R. As. Nos. 266/KB to 273/KB of 2002, decided on 24th June, 2002. VS R. As. Nos. 266/KB to 273/KB of 2002, decided on 24th June, 2002.
2002 P T D (Trib.) 2746
[Income‑tax Appellate Tribunal Pakistan]
Before Inam Ellahi Sheikh, Chairman and Muhammad Jahandar, Judicial Member
R. As. Nos. 266/KB to 273/KB of 2002, decided on /01/.
th
June, 2002. ‑‑‑‑Question of law‑‑‑Facts‑‑‑Inference or conclusion drawn from certain facts, which resultantly attract some provisions of law is a question of law.
(b) Income‑tax‑‑‑
‑‑‑‑Question of law‑‑‑Inference from the facts is a question of law‑‑ Nature and character of any income is essentially a question dependent upon establishing some facts appearing on the record and where the ultimate findings on the issue is an inference to be drawn from such, facts on the application of some principles of law, it may not be correct to say that the inference from the facts is not a question of law.
(c) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S. 136‑‑‑Reference to High Court‑‑‑Convention between Pakistan and Japan for Avoidance of Double Taxation, dated.1‑6‑1959, Art. VII, Cl. (3)‑‑‑Promissory Estoppel ‑‑‑Royalty‑‑‑Technical fee‑‑‑Bifurcation of declared royalty @ 1% into technical fee (25% of 1%) and Royalty (75% of 1%) which upheld by the Tribunal‑‑‑Questions for Reference whether Tribunal was lawfully justified to hold that some element of fee for technical services was hidden in the declared payment of royalty and whether Tribunal was lawfully justified in upholding the treatment of declared royalty payment by Assessing Officer, particularly when the same was violative of the established principle of Promissory Estoppel and unlawful interference with vested rights of the assessee/appellant‑‑ Validity‑‑‑Reference application for referring the matter to the High Court for opinion did not merit acceptance for the reasons firstly that the order said to have given rise to certain questions of law, by its nature was confined to the assessee only inasmuch as it was in his cases alone that an element of fee for technical services had been detected and assuming the matter was referred to the High Court, any decision thereon would result in resolving factual controversy and secondly, the questions as formulated were not of public importance having no general applicability to a variety of cases‑‑‑Reference applications did not appear to be maintainable which were rejected by the Tribunal.
1986 SCMR 1917; 2001 PTD 900 and 1970 SCMR 972 re l.
Mazhar Jaffri, A.R. for Appellant.
Bakht Zaman, D.R. for Respondent.
Date of hearing: 21st June, 2002.
ORDER
MUHAMMAD JAHANDAR (JUDICIAL MEMBER).‑‑‑This order shall dispose of above‑mentioned reference applications under section 130 of the Income Tax Ordinance, 1979 an outcome of a consolidated order dated 13‑2‑2002 passed by this Tribunal in I.T.As. Nos. 721, 720, 719, 718, 717, 1167, 1168/KB and 611/KB relating to assessment years 1990‑91, 1991‑92, 1992‑93, 1993‑94, 1994‑95, 1995‑96, 1996‑97 and 1999‑2000.
2. Relevant brief facts are that the appellant/assessee is a non resident company who entered into an agreement dated 31‑12‑1993 with Messrs Atlas Battery Limited, a Pakistani company, engaged in the business of manufacture of dry batteries and Atlas Battery Limited had to pay the assessee a royalty @ 1% and thereafter 2% of the sales of Atlas Batteries. The assessee owned 15 % share equity of Atlas Batteries. Technical assistance and formula was also to be provided to Atlas Battery. The assesses had been received royalty at the foresaid rates after obtaining necessary approval from the State Bank of Pakistan and enjoyed exemption from incidence. The Assessing Officer, however, found that the payments for the years under consideration, remitted by Atlas Battery to the assessee as royalty constituted also partly technical fee and estimated the element of fee for technical services at 25 % and royalty at 75 % of 1 % or 2 % as the case may be. The assessee assailed the assessment order before the learned CIT(A) who allowed the appeals The department preferred appeals before this Tribunal and through a consolidated order dated 13‑2‑2002 the departmental appeals were accepted. Now the aforementioned reference applications have been filed by the assessee urging the following question law having arisen may be referred to the High Court for opinion:‑‑‑
(i)Whether on the facts and circumstances of the case the Tribunal was lawfully justified to hold that some element of fee for technical services was hidden in the declared payment of royalty?
(ii)Whether on the facts arid circumstances of the case the Tribunal was lawfully justified in upholding the impugned treatment of declared royalty payment by the DCIT, particularly when the same was violative of the established principle of Promissory Estoppel and unlawful interference with vested rights of the appellant/applicant?
(iii)That whether on the facts and on the circumstances of ‑the case. the Tribunal was lawfully justified in holding that in terms of Clause (3) of Article VII of the Convention between Pakistan and Japan for Avoidance of Double Taxation dated 4‑6‑1959, bifurcation of 'declared royalty @ 1 % into technical fee (25 % of 1 %) and Royalty (75 % of 1 % )?
3. Learned A.R. maintained that the consolidated order of the Tribunal dated 13‑2‑2002 gives rise to mixed questions of law and facts. He added that apparently resolution of the issues involved show that certain facts have been determined giving rise to questions of facts only but factually the learned Tribunal has drawn certain inferences and conclusions hinging upon some facts, which attract application of law. He added that Superior Courts in such like cases have held that mixed questions of fact and law merit to be referable to the High Court for opinion. Additionally, he contended that the royalty which was paid to the assessee being exempt had through‑out been accepted by tax authorities and it was for the first time for the years under consideration, that the Assessing Officer picked up some element of fee for technical services statedly hidden in the payment of royalty. This action on the part of the Assessing Officer which incidentally has been upheld by the Tribunal is violative of the established principles of promissory estoppel amounting to an interference with the vested rights of the assessee. The learned Counsel referred to 1986 SCMR 1917. He further contended that the findings of the learned Tribunal in relation to the bifurcation of declared royalty @ 1 % into fees for technical services and royalty is a serious question of law of important nature, which should be referred to the High Court.
4. On the other hand, learned D.R. argued that the determination by the learned Tribunal of the royalty containing element of fee for technical services is purely a question of fact and needless to emphasis that only inferences have been drawn from., some facts. Undoubtedly the question of fact is always a question where the existence or non existences of facts are to be determined, therefore, the cases of the assessee do not give rise to any question of law let alone any serious question of public importance..
5. After hearing learned A.R. and D.R. and perusing the order passed by this Tribunal it is to be seen as to whether or not any question of law, particularly those mentioned by the assessee in the reference applications, do arise as a result of the consolidated order dated 13‑2‑2002. The contention of the Revenue that any determination by the Tribunal culminating in drawing inference from certain facts do not constitute question of law is somewhat open to question and skeptical. It has always been the predominant view of the Superior Courts, that inference or conclusion drawn from certain facts, which resultantly A attract some provisions of law are questions of law. The nature and character of any income is essentially a question dependent upon establishing some facts appearing on the record and where the ultimate findings on the issue is an inference to be drawn from such facts on the application of some principles of law, it may not be correct to say that in such cases the inference from the facts is not a question of law.
6. The Tribunal in the appeals by the department had found as under: --‑
There is no dispute over the admissibility of exemption on the payment of royalty. The department however, says that part of such fee, said to have been received as royalty, included an element of technical fee and the department has referred to the questions as reproduced , in paragraph 3 above to support this contention. The answers of these questions show that some technical assistance was provided by the assessee to APL but no fee for such technical services were said to have been paid.
There is said to be a separate agreement for technical services between these two parties but no payments have been made under that agreement so far. Thus it could be safely concluded that the department was justified in concluding that some element of fee for technical services was hidden in the payment of royalty. The assessee has submitted that the department was debarred by principle of estoppel since the exemption certificates were issued in the past. We are not inclined to agree with this line of arguments. As regard the question of inconsistency in the rate of royalty vis‑a‑vis the technical services again we are not impressed because the assessee itself has enhanced the rate of `royalty' from 1% to 2% in 1994. Another argument taken by the assessee is that the Assessing Officer has not made any allegation that the royalty exceeded to fair and reasonable amount in terms of paragraph 3 of Article VII of the Double Tax Agreement. Although there is no express findings of the Assessing Officer in this regard, the action itself implies that he considers the amount of royalty to be in excess a fair and reasonable amount. We feel that the learned Commissioner of Income Tax (Appeals) was not justified to hold that there was no material on record to show that such payments were made for any consideration except royalty. Hence we are inclined to accept these departmental appeals in all the years under consideration and we restore the orders of the Assessing Officer. All the appeals succeed accordingly.
7. It appears that the order of the Tribunal an extract whereof has been reproduced above tantamount to drawing of conclusions from certain facts attracting some principles of law. These conclusions as such do constitute questions of law. However, be that as it may, there is another important angle to see the controversy which cannot be ignored. In a judgment by Lahore High Court, in case, The Commissioner of Income Tax Messrs Immion International, Lahore", reported as 2001 PTD 900, it is provided that in case the controversy involves facts, which are absolutely confined to an assessee no substantial question of law can be said to have arisen. Where the answer to a question is applicable to a certain assessee only and is not of general application, a reference to the High Court need not be made. It further provides that the scheme of the Income Tax Ordinance contemplates a reference of a question only which is of general interest and importance and issues which are neither of general recurrence and importance do not constitute substantial questions of law. The purpose of reference under the Ordinance is an enunciation of principle of law for the future guidance of the Revenue. The Revenue as well as the Tribunal need to understand the precise nature of jurisdiction of the High Court as also the purpose far which it has been conferred. Without an iota of doubt, this jurisdiction which is advisory in nature should be invoked only when the issues raised before and decided by the Tribunal were of substantial nature and of general application to a sizeable classes of assessees. This jurisdiction is essentially different from appellate or the revisional jurisdiction. The purpose of reference is not to get a decision for or against a party from the High Court and the practice on the part of the Revenue or the assessees, which at times is aided by the Tribunal to refer this case needs to be discouraged. A reference has also been made in the aforesaid judgment to a case decided by the Supreme Court reported as 1970 SCMR 972.
8. Viewing the nature of the controversy in the context of above mentioned judgment of the Lahore High Court, it appears that the; request of assessee made through instant reference applications for referring the matter to the High Court for opinion does not merit acceptance for the reasons firstly that the order said to have given rise to certain questions of law, by its nature is confined to the assessee only inasmuch as it is in his cases only that an element of fee for technical services has been detected and assuming the matter is referred to the High Court, any decision thereon would result in resolving factual controversy and secondly, the question as formulated are not of public importance having no general applicability to a variety of cases.
9. The learned A.R. made reference to 1986 SCMR page 1917 to emphasise the application of the principle of Promissory Estoppel suffice it to say that the precedent law is distinguishable which essentially dealt with the question of operation of certain legislation as to whether or not the same was retrospective. It is hardly of any avail.
10. In these circumstances, the reference applications do not appear to be maintainable which in result are rejected.
C.M.A./M.A.K./415/Tax(Trib.)
Applications rejected.