COMMISSIONER OF INCOME TAX, EAST ZONE, KARACHI VS Messrs W.J. TOWELL & CO. AGENCIES (KUWAIT), KARACHI, 2006 PTD-KARACHI-HIGH-COURT-SINDH 1709 (2006)

(a) Interpretation of statutes---

---Tax law---While interpreting any provision of law and more particularly a tax law the plain language of the law is to be looked into---Words used by the Legislature are to be interpreted and they are not to be substituted or changed, as there is no room for any intendment if the language used by the Legislature is clear and unambiguous.

(b) Income Tax Act (XI of 1922)---

---S. 42(3) & (1)---Income deemed to accrue or arise within Pakistan---Interpretation, scope and application of S.42(3)&(1) of Income Tax Act, 1922---Words "Business"; "Operation"; "all the operations" and "part of operations" occurring in S.42(3) & (1) of the Act---Connotation---Expression "part of operations" used in S.42(3) of the Act is not confined to the completed purchase but is to be considered on the basis of various acts performed in the process of completion of purchase---Principles.

A perusal of subsection (3) of section 42 of the Income Tax Act, 1922 shows that the Legislature has provided that in case of business of which all operations are not carried out in Pakistan, the profits and gains of the business deemed under this section to accrue or arise in Pakistan shall be only such profits and gains as are reasonably attributable to that part of operations carried out in Pakistan. The word business is of wider import which includes, trade, profession, dealings, commercial activity, a methodical and systematic process of action carried out by the business people, to accomplish the commercial activity etc. All the acts connected with the commercial activity are included in the expression. It is evident from a perusal of the language used by the Legislature in section 42(3) that the word business had been used in this context which is indicated from the fact that the Legislature has provided that in case of a business of which all the operations are not carried out in Pakistan. The use of the word 'operation' is very important in this behalf. The word 'operation' means to work, to produce any effect, put in activity, act, carry on business, to conduct, carry on something, a method of working, an action or movement, dealing in stocks and the acts affecting a transaction etc. It is also obvious that in the course of business transaction the main ingredients are purchase and sale but in order to effect a purchase or sale, several acts are required to be performed such as negotiations, entering into agreements, settlement of the terms of agreement, delivery of the possession of the goods, payment of the price, receiving of the sale consideration, packing, loading, transport, insurance etc. All these acts come within the purview of operation for the purpose of purchase or for sale and if the entire transaction culminating to sale is not performed at one place it can be said that some of the acts which have been performed, amount to part of operations and all the acts from start to end would be the complete operation. Thus, when the Legislature has used the expression 'operation' it has to be interpreted in its plain and natural meaning and has not to be subst:,ated with the expressions purchase or sale or completed purchase or completed sale or the entire business transaction. The words, "all the operations" indicate performing of each and every act starting from the beginning of transaction culminating in the profit or loss on completion of the transaction. However, the expression 'part of the operations' 'shall mean various acts and activities performed at the beginning, in the middle or at the end of purchase or sale or in respect of both.

The Tribunal has fallen in error by equating the expression "part of the operations" with the expression "completed purchase". This approach on the part of Tribunal is not warranted by any canon of the principles of interpretation of statutes, as either it amounts to the substitution of the language used by the Legislature or insertion of the expressions not appearing in the statute. After combined reading of subsections (1) and (3) of section 42, the first and foremost consideration is whether there is any business? If it is in affirmative, then the second consideration requiring consideration would be, whether in the case of non-resident the income, profits and gains accrue or arise directly. or indirectly through or from any business connection in Pakistan or through any property in Pakistan, or through, or any money lent at interest and brought into Pakistan in cash or kind or through or from the sale, exchange or transfer of a capital asset in Pakistan. The third consideration would be, as to what are the operations as explained above, in the totality of the said business and in case all the operations are not carried out in Pakistan, whether any part of the profits and gains can be attributed reasonably to the part of the operations carried out in Pakistan. It is evident that for considering the above four aspects the Legislature has not imposed any condition of completed purchases in Pakistan or completed sales in Pakistan. The language used by the legislature envisages a set of acts in a completed business which has been described as operations and has thereafter created a deeming provision to the effect that in case of incomplete transaction of business culminating in profits and gains, the part of profits and gains attributable to part of the operations carried out in Pakistan shall be treated as deemed income. This part of the operations may be on account of a completed purchase in Pakistan or on account of various steps and acts in the process of completion of purchase. If the acts contribute towards the final completion of the purchase, these all the acts carried out in Pakistan, in respect of purchases completed outside Pakistan shall be treated as part of the operations carried out in Pakistan and the profits and gains attributable to such part of the operations shall be deemed income envisaged under the provisions contained in sections 42(1) and (3).

Tribunal in the present case had recorded the fact that the negotiations for purchase of rice were held in Pakistan, the agreements for purchase of rice were executed in Pakistan, the letters of credit were opened in Pakistan, the packing, transportation and loading on ship took in Pakistan, the sale consideration was received in Pakistan, the brokerage and commission was paid in Pakistan, and therefore in furtherance of the interpretation given by the Tribunal itself to the effect that section.42 of the repealed Income Tax Act, 1922, authorizes the break-up of different business operations into two or more portions and also, at same time, lays down the rule of apportionment as between them, for ascertaining profits resulting from one continuous process ending in a sale, ought to have upheld the treatment given by the Assessing Officer. The fallacy of the view held by the Tribunal is further evident from the fact that the Tribunal has held that section 42 authorizes the breaking up of different business operations into two or' more portions and has thereafter limited the portion pertaining to the purchase to a completed purchase. If it is upheld then the break-up shall be in two portions only; the completed purchase and the completed sale. It can never be broken up in more than two portions. Breaking of the portions in more than two portions is possible only if the part of operations is taken as different acts in the process of completion of purchase after fulfilment of the technical requirements, such as contained in the Sale of Goods Act.

The expression 'part of operations' used in section 42(3) of the repealed Income Tax Act, 1922 is not confined to the completed purchase but is to be considered on the basis of various acts performed in the process of completion of purchase. The treatment given by the Assessing Officer was not open to any exception and the view held by the Tribunal is based on considering the law in a wrong direction and on an incorrect interpretation on account of wrong premise that a completed purchase was required for attracting the provisions contained in section 42(3). The view taken by the Tribunal was not sustainable in law which was liable to be vacated.

Nasrullah Awan for Applicant.

Salman Pasha for Respondent.

Date of hearing: 11th November, 2005.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---In I.T.R. No.70 of 1988 pertaining to Assessment year 1971-72, the following question has been referred by the learned I.T.A.T. for our opinion:---

QUESTION OF LAW

Whether on the facts and in the circumstances of the case the Tribunal was right in holding that no operation regarding purchases took place in Pakistan to attract the provisions of section 42(3) of the Income Tax Act?

In I.T.R. No. 232 of 1988 pertaining to assessment years 1970-71, 1972-73 and 1973-74, the .following question of law has been referred by the learned I.T.A.T. for our opinion:---

QUESTION OF LAW

Whether on the facts and in the circumstances of the case the purchases of rice made by the assessee were operations within the meaning of section 42(3) of the Income Tax Act and the profit and gains therefrom can be deemed to have accrued or arisen in Pakistan and consequently assessable under the Income Tax Act?

The relevant facts giving rise to the Reference Application No.70 of 1988, as stated by the Tribunal are that the Assessee, a non-resident Company was treated as an association of persons for the purpose of assessment in Pakistan. The assessee-Company was also treated as an agent under section 42 of the Income Tax Act, for all its business operations allegedly carried out in Pakistan. The respondent assessee Messrs. W.J. Towell and Company Agencies, Kuwait, entered into an agreement with Noor Ali H. Karam Ali, partner of Messrs Gulf Trading Company, Karachi for the purchase of basmati rice. The agreement was executed in Karachi between the Trading Corporation of Pakistan and the assessee. The delivery according to the agreement was to be made at the Karachi Port, but there was, in the agreement a clause to the effect that unless payment was received in Pakistan through letters of credit opened in Pakistan the right of disposal of the goods would remain with the Trading Corporation of Pakistan. The relevant clause (7) of the agreement was as follows:---

"Clause 7(a). The seller shall deliver or cause to be delivered the rice at ships tackle/shore crane at the Karachi Port. However, in the case of Chartered ships, the seller shall deliver into ship's hold, fully stowed.

(b) That the property in the rice shall pass to the buyers at the point of delivery of aforesaid, subject to the reservation of right of disposal of rice by the seller until the payment of the total price. "

Clause 12 which was with regard to the payments was as follows:

"(a) Within 6 days of the commencement of each month the buyers shall open or cause to be opened confirmed, irrevocable,, divisible, transferable and unrestricted Letter(s) of Credit in Pound Sterling in favour of the seller or any schedule Bank in Karachi to cover the price of average quantity of rice to be shipped in that month and shall submit each such letter of credit along with six extra copies thereof to the seller. For the purpose of average quantity for which letter of Credit is to be opened in a particular month, the total quantity to be exported in the relevant shipping period shall be divided by the number of months of the shipment period.

(b) The Letter of Credit shall permit partial shipment and encashment of drafts within 48 hours of presentation of documents. The Letters of Credit shall also provide for acceptance of Charter party, Third party and State Bill(s) of Lading.

(c) The Letters of Credit shall also provide for payment of F.O.B. price of rice in Pound Sterling to the seller against tender of the following documents:

(i) The sale invoice in triplicate;

(ii) The Certificate of Weight, Quantity, Fumigation and Origin issued by the Central Cereals Laboratory, Directorate General of Food, Government of Pakistan, Karachi in triplicate;

(iii) Full set of 'ON BOARD' ocean or shipped Bill of Lading.

(d) The Letters of Credit shall also provide for payment of freight by the Bank immediately without any objection on presentation of initialed or rubber stamped copy of Bill(s) of Lading by the shipping company.

(e) The Letters of Credit will not be deemed as tendered unless they are cleared in the opinion of the seller.

(f) The buyers at the time of requisition shall also give in writing, their requirements of number of sets of Bills of Lading against each shipment.

(g) In the event of the buyers failure to open all or any of the Letters of Credit in strict compliance of this Clause (12) the seller shall be entitled to forthwith terminate this Agreement and the security deposit furnished by the buyers in terms of the clause (14) hereof shall thereupon stand forfeited to the seller."

The pertinent point for determination before the Tribunal was, therefore, as to whether on the facts and in the circumstances of the case, the provisions of section 42(3) of the Income Tax Act, was rightly invoked by the Income Tax Officer.

Before the Tribunal, the assessee case was that after agreement was made company appointed a local firm as its shipping agent for handling, loading etc., all the goods on a fixed amount per metric ton. The assessee opened L/C in favour of its shipping agent at Karachi and the shipping agents in their turn opened local, L/Cs in favour of the Trading Corporation of Pakistan. The shipping bills were in the name of Ministry of Agricultural and Works, Food and Agriculture Division (Food Wing), Government of Pakistan and thus it was the Government of Pakistan, which exported rice. All the shipping papers, including the Bills of Lading, were made out in its name for the entire quantity of rice meant for the assessees. The goods were shipped by the Ministry .as shippers in its own name. The Bills of Lading were presented to the bankers for realization of the goods shipped within a period of 7 to 10 days of the sailing of ships by the Ministry of Agricultural and Works. The sale price was thus realized after the ships carrying the rice had left the shores of Pakistan.

The Tribunal after referring to the provision of section 25 of the Sale of Goods Act and on the basis of facts canvassed by the assessee and not controverted by the department found that the property in the goods could not pass to the buyers until the realization of the price. It was also found by the Tribunal, as a matter of fact, that certain Credit Advices of United Bank Limited and Bills of Lading went to show that the sailing of the ships carrying the rice purchased by the assessee was earlier in point of time, say a week or so within payments collected by the assessee. The Tribunal negatived the contention of the department that the L/C opened in favour of the sellers prior to the delivery of rice ought to have led to the conclusion that immediately on the loading of rice on the ships chartered by the assessee the property in the goods passed to the buyers.

After a detailed discussion, the Tribunal annulled the assessment holding as follows:---

"From the foregoing discussion, it is clearly borne out that the property in the goods did not pass or vest in the purchaser upon their delivery on the ships. The Bills of Lading were also obtained by the seller in its name and as such, the buyers did not become owner of the goods till such time as the Bills of Lading were endorsed in its favour and the goods were actually delivered to it. No doubt, the vessels were chartered by the buyer but in view of the specific stipulation between the parties the effect of delivery of the goods on Board did not result in passing the property in the goods to the purchaser. In this view of the matter the sale obviously did not take place in Pakistan. The Income Tax Officer was therefore, patently wrong in holding that the mere act of execution of a contract, the payment of price and the delivery of goods in Pakistan resulted in sale of the contracted rice in Pakistan. His finding to the effect that all operations regarding purchases and delivery were completed in Pakistan and for that reason the income accruing to the assessee which is attributable to the purchases only were liable to be taxed under section 42(3) was obviously, fallacious and palpably wrong. Under the Sale of Goods Act, a contract of sale remained an agreement to sell unless propriety in the goods is transferred from the seller to the buyer. The property in the , goods as held did not pass from the seller to the buyers, and as such no sale took place in Pakistan so as to make the assessee liable to tax in respect of the tax accruing to him which was attributable to such sale."

The facts are similar in the second reference being I.T.R. No.232 of 1988.

The learned Advocates for the parties were heard on 21-9-2005. The learned counsel for the respondent had sought time to further assist the Court on the point as to what is the connotation of the expression "Part of operation", used in subsection (3) of section 42 of the Income Tax Act, 1922. The time was allowed. However; Mr. Salman Pasha did not appear on subsequent dates and finally on 11-11-2005, the judgment was reserved with permission to the learned counsel for respondent to file written arguments. No written arguments have been filed.

Mr. Nasrullah Awan, has taken us through the assessment orders. According to assessment orders, Messrs Gulf Trading Company Karachi were informed that they were treated as agent of Messrs W.J. Towell Company (Kuwait) for the reason that they held General Power of Attorney to negotiate with and buy from Messrs Trading Corporation of Pakistan Ltd., Basmati Rice and any other rice on behalf of W.J. Towell & Co. He acted as handling agent of the assessee and received remittances in his account from the assessee. He also received commission from the assessee in lieu of services rendered in negotiating with Trading Corporation of Pakistan Ltd., and with foreign buyers to whom it was offered for sale and all negotiations for purchases were made through him. It was contended before the Assessing Officer on behalf of the agent Messrs Gulf Trading Company, that no purchase operation took place in Pakistan hence, no income can be deemed to have been accrued in Pakistan. The common facts in all the assessment years under consideration were that by virtue of the authority vested in Messrs Gulf Trading Co., Karachi, on behalf of assessee, negotiations were held with Trading Corporation of Pakistan and agreements were signed for purchase of rice by the partner of Messrs Gulf Trading Company on behalf of the buyers. The letters of credit were opened in the name of agent and all remittances for purchase of rice were received by them from Messrs W.J. Towell & Co. The agent had made arrangement for loading, shipment and establishing inland letters of credit for declared shipment of goods from Karachi to different destinations. The assessment orders contained the details of the agreements entered into between the Trading Corporation of Pakistan and Messrs Gulf Trading Company, agent of the assessee for purchase of Basmati Rice. The payments were made to the Ministry of Food by the agent of the assessee. The purchase agreements were signed at Karachi and the delivery of rice was made to the assessee at Karachi. The Assessing Officer further noted that in the purchase agreements it was provided that the property in the rice shall pass to the buyers at the point of delivery subject to reservation of right of disposal of rice by the seller until the payment of the total price. All payments were received into Pakistan, through local agents. Remittances were received by the agent of assessee in Pakistan and utilized for making purchases, payment of commission, brokerages, handling charges etc., which . were borne by the assessee and the operations of purchases were completed in Pakistan, according to the Assessing Officer. Assessing Officer on the basis of these facts observed that the operations regarding purchases and delivery were completed in Pakistan, hence income accruing to assessee which is attributable to purchases only was being taxed under section 42(3) of the Income Tax Act. It was found fair to attribute 50% of the income to the operations of purchases carried out in Pakistan. The accounts were not furnished and therefore, assessee's income was estimated on the basis of material available with the Assessing Officer. He has pointed out that the assessment order further contains that the freight charges, stamp duty, banking commission, packing and brokerage were also paid in Pakistan by the agent of the assessee and they were added towards the cost of purchases.

Mr. Nasrullah Awan has further taken us through the order passed by the A.A.G. He has pointed out that a plea was taken before the A.A.C., that the operation in regard to purchases have taken place outside the Pakistan and therefore, the Income Tax Officer erred in subjecting to tax the income of the appellant. The facts as narrated by the learned A.A.C. contained that the first agreement between the Trading Corporation of Pakistan and the non-resident assessee was entered into through the agent in Pakistan while the second agreement to purchase the rice for export out of Pakistan was signed by the Managing Director of non-resident company.

Mr. Nasrullah Awan, contended that the admitted facts show that the entire transaction for the purchase of rice took place in Pakistan and all other ancillary acts were also performed in Pakistan. He argued that the requirement under section 42(3) of the Income Tax Act, 1922 is that in a case of business of which all the operations are not carried out in Pakistan, the profits and gains of the business deemed under this section to accrue or arise in Pakistan shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in Pakistan. He further submitted that this provision is to be read with subsection (1) of section 42 which provides that all income, profits or gains accruing or arising whether directly or indirectly through or from any business connection in Pakistan shall be deemed to be income accruing or arising into Pakistah and the person entitled to the income, profits or gains, non-resident in Pakistan shall be chargeable to income tax either in his name or in the name of his agent. Mr. Nasrullah Awan, submitted that the reading of the subsections (1) and (3) of section 42 of the repealed Income Tax Act, 1942 shows that the two conditions required to be fulfilled are that, first, income, profits or gains should accrue or arise whether directly or indirectly through or from any business connection in Pakistan and secondly, if all the operations are not carried out in Pakistan, the profits and gains of the business deemed under section 42 be such profits and gains which are reasonably attributed to that part of the operations which are carried out in Pakistan. Mr. Nasrullah Awan, submitted that the admitted facts are that in one year a non-resident/assessee itself entered into agreement of purchase of rice with the Trading Corporation of Pakistan and in other three years, agent in Pakistan acted on their behalf. The packing and loading were done in Pakistan and freight, banking commission and brokerage amount were also paid in Pakistan are not denied. The business connections between the non-resident company and local agent which is spread over several years is also not denied. The result is that the requirements of subsection (1) of section 42 are not denied and they are fully satisfied. Mr. Awan argued that in spite of the admitted fact of business connections as stipulated in subsection (1) of section 42, the learned members of the Tribunal instead of considering the plain language of law contained in subsection (3) of section 42 travelled beyond the mandate of law. A technical plea was taken on behalf of assessee that by virtue of the provisions contained in section 25 of the Sales of Goods Act, 1930, the purchases were not completed in Pakistan and consequently, the non-resident assessee could not be taxed in Pakistan. He has taken us through the main order passed by the Tribunal for the assessment year 1971-72, wherein it has very rightly observed that the avowed object of section 42 is to make income, profits or gains accruing or arising directly or indirectly through or from any business connection in Pakistan, as fictional income, profits or gains chargeable to tax in Pakistan. They have further observed very rightly that the provisions in subsection (1) of section 42 is qualified by subsection (3) thereof which provides that where all the operations of business are not carried out in Pakistan, the profits and gains of the business deemed to have accrued in Pakistan shall be as can be reasonably attributed to that part of the operations, carried out in Pakistan. The Tribunal further analyzed section correctly to the effect that it authorises the breaking of different business operations into two or more portions and also, at the same time lays the rule of apportionment as between them for ascertaining profits resulting from one continuous process ending in a sale.

Mr. Awan, maintained that thereafter, the learned Tribunal was misicd in entering into discussion whether the purchase was completed in Pakistan or, it was completed when the ships had left the shores of Pakistan. Mr. Nasrullah Awan, submitted that the business transactions comprise purchase and sale and the profit is the difference of sale over the cost of purchase which is crystallized after the sale takes place. The Tribunal has rightly observed that the assessee's business consisted of purchasing and selling of rice and if purchases and sales both were made in Pakistan by the assessee then there was obviously no hindrance in way of the Income Tax Authorities in taxing the business income. Mr. Awan has further submitted that after coming to this conclusion that learned members of the Tribunal were trapped in the arguments of the learned counsel for assessee and they started an adventure on a premise which was not warranted on a plain reading of the language of law. The wrong premise on which learned members of the Tribunal started their probe is contained in the following observations:---

"Even if operations of either purchases or sales had been completed in Pakistan then too it could be said that the operation which the assessee carried out in Pakistan was a part of his business activity within the meaning of subsection (3) of section 42 and that such profits which could reasonably be attributable to that part of the operations were assessable to income tax under the said section."

Mr. Nasrullah Awan, has vehemently argued that this was the point where the learned members of the Tribunal started moving in a wrong direction by equating the expression, "part of the operations" appearing in subsection (3) of section 42 with completion of purchases or sales. The Legislature has not used expression sales or purchases in subsection (3) of section 42 and has used the expression, `operations' and `part of the operations' with the obvious purpose that if the entire transaction of purchase is not completed in Pakistan or entire transaction of sale is not completed in Pakistan but certain steps and actions have been taken in furtherance of the purchase or sale which are in continuation of the completion of business transaction comprising completed purchase and completed sale, the steps and acts taken in Pakistan leading towards the completion of business transaction can be taken into consideration and the profits and gains which are reasonably attributed to the part of the operations carried out in Pakistan can be taxed in the hands of assessee. Mr. Nasrullah Awan, concluded his arguments contending that the learned Tribunal was not justified in deciding the issue on the basis of expression not used by the Legislature and ignoring the plain language of the law and, therefore, fell in error. The finding of the Tribunal is not sustainable which is required to be set

aside.

As observed earlier during the course of arguments it was found that the moot point for consideration was whether the expression "operation" or "part of the operations" can be equated with completed purchase or completed sale and Mr. Salman Pasha had undertaken to assist the Court as to what is the scope and connotation of this expression but subsequently he never turned up.

We have, therefore, considered the contentions raised by Mr. Nasrullah Awan, the impugned findings of the Tribunal and the relevant provisions of law.

It would be appropriate to reproduce provisions contained in section 42, subsections (1) and (3) of the repealed Income Tax Act, 1922, which read as follows:---

"42. Income deemed to accrue or arise within Pakistan.---(1) All income, profits or gains accruing or arising, whether directly or indirectly, through or from any business connection in Pakistan or through or from any property in Pakistan or through or from any asset or source of income in Pakistan or through or from any money lent at interest and brought into Pakistan in cash or in kind, or through or from the sale, exchange or transfer of a capital asset in Pakistan shall be deemed to be income accruing or arising within Pakistan and where the person entitled to the income, profits or gains is not resident in Pakistan shall be chargeable to Income-tax either in his name or in the name of his agent, and in the latter case such agent shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income-tax:

Provided that where the person entitled to the income, profits or gains is not resident in Pakistan the income-tax so chargeable may be recovered by deduction under any of the provisions of section 18 and that any arrears of tax may be recovered also in accordance with the provisions of this Act from any assets of the non-resident person which are, or may at any time come within Pakistan:

Provided further that any such agent, or any person who apprehends that he may retain out of any money payable by him to such non-resident person a sum equal to his estimated liability under this subsection, and in the event of any disagreement between the non-resident person and such agent or person as to the amount to be so retained, such agent or person may secure from the Income Tax Officer a certificate stating the amount to be so retained pending final settlement of the liability, and the certificate so obtained shall be his warrant for retaining that amount:

Provided further that the amount recoverable from such agent or person at the time of final settlement shall not exceed the amount specified in such certificate except to the extent to which such agent or person may as such time have in his hands additional assets of such non-resident person.

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

(3) In the case of a business of which all the operations are not carried out in Pakistan the profits and gains of the business deemed under this section to accrue or arise in Pakistan shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in Pakistan."

Before dwelling on the above provisions of law, we feel it necessary to express that while interpreting any provision of law and more particularly a tax law the plain language of the law is to be looked into. The words used by the Legislature are to be interpreted and they are not to be substituted or changed, as there is no room for any intendment if the language used by the Legislature is clear and unambiguous.

Now we proceed to examine the provisions contained in subsection (3) of section 42 of the repealed Income Tax Act, 1922. No interpretation of subsection (1) is required for the reason that the deriving of income, profits, and gains by the assessee from business connections in Pakistan is not denied. A perusal of subsection (3) of section 42 shows that the Legislature has provided that in case of business of which all operations are not carried out in Pakistan, the profits and gains of the business deemed under this section to accrue or arise in Pakistan shall be only such profits and gains as are reasonably attributable to that part of operations carried out in Pakistan. The word business is of wider import which includes, trade, profession, dealings, commercial activity, a methodical and systematic process of action carried out by the business people, to accomplish the commercial activity etc. All the acts connected with the commercial activity are included in the expression. It is evident from a perusal of the language used by the Legislature in section 42(3) that the word business had been used in this context which is indicated from the fact that the Legislature has provided that in case of a business of which all the operations are not carried out in Pakistan. The use of the word 'operation' is very important in this behalf. The word 'operation' means to work, to produce any effect, put in activity, act, carry on business, to conduct, carry on something, a method of working, an action or movement, dealing in stocks and the acts affecting a transaction etc. It is also obvious that in the course of business transaction the main ingredients are purchase and sale but in order to effect a purchase or sale, several acts are required to be performed such as negotiations, entering into agreements, settlement of the terms of agreement, delivery of the possession of the goods, payment of the price, receiving of the sale consideration, packing, loading, transport, insurance etc. All these acts come within the purview of operation for the purpose of purchase or for sale and if the entire transaction culminating to sale is not performed at one place it can be said that some of the acts which have been performed, amount to part of operations and all the acts from start to end would be the complete operation. Thus, when the Legislature has used the expression 'operation' it has to be interpreted in its plain and "natural meaning and has not to be substituted with the expressions purchase or sale or completed purchase or completed sale or the entire business transaction. The words, "all the operations" indicate performing of each and every act starting from the beginning of transaction culminating in the profit or loss on completion of the transaction. However, the expression 'part of the operations' shall mean various acts and activities performed at the beginning, in the middle or at the end of purchase or sale or in respect of both.

We are persuaded to agree with the contention of Mr. Nasrullah Awan, that the learned members of the Tribunal have fallen in error by equating the expression "part of the operations" with the expression "completed purchase". This approach on the part of Tribunal is not warranted by any canon of the principles of interpretation of statutes, as either it amounts to the substitution of the language used by the Legislature or insertion of the expressions not appearing in the statute. After combined reading of subsections (1) and (3) of section 42, the first and foremost consideration is whether there is any business? If it is in affirmative, then the second consideration requiring consideration would be, whether in the case of non-resident the income, profits and gains accrue or arise directly or indirectly through or from any business connection in Pakistan or through any property in Pakistan, or through, or any money lent at interest and brought into Pakistan in cash or kind or through or from the sale, exchange or transfer of a capital asset in Pakistan. The third consideration would be, as to what are the operations as explained above, in the totality of the said business and in case all the operations are not carried out in Pakistan, whether any part of the profits and gains can be attributed reasonably to the part of the operations carried out in Pakistan. It is evident that for considering the above four aspects the Legislature has not imposed any condition of completed purchases in Pakistan or completed sales in Pakistan. The language used by the legislature envisages a set of acts in a completed business which has been described as operations and has thereafter created a deeming provision to the effect that in case of incomplete transaction of business culminating in profits and gains, the part of profits and gains attributable to part of the operations carried out in Pakistan shall be treated as deemed income. As already explained this part of the operations may be on account of a completed purchase in Pakistan or on account of various steps and acts in the process of completion of purchase. If the acts contribute towards the final completion of the purchase, these all the acts carried out in Pakistan, in respect of purchases completed outside Pakistan shall be treated as part of the operations carried out in Pakistan and the profits and gains attributable to .such part of the operations shall be deemed income envisaged under the provisions contained in section 42(1) and (3).

Applying the above criteria, we find that the learned Tribunal has recorded the fact that the negotiations for purchase of rice were held in Pakistan, the agreements for purchase of rice were executed in Pakistan, the letters of credit were opened in Pakistan, the packing, transportation and loading on ship took in Pakistan, the sale consideration was received in Pakistan, the brokerage and commission was paid in Pakistan, and therefore in furtherance of the interpretation given by the Tribunal itself to the effect that section 42 of the repealed Income Tax Act, 1922, authorizes the break-up of different business operations into two or more portions and also, at same time, lays down the rule of apportionment as between them, for ascertaining profits resulting from one continuous process ending in a sale, ought to have upheld the treatment given by the Assessing Officer. The fallacy of the view held by the Tribunal is further evident from the fact that the Tribunal has held that section 42 authorizes the breaking up of different business _operations into two or more portions and has thereafter limited the portion pertaining to the purchase to a completed purchase. If it is upheld then the break-up shall be in two portions only; the completed purchase and the completed sale. It can never be broken up in more than two portions. Breaking of the portions in more than two portions is possible only if the part of operations is taken as different acts in the process of completion of purchase after fulfilment of the technical requirements, such as contained in the Sale of Goods Act.

Consequent to the above discussion, we hold that the expression 'part of operations' used in section 42(3) of the repealed Income Tax Act, 1922 is not confined to the completed purchase but is to be considered on the basis of various acts performed in the process of completion of purchase. Consequent to this finding it is held that the treatment given by the Assessing Officer was not open to any exception and the view held by the Tribunal is based on considering the law in a wrong direction and on an incorrect interpretation on account of wrong premise that a completed purchase was required for attracting the provisions contained in section 42(3). The view taken by the Tribunal s not sustainable in law which is liable to be vacated. The view taken by the Assessing Officer is to be restored. The question referred to us for the assessment year 1971-72 is answered in negative. The question referred to us for the assessment years 1970-71, 1972-73 and 1973-74 is answered in affirmative meaning thereby that in all the four assessment years the treatment given by the Assessing Officer is to be restored.

M.B.A./C-12/K?????????????????????????????????????????????????????????????????????????????????? Order accordingly.