I.T.AS. NOS. 2919/LB AND 2921/LB OF 1999 VS I.T.AS. NOS. 2919/LB AND 2921/LB OF 1999
2001 P T D (Trib.) 1816
[Income-tax Appellate Tribunal Pakistan]
Before Inam Ellahi Sheikh, Chairman and
Zafar Ali Thaheem, Judicial Member
I.T.As. Nos. 2919/LB and 2921/LB of 1999, decided on 17/02/2001.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.50(3-A)---Deduction of tax at source---Convention for avoidance of double texation---Exemption---Assessee claimed exemption, from deduction of tax from payment to non-resident on account of technical services, under double tax treaty---Validity---Exemption under double tax treaty could not be considered as under the provision of S.50(3-A) of the Income Tax Ordinance, 1979 Assessing Officer was authorised to, issue a certificate in this regard and no such claim had been made by the assessee at any stage before the Tribunal.
(b) Income Tax Ordinance (XXXI 1979)---
----Second Sched., Part I, Cl. 77-A, Ss.2(29), 50 & 52---Exemption-- Interest--Liability of person failing to deduct or pay tax---Deduction of tax at source---Fee for technical services---Tax under S.52 of the Income Tax Ordinance, 1979 was levied as the assessee had not made deductions on payments in respect of technical services ---Assessee pleaded that payments were in the nature of interest as defined under S.2(29) of the Income-tax Ordinance, 1979 which was exempt from tax under Cl. (77-A) of Part I of Second Sched. of the Income Tax Ordinance, 1979 and thus, not liable to deduction of tax---Validity---"Interest" as defined in S.2(29) of the Income Tax Ordinance, 1979 included any service; fee or other charge in respect of any credit facility which had not been .utilised which did not mean that all types of charges in respect of credit facility, whether utilised or not, could be included in the definition of interest---Claim of exemption under cl. (77A) of Part I of the Second Sched. of Income Tax Ordinance, 1979 was rejected by the Appellate Tribunal in circumstances.
Law Lexicon Dictionary, 1997 Edn. and 1995 PTD 877 ref.
1994 PTD 174 = 1994 SCMR 229 and 1990 PTD (Trib-.) 925 distinguished.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss. 52, 50(3-A), 12(5) & 80-AA---Liability of person failing to deduct or pay tax---Payment to non-resident professionals/consultants---Nature of payment---Determination of---Agreement in respect of services---Non availability of such agreement on record---Effect---Due to non-tiling of agreement between the assessee and the non-resident recipient, the issue of applicability of S.52 of the Income Tax Ordinance, 1979 to the payment to non-resident was set aside by the Appellate Tribunal as the nature of payment could not be determined in the absence of such agreement---Assessing Officer was directed to examine the nature of payments in the light of agreement in case of another assessment year where such agreement was available and the relevant provision of law.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.52---Liability of person failing to deduct or pay tax ---Expenses---Re imbursement of---Deduction of tax ---Assessee could not be made liable for making deduction of tax at the time of re-imbursement of expenses while the tax had been deducted when the original payment was made on behalf of assessee on purchases.
(e) Income Tax Ordinance (XXXI of 1979)---
----Ss.52 & 50(4)---Liability of person failing to deduct or pay tax-- Deduction of tax at source---Expenses borne by the non-resident parent company ---Re-imbursement of such expenses by the resident subsidiary company without deduction of tax---Department treated the resident company as assessee in default in respect of such tax and invoked the provision of S.50(4) of the Income Tax Ordinance, 1979---Validity---Parent company being non-resident, provisions of S.50(4) could not be applied as the same were applicable to residents only at the relevant period---Action of the Assessing Officer of charging tax in respect of parent company was annulled by the Appellate Tribunal in circumstances.
(f) Income Tax Ordinance (XXXI of 1979)-----
----Ss. 52 & 50---Liability of person failing to pay or deduct tax---Provisions of Ss.50 & 52 of the Income Tax Ordinance, 1979 could not be applied in the absence of any detailswhich could show the nature of payment.
Khalique-ut-Rehman, F.C.A. and Iqbal Ahmad, I.T.P. for Appellant.
Shafqat Mahmood Chohan, L.A., Muhammad Asif, D.R. and Adrian Saeed, Assessing Officer for Respondent.
Date of hearing: 19th October, 2001.
ORDER
INAM ELLAHI SHEIKH (CHAIRMAN). ---These are two further appeals of a company arising out of an order, dated 8-4-1999 recorded by the learned CIT (A), Multan to agitate the levy of tax under section 52 of the Income-tax. Ordinance, 1979 (hereinafter called the Ordinance) and the additional tax under section 86 of the Ordinance for the two years under consideration.
2. The relevant facts in brief are that the assessee/appellant in the present appeals is a private company incorporated in Pakistan with unlimited liability and is said to be a subsidiary of a non-resident company. The assessee also has an associated company by the name of AES Lal Pir Limited (hereinafter referred to as 'Lal Pir Co.'). The Assessing Officer on examination of the statement filed under section 142 of the Ordinance found that the assessee had not made deductions on- certain payments/charges in respect of technical services/consultancy. After confronting the assessee and rejecting the explanation, the Assessing Officer levied the tax/additional tax in the following manner for the assessment year 1996-97:---
| S. No.Name of theNature of Rate ofAmount ofW.H. Tax Person/CompanyCo/Person W.H. TaxPayment 1.Prizada Law Associated Legal5%725,24036,262 2.Maqbool Ahmed-do-5% 90,0004,500 3.Noor Qureshi-do-5% 33,2001,660 4.Chhadbourne & Park -do-15%12,861,5841,929,238 5.Surridge & Becheeno -do-15%4,749,996712,499 6.Allen & Overy-do-15%3,124,098468,615 7.Linklater & Paines Legal15%14,912,4162,236,862 Bank Consul 8.Mitsui & Yasuda-do-15%1,713,382257,007 9.Sargent & Lundy-do-15 %1,911,503286,725 10.Others15%2,047,822307,173 11.NESPAK5%125,00018,750 12.Transfer from AES Lal Pir5%3,371,789168,589.45 13.Expenses Born by Parant Co.5%67,789,879 3,389,493.95 Total9,817,374.40 |
Rate of 15% is as per provisions of section 50(3A) read with Paragraph E of the First Schedule.
Rate of 5 % is as per provisions of section 50(4) read with Paragraph E of the First Schedule.
Charge of Additional Tax Under section 86 1.Amount of default9,817,374 2.No. of days of default1,095 3.Rate of Addl. Charge24 4.Amount of Addl. Tax7;068,509 ________________________________________ Total tax payable under sections 52 and 8616,885,883 ________________________________________ |
3. In the assessment year 1997-98 the assessee was again found to have not deducted tax from certain payments of consultancy/technical services. Following the same pattern as in the assessment year 1996-97, as mentioned in paragraph 2 above, tax under section 52 was levied at Rs. 3,032,687 and additional tax under section 86 of the Ordinance at Rs.2,183,535. The learned CIT(A), vide impugned order, dated 8-4-1999, upheld the orders.
4. The learned A.R. of the assessee has attacked the orders of the departmental officials on a number of grounds. The first and foremost ground taken by the learned A.R. is that the payments/charges in respect of professional /consultancy services subjected to tax by the Assessing Officer are not taxable at all. The learned A.R. of the assessee has referred to the provisions of section 11 of the Ordinance read with subsection (2) of section 12 of the Ordinance to support this argument. The learned A.R. of the assessee has also referred to the provision of clause (77A) of Part I to the Second Schedule to the Ordinance read with subsection (29) of section 2 of the Ordinance to lay a claim that such charges had been incurred in connection with the loan agreements for the project and could be treated as a part of interest charges which were exempt in the hands of recipients as income under clause (77A) of the Second Schedule which allows exemption on interest payable to a non-resident in such circumstances. The learned A.R. of the assessee has also referred to Article .11 of the Tax Treaty with the U.S., Article 14 of the Tax Treaty with the Mauritius and Article 15 of the Tax Treaty with the U.K. to lay a claim of exemption. The learned A.R. of the assessee further argued that the Assessing Officer was not justified in holding that the provisions of subsection (5) of section 12 superseded the Double Tax Treaties. The learned A.R. further elaborated that the departmental officials had wrongly placed reliance on a letter of C.B.R., dated 30-11-1982. which appears to be a reply to some queries and also dealt with US Treaty on technical services only.
5. The learned A.R. further submitted that the departmental officials had not even considered the nature of payments so as to ascertain whether such payments have been made in respect of technical services/consultancy services or other services. According to the learned A.R. of the assessee if the payments were held to be in respect of technical services paid to a non resident person, then these would be hit by the provision of section 80AA of the Ordinance. It was further elaborated by the learned A.R. of the assessee that the Assessing Officer had wrongly treated all the payments mentioned in the order as liable to deduction under section 50(3A) of the Ordinance. According to the learned A.R. if such payments were held to be technical fees, then these would not be taxable in Pakistan under the different Treaties. According to the learned A.R. of the assessee the services in question could not be called technical service at all and he referred to the meaning, of technical services given by Law Lexicon Dictionary, 1997 Edition. The learned A.R. of the assessee-further referred to the following three decisions of the Tribunal:---
(1) 1994 PTD 174 = 1994 SCMR 229,
(2) 1990 PTD (Trib.) 925 and
(3) 1995 PTD 877.
However, the first two cases are not found to be relevant to the issues before us whereas in the third case the Tribunal had dealt only with the provision of Double Tax Treaty with the U.S.A. According to the learned A.R. of the assessee the old Double Tax Treaty with the U.S.A. treated technical services as part of industrial and commercial profits.
5. While defending the departmental order on this account, the learned L.A., on the other hand, strongly contended that the services in question were technical services as the payments have been made for consultancy. The learned L.A. referred to the provisions of subsection (3A) of section 50 of the Ordinance to elaborate that the law provided for the deduction of tax from payments on account of technical services. The learned L.A. also referred to the explanation to subsection (5) of section 12. contending "that the consultancy would include all types of consultancy including technical services. The learned L.A. further argued that the contention of the assessee with regard to the exemption of such charges under the garb of interest by reference to subsection (29) of section 2 would be too broad an interpretation and by no stretch of mind such consultancy could be equated with interest. The learned D.R. at this point also suggested that the exemption provided by clause (77A) of the Second Schedule was in respect of the income otherwise chargeable under subsection (3) of section 12 of the Ordinance. It was also suggested by the learned D.R. that an examination of the agreement with the recipient may reveal the true picture of nature of these transactions. The learned L.A. further argued that the term other charges mentioned in subsection (29) of section 2 of the Ordinance could not include the consultancy services or other services.
6. The next argument of the learned A.R. of the assessee is that the provisions of section 52 and section 50 are not attracted in these circumstances at all and no services have been provided to the company and in some of the cases no payments have been made at all. It was submitted that the services have been provided by the professionals to the holding company outside Pakistan and in some of the cases the money has not changed hands; although the shares have been issued to the holding company. Another plea of the learned A.R. is that the provisions of subsec tion (4A) of section 50 are applicable to resident/recipients only whereas most of the payments in question have been made to non-resident. Another plea of the learned A.R. of the assessee is that the holding company, which is a non-resident company has been issued the shares in respect of services rendered to the holding company prior to the incorporation of unlimited company, the appellant in the present appeal. It was, however, conceded that such shares have been issued to the parent company who had made the payments for consultants for services rendered in connection with the loan agreement of the unlimited company with the lenders. The Assessing Officer at this point, however, submitted that some of these payments have been made to Lalpir Company which is resident company and that the assessee was obliged to deduct tax from such payments. According to the Assessing Officer the amounts steeled by the issuance of shares have not been taxed in this case. The learned A.R. of the assessee, however, disputed such observations of the Assessing Officer and submitted that the parent company is AES Pak. Gen. Holding incorporated in Maritius and not AES Pak Gen. (Pvt.) Company Ltd. or Lalpir Company. The Assessing Officer, however, drew our attention to the explanation of the assessee as recorded on Page-5 of the assessment order which states that the expenses born by the parent company M/s. AES Pak. Gen. (Pvt.) Company Ltd. (was the liability and responsibility of the company. The learned A.R., however, submitted that no such explanation was given to the Assessing Officer in the letter of the A.R. of the assessee, dated 6-11-1998.
7. The next argument of the learned A.R. of the assessee is that the assessee was not required to deduct any tax from the re-imbursement of expenses to Lalpir Company as Lalpir Company has made joint purchases and other expenditure as per the agreement. Thus, according to the learned A.R. of the assessee the Lalpir Company made payments on behalf of the assessee/appellant in the present case and deducted tax therefrom. It was further elaborated that the assessee reimbursed 50% of the' expenses which had been incurred jointly. Also the plea of the learned A.R. of the assessee is that the provisions of section 52 of the Ordinance could not be invoked if the recipient had already paid tax on such amount and he referred to a decision of Tribunal reported as 1997 PTD (Trib.) 1771. The learned A.R. further submitted that the assessments of Lalpir Company have already been made and also re-emphasis that Lalpir Company was acting as an agent of unlimited company, the assessee/appellant in the present case. The learned L.A., however, disputed such argument of the learned A.R. of the assessee with the submission that there was no relationship of principal or agent which could absolve the assessee of the responsibility to deduct tax.
8. We have summarised the facts as well as the arguments of both the parties in the preceding paragraphs. Before dilating upon the facts and arguments in detail, it would be useful to mention the relevant provisions of law in this order. The Assessing Officer has invoked, the provisions of section 52 of the Ordinance to hold the appellant as an 'assessee in default'. The relevant provisions of section 52 of the Ordinance reads as follows:--
"Section 52: Liability of persons failing to deduct or pay tax.---Where any person fails to deduct or collect, or having deducted or collected, as the case may be, fails to pay the tax as required by, or under, section 50, he shall, without prejudice to any other liability which he may incur under this Ordinance, be deemed to be an assessee in default in respect of such tax."
9. As evident from the above, section 52 refers to the omission to comply with the provisions of section 50 of the Ordinance. While passing the order under section 52 of the Ordinance under consideration the Assessing Officer has made specific reference to the provisions of sub-section (3A) of section 50 of the Ordinance and subsection (4) of section 50 of the Ordinance. Subsection (3A) of section 50 of the Ordinance requires any person, responsible for paying to a non-resident, any sum by way of fee for technical services, to deduct tax at the time of payment, at the rate specified in the First Schedule, which was specified at 15 % at the relevant time. There was a proviso to this subsection which enabled the Deputy Commissioner to give a certificate for deduction of tax at a lower rate, if the assessee is liable to pay tax, under any double tax treaty or convention, at a lower rate in that other country. The provisions of clause (a) of subsection (4) of section 50 read as follows:---
"Section 50(4)(a).---Any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person (being resident), (hereinafter referred to respectively as 'payer' and 'recipient'), on account of the supply of goods or for service rendered to, or the execution of a contract with the Government, or a local authority, or a company, or a registered firm or any foreign contract or consultant or consortium shall, deduct advance tax, at the time of making such payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any financial year shall, subject to the provisions of section.53, be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, if any, in which the 'said date', as referred to therein, falls, whichever is the later.
Provided that the provisions of this clause shall apply, mutatis mutandis, to any payment made on or after the first day of July, 1998, to a non-resident person on account of execution of a turnkey contract, a contract or sub-contract for designing, supply of plant and equipment and construction of power projects, a contract for construction, assembly or like project in, Pakistan or any other contract for construction or for services rendered other than that to which the provisions of subsections (3A) and (4A) apply.
Explanation.---For the purposes of clause (a) the expression 'supply of goods' includes both cash and credit purchases of goods by the payer, whether under a contract or not, on credit or in cash."
The provisions of subsection (3A) of section 50 of the Ordinance has already been summarised above whereas the provisions of subsection (4A) of section 50, section 52, section 72 and section 81 are not considered relevant to the facts of the appeal under consideration. It may also be mentioned that clause (b) of subsection (4) of section 50 of the Ordinance enabled the Commissioner to issue a certificate for nil deduction or deduction at a lower rate.
10. The learned counsel for the assessee has referred to the provisions of section 11 of- the Ordinance dealing with the scope of total income. Since the assessee is a company incorporated in Pakistan, the provisions of section 11 relating to a resident person, which read as follows, may be considered:---
Scope of total income.---(1) Subject to the provisions of this Ordinance, the total income,
(a)Who is a resident, includes 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; or
(iii)accrues or arises to him outside Pakistan during such year."
The learned A. R. of the assessee also referred to the provisions of subsection (2) of section 12 of the Ordinance which read as follows:---
"Section: 12(2): Any-income accruing or arising, whether directly or indirectly throughout or from:---
(a)any business connection in Pakistan;
(b)any asset, property, or source of income in Pakistan; or
(c)Pakistan, shall be deemed to accrue or arise in Pakistan.
Provided that, in the case of a business all the operations of which are not carried out in Pakistan, the income of the business deemed under this subsection to accrue or arise in Pakistan shall be only such part of the income as is reasonably attributable to the operations carried out in Pakistan."
Another contention of the learned A.R. of the assessee is that the fees paid by the assessee to the professionals/consultants were in the nature of interest, as defined in subsection (29) of section .2 of the Ordinance and he claims exemption under clause (77-A) of Part-I of the Second Schedule. Both these provisions read as follows:--
"Clause (77-A) of Part I of the Second Schedule.---Any interest payable to a non-resident being a foreign individual, company, firm or association of persons in respect of a foreign loan as is utilised for industrial investment in Pakistan provided that the agreement for such loan is concluded on or after the First day of February, 1991, and is duly registered with the State Bank of Pakistan. "
"Section 2(29); interest means interest payable in any manner in respect of any money borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of any credit facility which has not been utilised."
11. The provisions of section 80-AA of the Ordinance stipulate the charge of tax at 15% on gross amount in respect of any consideration by way of fees for technical services referred in the explanation to subsection (5) of section 12. Subsection (5) of section 12 of the Ordinance reads as follows:--
(a)a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside Pakistan or for the purposes of making or earning any income from any source outside Pakistan; or
(b)a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in Pakistan or for the purposes of making or earning any income- from any sources in Pakistan,
shall be deemed to accrue or arise in Pakistan.
Explanation----- For the purposes of this subsection clause (b) of section 24, subsection (2) of section 30, subsection (3A) of section 50 and section 80AA, '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 any construction, assembly or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'salary'. "
12. The contention of the learned A.R. of the assessee with respect to the exemption under double tax treaty cannot be considered as under the A provision of subsection. (3A) of section 50 of the Ordinance, the Deputy Commissioner is authorised to issue a. certificate in this regard and no such claim has been made by the assessee at any stage before us. Next we would like to deal with the issue of treatment of fees payable to non-resident as in the nature of interest under the provisions of subsection (29) of section. 2 of the Ordinance read with clause (77A) of Part I of the Second Schedule. We are not inclined to agree with the contention of learned A.R. on this issue. The plain reading of subsection (29) of section 2 shows that the interest as defined therein includes any service fee or other charge in respect of any credit facility which has not been utilised. This does not mean that all types of charges in respect of credit facility whether utilised or not utilised can be included in this definition of interest. Hence we reject the claim of exemption under clause (77A) of Part-I of the Second Schedule as laid by the learned A.R. of the assessee.
13. The learned A.R. of the assessee has also claimed that the income of the non-resident recipients is not taxable at all and he has referred the provisions of section 11 read with subsection (2) of section 12 of the Ordinance. The relevant portion of these two provisions has already been reproduced in paragraph-10 above. Under sub-clause (ii) of clause (a) of subsection (1) of section 11 the total income includes any income which is deemed to accrue or arise to a person in Pakistan whereas subsection (2) of section 12 lays down the situation in which certain income is to be deemed to arise. The case of the learned A.R. is that such income does not arise from any business connection of the recipient in Pakistan or any asset, property source of income in Pakistan or a transfer capital asset situated in Pakistan. What is required to be seen is whether the recipient is receiving such payments from a business connection in Pakistan. The learned A.R. was asked to provide copies of agreement with such recipients but none were provided. Hence, assessee's contention remain unsubstantial. However, we find that the A.R. of the assessee has also referred to a C.B.R. Circular, dated 23-7-1969 in Para. 5.5 of its letter, dated 6-11-1998 addressed to the D.C. I.T. which has not been considered.
14. The next contention of the learned A.R. of the assessee is that the services have been rendered by the non-resident recipient to a non-resident company any thus, no liability for deduction arises. A plain reading of subsection (3A) of section 50 shows that there is no such restriction and any person responsible for paying to non-resident any sum by way of fee for technical services in question, however, is whether the payments have been made to the non-resident for technical services and can they be called fee for technical services' within the meaning of subsection (5) of section 12 read with subsection (3A) of section 50 and section 80AA of the Ordinance. The nature of fee for technical services has been explained vitae an Explanation to subsection (5) of section, 12 of the Ordinance which has already been reproduced in Para. II above. Such Explanation mentions managerial, technical or consultancy services, the consideration for which would be called fee for technical services for these provisions of law. Again we feel handicapped by the non-filing of the agreements under which such services have been rendered or fee have been paid to ascertain the exact nature, of services. Although the agreements in respect of such services have, not been filed, the learned A.R. of the assessee has filed copies of some invoices. A perusal of such invoices shows that some of these payments have been made to Engineers such as Sargent Lundy LLC Engineers (see item No.9 of Para.2 above) whereas some others represent payments to what appears to be-fix firms of lawyers. In most of these invoices the nature of services has not been defined. As mentioned in Para.5 above, the learned D.R. has already suggested that an examination of the agreement with the recipient may reveal the true nature of such transactions. We also do not find any assistance from the letter of the learned A.R. of the assessee, dated 6-11-1998 on this issue. In these circumstances we are inclined to set aside the issue of the applicability of section 52- of the Ordinance on the payments made to the non-resident as mentioned at Serial Nos.4 to 10 in the assessment year' 1996-97 in Para.2 above. Similarly the issue of applicability of section 52 of the Ordinance to such transactions in the assessment year 1997-98 is also set aside. The Assessing Officer is directed to examine the nature of payments to each recipient in the light of the agreement and the relevant provisions of law to ascertain whether these represent fees for technical services as defined in subsection (5) of section 12 of the Ordinance. The Assessing Officer may also re-examine the residential status of Surridge & Becheeno as mentioned in Serial No.5 of Para. 2 as agitated by the A.R. of the assessee on Page. 2 , of the letter, dated 6-11-1998.
15. This brings us to the charge of provision of section 52 of the Ordinance to the payments made to the residents. The learned A.R. of the assessee has communicated-to the Assessing Officer on page 3 of its letter, dated 6-11-1998 that tax had been deducted from Pirzada Law Associates, Maqbool Ahmed, Noor Qureshi, Nespak and Surridge & Becheeno at 15 %. The Assessing Officer, however, has not considered this Explanation. The issue of payments to Surridge & Bechneeno has already been set aside by us with specific direction. The action of the Assessing Officer in respect of the payments made to Pirzada Law Associates, Maqbool Ahmed, Noor Qureshi and Nespak cannot be maintained as the claim of the assessee to have deducted tax has not been displaced. Hence the charge of tax in respect of these payments is deleted.
16. Finally we ace left with the issue of charge of tax in respect of the payments made by AES Lal Pir and the expenses born by parent company. With regard to the Lal Pir Company, it has been submitted as was also explained to the Assessing Officer vide letter, dated 6-11-1998, that the Lal Pir Company has already deducted tax at the time of making payments. These payments are said to have been made in respect of some common facilities and purchases made by Lal Pir Company. Such facilities and purchases have been made jointly on behalf of the assessee company as well as Lal Pir Company under an agreement and it is not disputed that the Lai Pir Company has already deducted tax. The case of the Revenue is that the assessee company should also deduct tax at the time of making the re imbursement to Lai Pir Company. We are not inclined to accept this reasoning of the department. The payments have been made by Lal Pir Company to the persons who provided services and such payments have been made partly on behalf of the assessee company. Since Lal Pir Company has already deducted tax from such payments, the assessee company could not hold to be responsible for making deductions at the time of re-imbursement of such amounts to Lal Pir Company. Hence the charge of tax in this respect is also deleted.
17. This brings us to the question whether the appellant should have deducted tax from the expenses born by parent company. The details of such expenses are not available, on record. One of the disputes in this regard is the residential status of the parent company. The department contends that the parent company is AES Pak. (Pvt.) Limited which is a resident company whereas the appellant states that the parent company is AES Pak Holding Inc. at Maritius. The learned A.R. of the assessee has filed a copy of the balance-sheet which confirms his statement. Before the departmental officials the contention of the assessee was that these payments represented re imbursement of expenses which did not include any element of profit and this could not be subjected to withholding tax. Another plea of the assessee was that no actual cash payments have been made to the parent company and that the amounts have been settled by way of issue of share. Although these contentions of the A.R., as contained in the letter, dated 6-11-1998 do not carry in great deal of force, we find that Assessing Officer has applied rate of withholding tax at 5.% which is applicable to a resident under subsection (4) of section 50 of the Ordinance. Since the parent company is non-resident company, the Assessing Officer was not justified in invoking provisions of subsection (4) of section 50 of the Ordinance which was applicable to residents only at the relevant time. Hence this action of the Assessing Officer of charging tax in respect of the parent company has to be annulled on this count. Another reason for annulling such action is that all the payments are not required to be subjected to withholding tax and in the absence of any details which would show the nature of payment, the provisions of sections 50 and 52 could not be applied.
18. As a result of the above discussions the appeals of the assessee succeed to the extent that the levy of tax in respect of resident recipients is vacated whereas in respect of non-resident recipients it is set aside. No finding is required to be given on the levy under section 86 of the Ordinance as this was said to be of consequential nature.
C.M.A./M.A.K./75/Tax(Trib.)Order accordingly.