effective date of the agreement with the licensees or lessee."

8. A plain reading of section 3-B alongwith paragraph 13 of the Schedule would show that the exemption from payment of income tax is available not only to the foreign nationals employed by a licensee but also to the employees of a Contractor of the licensee or lessee, as the case may be. Two things must be noted while interpreting section 3-B of the Act; firstly, it operates "notwithstanding anything contained in any law for the time being in force" and secondly, that the `concessions being granted by this Act as specified in the Schedule are in addition to any other concession for the time being in force.'

9. The contention of the learned. standing counsel that if the Schedule is in conflict with the provisions of the Act itself, the Schedule must yield to the main provision, is correct but on proper analysis of the Act and the Schedule it becomes apparent that there is no conflict between the two. It is well established principle of law that various provisions in an enactment must be harmoniously construed with a view to avoid any repugnancy. It also cannot be disputed that the Schedule ii as much a part of the enactment as any other provision. (See Bindra's Interpretation of Statutes, 7th Edition page 89). Reading the two provisions together, it becomes obvious that the concession mentioned in the Schedule is available not only to the licensees and lessees but also to its Contractors. It would be appreciated that by allowing a concession in payment of income tax to the Contractor of a licensee, the benefit is also conferred upon a licensee itself. Further more, if the exemption is not available to the employees of the Contractor and the liability to pay the tax falls on its employees, it would naturally add to the cost of exploration and thus affect the rights of the licensee itself. Viewed from this angle, there appears to be no inconsistency between section 3-B and the Schedule itself.

10. Respondent No. 2 while refusing exemption' to the petitioners has taken the view which has been reiterated by the learned standing counsel that in order to avail of the benefit of section 3-B and the Schedule of the Act of 1948, the person concerned must fulfil not only the conditions laid down in this Act and the Schedule but also in para 7 of the Second Schedule to the Income Tax Ordinance, 1979. In support of this contention the learned standing counsel has made particular reference to the expression "in accordance with and subject to the provisions of clause (xiii) and (xiii) (a) of subsection (3) of section 4 of Income Tax Act, 1922 as in force on the effective date of agreement with the licencee or lessee". This interpretation cannot be accepted for various reasons; firstly, that if the conditions laid down in the Income Tax Act, 1922 now replaced by Income Tax Ordinance, 1979 must be fulfilled in addition to the conditions for exemption appearing in section 3-B and the Schedule to the Income Tax Ordinance, it would render section 3-B to be meaningless. If the person concerned fulfils the conditions laid down in the Income Tax Ordinance itself, he can very well avail of the benefit under para 7 of Second Schedule. The second reason for which this argument must fail is that section 3-B, in unmistakable terms not only begins with a non obstante clause but it also in unmistakable terms provides that the concession available in the Schedule shall be in addition to any concession for the time being admissible to it under any other law or Rules made under this Act. This clearly spells out the intention of the Legislature that the concession being granted by section 3-B which are specified in the Schedule are in addition to the concession available under any other law which would include the Income Tax Ordinance, 1979. It is, therefore, idle on the part of the learned standing counsel to contend that in order to avail of benefits under the Schedule the person concerned must also be eligible for grant of exemption under para 7 of the Second Schedule to the Income Tax Ordinance, 1979.

11. The words on which emphasis has been laid by the learned standing counsel appearing in para 13 of the Schedule namely "subject to the provisions of clauses (xiii) and (xiii) (a) of subsection (3) of section 4 of the Income Tax Act, 1922 have the effect of making the, procedural provisions for the grant of exemption in the Income Tax Ordinance, 1979 applicable as no detailed procedure for invoking the benefit of exemption has been provided in' section 3-B of the Schedule. Para 13 of the Schedule cannot be construed to take away the right granted to the licensee or its Contractor which is. not subject to the provisions of the Income Tax Ordinance, but on the other hand, operates "notwithstanding anything contained in any other law and also ordains that the benefits conferred therein would be in addition to the other concessions being available under any other law which would include the Income Tax Ordinance.

12. Be that as it may, there is considerable merit in the contention of the learned counsel for the petitioners that respondent No. 2 has erred in law in refusing to allow concession to the petitioners only on the basis that they are not employees of "approved undertaking" but of its Contractor. Earlier the provision relevant in this context was section 4(3) of the Income Tax Act, 1922 under which a Circular was issued by the Central Board of Revenue, Islamabad which bears No. 1(7)-1T-V/77 dated 5th July, 1977. The relevant portions of this Circular read as under:-

"expatriate Technicians employed by an approved undertaking in Pakistan are exempt from the payment of income tax on their income from salary subject to the fulfilment of the conditions as prescribed by section 4(3)(xiii) of Income Tax Act, 1922. So far Board was empowered to approve the contract of service between the under taking and its foreign employees for the purpose of the said exemption.

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

.

(3). .......................................

...

(4). While clauses (a) to (e) of section 4(3) (xiii) specify the type of undertaking which qualify for approval under the said section, clause (f) empowers the Central Board of Revenue to approve any other undertaking, not mentioned in the statute, for granting exemption as respect its expatriate technicians, Operating companies contractors and sub-contractors to companies engaged in exploration and production of petroleum fall in the category of such undertakings. Board has approved such undertakings for the purposes of extending exemption to their foreign employees under section 4(3)(xiii) subject to the fulfilment of the conditions provided therein.

(5) .

(6). .......................................

(7). .......................................

(8). .......................................

13. After the repeal of Income-tax Act, 1922 and the enforcement of Income Tax Ordinance, 1979 another Circular bearing No. 18 of 1986 was issued by the Central Board of Revenue on 21-10-1986. This circular reads a follows:-

Certain queries have been received in the Board regarding the applicability and scope of Board's Circular letter C. No. 1(17)II-V/T dated 5th July, 1977. 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) he 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 operations 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 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."

14. On a conjunctive reading of these two circulars it would be seen that all operating Companies alongwith their Contractors and Sub-Contractors who are engaged in exploration and production of petroleum were considered as "approved undertaking" for the purpose of clause (7) of Second Schedule to the Income Tax Ordinance, 1979 and were entitled without any other formalities to the exemption from payment of income tax. It is unfortunate that the Commissioner while refusing to grant exemption to the petitioners appears to have gone against the instructions of the Central Board of Revenue contained in the aforesaid two circulars. According to section 8 of the Income. Tax Ordinance, 1979, orders, instructions and directions issued by the Central Board of Revenue are binding on all Officers who act in accordance with the same. Respondent No. 2 was therefore, clearly in error in not according an "approved undertaking" to petitioner No. 1-Company and refusing exemption to its employees.

15. It is also of interesting to notice that the Department has itself, in the past, been granting exemption to the various employees of petitioner No.l as has been averred in para 11 of this petition which fact has not been denied by the respondents' learned counsel and is borne out by orders dated 22-3-1988 passed in the cases of three Technicians by respondent No.l of petitioner No.l Company. Similarly, on the same basis, exemption in terms of para 12 of the Schedule from payment of sales tax has also been allowed by the Authorities to petitioner No.l as is evident from the letters dated 22-12-1986 and 29-12-1986 from the Central Board of Revenue to the Collectors. This departmental interpretation by an Authority high as is the Central Board of Revenue, could not have been ignored or departed to by respondent No. 2.

16. Reference may also be made to the judgment in the case of Schlumbearger Seaco Inc. v. Commissioner of Income Tax (1993 PTD 85), wherein a Division Bench of Sindh High Court held, in similar circumstances and relying upon the circular of the Central Board of Revenue dated 5-7-1977, the action of the respondents to be without lawful authority. The following passage appearing in the judgment may be reproduced as under:-

"As the petitioner company has all along been treated as approved undertaking prior to the issuance of Circular No. 18 of 1986 and 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 the new condition imposed by clause (c) of Circular No. 18 of 1986 in view of clause (d) of the Circular.

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 II) 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 reassessments for the assessment years 1982/83 to 1987/88 of the petitioner company made by the Income Tax Authorities consequent to the orders 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 Expatriate technicians whose applications had been rejected without lawfulauthority by the impugned orders."

This judgment was approved by the Supreme Court of Pakistan on 10-6-1993, when while dismissing Civil Petition No. 528-M/92 leave to appeal against the aforesaid judgment of the High Court was refused.

17. It follows from the above discussions that the refusal of the respondents to allow the petitioners exemption from payment of Income Tax is clearly against law and cannot be sustained.

In view of what has been stated above both these petitions are allowed and the order dated 10-3-1993 is declared to be without lawful authority and o no legal effect and it is held that the income from salary drawn b petitioners Nos. 2 to 52 as foreign technicians is exempt from payment of any) income tax.

AA./F-142/L Petitions accepted.