JUGDMENT [The judgment of the Court was delivered by Fakhruddin G. Ebrahim, J.]-This petition calls in question an order dated 5th of July, 1969 made under Section 18-A of the Income tax Act, 1922 by the Income tax Officer, Central Circle III Karachi, the respondent herein, imposing a penalty of Rs.
4,84,186 on the petitioners for their alleged failure to pay advance income tax during the assessm ent year 1965-66 (year ending 30-9-1963). The case of the petitioner is that the advance tax was paid on their behalf by Dalmia Cement Ltd. and the order made was, therefore, on the face of it perverse and arbitrary.
2. By an agreement dated 24-7-1969, arrived at between Eruch Maneckji, the petitioner No. 1 herein, and Dalmia Cement Ltd., a company incorporated in the Republic of India and having its registered office at Dalmiapura, Madras, India, the petitioner No. 1 agreed to purchase and Dalmia Cement Ltd., agreed to sell their two cement factories situate at Karachi and Jhelum, the business of Dalmia Cement Ltd., in Pakistan, and all of the properties and assets in Pakistan pertaining to the business, detailed in the Schedule to the said agreement, upon terms and conditions set forth thereunder.
3. By another agreement dated 6-11-1962, between Maneckji and Dalmia Cement Ltd., the main agreement was modified in certain particulars. The final agreement reached between Dalmia and Maneckji, as a result of the main and the supplemental agreements, is hereinafter referred to as the agreement.
4. That the terms and conditions of the proposed sale are reflected in the agreement, and, of them, the following are material for the purpose of this petition:-
(a) That the vendee (meaning Maneckji or his assigns) agreed to buy and the vendor (meaning Dalmia) agreed to sell all the properties referred to in the Schedule to the main agreement at a price which was to be valued on 30-9-1962.
(b) That the said assets were, in fact, valued on 30-9-1962 in the following manner; Rs. p.
(i) Fixed assets ... 53,17,046.32 Reduced by on account of this agreement for depreciation ... 20,00,000.00 ... 33,17,046.00
(ii) Current assets and investments Total ... 233,66,678.20 This amount was to be deemed to be the purchase price, payable upon completion of the sale transaction in the manner specified in the agreement;
(c) Six per cent interest on the purchase price was payable to Dal- mia to be calculated from 1-10- 1962 up to the date of payment and payable in the same manner as the purchase money ;
(d) The profit and loss arising from operation of the 'Company" (meaning, in this context, the business in Pakistan of the branch of Dalmia agreed to be sold by Dalmia) during the period subsequent to 30-9-1962 up to the date of sale was to be on account of the vendee, in the event of the completion of the sale transaction in accordance with the agreement;
(e) All the liablities of the Company (meaning as aforesaid) relating to the period until 30-2-1962 which might relate to the properties, assets and premises intended to be sold, were to be the sole responsibility of the Vendor, and the Vendee was to be responsible for all such liabilities in respect of period commencing 1-10-1962 ;
(f) The administration of the business was to be with the Vendor even after 30-9-1962 till the completion of the sale ;
(g) The sale was to be completed in favour of Maneckji or any body corporate, formed and controlled by Maneckji if so required by Maneckji as if such body corporate was a party to the agreement."
5. That in accordance with the agreement and at the request of Maneckji a sale-deed in favour of Pakistan Progressive Cement Industries Ltd. the petitioner No. 3 herein, was executed on 30-9-1964.
6. That prior to the execution of the sale-deed but subsequent to the entering into the Agreement, Dalmia Cement Ltd., paid advance income tax for the accounting year 1-10-1952 up to 30-9-1963 corresponding to the assessm ent year 1964-65 under Section 18-A of the Income Tax, 1922. The following sums were paid as advance income tax on the dates mentioned hereinbelow : Rs. p.
14-9-1963 3.76.240.50 14-12-1963 3.11.348.50 16-3-1964 3.76.240.50 11-6-1964 3.70.241.50 Total 14,40,071.00
7. That the said Pakistan Progressive Cement Industries Ltd., filed a return of the assessment year 1965-66 on the basis that the entire income for the period 1-10-1962 up to 30-9-1964 had accrued to it by virtue of the agreement and the sale deed. The Income Tax Officer vide his order dated 5-8- 1969 accepted that income for the period 1-10-1962 to 30-9-1963 had accrued to Maneckji.
8. Putting the case in its simplest form, which Mr. Khalid Anwar does it so competently, the learned counsel for the petitioners pointed out that admittedly business of Dalmia was, during the assessm ent year in question, being run by Dalmia for the benefit of the vendee; the petitioner No. 1 and income during this period was taxable in the hands of the petitioners. It must, therefore, follow that advance tax paid under Section 18-A of the Income Tax Act was payable by the petitioners and in the present case was in fact paid by Dalmia on behalf of the petitioners, the beneficiaries of the income earned In this view of the matter, the learned counsel went on to argue that it was not open to the Income Tax Officer to hold that payments expressly so made was available for adjustment elsewhere.
9. In the alternative Mr. Khalid Anwar argued that there was in fact during the year in question no other liability, much less the liability under Section 10(2)(viii) of Dalmia against which the said payments totalling Rs. 14,40,071 could have been adjusted by the Income Tax Officer and the reasons given in the impugned order in arriving at the contrary conclusion are fanciful and devoid of any reason.
10. Mr. Khalid Anwar listed as many as five grounds in support of his first contention that the payment of Rs. 14,40.071 made by Dalmia was on account of the petitioners towards their advance tax liability and these are:-
(i) That during the year in question Dalmia was running the cement factories on behalf of the petitioners and for the benefit of the petitioners.
(ii) That the profits during the year in question wers taxed in the hands of the petitioners.
That the said payments were made in response to an express demand for advance tax on income on the basis of the previous year's profits.
(iv) That it was the case of Dalmia that the said payments wer made on behalf of the petitioners.
(v) That all other payments made by Dalmia were accepted on behalf of the petitioners in arriving at taxable income of the petitioners.
The cumulative effect of the aforesaid grounds to my minds is the conclusion that there is no room for the argument that the said payments made under Section 18-A as advance tax for the year ending 30-9-1963 were not paid on behalf of petitioners by Dalmia.
11.Coming to the alternative argument, the three reasons given by the I. T. O. in his impugned order for holding that the said sum of Rs. 14,40,071 did not represent advance tax payable by the petitioners on their income from the two cement factories, are as follows:-
(i) That Dalmia was an existing assessee and they paid the tax under Section 18-A, in their own name and not in the name of the intending purchasers.
(ii) Dalmia knew that there would have been substantial income during the period in the form of interest and profits under section 10(2)(vii).
(iii) Dalmia paid Rs. 15,00,000 as deposit towards obtaining certificate under the Transfer of Property Ordinance, 1947.
12. Mr. Khalid Anwar, the learned counsel for the petitioners successfully demonstrated that each of the aforesaid reasons are fanciful and devoid of any reason :
(i) Dalmia was an existing assessee. It continued to run the cement factories prior to the Agreement, but for the benefit of the petitioners, if the sale did go through. Looking at the nature of the sale agreement, it was not certain when the said payments were made, that sale would go through. The business was being continued, there was legal liability to pay advance income tax on the basis of the sale previous years profits. The demand was made and complied with as such. The question was not so much who made the payment but on what account and for whose benefit.
(ii) The profits under Section 10(2)(vii) refer to those profits which arise when the assets are sold for an amount which exceeds their depreciated value. When the said payments were made what was certain was that income was being earned and what was uncertain was whether or not the transaction would go through. The transaction admittedly did not go through during the assessm ent year in question which ended with the accounting period 30-9-1963.
The demand of Rs. 14,40,071 was made during and for the assessment year 1964-65 as advance tax liability on the basis of previous years profits The demand was acceded to and paid in four instalments. The last three instalments were paid after 30-9-1963. The company could not conceivable pay advance tax in anticipation of liability under Section 10(2)(vii) for the assessment year 1964-65, after its expiry and when the sale was completed not in that but in the succeeding assessm ent year.
As regards the interest income of Dalmia, under the Agreement, Dalmia was entitled to 6% interest per annum from 1-10-1962 on the purchase price. During the assessment year, the total interest income of Dalmia under the Agreement would be Rs. 13,00,000 whereas the advance tax paid was Rs. 14,04,071. It is inconceivable that any one would pay more advance tax than his entire income for the period in question. In any event Dalmia would not be liable to pay income tax on the income since under Section 18-III-B of the Income Tax Act it was the legal duty of a person paying interest to a non-resident to deduct income tax prior to making the payment.
(iii) It was not made clear to us how the payment of Rs. 15,00,000 as deposit by Maneckji on behalf of Dalmia to be adjusted against the purchase price to enable Dalmia to obtain certificate under Transfer of Property Ordinance, 1947, is relevant to the controversy.
13. Mr. Mansoor Ahmad Khan, the learned counsel for the respondent Income Tax Officer had a limited contention to raise and that was that the order made was within jurisdiction and this Court will not interfere merely because the order made cannot be justified for reasons given therein. It is, however, well settled that where a statutory functionary and more so, a fiscal authority, acts in a partial, unjust or' oppressive manner the High Court in exercise of writ jurisdiction has the power to grant the relief to the aggrieved party. (See PLD 1972 SC 279), In PLD 1971 SC 205, it was held that where a dispute arises bet-j ween the parties in respect of a fiscal right based upon a statutory instru-l ment the same can be easily determined in writ jurisdiction.
14. In the present case our conclusion is that the order made cannot be supported at all either in law and on facts and since no other alternative remedy is available to the petitioners, the petitioners cannot be denied the relief merely because the respondent had the jurisdiction to make the impugned order. This petition is, therefore, allowed with costs.