(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.136(1)(2)‑‑‑Reference to High Court‑‑‑Questions proposed for reference must be questions of law arising out of the order of the Tribunal‑‑‑Principles.

A "point of law" could not be equated with the expression "question of law" and that to form a question of law in real sense the question referred must be a disputed or disputable question of law. To get decision from the High Court the question referred should be problematic or debatable question and not an obvious or simple on the point of law. A question of law not relating to general interest but relevant only in the case‑of an individual assessee for that very assessment year, does not fall within the ambit of question of law to be referred to the High Court for its opinion under section 136(1) or 136(2) of the Income Tax Ordinance, 1979. The reply to a question referred to the High Court in the affirmative or negative should normally settle a pattern of guidance both for the Revenue as well as the assessee besides the Tribunal who had sought the advice in the first instance, therefore, the practice on the part of Revenue or the assessee which, at times, is aided by the Tribunal to treat the High Court as Appellate Court needs to be disapproved. Factual controversies should not be allowed to be converted into legal issues only by dint of draftsmanship or employment of legal language in a style which is usual to the framing of such questions. In case Tribunal is not certain if the question framed raises a substantial legal issue, it must refuse to make a reference as in that case the assessee or the Revenue will have to approach under section 136(2) and satisfy the High Court before admission that the question raised/framed is of substance. Every question of law need not be referred to the High Court but only a question having some substance needed to be so referred. Only those questions of law which arise out of order of Tribunal and are of general importance are the questions of law which could be referred to the High Court under section 136(1) or 136(2) of the Income Tax Ordinance, 1979.

Commissioner of Income‑tax, Lahore v. Messrs Immion Internation, Lahore 2001 PTD 900; CIT v. Basanta Kumar Agarwalla (1983) 140 ITR 418; Lungla (Sylhet) Tea Co. Ltd. v. Commissioner of Income‑tax, Dacca Circle, Dacca 1970 SCMR 872 and Erum Ghee. Mills (Pvt.) Ltd. v: Income‑tax Appellate Tribunal, Lahore 1998 PTD 3835 ref.

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

‑‑‑‑S. 136(1)(2)‑‑‑Reference to High Court‑‑‑Findings of fact‑‑‑Finding that some element of fee for technical services was hidden in the declared payment of royalty to the assessee was a finding of fact based on record and did not involve any legal implication; if from any angle the assessee was entitled to claim benefit of principle of promissory estoppel, then it was for the Department to examine whether on given facts such a case was made out or not and there was no dispute that the assessees were not liable to pay tax on technical services fee, and the question whether an amount equivalent to 25 % of royalty received by the assessee was actually paid as hidden technical services fee to the assessee was nothing but a question of fact which had already been answered, by the Deputy Commissioner of Income‑tax upon examination of relevant record and for valid reasons‑‑‑No question of law having been raised, application for reference was dismissed by the High Court.

1986 SCMR 1917; PLD 1991 SC 546; 1998 SCMR 1404; 2001 PTD 991; 1970 SCMR 872; 2001 PTD 900; 2001 PTD 3090; Commissioner of Income‑tax, Lahore v. Messrs Immion Internation, Lahore 2001 PTD 900; CIT v. Basanta Kumar Agarwalla (1983) 140 ITR 418; Lungla (Sylhet) Tea Co. Ltd. v. Commissioner of Income‑tax, Dacca Circle, Dacca 1970 SCMR 872 and Erum Ghee Mills (Pvt.) Ltd. v. Income‑tax Appellate Tribunal, Lahore 1998 PTD 3835 ref.

Mazhar Jafri for Applicant.

Aqeel Ahmed Abbasi for Respondent.

ORDER

ANWAR ZAHEER JAMALI, J.‑‑‑Through these eight applications under section 136(2) of the Income Tax Ordinance, 1979, the assessee, a non‑resident company, has raised following identical questions of law for opinion of this Court:

"(i)??????? Whether on the facts and circumstance 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 and 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 principles of promissory estoppel and unlawful interference with the vested rights of the appellant/applicant?

(iii)?????? Whether on the facts and circumstances 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 4‑6‑1999 bifurcation of declared royalty @ 1% (or 2% for some years) into 25% technical fee (25 % of 1 %) and royalty at 75 % (75 % of 1%)?"

2. Briefly stated the relevant facts of the case are that the applicant, a company incorporated under the law of Japan and also assessed to the Income Tax in Japan, in pursuance to notices under section 56 of the income Tax Ordinance, 1969 and consequent proceedings were subjected to Income Tax in Pakistan for the assessment years 1990‑91 to 1994‑95, to respect of technical services fee. The case of applicant is that they had entered into an agreement with Messrs Atlas Battery Limited in the business of manufacture of dry batteries for vehicles in Pakistan. Under the agreement up to 31^st December 1993; they were paid royalty at 1% on the sales of Atlas Battery Ltd. and thereafter under a new agreement at 2%. Additionally, applicant also owned 15% share equity of Atlas s Battery Ltd: The royalty received by the applicant was allowed exemption up to assessment years 1989-90, thus, such remittance of amount of royalty was made by Atlas Battery Ltd. to Japan after obtaining necessary approval from the State Bank of Pakistan and upon issuance of exemption certificate by the Income Tax Authority. Such practice continued up to the year 1994‑95. However, for the years 1995‑96 certificate required for the purpose of remittance of royalty was issued on 5‑1‑1995 which contained condition of assessment:

3. The Deputy Commissioner of Income Tax (DICT) initiated assessment proceedings in respect of assessment years 1990‑91 to 1994‑95 by issuing notices to the applicant under section 56 of the Income Tax Ordinance, 1979, and after obtaining explanations from the applicant, while recording the assessment orders he came to the conclusion that the payments remitted by Atlas Battery Ltd. to the applicant in Japan as royalty were partly in the nature of hidden technical services fee. He estimated the element of fee for technical services at 25 percent of the declared receipts of royalty by the applicant in all the years.

4. The applicant was accordingly subjected to levy of income‑tax on such technical services fee in the ratio of 25% of the royalty payments received by them during the relevant years. In the appeals preferred by the applicant under section 129 of the Income Tax Ordinance, 1979 the Commissioner of Income Tax (Appeals) vacated such assessment orders by allowing the appeals preferred by the applicant. Against the orders passed in appeals DCIT Circuit C‑12, Companies‑1, Karachi, preferred second appeals before the Income Tax Appellate Tribunal, (ITAT) to impugn the findings of the Commissioner of Income Tax (Appeals). The learned ITAT by its consolidated order, dated 13‑2‑2002 allowed the departmental appeals whereby vacating the order of Appellate Court and restoring the assessment orders of the Assessing Officer/DCIT. The applicant thereafter made application under section 136(1) of the Income Tax Ordinance, 1979, before the ITAT praying therein for making reference of the proposed questions to this Court for its opinion but said application was also dismissed by Bench of ITAT through consolidated order, dated 24‑6‑2002, which resulted in filing of present applications under section 136(2) of the Income Tax Ordinance, 1979.

5. Mr. Mazhar Jafri, learned counsel for the applicant vehemently argued that the three identical questions proposed in all these applications under section 136(2) of the Income Tax Ordinance, 1979, are mixed questions of law and facts, thus, the order of ITAT refusing to refer such questions for opinion of this Court is illegal. He contended that the questions referred for opinion of this Court are of general importance, therefore, these references may be admitted for regular hearing and may be disposed of after detailed examination of all the legal aspects involved in the matter. He contended that the question of promissory estoppel in the light of judgments reported as 1986 SCMR 1917, PLD 1991 SC 546, 1998 SCMR 1404 and 2001 PTD 991 was a question of law, so the question as to determination of ratio of 25 % of the royalty towards technical services fee which should have been referred to High Court for its opinion but learned ITAT illegally dismissed the application under section 136(1) of Income Tax Ordinance, 1979.

6. Conversely, Mr. Aqeel Ahmed Abbasi, Advocate for the respondent contended that the scope of section 136(2) of the Income Tax Ordinance, 1979, is limited and it is not that in every case where a reference is made, this Court is bound to answer the question. In support of his argument learned counsel placed reliance upon the cases reported as 1970 SCMR 872 and 2001 PTD 900. In. reply to the plea of promissory estoppel learned counsel contended that in income tax assessment matters the principles of promissory estoppel and res judicata are not applicable as held in the case reported as 2001 PTD 3090.

7. Before we proceed to examine the only crucial point involved in these applications at this stage viz., whether the questions proposed are questions of law arising out of the order, dated 13‑2‑2002 passed by ITAT, it will be advantageous to discuss some case‑law referred by the learned counsel wherein this aspect has been critically examined. In the case of Commissioner of Income Tax Lahore v. Messrs Immion Internation, Lahore (2001 PTD 900) relying on the case of CIT. v. Basanta Kumar Agarwalla (1983) 140 ITR 418 it was held that a "point of law" could not be equated with the expression "question of law" and. that to form a question of law in real sense the question referred must be a disputed or disputable question of law. It was further held that to get decision from the High Court the question referred should be problematic or debatable question and not an obvious or simple on .the point of law. It was also observed that a question of law not relating to general interest but relevant only in the case of an individual assessee for that very assessment year, does not fall within the ambit of question of law to be referred to this Court for its opinion under section 136(1) or 136(2) of the Income Tax Ordinance, 1979. It was also added that the reply to a question referred to this Court in the affirmative or negative should normally settle a pattern of guidance both for the Revenue as well as the assessee besides the Tribunal who had sought the advice in the first instance, therefore, the practice on the part of Revenue or the assessee which, at times, is aided by the Tribunal to treat this Court as Appellate Court needs to be disapproved. Factual controversies should not be allowed to be converted into legal issues only by dint of draftsmanship or employment of legal language in a style which is usual to the framing of such questions. It was further added that in eaase Tribunal is not certain if the question framed raises a substantial legal issue, it must refuse to make a reference as in that case the assessee or the Revenue will have to approach under section 136(2) and satisfy this Court before admission that the question raised/framed is of substance. In the same case judgment of Honourable Supreme Court in the case of Lungla (Sylhet) Tea Co. Ltd. v. Commissioner of Income Tax Dacca Circle, Dacca (1970 SCMR 872) was also referred wherein it was held that every question of law need not be referred to the High Court but only a question having some substance needed to be so referred. In the case of Iram Ghee Mills (Pvt.) Ltd. v. Income Tax Appellate Tribunal Lahore 1998 PTD 3835 also it was held that only those questions of law which arise out of order of Tribunal and are of general importance are the questions of law which could be referred to the High Court under section 136(1) or 136(2) of the Income Tax Ordinance, 1979.

8. Keeping in sight above discussed parameters we have carefully considered the arguments advanced by the learned counsel and with their assistance gone through the impugned order, dated 13‑2‑2002 as well as the other order, dated 24‑6‑2002, whereby ITAT refused to refer the proposed questions for opinion of this Court. From the material available before us it is clear that there is no dispute as regards to the fact that the royalty payable to the applicant/assessee under the agreement is exempted from tax. Further it has not been disputed by the learned counsel for the applicant that the applicant has a separate agreement for providing technical assistance to Messrs Atlas Battery Ltd. which remained in force at the relevant time. He also, did not dispute that the income of applicant in the shape of technical services fee is taxable but qualified it with the statement that it has not been paid to the applicant as yet.

9. On the basis of above noted undisputed facts when we peruse the proposed questions one by one then it will be seen that the Question No.1 is purely a question of fact as the finding of DCIT, upheld by ITAT, that some element of fee for technical services was hidden in the declared payment of royalty to the applicant is a finding of fact based on record and it does not involve any legal implication. As regards to the Question No.2, again the position is same inasmuch as even if from any angle the applicant was entitled to claim benefit of principle` of promissory estoppel then it was for the DCIT to examine that whether on facts such case was made out or not. Coming to theist question with regard to the payment of royalty and its bifurcation at 25 percent towards technical. services fee, and 75 percent towards royalty, once again it will, be seen that there is no dispute that the applicants are not liable to pay tax on royalty while they are liable to pay tax on technical services fee. The question whether an amount equivalent to 25% of royalty received by the applicant was actually paid as hidden technical services fee to the applicant is nothing but a question of fact which was answered by the; DCIT upon examination of relevant record and for valid reasons' contained in his assessment order, we are not in agreement even with the observations of learned ITAT contained in paragraph seven of its order, dated 24‑6‑2002 that certain conclusions in its order, dated 13‑2‑2002 constituted any element of question of law.

10. The upshot of the above discussion is that order, dated 24‑6‑2002 is upheld and consequently these reference applications are dismissed.

11. Forgoing are the reasons for the short order, dated 18‑4‑2003.

M.B.A./J‑60/K??????????????????????????????????????????????????????????????????????? Applications dismissed