(a) Res judicata---

----Doctrine of---Application---Doctrine of res judicata does not apply to the decisions of Income Tax Authorities.

Doctrine of res judicata or estoppel by record does not apply to the decisions of Income Tax Authorities. A previous finding or decision of a Tax Authority can be reopened and departed from in a subsequent year if the previous decision was not arrived at after due enquiry or if fresh facts come to light which, on investigation, would entitle the officer to come to a conclusion different from the one previously reached.

(b) Estoppel-----

----Doctrine of estoppel by record---Application---Doctrine of estoppel by record does not apply to the decisions of Income Tax Authorities.

Doctrine of res judicata or estoppel by record does not apply to the decisions of the Income Tax Authorities. A previous finding or decision of a Tax Authority can be re-opened and departed from in a subsequent year if the previous decision was not arrived at after due enquiry or if fresh facts come to light which, on investigation, would entitle the officer to come to a conclusion different from one previously reached.

(c) Income-tax---

----Erroneous action---Such action cannot get legal sanctity with the passage of time.

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

----Ss.80-AA & 12(5)---Fee for technical services---Taxability---"Technical service" ---Connotation---Assessee, a non-resident company deriving income from providing special services i.e. wireline logging, production logging, perforating logging and related services to a Pakistani Oil Drilling Company---Contention of the department was that end-product of the assessee-company was collection of specific data and its interpretation and physical activities were simply incidental to that end and that the employment of highly skilled personnel, use of sophisticated equipment by the assessee for the purpose of collecting sub-surface data and giving of expert advice was nothing but a technical service and the fees received in that connection squarely fell in the definition of "fees for technical services" in terms of Explanation to S.12(5), Income Tax Ordinance, 1979---Contract document indicated that assessee had made a separate charge of each operation/service provided by it to the oil drilling company at the mutually agreed price list which showed that assessee's contract was a "service contract" and not a "work contract" for fee was charged for each service separately at different rates---Held, such receipts of assessee being more in the nature of "fees for technical services" than commercial or industrial receipts were rightly taxed under S.80-AA of the Income Tax Ordinance, 1979.

I.T.A. No.3750/LB of 1986-87; 1993 PTD (Trib.) 739; S.M. Abdullah v. CIT (1966) 14 Tax 161; Tejmal Bhojraj v. CIT 22 ITR 20-8; CIT v. Farrukh Chemical Industries 1992 PTD 523 and Shorter Oxford English Dictionary, 1993 Edn. ref.

I.T.A. No.3750/LB of 1986-87 and 1993 PTD (Trib.) 739 distinguished.

Rustum Jee, F.C.A. and Muhammad Shahid Sadiq, F.C.A. for Appellant.

Khawaja Muhammad Sadiq Butt, D.R. for Respondent

Date of hearing: 6th May, 1997.

ORDER

HAMIDULLAH MALIK (ACCOUNTANT MEMBER).--The three appeals at the instance of the assessee are directed against a combined order dated 2-6-1996 passed by learned Commissioner (Appeals), Islamabad whereby he confirmed the taxing of assessee's receipts as 'fee for technical services' under section 80-AA of Income Tax Ordinance, 1979.

2. Relevant facts of the case are that the assessee, a non-resident company incorporated in Hong Kong, derives income from providing special services i.e, wireline logging, production logging, perforating logging and related services to a Pakistani oil drilling company, Returns were filed declaring following income from business:--

3. During the course of assessment proceedings, examination of the nature of activities of the assessee company revealed that it was engaged in the provision of well 'logging' services to M/s. Pirkoh Gas Company Ltd., Islamabad which was drilling oil wells. The Assessing Officer issued a notice under section 62 of the Income Tax Ordinance, 1979 requiring the assessee to explain as to why its revenue receipts should not be treated as 'fee for technical services' in terms of the Explanation to section 12(5) of the Ordinance and taxed under the provisions of section 80-AA of the Ordinance. Both these provisions of law are reproduced below for ready reference:--

"Section 12(5) . . . . .

Explanation. ---For the purposes of this subsection, clause (b) of section 24, subsection (2) of section 30, subsection (3-A) of section 50 and section 80-AA, 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (Including the provision of the services of technical or other personnel) but does not include consideration for any construction, assembly or like project undertaken by the recipient or consideration which would be income of the recipient changeable under the head 'Salary'.

"Section 80-AA. Tax on income of non-resident from fees for technical services.---(1) Notwithstanding anything contained in this Ordinance, where any consideration by way of fees for technical services referred to in the Explanation to subsection (5) of section 12 I received or is deemed to be received by, or accrues or arises or is deemed to accrue or arise to a non-resident, the whole of such consideration shall be deemed to be income of the non-resident and tax thereon shall be charged at the rate of fifteen per cent. of such income . . . . . . . ."

4. In response to this notice, the Authorized Representative of the assessee furnished written arguments which explained the nature of activities of the assessee-company in the following words:--

"Description of services and clients:

Under its contracts with P.G.C.L., the S.A.S.L. renders wireline logging, perforating and related services in Pakistan.

The S.A.S.L. provides to the oil company with petrophysical measurements of the rocks around the well bore, such as formation, depth, thickness, porosity and lithology, as well as oil, gas and water content. Such measurements are essential to the oil companies as they provide unique information for the optimal drilling of wells, both to prove or disprove the presence of hydrocarbons, help position wells to maximum production and recovery and facilitate the appraisal of reservoir size and characteristics.

When a well is being drilled, very little information is available to the geologist of the oil company standing at the top of a hole several thousand feet deep and only a few inches -in diameter. He must be able to distinguish rock layers down hole which can be less than 6" thick. Often, there is scant evidence that the drill has penetrated an oil or gas reservoir. This is where S.S.A.L. provides its essential wire line services.

Wire line services are needed throughout the productive life of a well. One category, open-hole services, provides logging information in newly-drilled wells. Production or cased-hole services, on the other hand, are offered' after a steel casing has been set and cemented into the well bore prior to production. In addition, the well-site mobile laboratory provides clients on the spot with `A'' computer interpretation of down hole data thus, facilities decision making mainly for drilling purposes These services include electromagnetic acoustic and nuclear measurements and are recognized as the most reliable and scientifically accurate method for locating and evaluating oil and gas reservoirs.

Description of operations:

Drilling is interrupted periodically so that a computerized mobile laboratory of S.A.S.L. can lower its measuring tools to the bottom of the drill hole on an armoured electrical cable called a ' wireline' . Sophisticated instruments, encashed in a slim cylindrical tool known as a ' sounde' , are then pulled slowly back to the surface, measuring continuously the physical parameters of the rock formations they pass through.

The data are transmitted on the wireline to the integrated computer based data acquisition system where measurements are recorded on magnetic tare and on graph called ' log'. The information contained in these loss gives to the oil companies a complete picture of subsurface formations how deep how thick how porous and how much oil and gas they contain."

5. It was further explained that in rendering services to oil exploration companies the assessee did not provide separately its personnel and also did not rent out its equipment. Rather, it actually carried out the logging activities required during the course of a well-drilling operation. The learned A.R. pleaded that the business activities of the assessee-company did not fall in any of the services mentioned in the Explanation to section 12(5) of the Ordinance i.e. technical, managerial and consultancy. He, however, admitted that the activities of the assessee-company were in the nature of mechanical and maintenance operation. That it was a composite contract for rendering of specialized services and included use of equipment and personnel. That section 80-AA, which treated 'fee for technical services' as a separate block of income for charge of tax at a fixed percentage, was in respect of those fees which were chargeable under the head "Income from other sources" under section 30 of the Ordinance. However, remuneration for technical services having the character of income from business or profession would continue to be subjected to tax under section 22 of the Ordinance. That, by excluding the consideration received for any construction, assembly or like project from the definition of the expression 'fee for technical services', the Legislature had ensured that contracts which virtually amounted to carrying on a business were not taxed as technical services. That the nature of assessee company's activities showed that the contract being executed by it was a ' works' contract and not a 'services' contract.

6. The learned A.R. then placed reliance on the decision of the Tribunal in ITA No.3750/LB of 1986-87 dated 4-2-1991 in which the taxability of the income of a Danish company came under consideration. The said company provided sketch designs, mechanical engineering and planning services for the installation of a dairy project of a Pakistani company. In that case the Tribunal observed that "it is difficult to characterize their activity in Pakistan as 'personal or professional services' in complete disregard to its nature as a normal commercial venture". The regular and established nature of their trade would clearly and necessarily make their earnings arising out of trade or commercial venture.

7. The A.R. also placed reliance on yet another decision of the Tribunal in a case reported as 1993 PTD (Trib.) 739 in which the taxability of the income of a Swiss company was under consideration. The said company entered into an agreement with a Pakistani company to provide consultancy services for preparing feasibility studies, developing management and information system and corporate strategy in respect of a new plant. The Tribunal observed that 'the said company was a world renowned specialist in the filed and possessed required professional skills, personnel and technical resources as part of their normal business activities. Therefore, it is improper to characterize their pursuit as that of rendering technical services in complete disregard of their normal and purely commercial activity of providing consultancy services which is nothing but a commercial activity with the result that the company's profits were pure and simple industrial or commercial profits". Deriving support from the above decisions of the Tribunal, the learned A.R. argued that the services were provided by the assessee's company in the course of its normal business activities under a specific work contract and thus could not be said to have provided services of the personnel.

8. The learned A.R. objected to the proposed action of the Assessing Officer from another angle. He pleaded that assessee's income from the very inception of its operations in Pakistan had been assessed as "Income from Business or Profession" and computed under sections 22, 23 and 24 of the Ordinance. That there had been no change whatsoever- in the facts and, circumstances of the case or in the manner in which the operations had been carried out by the assessee. Thus, there was no justification for change in the basis of assessment. The learned A.R. prayed that the principle of natural justice required that the department should not deviate from the treatment accorded to the assessee-company in the past. In this connection reliance was placed by him on the following decisions of higher Courts:--

1. S.M. Abdullah v. CIT, (1966) 14 Tax 161 (H.C.Kar.).

2. Tejmal Bhojraj v. CIT, 22 ITR 208 etc.

9. The Assessing Officer did not accept any of the contentions of the Authorized Representative. After minutely examining the actual operational activities of the company, he came to the conclusion that the operations and the related services provided by the company were of highly technical and sophisticated nature. That the company used highly advanced technology and equipment and its personnel carrying out these services were also highly trained in their specialized fields. Thus, the revenue receipts of the company clearly fell in the category of 'fee for technical services' assessable under . section 80-AA of the Ordinance. The applicability of the principles of res judicata or estoppel was also not admitted in view of the new facts discovered as a result of detailed enquiry conducted during the assessment proceedings for the years under consideration, The declared revenue receipts were, therefore, treated as `fee for technical services' and taxed at the fixed rate of 20 %a under section 80-AA of the Ordinance,

10. The assessee agitated against this treatment before the learnedCIT(A) on the ground that the DCIT had grossly erred in altering the basis of assessment in the absence of any change in the facts and circumstances of the case i.e. assessing the income under section 80-AA instead of section 22 of the Ordinance. In addition to the arguments given at the assessment stage, the learned A.R. contended that the assessee-company did not provide any managerial, technical or consultancy services to its client. That technical services could be extended only in the form of professional advice or information. That the assessee-company did not extend any technical information to its client in Pakistan in the form of technical assistance which could even remotely be considered as technical service bringing it within the ambit of section 80-AA of the Ordinance.

11. The learned CIT(A) did not concur with this view of the learned A.R. and observed that technical services could be rendered through advice which is based on technical information and data collected through technical personnel by using technical equipment and tools. He further observed that the assessee-company was engaged in collecting technical data from the sub surface area through its technical equipment and personnel. Necessary analyses were made and suitable advice was given to the oil drilling company. That the company was not engaged in actual drilling process and its activities were that of rendering subsidiary technical services. These activities, according to him, were clearly covered by the definition of "technical services" as given in the Income Tax Ordinance, 1979 and receipts were in the nature of 'fee for technical services' which had rightly been taxed under section 80-AA of the Ordinance. Further, he ruled that specific provisions of section 80-AA of the Ordinance, because of non obstante clause contained therein, would naturally override the general provisions of sections 22, 23 and 24 of the Ordinance. Accordingly, he confirmed the action of the Assessing officer in treating the receipts of the assessee company as 'fee for technical services' and in taxing the same under the provisions of section 80-AA of the Ordinance.

12. As regards the application of principle of res judicata in the present case, the contention of the representative of the assessee-company was held to be misconceived. The learned CIT(A) observed that if an Assessing Officer was convinced that earlier assessments were framed without making necessary enquiries or without making a proper appraisal of relevant fact and circumstances of a case, he could always deviate from the past practice and make a correct assessment in accordance with law. That there could be no estoppe, against a correct application of law. That in none of the assessment orders for earlier years, any detailed discussion about the nature of activities of the assessee-company had been made as it was done in the assessment orders under consideration. That each assessment year was an independent year and an erroneous assessment could not become a binding precedent for subsequent assessments. He, therefore, held that the principle of res judicata was not applicable in the present case. In, support of his decision he d4rived strength from the decision of Supreme Court of Pakistan''` in the case of CIT v. Farrukh Chemical Industries 1992 PTD 523. Relevant extract of the judgment is reproduced below:

"The legal question as to how far the principle of res judicata is applicable to proceedings before the income tax authorities need not detain us. This question directly arose for decision in view of the question framed under section 66 of the Income Tax Act in the case of Commissioner of Income Tax v Wahiduzzaman (supra). It was held that the principle of res judtcata cannot be applied with the same strictness to decisions of the Income Tax Authorities, as it is applicable to cases decided by Courts or judicial tribunals. The bar of res judicata was postulated to be applicable within the limits asobserved in the following dictum:

' Under the circumstances the ends of justice will be served by confining the bar of res judicata in relation to decision of Income Tax Authorities to cases where the decision is not clearly open to some objection. It should be a decision which is reached after proper enquiry, which is such as could reasonably have been reached on the material before the authority and which does not suffer from such a defect as would render it liable to be set aside under section 100, C.P.C. in second appeal if it was a decision of a Civil Court. Also a matter can always be reopened on the ground that fresh evidence having a material bearing on the point decided is available.'

It is not necessary, therefore, to go to the decisions cited by the learned counsel for the appellant on this point. It may be reiterated that a previous decision of an income tax authority will not be a bar in the following cases:--

(i) where the earlier decision is clearly open to some objection;

(ii) if it is a decision which is not reached after proper enquiry;

(iii) if it is a decision as could not reasonably have been reached on the material before the authority;

(iv) if it is a decision which suffers from such a defect which falls within the purview of the grounds mentioned in section 100. C.P.C. and liable to correction there under in second appeal, if it were a decision of a Civil Court; and

(v) if fresh evidence having a material bearing on the point decided in the previous decision is available. "

13. The assessee/appellant had challenged the impugned order on the following grounds:

"2. The learned Commissioner of Income Tax (Appeals) has erred in rejecting your appellant's plea that your appellant's entire income is assessable under the head 'Income from business or profession' under section 22 of the Income Tax Ordinance, 1979, after allowance of all deductions claimed by your appellant under section 23 of the Ordinance.

2.1 The learned CIT(A) has erred in not referring to, considering and commenting do certain arguments relied upon by your appellant for which a Miscellaneous Application and affidavit has been submitted to the learned CIT(A).

2.2 Without prejudice to above, the learned CIT(A) has grossly erred in rejecting your appellant's plea that the Assessing Officer cannot alter the basis of assessment in the absence of any change in the facts and circumstances of the case i.e. assessing your appellant's income under section 80-AA of the Ordinance instead of assessing the same under section 22 of the Ordinance after allowance of all deductions claimed by your appellant tinder section 23 of the Ordinance i.e. 'income from business or profession' in line with the past history of the case. .

2.3 The learned CIT(A) has erred in inferring, that your appellant's assessments .in respect of prior assessment years were either 'wrong or erroneous', without placing any material on record in this respect.

3. Your appellant prays that the order of the learned CIT(A) and that of the Assessing Officer are both cancelled in toto and the returned income of your appellant is accepted. "

14. The Authorised Representatives contended that the two departmental authorities had not correctly appreciated the nature of the business activities of the assessee company. That the company performed actual physical work on the oil drilling site and the work was performed with the help of its own personnel and equipment. That it did not provide any managerial, technical or consultancy services to its client which could fall in the definition of 'technical services'. That the remunerations for the services provided by the assessee-company had the character of income from business or profession and, as such, continued to be subject to section 22 unaffected by the insertion of section 80-AA of the Ordinance. Thai, in order to determine the nature of income, the predominant activity of the assessee-company had to be kept in view which would have determined the character of its income.

15 The learned A.R. vociferously contested the action of the Assessing Officer in deviating from the history of the case by taxing the income under section 80-AA read with section 30 instead of sections 22, 23 and 24 of the Ordinance as was done in earlier years. In this connection, reliance was again placed on the decision of Karachi High Court in the case of S.M. Abdullah v. CIT (1966) 14 Tax 161 in which the Court observed that the I.T.O. cannot reopen the basis or footing of an assessment simply on the ground that the former decision was erroneous and the succeeding officer does not agree with the previous officer as it would be against the principle of natural justice. According to the learned A.R., the principle of res judicata was applicable in the circumstances of the case.

16. The learned A.R. further contended that the income was received by theassessee-company through its permanent establishment in Pakistan and hence was liable to tax in Pakistan under the provisions of section 11 (1)(b)(i) of the Ordinance. That, in the presence of such a specific provision, there was no justification for the Assessing Officer to invoke the deeming provision of section 80-AA of the Ordinance. The learned A.R. did not seriously press the ground of appeal at serial No. 2.1.

17. The learned Departmental Representative, besides wholeheartedly supporting the assessment as well as the impugned order, submitted that the wording of the Contract Agreement showed clearly that the job of the assessee-company was that of providing technical support services to the client oil-drilling company in the form of 'logs' i.e. graph charts accompanied by relevant subsurface data and the expert advice as how to proceed further in the oil drilling operation. That the physical activities carried out by the assessee-company were incidental to the rendering of technical services in the form of professional advice based on scientific data. That physical activities of the assessee-company were totally fruitless unless the results and the data derived from such activities were compiled, analysed and communicated to the client company in the form of expert advice. As such, physical activities were not the ultimate purpose of the assessee company. That the real purpose and specialization of the assessee-company was that it collected the relevant sub-surface data and then it was interpreted with the help of highly sophisticated equipment and skilled staff and appropriate advice was given to the client company as to how further drilling operation should be conducted by it. The contention of the learned D.R., in nutshell, was that the end-product' of the assessee-company was collection of scientific data and its interpretation and that physical activities were simply incidental to that end. He finally pleaded that the employment of highly skilled personnel, use of sophisticated equipment by the assessee-company for the purpose of collecting sub-surface data and giving of expert advice was nothing but a technical service and the fees received in this connection squarely fell in the definition of 'fee for technical services' in terms of the Explanation to section 12(5) of the Ordinance.

18. We have heard the representatives of both the parties and have carefully perused the contents of the assessment as well as impugned order. The assessment order contains detailed facts about the nature of activities of the assessee company. Such discussion was never made in any of the earlier assessment orders. It is the consensus of Judicial Authorities of the sub continent that the doctrine of res judicata or estoppel by record does not apply to the decisions of the Income Tax Authorities. They have also ruled that a previous finding or decision of a Tax Authority can be reopened and departed from in a subsequent year if the previous decision was not arrived at after due enquiry or if fresh facts come to light which, on investigation, would entitle the officer to come to a conclusion different from the one previously reached. The elaborate discussion in the assessment orders shows that the Assessing Officer had made diligent enquiry and had collected considerable fresh facts about the activities of the assessee-company. Such discussion was never made in any of the assessments for the prior years. The action of the Assessing Officer is also well within the bounds fixed by the Supreme Court of Pakistan in its decision reported as CIT v. Farrukh Chemical Industries 1992 PTD 523. An erroneous action cannot get a legal sanctity with the passage of time. Thus, in our opinion, the Assessing Officer had not violated any principle of law by changing the basis of assessment and taxing the receipts of the assessee-company under section 80-AA of the Ordinance.

19. In order to further appreciate the nature of activities of the assessee company, we perused the contents of the contract agreement and deem it appropriate to reproduce below its relevant extracts:--

ARTICLE II: OBJECT OF CONTRACT:

"The main purpose of this Contract is to procure Logging, Production Logging, Perforation Logging and Allied Services, equipment and personnel required for twenty-seven (27) wells of Purchaser's field.

3.03. CONTRACTOR'S PERSONNEL

(a) The Contractor shall have a logging engineer and crew on the exclusive service of Purchaser's field.

(b) The Logging Engineer will be competent to operate the required tools with sufficient experience of working with Contractor and good knowledge of Logging Interpretation.

(c) The Contractor shall provide Station Manager at Islamabad who should be qualified and experienced to give necessary guidance on all aspects of well logging service and trouble shooting.

3.07 BACK-UP SERVICES:

(a) The Contractor will evaluate and recommend to purchaser to requirements of logging operations and perforation jobs.

(b) The Contractor shall provide both well site service interpretation and computerized process Interpretation including Quicklook, Cyberdip, Cross Plot, Play Back, Global, Cluster, Geodip, Flow Analysis Log and Fracture Identification Log. .

(c) Contractor shall train Purchaser Logging Personnel for interpretation without any additional cost to Purchaser.

(d) The Contractor shall provide the Purchaser six copies of each log free of cost for Logging and Production Service performed.

5.02 The PURCHASER shall pay the CONTRACTOR in the manner and at the time hereunder set forth:--

Charges of Logging, Production Logging, Perforation Logging and Allied Services under Supplement-1 attached herewith and the rate provided in the Schlumberger letter No.nil, dated 30th October, 1989 addressed to Mr. Arif Kemal, Executive Director, Production regarding discount attached herewith.

However, additional services performed will be charged according to the 'Price List L.81-M provided that such request for performing these services have been made by the Purchaser in writing. "

20. The assessee provided following additional services to its client company:-----

1. Resistivity services.

2. Radioactive services.

3. Sonic/seismic services.

4. Production services.

5. Perforation services.

6. Miscellaneous additional services.

7. Data processing services.

21. Careful perusal of the above extracts and the description of the actual operations of the company clearly shows that the assessee-company prepared different types of 'logs', which as per textbook definition, means ' a continuous record as a function of depth usually graphic and plotted to scale on a narrow paper strip, of observations made on the rocks and fluids of the geologic section exposed in a well bore'. This information is collected through highly sophisticated equipment list of which forms a separate Supplement to the Contract Agreement. Such information is then interpreted and expert advice and guidance is given by the personnel of the assessee company to the well-drilling company. The drilling company plans its operations strictly in accordance with the advice of the assessee's company. No oil drilling company can imagine to operate without the assistance, guidance and advice of a well logging company like the assessee. A well logging company, like other specialist supporting companies, provides support services to an oil drilling company. .

22. The contract documents further indicate that the assessee-company makes a separate charge for each operation/service provided by it to the oil drilling company according to the mutually agreed price list. The services are of highly technical and sophisticated nature and the assessee company is one of the few specialist companies of the world in this field. The contract documents term the operations/functions of the assessee-company as 'Services'. Perusal of contract documents makes it abundantly clear that assessee's contract is a 'Services Contract' and not a 'work contract' because fee is charged for each service separately at different rates. The subsidiary and auxiliary nature of a 'logging' contract is evident from the fact that it has no independent existence of its own and is always executed in pursuance and furtherance of an oil drilling contract. This is the most important, feature of a 'Services' contract. Hence the receipts of the assessee-company are more in the nature of 'fee for technical services' than commercial or industrial receipts.

23. The reliance of the Authorised Representative on the decisions of the Tribunal i.e. ITA No.3750/LB of 1986-87 dated 4-2-1991 and 1993 PTD (Trib.) 739 is rather misplaced because both the cases are 'distinguishable from the case of the appellant company. In the former case, the income of the Danish company was exempt from Pakistan tax under the relevant Agreement for Avoidance of Double Taxation. Moreover, section 80-AA of the Ordinance had not been introduced in the statute at the time. Hence the Tribunal did not consider the connotation of terms 'fee for technical services'. in that case. In the latter case, full implications of section 80-AA of the Ordinance could trot be considered by the Tribunal in view of the following special circumstances of that case:--

(a) The Swiss company was not maintaining any permanent establishment in Pakistan.

(b) The services were predominantly performed in Switzerland.

(c) Payments were received in foreign exchange in Switzerland.

(d). The provisions of the Agreement for Avoidance of Double Taxation between two Governments provided an umbrella of exemption from Pakistan tax to the income of the Swiss company.

24. The term 'technical services' was considered and adjudicated upon by the Sindh High Court and this Tribunal in the following words and with the following results:--

1. Glaxo Grqup Ltd. v. CIT, Karachi 1992 PTD 636 (H.C. Kar):

"In our view, both under sub-clause (d) as well as under clause (g), the services required to be rendered by. the assessee are in the nature of technical service. As noticed, under sub-clause (d), the service to be rendered by the assessee through its staff or staff of its associated companies is to advise the Pakistan company on the utilization of its machinery and equipments etc. and under sub clause (g) the advice to be given is about maintenance of high standard of qualify of the specialized products and this advice is rendered through regular inspections by the assessee. As observed, these types of advices or services can be aptly described as technical services. What the assessee does is that it makes available its expertise, technical and special knowledge and experience to ache Pakistan company The technical services rendered under the aforesaid sub-clause by the assessee to the Pakistan company are covered by the term 'personal services'. Being a company, the assessee has to render such services through its staff or staff of it s associated company. Nevertheless, such services remain technical service rendered by the assessee."

2. 1998 PTD (Trib.) 291 (Full Bench):

"56. The expression 'fees for technical services' has been defined in Explanation to section 12(5) of the Income Tax Ordinance, 1979 which means any consideration for rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel). The nature of job performed by the non-resident company according to the description given by the assessee itself does not bring it in the purview of industrial or commercial activity. We will examine if the services rendered by them which is described in the invoices submitted by Red Adair Company dated 16-12-1991 as 'well control services' amounts to rendering of technical services including the provision of services of technical or other personnel. For this purpose, it is to be seen as to what is the connotation of term 'technical'. This term has not been defined in the Income Tax Ordinance, 1979 and, therefore, we will again seek assistance from the dictionaries as the meaning is to be taken in its ordinary sense. The word 'Technical' has been defined in Legal Thesaurus by William C. Burton, 1980 Edition as follows:

Technical, Abstruse, difficult to understated highly specialized, highly specific, industrial, mechanical, occupational, professional, scientific, special, specialized, specific, trained, vocational."

57. In the new Shorter Oxford English Dictionary, 1993 Edition the term 'technical' includes the following meanings:

"Technical: 1. of a person 'having knowledge of or expertise in a particular art, science or other subject, 2. Pertaining to, involving or characteristic of a particular art, science profession, or occupation, or the applied arts and sciences generally . . . . . . .

58. Applying the above meanings of word 'technical' to the nature of job performed by the non-resident company we find that the job performed is on all fours to the rendering of technical services. The definition "fees for technical services" is inclusive of the provision of services of technical or other personnel and the nature of job already explained above shows that the Assessing Officer has rightly held that the remuneration paid by the assessee-company to the non resident does not fall within the purview of industrial or commercial profits so as to attract the exemption provisions contained in the agreement for avoidance of double taxation between U.S.A. and Pakistan. . . . . . . .

25. In the case of Glaxo Group the expert advice by the foreign group through its staff to the Pakistani company on the utilization of its machinery and, equipment and with regard to the maintenance of high standard quality of its specialized' products was aptly described by the Honourable Court as 'technical services' because the foreign group made available its expertise, technical and special knowledge and experience to the Pakistani company. In the second case the provision of a fire extinguishing service on a wellhead by a specialist foreign company through scientific equipment and special technique was held to be 'a service of technical nature and the remuneration paid to the non-resident company was held to be a 'fee for technical services'. The word 'Technical', as elaborated by the Tribunal in the above noted case, is a very comprehensive term. Any activity involving or concerned with mechanical arts and applied sciences automatically falls in the purview of this term.

26. The plea of the A.R. that, in the presence -of the provisions of section 11(1)(b)(i) of the Ordinance, the Assessing Officer had no justification to invoke the deeming provision of section 80-AA of the Ordinance .appears to be misconceived because there is no dispute regarding the taxability of assessee's receipts under the tax laws of Pakistan as its receipts undoubtedly have the character of 'income'. The real dispute is whether the whole of such receipts or such receipts minus the expenses allowable under section 23 of the Ordinance will constitute its income. In such a situation, the applicability of section 80-AA is very much relevant and Assessing Officer's action cannot be considered as unjustified.

27. We have given our earnest consideration to all the aspects of the case and the respective contentions of both the parties. We have, no doubt, in our mind that the receipts of the assessee-company clearly fall in the purview of "fee for technical services" as defined in the Income Tax Ordinance. The Assessing Officer had, therefore, rightly taxed the same under section 80-AA of the Ordinance and the CIT(A) had rightly confirmed this action. Their actions find unequivocal support from the above-noted judgments of the High Court and the Tribunal. Hence, there is hardly any justification for our interference in the matter.

28. All the three appeals of the assessee/respondent are, therefore, dismissed.

M.B.A. /469/Trib.Appeals dismissed.