MUHAMMAD AKBAR LEGHARI VS The FEDERATION OF PAKISTAN through Revenue Division, Islamabad, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 2371 (2016)

Income Tax Ordinance (XLIX of 2001)----

----S. 153----Constitution of Pakistan, Art. 247---Payments for goods, services and contracts---Applicability to Tribal Areas---Petitioners assailed the order regarding issuance of certificate by Federal Government, which provided that the contractors, being the residents of Provincially Tribal Areas/Federal Administered Tribal Areas were executing contracts in the Tribal Areas but were receiving payments from Federal or Provincial Governments in settled territories, were not exempted from withholding tax deductible under S. 153 of Income Tax Ordinance, 2001---Income tax laws had not been extended or made applicable to Tribal Areas in terms of Art. 247 of the Constitution, therefore, any action taken under any provision of the Ordinance with regard to the business in the Tribal Areas would be without jurisdiction and lawful authority, and that a Company, having been located in the Tribal Areas, was exempted from payment of income tax, and that the jurisdiction of the High Court under Art. 199 against the same, in such circumstances, could be invoked---High Court, therefore, disposed of the Constitutional petition accordingly.

Messrs TA. Industries through Proprietor v. Federation of Pakistan through Secretary, Finance Ministry of Finance, Government of Pakistan, Islamabad and 4 others 2008 PTD 1563; Syed Abid Hussain Shah v. Federal Government of Pakistan, Islamabad through Secretary, Finance Ministry of Finance , Islamabad and 2 others 2008 PTD 1547; Commissioner of Income-Tax, Peshawar v. Messrs Gul Cooking Oil and Vegetable Ghee (Pvt.) Ltd. through the Chief Executive and 6 others 2003 PTD 1913 and Dr. Najibullah Khan v. Federation of Pakistan through the Secretary, Ministry of Finance, Government of Pakistan, Islamabad and 4 others 2003 PTD 2083 fol.

Qamar-uz-Zaman Butt for Petitioners.

Agha Ahmad Khan and Tariq Manzoor Sial, for Respondent No.3.

Malik Muhammad Tariq Rajwana and Malik Muhammad Hussain Rajwana for Respondents. Nos.4 and 6.

ORDER

MUHAMMAD SAJID MEHMOOD SETHI, J.---Through instant constitutional petition, petitioners have assailed clarification/ order dated 30.04.2011 regarding issuance of exemption certificate in respect of contractors, issued by Government of Pakistan, Revenue Division, Federal Board of Revenue, whereby it was laid down that the contractors who are residents of FATA/FATA and are executing contracts in tribal areas, but are receiving payments from Federal or Provincial Governments in settled territories, are not exempted from withholding tax deductible under Section 153 of the Income Tax Ordinance, 2001, with the following prayer:--

"In view of above submissions, it is, therefore, humbly prayed that this petition may graciously be accepted and the impugned letter dated 30.14.2011 issued by the Secretary (With-holding Tax), Federal Board of Revenue, Islamabad may kindly be declared as illegal without jurisdiction, without lawful authority, mala fide, ineffective and inoperative.

It is further prayed that pending decision of main petition the operation of impugned order dated 30.04.2011 may kindly be suspended/stayed in consequence whereof the respondents may kindly be restrained to deduct with-holding tax against the work executed by the petitioners/contractors within the bounds of Fort Munroo tribal area, in the interest of justice "

2.Learned counsel for petitioners contends that impugned addition/ insertion of "receiving payments from Federal or Provincial Government in settled territories" in an already issued SRO by respondent No.2, on the fact of it, is illogical and against the spirit of the provisions of law. He adds that even otherwise, respondent No.2 has no legal authority to withdraw the exception granted to petitioners through S.R.O., which is being denied to petitioners by self-styled interpretation against the spirit of S.R.O. and law. He further contends that impugned letter is not sustainable in the eye of law. He further submits that issue in hand has already been decided by the superior Courts. In support of his contentions, he has placed reliance on Messrs T.A. Industries through Proprietor v. Federation of Pakistan through Secretary, Finance Ministry of Finance, Government of Pakistan, Islamabad and 4 others (2008 PTD 1563), Syed Abid Hussain Shah v. Federal Government of Pakistan, Islamabad through Secretary, Finance Ministry of Finance , Islamabad and 2 others (2008 PTD 1547), Commissioner of Income-Tax, Peshawar v. Messrs Gul Cooking Oil and Vegetable Ghee (Pvt.) Ltd. through the Chief Executive and 6 others (2003 PTD 1913) and Dr. Najibullah Khan v. Federation of Pakistan through the Secretary, Ministry of Finance, Government of Pakistan, Islamabad and 4 others (2003 PTD 2083).

3.On the other hand, learned counsel for respondents, when confronted with the submissions made by learned counsel for petitioner, could not convince the Court that the case law cited by learned counsel for petitioner is not applicable to the case in hand.

4.Arguments heard. Record perused.

5.No doubt, issue/subject matter of instant petition has already been settled by this Court as well as apex Court in the above referred cases. In the case of Messrs Gul Cooking Oil and Vegetable Ghee (Pvt.) Ltd. (supra), the Hon'ble Supreme Court has held as under:--

"8.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 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 a 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) 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 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 a 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 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 or persons, and every other judicial 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 have been received 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 any 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."

6.Following the ratio settled in the case supra, this petition is disposed of in the same terms.

SL-M-142-LOrder accordingly.