' TASSADUQ HUSSAIN JILLANI, J.--- This judgment shall dispose of C.P.L.A. No,1616 of 2003 and C.P.L.A.
No,1617 of 2003 as common question of law and fact is involved in both these petitions.
2. Through these petitions, the petitioners seek leave to appeal against the judgment passed by a Division Bench of the High Court of Sindh vide which Constitutional Petitions Nos.D-976 and 977 of 2003 were dismissed.
3. Facts in brief are that petitioner (in C.P.L.A. No,1616 of 2003) is a non-resident company wholly owned by I.C.I. Private Limited U.K. (which filed C.P. No,D-977 of 2003 in the High Court) whereas petitioner (in C.P.L.A. No,1617 of 2003) is I.C.I. Pakistan Limited, a company incorporated in Pakistan under the Companies Ordinance. The former company (petitioner in C.P. No,1616 of 2003) entered into nine loan agreements with the latter company (petitioner in C.P.L.A. No,1617 of 2003) whereby it agreed to provide loan facilities to the latter for P.T.A. Project in Port Qasim Karachi. In year 1998- 1999, 1999-2000 and 2000-2001, petitioners received notices for payment of income-tax on the interest on these loans which is remitted abroad. During the currency of those agreements (in terms of clause 77 of the Second Schedule to Income Tax Ordinance), petitioners moved the Central Board of Revenue for requisite approval for exemption from income-tax on interest but it turned down the request that approval of the . C.B.R. Was not required and only clause 77-A was relevant. Thereafter the State Bank of Pakistan was approached to allow remittance of loan interest without deduction of tax which was refused on the ground that in terms of Circular No,32 of 1982 issued by the Central Board of Revenue dated 2-12-1992 only those loans can be extended this exemption which are used for "Industrial Investment" and stand registered with the State Bank of Pakistan. Thereafter petitioner made an abortive move for redressal of grievance through a declaratory suit filed before the Sindh High Court and in terms of the observations made while disposing the suit, an application was moved before the Finance Department, Government of Pakistan which also turned down petitioners' request on the ground that the loans in question were provided as a working capital which could not be classified as loan for "Industrial Investment" within the meaning of clause 77-A of Part-I of Second Schedule to the Income Tax Ordinance, 1979.
Petitioners filed constitutional petitions, which were dismissed vide the judgment which is impugned in these petitions.
4. The learned counsel for the petitioners Mr. Sharif-ud-Din Pirzada submitted that in passing the impugned judgments the learned High Court has not correctly appreciated the import of clauses 75, 76, 77 and 77-A of Part-I of Second Schedule (to the Income Tax Ordinance, 1979). According to him these provisions were part of an overall policy of Government of Pakistan to encourage foreign investment in the country; that incentives were provided so that the foreign capital is attracted for industrial growth and the investor is not struck up in bureaucratic rigmarole. He made a particular reference to the various provisions of the Pakistan Investment Guide which, inter alia, provided that no permission of the Federal Government or the State Bank of Pakistan was required regarding rate of interest or repayment period of foreign loans, a provision for remittance of principal amount and dividend through authorized dealers without prior permission of the State Bank of Pakistan, the stipulation that foreign credit investors were entitled to repatriation of foreign currency loans in accordance with terms and conditions laid therein. He also referred to the Foreign Investment (Promotion and Protection) Act, 1976 which has codified the incentives and protection provided to the foreign investors. Coming specifically to clause 77-A of the Second Schedule to the Income Tax Ordinance referred to above, Mr. Pirzada submitted that under this provision the interest payable on a loan obtained from a non-resident company and uitilized for "industrial investment" in Pakistan is exempt from the income-tax provided of course the loan agreement was concluded after February, 1991 and was duly registered with the State Bank of Pakistan. The loan subject- matter of these petitions according to him falls squarely within the ambit of the afore-referred class of loans as these were working capital loan for an industry established in Pakistan and the law does not exclude such type of loans from the loans meant for "industrial investment" and the distinction sought to be created by the respondents is violative of the letter and spirit of law. He added that the loan agreements admittedly were concluded after the target date (first date of February, 1991) and stood registered with the State Bank of Pakistan as well which is manifest from the fact that the loan agreements stood duly recorded with the State Bank in token whereof repatriation guarantees were also issued by it qua each agreement. He added that the non- exercise of jurisdiction by the Central Board of Revenue on petitioners' application under clause 77 of the Second Schedule to the Income Tax Ordinance referred to above and the rejection of the applications by the Finance Department, Government of Pakistan by letters dated 22nd of January, 2003 and 30th July, 2003 are untenable and discriminatory inasmuch as the same relief was allowed to Messrs Pakcom during the period 1993 to 1998 although the loan included working capital. While dismissing petitioners' constitutional petitions, the learned High Court, he contended, did not advert to this aspect and had failed to appreciate that in the face of the orders passed by the Commissioner Income Tax, the Central Board of Revenue and Ministry of Finance, the Income Tax Officer could not have decided the matter with independent application of mind.
5. The learned Deputy Attorney-General defended the impugned judgment by submitting that the High Court had correctly decided the matter; that the exemption in terms of clause 77-A of the Second Schedule to the Income Tax Ordinance was available only in case the loan had been utilized for "industrial investment", or had the approval of the Federal Government and it stood registered with the State Bank; that all these matters were questions of fact and petitioners instead of appearing before the said officer pursuant to the notices issued to them opted to invoke jurisdiction of the Civil Court and then constitutional jurisdiction of the High Court which is not tenable. He added that in dismissing the constitutional petitions, the learned High. Court has not touched the merits of the case and it would be open to the petitioners to put up their case, the relevant material and evidence to show that the loan in question was investment within the meaning of "industrial investment" appearing in the said clause. According to the learned Law Officer, nine loans, which are subject-matter of these petitions, were working capital loans and could not be considered as "industrial investment" because they were not meant for import of any machinery or for establishing any new plant.
6. We have heard the learned counsel for the parties and have given anxious consideration to the submissions made.
7. Primarily the grounds which found favor with the learned High Court in dismissing petitioner's constitutional petitions were as under:- "The reason being that when a competent authority under the law is seized of the particular issue, this Court should not pre-empt the decision of the said competent authority in law. Secondly, a perusal of clause 77-A shows that the exemption is available if any interest is payable to a non- resident being a foreign individual, company, firm or association of persons, in respect of foreign loan which is utilized for industrial investment in Pakistan. This is a question of fact which is to be considered by the assessing Officer. From the perusal of the petition, it appears that according to the State Bank of Pakistan the loan was utilized as working capital requirement and not for the purpose of industrial investment in Pakistan. However, the State Bank of Pakistan is not a competent authority to decide the connotation of the expression contained in the Income Tax Ordinance and it is for the Assessing Officer only to decide the issue under consideration. Another requirement of clause 77-A is that the loan agreement be concluded after the first day of February, 1991 and it is also a question of fact, which is to be considered by the Assessing Officer."
' It escaped the notice of the learned High Court, we may observe with respect, that the grievance of the petitioner was two-fold---firstly that his application under clause 77 of the Second Schedule to the Income Tax Ordinance was not considered by the Central Board of Revenue and was rejected by the Finance Department of Pakistan although the same relief was provided to another foreign company which was discriminatory; secondly that under clause 77-A this exception is available to loans which are used for "industrial investment" and there is no exclusion of loans obtained as working capital from such investment. Since the Central Board of Revenue and the Ministry of Finance had given their finding on the expression "industrial investment", the Deputy Commissioner Income Tax who is under the administrative control of the Central Board of Revenue according to him could not have decided the matter independently.
8. A carefull perusal of clause 77 of the Second Schedule to the Income Tax Ordinance indicate that the Federal Government can approve or disapprove grant of exemption from levy of income-tax and this clause prima facie is not qualified by expressions such as "utilized for industrial investment in Pakistan" or "duly registered with the State Bank of Pakistan" as appearing in clause 77-A of the same Schedule. It was in exercise of power under this clause that a certain firm Messrs Pakcom was granted a similar exemption. The learned High Court did not give any finding on this although it was ground No,1 in the body of constitutional petitions which stand dismissed vide the impugned judgment. Petitioner's agreement that the loans in question should be considered as loans falling within the ambit of section 77-A was an independent ground and the apprehension of petitioners' learned counsel that the Deputy Commissioner Income Tax who was seized of the proceedings pursuant to the notice issued to the petitioner would not be able to independently decide the matter in the face of the orders passed by the Federal Government which had been impugned in those petitions before the High Court also remained unattended. In the peculiar facts and circumstances of this case the issues raised no longer remained merely questions of fact which could justly and efficaciously be decided at the levy of the Deputy Commissioner Income Tax. Even before this Court despite repeated, the learned Deputy Attorney-General was not in a position to explain the basis for excluding the working capital from the expression "industrial investment" appearing in clause 77-A of the Second Schedule to the Income Tax Ordinance.
9. For what has been discussed above, we are of the view that the impugned judgment is untenable. Resultantly, these petitions are allowed. The impugned judgment, dated 8-8-2003 passed by the Sindh High Court is set aside. The Constitutional Petitions Nos.976 and 977 of 2003 shall be deemed to be pending before the said Court and decided within six weeks of the receipt of this order.