(On appeal from the judgment of the Peshawar High Court, Peshawar, dated 4-1-2000 passed in Writ Petition No. 1278, of 1999).

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

----S.50(5)---S.R.O. 593(I)/91, dated 30-6-1991---Constitution of Pakistan (1973), Arts. 247 & 185(3)---Leave to appeal was granted by the Supreme Court to consider whether the assessee was not entitled for exemption of advance tax under S.50(5), Income Tax Ordinance, 1979 on the raw material which was imported from abroad for the purposes of manufacturing cooking oil and vegetable ghee in the factory situated in Tribal Area where admittedly the Income Tax Ordinance, 1979 had not been made applicable within the purview of Art. 247 of the Constitution; that whether the income arising out of the products of the assessee was not taxable if the finished product was sold by it in the open market where the Income Tax Ordinance, 1979 was applicable and that whether the certificates issued in favour of the assessee by the Income Tax Authorities exempting it from the payment of tax were not in. consonance with the provisions of S.R.O. 593(I)/91 dated 30-6-1991.

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

----Ss. 2(16)(24)(32)(40), 9(1), 11, 12, 56 & 61---Constitution of Pakistan (1973), Arts. 247 & 199---Constitutional petition before High Court under Art. 199 of the Constitution assailing the issuance of notices under Ss.56 & 61 of the Income Tax Ordinance, 1979 to a Company doing business in the Tribal Area---Maintainability---Company located in the Tribal Area where the Income Tax Ordinance, 1979 had not been extended by virtue of Art. 247 of the Constitution and as such was not a resident of taxable area, thus would not be amenable to the provisions of the Income Tax Ordinance, 1979---Provision of S.11, Income Tax Ordinance, 1979 provided that if a "person", which included a "Company", was a non-resident and its income was neither received nor accrued or arisen in taxable territory of Pakistan during an income year, if would not be taxable as the same would not fall within the ambit of the Income Tax Ordinance, 1979---Issuance of notices under Ss. 56 & 61 of the Income Tax Ordinance, 1979 to the Company, were therefore without any lawful authority---Income Tax Ordinance, 1979 having not been extended to the Tribal Area, none of its provisions would apply thereto, and as such any action taken or purportedly to be taken under any provision of the Income Tax Ordinance, 1979 with regard to the business in the Tribal Area would be without jurisdiction and without any lawful authority and in such circumstances the jurisdiction of the High Court under Art. 199 of the Constitution could be invoked-- Principles.

Subsections (16), (24), (32) and (40) of section 2 of Income Tax Ordinance, 1979 are interconnected and interlinked and have to be read together. Company is a juristic person, its income and its resident are relevant factors which would, determine its taxability or otherwise. Company as per its definition is a Company defined in Companies Ordinance, 1984 and is a body corporate formed under any law for the time being in force. Assessee, in the present case is a private Company, incorporated under the Companies Ordinance, 1984 and has its registered office at Malakand Agency, thus it falls within the meaning of the Company as defined in subsection (16) of section 2 of the Ordinance. Income .of which accrues/arises or received in taxable area under any provision of the Ordinance would be deemed to be income within the meaning of `income' as defined in subsection (24) of section 2 of the Ordinance. As far the management and control of the Company is concerned, clause (c) of subsection (40) of section 2 of the Ordinance provides that any Company, the control and management whereof is situated wholly in Pakistan would be resident of Pakistan. The question whether the Company is being controlled/managed from a taxable area or from a non-taxable area is a factual controversy and except for bald allegation by the Income Tax Authorities there is no evidence to show that the Company has any office at Peshawar wherefrom it is doing its business. On the contrary, the documents placed on record by the assessee show that the alleged office of the Company is in the name of uncle and father of Chief Executive of the Company, who are tenants of the Municipal Corporation and are running their independent business as Fruit Commission Agents and thus have no concern with the Company's affairs. As far as maintaining of account in Bank of Khyber, Peshawar is concerned, as there is no corporate branch of any bank in Tribal Area, therefore, Company was obliged to open an account in Corporate Branch of the Bank at Peshawar for opening letter of credit for import of Palm Oil.

Undoubtedly, the Company is located in the Tribal Area, where Ordinance has not been extended by virtue of Article 247 of the Constitution and as such it is not a resident of taxable area, hence it would not be amenable to the provisions of the Ordinance. Section 9 of the Ordinance is a charging section which provides that income-tax shall be charged or levied for every assessment year in respect of the total income of the income year from every person at the rates specified in the First Schedule. Term `person' as defined under section 2(32) of the Ordinance includes in its fold a Company besides an individual, a firm, a Hindu undivided family, a local authority, an association of persons, and every other juridical person and its liability to pay tax on the total income is laid down in section 11 of the Ordinance, according to which a resident assessee had to declare all his/its income from whatever source derived, which is received or deemed to have been received in Pakistan or which accrues or arises or is deemed to accrue or arise to him/it in Pakistan or accrues or arises to him/it outside Pakistan during the assessment year. Likewise it provides that in case of non-resident, total income would include all income from whatever source it is derived/received or deemed to have been received in Pakistan or accrues or arises or is deemed to accrue or arise to him/it in Pakistan during the assessment year. The income which is deemed to accrue or arise in Pakistan has been mentioned in section 12 of the Ordinance. It is thus manifest and clear from section 11 of the Ordinance that if a person, which includes a Company, is a non-resident and its income is neither received nor accrued or arisen in taxable territory of Pakistan during an income year, it would not be taxable as the same would not fall within the ambit of the Ordinance. The Company in the present case being situated in Tribal Area where Ordinance has not been extended within meaning of Article 247(3) of the Constitution, as such, would stand exempt from payment of income-tax. The Income Tax Authority itself has conceded this fact by issuing Exemption Certificates to the Company from time to time, hence issuance of notices under sections 56 and 61 of the Ordinance was without any lawful authority. Since the Ordinance has not been extended to Tribal Area, therefore, none of its provisions would apply thereto, and as such any action taken or purportedly to be taken under any provision of the Ordinance with regard to the business in the Tribal Area would be without jurisdiction and without any lawful authority and in such circumstances the jurisdiction of the High Court under Article 199 of the Constitution could be invoked.

Malik Muhammad Nawaz, Advocate Supreme Court and Raja Abdul Ghafoor, Advocate-on-Record for Appellant.

S. M. Sardar Khan; Senior Advocate Supreme Court and Malik Muhammad Qayyum, Advocate Supreme Court for Respondent No. 1.

Respondents Nos.2 to 7: Ex parte.

Raja M. Irshad, D.A.-G. (on Court's notice).

Dates of hearing: 2nd January and 10th January, 2003.

JUDGMENT

MIAN MUHAMMAD AJMAL, J.---This appeal by leave of the Court is directed against the judgment of the Peshawar High Court, Peshawar, dated 4-1-2000, whereby Writ Petition No. 1278 of 1999 of respondent No.1, was accepted, and it was held that the Income Tax Ordinance, 1979 (hereinafter to be called the Ordinance) is not applicable to Malakand Division within the contemplation of Article 247 of the Constitution, the notices issued to respondent No. 1 under sections 56 and 63 of the Ordinance were declared to be illegal, without lawful authority and the appellant and respondents No.2 to 7 were directed to release the raw material of respondent No. 1 without deducting two per cent of withholding tax the levy whereof was declared unlawful and without jurisdiction.

2. Brief facts as asserted are that respondent No. 1/Company haying its registered office at Dargai Malakand Agency, carries on business of manufacturing, processing and sale of Venaspati Ghee and Cooking Oil, for which it imports edible oil as raw material for manufacturing the said products. The Company opened a letter of credit for the import of about 1745 metric ton of RBD Palm Oil, out of which 245, M.T. has reached the country at Port Muhammad Bin Qasim, Karachi through Bill of Lading, dated 16-6-1999, which was to be ex-bonded within a specific period. Vide S.R.O. No.824(I)/99, dated 8-7-1999, following amendment was made in the Second Schedule to the Ordinance with

"In the aforesaid Schedule, in Part II, for clause (6AA), the following shall be substituted, namely:-

(6AA) In respect of any edible oils imported as raw material by an 'industrial undertaking exclusively for its own use, the tax under subsection (5) of section 50 shall be collected at the rate of two per cent of the value of such edible oils as increased by customs-duty and sales tax, if any, levied thereon."

In pursuance of the above Notification, the Deputy Commissioner, Income Tax Companies Circle 1; Peshawar/respondent No.4 issued a notice bearing no date, to the Company/respondent No. 1, under section 56 of the Ordinance directing it to submit Income Tax Returns for the Assessment Year 1998-99 which was duly replied by the Company/respondent No.1 on 1-3-1,999 stating that since the Ordinance has not been extended to Dargai, Malakand Agency situated in Provincially Administered Tribal Areas of N.-W.F.P., as such it is non taxable area, thus, notice was illegal and without any lawful authority. Thereafter, respondent No.4 issued another notice, dated 15-6-1999 to respondent No.1 under section 61 of the Ordinance requiring it to produce its accounts record and in case of failure of compliance of the said notice, ex parte assessment under section 63 of the Ordinance would be made and the Company would also be liable to pay penalty. Respondent No. 1 apprised the respondents of the exact position and also requested that similar certificate of exemption from payment of income -tax as issued earlier in 1998 and 1999 be granted in its favour. Thereafter, Assistant Collector Headquarter-I, Collectorate of Customs, Port Muhammad Bin Qasim, Karachi wrote the following letter, dated 24-7-1999 to the Assistant Collector, Customs and Central Excise, Mardan:--

"Sub: Verification of Income Tax Exemption Messrs Gul Cooking Oil Vegetable Ghee (Pvt.) was allowed safe transportation of RBD palm oil vide IGM Nci.284 of 1999 and 300 of 1999. On scrutiny of ex-bond Bs/E No.43 of 1999, dated 30-6-1999, and 14 of 1999, dated 17-7-1999 processed at the Peshawar Collectorate, it is found that goods were cleared but with short payment of Sales Tax. However short payment of Sales Tax was recovered amounting to Rs.74240 vide Cash No.266 of 1999 and 267 of 1999, dated 24-7-1999. It is also found, that goods are discharged without payment of Income Tax despite leviable under S.R.O. 824(I)/99, dated 8-7-1999 applicable from the 1st July, 1999.

The representatives of importer are insisting that their imports are exempt from payment of 2%. The S.R.O. does not exclude payment of income tax on the import of edible oil by industrial importers, located in the jurisdiction of Peshawar Collectorate. Moreover, other industrial importers are paying income-tax @ 2% as the provision of Income Tax Ordinance. It is requested that the concerned staff engaged in the assessment in Peshawar Collectorate may be advised to review their assessment keeping in view the above facts and this Collectorate may kindly be apprised regarding claim of income-tax exemption by Messrs Gul Cooking Oil & Vegetable Ghee (Pvt.) Ltd. Fax confirmation

The Assistant Commissioner of Income Tax, Peshawar addressed letters, dated 20-11-2000 and 8-4-2001 to the Company in the light of afore -quoted letter and directed it to explain the trading of edible oil in the taxable area in violation of the conditions of CGO. The letters were duly replied by the Company through its Chartered Accountants vide letter, dated 21-12-2000, wherein it was explained that the vehicle carrying Palm Oil destined for the Company was intercepted by the Customs Authorities at Karachi, which was later on released and the same reached the Company on 30-6-2000.

3. Respondent No.1/Company challenged the notices issued to it under sections 56 and 61 of the Ordinance through Writ Petition No. 1278 of 1999 which has been accepted by a learned Division Bench of the Peshawar High Court, Peshawar vide its judgment, dated 4-1-2000 as stated above in para 1. The appellant assailed the said judgment through a petition for Leave to Appeal No. 918 of 2000 before this Court wherein leave was granted on 30-10-2000 to consider the following questions:-

"(i) As to whether respondent No.1 is not entitled for exemption of advance income-tax under section 50(5) of the Ordinance on the raw material which is imported from foreign country for the purposes of manufacturing cooking oil and vegetable ghee in the factory situated in Tribal Area where admittedly the Ordinance has not been made applicable within the purview of Article 247 of the Constitution of Islamic Republic of Pakistan?

(ii) As to whether the income arising out of the products of the respondent is not taxable if the finished product is sold by it in the open market where the Ordinance is applicable?

(iii) As to whether certificates issued in favour of the respondent by the Income Tax Authorities exempting it from the payment of the tax were not in consonance with the provisions of S.R.O.593(I)/91, dated 30th June, 1991?"

4. Learned counsel for the appellant contended that respondent No.1 did not submit the return of income for the assessment year 1998-99, therefore, notice under section 56 of the Ordinance was issued to it for filing income tax return for the said period. He submitted that though factory is situated in a Tribal Area where the Ordinance has not been extended within the purview of Article 247 of the Constitution yet as it is being controlled and managed by its Directors from their office at Peshawar and it is carrying on its business from the taxable area and income accruing, arising or received in taxable area is liable to income- tax. He referred to subsections (16), (24), (32) and (40) of section 2 of the Ordinance to contend that the Company has its office at Peshawar, and it transacts in business and sells its product in open market from the said office, thus, derives its income in taxable area, therefore, it is liable to pay income-tax. He further contended that under the Ordinance alternate remedy of appeal was available but without exhausting the same, the respondents filed writ petition which was not competent.

5. Learned counsel for the respondent No.1 while supporting the impugned judgment controverted the aforesaid arguments and contended that the respondent-Company has its registered office at. Dargai, Malakand Agency and is exclusively doing its business in the Tribal Area where the Ordinance has not been extended, therefore, notice under section 56 of the Ordinance and subsequent notices were unwarranted and without any 1lwful authority and there is no question of any income accruing in the taxable area. He submitted that the Company has neither any office at Peshawar nor any business is being transacted by it from the alleged office. He urged that the appellant in view of the aforesaid position, has been issuing Exemption Certificates himself from time to time. He argued that the plea of alleged office at Peshawar was never taken before the High Court at any stage, therefore, the appellant cannot set up a new case before this Court.

6. The learned Deputy Attorney General contended that since the factual controversy with regard to the location of the office of the Company and its taxability is involved, therefore, the case needs to be processed by the Income Tax Authorities to first ascertain whether the Company has its office at Dargai or Peshawar and as to whether the Company is deriving its income from the Tribal Area or from the taxable area.

7. We have heard the learned counsel for the parties at length and have perused the record with their assistance. The respondent is a private limited company incorporated under the Companies Ordinance 1984 as per certificate of incorporation, dated 13-11-1997, and is deriving/generating its income from the factory located at Dargai Tribal Area, where admittedly the Ordinance has not been extended within the contemplation of Article 247 of the Constitution and is thus not a taxable area. The questions involved in the case pertain to the taxability or non- taxability of the income of the Company and whether the same is being managed and controlled from its registered office at Dargai, Malakand Agency Tribal Area, or from its alleged office at Peshawar, a taxable area and whether it derives its income from taxable area or from non taxable-area. To resolve the said questions, reference may be made to subsection (16), (24), (32), (40) of section 2 and sections 9(1), and 11 of the Ordinance which read as follows:--

Section 2 "(16) "Company" means-

(a) company as defined in the Companies Ordinance, 1984(XLVII of 1984); or

(b) a body corporate formed by or under any law for the time being in force; or

(bb) a trust formed by or under any law for the time being in force; or

(c) a body corporate incorporated by or under the law of a country outside Pakistan relating to incorporation of companies; or

(cc) a modaraba as defined in the Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980 (XXXI of 1980);

(d) the Government of a Province;

(e) a foreign association, whether incorporated or not, which the Central Board of Revenue may, by general or special order, declare to be company for the purposes of this Ordinance for such assessment year or years (whether commencing before, on or after the first day of July, 1979) as may be specified in the said order.

"(24) Income" includes---

(a) any income, profits or gains, from whatever source derived, chargeable to tax under any provision of this Ordinance under, any head specified in section 15;

(b) any loss of such income, profit or gains; and

(c) any sum deemed to be income, or income accruing or arising or received in Pakistan under any provision of this Ordinance.

but does not include, in the case of a shareholder of a domestic company, the amount representing the face value of any bonus shares or the amount of any bonus declared, issued or paid by the, company to its shareholders with a view to increasing its paid-up share-capital;

(32) "person" includes an individual, a firm, an association of persons, a Hindu undivided family, a company, a local authority and every other artificial juridical person;

"(40) "resident", in relation to any income year, means-

(a) an individual, who-

(i) is in Pakistan in that year for a period of, or for periods amounting in all to, one hundred and eighty-two days or more; or

(ii) is in Pakistan for a period of, or periods amounting in all to, (ninety) days or more in that year and who, within the four years preceding that year, has been in Pakistan for a period of, or periods amounting in all to, three hundred and sixty-five days or more; or

(b) a Hindu undivided family, firm, or other association of persons, the control and management of whose affairs is situated wholly or partly in Pakistan in that year; or

(c) a Pakistani company or any other company, the control and management of whose affairs is situated wholly in Pakistan in that year;

(9) Charge of income-tax: (1) Subject to the provisions of the Ordinance, there shall be charged, levied and. paid for each assessment year commencing on or after the first day of July, 1979, income-tax in respect of the total income of the income year or years, as the case may be, of every person at the rate or rates specified in the First Schedule:

Provided that where, by virtue of an amendment in the First Schedule, the rate of income-tax, for the purpose of assessment in respect of any assessment year, is altered, the rate of income tax existing prior to the said alteration shall continue to apply in respect of any assessment year to which the said existing rate is applicable.

(1-A).....

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

(11) Scope of total income.---(1) Subject to the provisions of this Ordinance, the total income, in relation to any assessment years, of a person;--

(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;

(b) who is a non-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.

(2) Notwithstanding anything contained in subsection (1), where any amount consisting of either the whole or a part of any income has been included in the total income of a person on the basis that it has accrued or arisen, or is deemed to have accrued or arisen to him in any year, it shall not be included against in his total income on the basis that it is received or is deemed to be received, by him in Pakistan in any other year".

According to the learned counsel for respondent No.1, the company has its registered office at Dargai, Malakand Agency, wherefrom its affairs are being managed and controlled and it has no other office anywhere in Pakistan. The Company claimed immunity from tax on the ground that it is deriving income from a non-taxable area and is being controlled and managed from its aforesaid office in non-taxable area, therefore, they are not liable to pay income tax whereas the appellant has controverted the same alleging that the Company is carrying on its business within the taxable area although its factory is situated in the non-taxable area and its registered office has been shown at Dargai yet it is doing business and marketing its vegetable oil in the open market in taxable area and is maintaining its account in Khyber Bank, Ashraf Road, Peshawar.

8. Subsections (16), (24), (32) and (40) of section 2 of Income Taxi Ordinance, 1979 are interconnected and interlinked and have to be read together. Company is a juristic person, its income and its residence are relevant factors which would determine its taxability or otherwise. Company as per its definition is a Company defined in Companies Ordinance, 1984 and is a body corporate formed under any law for the time being in force. As already stated above, respondent No. 1 is private Company, incorporated under the Companies Ordinance, 1984 and has its registered office at Dargai, Malakand Agency, thus it falls within the meaning of the Company as defined in subsection (16) or section 2 of the Ordinance. Income of which accrues/arises or receives in taxable area under any provision of the Ordinance would be deemed to be income within the meaning of `income' as defined in subsection (24) of section 2 of the Ordinance. As for the management and control of the Company is concerned, clause (c) of subsection (40) of section 2 of the Ordinance provides that any Company, the control and management whereof is situated wholly in Pakistan would be resident of Pakistan. The question whether the Company is being controlled/managed from taxable area or from a non-taxable area is a factual controversy and except for bald allegation by the appellant there is no evidence to show that the Company has any office at Peshawar wherefrom it is doing its business. On the contrary, the documents placed on record .by respondent No. 1 show that the alleged office of the Company is in the name of Haji Muhammad Gul Khan and Haji Qabal Khan uncle and father of Chief Executive of the Company, who are tenants of the Municipal Corporation and are running their independent business as Fruit Commission Agents and thus have no concern with the Company's affairs. As far as maintaining of account in Bank of Khyber, Peshawar is concerned, as there is no corporate branch of any bank in Tribal Area therefore, Company was obliged to open an account in Corporate Branch of, the Batik at Peshawar for opening letter of credit for import of Palm Oil.

Undoubtedly, the Company is located in the Tribal Area where Ordinance has not been extended by virtue of Article 247 of the Constitution and as such it is not a resident of taxable area, hence would not be amenable to the provisions of the Ordinance. Section 9 of the Ordinance is a charging section which provides that income tax shall be charged or levied for every assessment year in respect of the total income of the income year from every person at the rates specified in the First Schedule. Term `person' as defined under section 2(32) of the Ordinance includes in its fold a Company besides an individual, a firm, Hindu undivided family, a local authority, an association of persons; and every other juridical person and its liability to pay tax on, the total income is laid down in section 11 of the Ordinance, according to which a resident assessee had to declare all his/its income from whatever source derived, which is received or deemed to have been received in Pakistan or which accrues or arises or is deemed to accrue` or arise to him/it in Pakistan or accrues or arises to him/it outside Pakistan during the assessment year. Likewise it provides that in case of non-resident, total income would include all income from whatever source it is derived/received or deemed to have been received in Pakistan or accrues or arises or is deemed to accrue or arise to him/it in Pakistan during the assessment year. The income which is deemed to accrue or arise in Pakistan has been mentioned in section 12 of the Ordinance. It is thus manifest and clear from section 11 of the Ordinance that if a person which includes a Company, is a non-resident and its income is neither received nor accrued or arisen in taxable territory of Pakistan during an income year, it would not be taxable as the same would not fall within the ambit of the Ordinance. The Company in the instant-case being situated in Tribal Area where. Ordinance has not been extended within the meaning of Article 247(3) of the Constitution, as such, would stand exempt from payment of income tax. The appellant himself has conceded this fact by issuing Exemption Certificates to the Company respondent No.1 from time to time, hence issuance of notices under sections 56 and 61 of the Ordinance was without any lawful authority. Since the Ordinance has not been extended to Tribal Area, therefore none of its provisions would apply thereto, and as such any action taken or purportedly to be taken under any provision of the Ordinance with regard to the business in the Tribal Area would be without jurisdiction and without any lawful authority and in such circumstances the jurisdiction of the High Court under Art. 199 of the Constitution could be invoked.

10. In view of the above discussion, we find no infirmity in the judgment of the learned High Court, hence no exception thereto is taken, this appeal as such, is dismissed with no order as to costs.

M.B.A. /C-76/S.C Appeal dismissed.