MUNIB AKHTAR, J. - By this common judgment, we intend disposing off these 785 Reference Applications, the particulars of which are given in the Appendix, since the References' raise common issues with regard to the interpretation of Sections 7 and 107 (and other provisions) of the Income Tax Ordinance, 2001 ("2001 Ordinance") and certain double taxation avoidance agreements entered into, by Pakistan. The double taxation agreements ("DTAs") are those with Denmark ("the Danish DTA"), France ("the French DTA") and Japan ("the Japanese DTA"). The following questions are said to be the questions of law which arise out of the impugned orders of the Tribunal which considered the Danish DTA:-
(1) Whether in the facts and circumstances of the case, the Tribunal was right to hold that freight charges on inward cargo, on FOB basis outside Pakistan, fall within the ambit of "sources within the other Contracting State" as envisaged in Article 8(3) of the Pak-Danish Tax Treaty?
(2) Whether in the facts and circumstances of the case, the Tribunal was right to hold that Pakistan can tax freight charges for cargo embarked outside Pakistan under Article 8(3) of the Pak-Danish Tax Treaty?
(3) Whether in the facts and circumstances of the case, the ITAT was right to hold that provisions of Section 7 of Income Tax Ordinance, 2001 and Section 80 of repealed Income Tax Ordinance, 1979 are not pari materia, therefore, the benefit of C.B.R's. Circular Letter No. C.2(4)IT.2/95, dated 1st August, 1995 is not available under Section 239(10) of Income Tax Ordinance, 2001?
(4) Whether in the facts and circumstances of the case, the ITAT was right in Jaw to maintain assessm ent order framed without issuance of show-cause notices for rejecting the claim of non- taxability of inward cargo receipts under Article 8(3) of the Pak-Danish Tax Treaty?
The following questions are said to be the questions of law which arise out of the impugned orders of the Tribunal which considered the French. DTA (question No. 1 having been modified with the consent of learned counsel by order of the Court dated 22.10.2008):-
(1) Whether on the facts and circumstances of the case, the learned Income Tax Appellate Tribunal
(ITAT) was justified in holding that the freight receipts in respect of the cargo/goods embarked outside Pakistan is taxable in Pakistan?
(2) Whether on the facts and circumstances of the case, the learned ITAT was justified in considering the issue that the assessment framed by the Taxation Officer is beyond the limitation provided under the law?
(3) Whether on the facts and circumstances of the case, the learned ITAT was justified in applying the provisions of Section 7(1 )(b) of the Income Tax Ordinance, 2001 (the Ordinance) by totally ignoring the provisions of Section 107 of the Ordinance and the Double Taxation Avoidance Agreement between Pakistan and France?
Although five questions of law were said to arise out of the impugned orders of the Tribunal which considered the Japanese DTA, leamed counsel for the parties agreed that there was, in essence, only one question of law which required determination, which was framed in the following terms by the Court by means of the order dated 16.09.2008:- Whether income from the shipping transport business of the applicant is exempt from tax under the Convention between Japan and Pakistan, notified under SRO 238(l)/59, dated 4th June, 1959?
2. Although the References were earlier twice heard and judgment reserved by other Division Benches of the Court, they could not, on each occasion, be decided on account of certain intervening events beyond the control of the Court, and had therefore to be fixed for re-hearing.
The References were finally re-heard on 24.12.2010 by this Bench, and judgment reserved.
3. The relevant facts needed to answer these Reference Applications can be stated, shortly and without specific reference to any particular case, In all cases, cargo was carried to Pakistan on ships operated by non-resident shipping companies or charterers (herein after referred to as the "carriers"). The cargo consisted of goods sold to Pakistani buyers by foreign sellers on FOB basis, and the freight (and other charges, if any) in respect of the carriage were paid in Pakistan by the resident buyers. The Taxation Officer took the position that the amounts received by the carriers were taxable under Section 7(1)(b) of the 2001 Ordinance. The Applicants contended that Section 7(1 )(b) did not apply in the facts and circumstances of the case, but that even if it did, the amounts paid were not taxable in Pakistan by reason of the relevant DTA. The amounts were nonetheless brought to tax, and the Applicants appealed to the CIT (Appeals). Those appeals failed, and further appeals taken to the Tribunal met the same fate. The matter now comes before this Court by way of the aforesaid Reference Applications.
4. Although the appeals out of which these Reference Applications arise were decided by different orders of the Tribunal, it is not necessary to refer to each such order separately since the reasoning and conclusions of the Tribunal were essentially the same in all-cases, It is important however, to understand how the Tribunal came to dismiss the appeals, and in order to get a favour of the Tribunal's reasoning and conclusions, reference can be made to the three representative impugned orders, one in relation to each DTA. In relation to the Danish DTA, reference can be made to the Tribunal's order dated 27.01.2007 in Appeal No. 1236/KB/2006 (impugned in I.T.R.A. 205 of 2007). The Tribunal, after referring to Section 80 of the Income Tax Ordinance, 1979 ("1979 Ordinance") and Section 7 of the 2001 Ordinance, held as under:- "8..... From the foregoing provisions of law, we have found a basic difference in both these provisions of law. Under the repealed Ordinance, the shipping company was required under Section 80(2) to declare freight receipts from both outward and inward cargo etc. And the DCIT, after calling for the requisite particulars, accounts or documents, was empowered to determine the aggregate of the freight charges etc. For charging the tax thereon. Whereas, no such authority to determine aggregate amount has been conferred on the Taxation Officer in Section 7 of the new Ordinance 2001 which lays down that "a tax shall be imposed" fn respect of receipts from the cargo etc. Embarked in Pakistan as provided in its clause (a) and from the cargo etc. Embarked outside Pakistan as provided in its clause (b). Accordingly, we hold that Section 80 of the repealed Income Tax Ordinance, 1979 and Section 7 of the new Income Tax Ordinance, 2001 are not pari materia.
Accordingly, we also hold that the C.B.R's, clarification dated 01.08.1995 is not protected by Section 239(10) being inconsistent with Section 7 of the Income Tax Ordinance, 2001 and not binding on the Taxation Officer with effect from Tax Year 2003. Whereas, the C.B.R's, latest clarification dated 14.11.2001 in respect of Section 7 is binding on the Departmental Officers under Section 214 of the Income Tax Ordinance, 2001 since Tax Year 2003.
9. Now coming to the application of Pak-Danish Tax Treaty, we consider it necessary to reproduce Artie 8 thereof as follows:- Article 8
1. Profits from the operation of aircraft in international shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.
2. With respect to profits derived by the air transport consortium Scandinavian Airlines. System
(SAS) the provisions of paragraph (1) shall apply but only to such part of the profits as corresponds to the participation held in that consortium by Det Danske Luffartsselskab (DDI the Danish partner of Scandinavian Airlines System (SAS).
3. Profits from the operation of ships in international traffic may be taxed in the Contracting State in which the effective management of the enterprise is situated. However, such profits derived from sources within the other Contracting State may also be taxed in that other State in accordance with its domestic law provided that for the last five years for which this Convention is effective the tax rate Charged in that other State shall be reduced by 50 per cent and for the next five years it shall be reduced by 25 per cent.
4. The provisions of the foregoing paragraphs of the Article shall also apply to profits from the participation in a pool, a joint business or an international operating agency.
The paragraphs 1 and 3 of Article 8 ibid confer taxing right to the Contracting State in which the place of effective management of the enterprise is situated. In the instant case, the 'Contracting State' means Denmark since the appellant is a Danish resident. However, paragraph 3 of the Article 8 ibid also confers taxing right to the 'Other Contracting State', In the instant case, the 'Other Contracting State' means Pakistan which has also been accepted by the learned AR of the appellant as already mentioned in paragraph 6 of this order. Now, the question arises whether or not the freight charges on inward cargo etc. Fall in sources within Pakistan. We are of the considered opinion that the freight charges are received or. Deemed to be received in Pakistan only when the cargo coming into Pakistan is booked on FOB basis and are paid in Pakistan by the Pakistan consignees to the shipping company, In the case of imports on FOB basis, the title of ownership of cargo has passed on to the Pakistan consignees at the port of *shipment and any expenses incurred in Pakistan thereafter by the Pakistani consignee fall in sources within Pakistan.
Accordingly, we hold that the freight charges declared by the appellant on the inward freight fall within the Pakistan source and are taxable in Pakistan as provided in Section 7(1)(b) and there is no provision, either in the Income Tax Ordinance, 2001 or the Pak-Danish Tax Treaty granting exemption from tax on such receipts.
10. As far as issuance of notice for charging tax on the declared freight receipts that are claimed exempt is concerned, we have found that the Taxation Officer has accepted the declared receipts and has not made on his. Own any determination of such receipts. The exemption claimed by the appellant on such receipts is ab-initio void and of no legal effect since neither provided in the Income Tax Ordinance, 2001 nor in the Pak-Danish Tax Treaty. Notwithstanding the fact that the Taxation Officer issued a notice, he has only calculated the amount of tax payable at the rate provided in the Pak-Danish Tax Treaty and issued notice for recovery of the short payment of tax by appellant. Any notice under Section 143 of the Ordinance even otherwise was not required to be issued since determination of such receipts was not made by the Taxation Officer.
11. In view of the foregoing we hold that the action of the Taxation Officer is fully justified being lawful and is comforted. As a result the learned C.I.T. (A)'s order is also confirmed.
12. Accordingly, the appeal filed by the assessee- company is dismissed being devoid of merit."
5. In relation to the French DTA, reference can be made to the Tribunal's combined order dated 20.02.2008 in Appeal No. 1477/KB/2007 and connected appeals (impugned in I.T.R A' 882 of 2008 and connected References). The Tribunal simply followed its earlier order dated 27.01.2007 in Appeal No. 1236/KB/2006 referred to above. This is not surprising since, as we shall see, the Danish DTA and the French DTA are virtually identical in all material respects.
6. In relation to the Japanese DTA, reference can be made to the Tribunal's combined order dated 31.10.2007 in Appeal No. 570/KB/2007 and connected appeals (impugned in I.T.R.A 06 of 2008 and connected References). The Tribunal referred to an earlier order dated 29.10.2007 (which itself relied on its order dated 27.01.2007 noted in para 4 supra) and dismissed the appeals in the following manner:- '6. We have heard the learned representatives of the two sides and have also perused the record.
To proceed further it is necessary to mention that on similar facts and grounds appeals bearing Nos. 575, 580 ... 813/KB/2007 were heard and decided by this Bench vide order dated 29.10.2007 M/s. James Finley Limited. The relevant portion of the order is reproduced herein under:-
6. We have given serious consideration to the arguments of both the sides. As far as taxability of receipts receivable in Pakistan on account of inward cargo under Section 7(1 )b) of the Income Tax Ordinance, 2001 is concerned, the Tribunal vide its order dated 27.01.2007 in I.T.A. No. 236/KB/2006 has already decided the issue in favour of the Revenue in the following terms:-
(i) Section 80 of the repealed Income Tax Ordinance, 1979 and Section 7 of the Income Tax Ordinance, 2001 are not pari materia,
(ii) The C.B.R's, clarification vide C. No. 2(4) IT. 2/95, "dated 01.08.1995 is not protected by Section 239(10) of the Income Tax Ordinance, 2001 and, hence, not binding on the Taxation Officer with effect from Tax Year 2003;
(iii) The C.B.R's, clarification C. No. 2(4) Int. Taxes/95, dated 14.11.2001 is binding the Departmental Officer's
(iv) Neither the Income Tax Ordinance, 2001 nor the Agreement for the Avoidance of Double Tax and Fiscal Evasion between Pakistan and Denmark (Tax Treaty) provides exemption to profits of shipping business received ,or deemed to be received in Pakistan for the cargo etc. Embarked outside Pakistan.
(v) The claim of exemption on the receipts in respect of cargo etc. Embarked outside Pakistan is ab initio voice and of no legal effect. The Taxation Officer was not required to issue any notice under Section 143 since determination of such receipts was not made by the Taxation Officer who has charged tax only on the receipts declared by the appellant;
(vi) The profits of shipping business received or deemed to be received in Pakistan for the cargo etc. Embarked outside Pakistan are from sources within Pakistan and taxable in Pakistan as provided in Article 8 of the Tax Treaty between Pakistan and Denmark.
7. We have also gone through various Tax Treaties negotiated by Pakistan with various other countries and have found that there are two types of tax treaties i.e. The "comprehensive tax treaties" which cover all types of incomes including income from air and shipping transport business covered under specific articles of the treaty and the "limited purpose tax treaties" which do not cover all types of incomes. We are of the considered^ opinion that the Pak-Japan Tax Treaty is a limited purpose tax treaty and it does not cover Shipping transport business since shipping and air transport businesses are alike and only the air transport business is specifically covered in , Article-V of the said Tax Treaty. We are also inclined to agree with the learned Taxation Officer that Article-Ill of the Pak-Japan Tax Treaty does not apply to shipping transport business moreso when the appellant itself is voluntarily offering for tax the amounts received on account of outward cargo. We are of the considered opinion that Article-Ill of the said Tax Treaty cannot be invoked partially so as to apply to one-half part and not to apply to the other half part of the same business. We are also of the considered opinion that the V Pakistan^Tax Authority has lawfully exercised its right of taking the amounts received in Pakistan from shipping transport business on account of both inward and outward cargo being Pakistan source income. The Pak-Japan Tax Treaty does not grant exemption from tax to income from the shipping transport business and the appellant has also neither claimed nor established that its income has been doubly taxed relief from which is provided through invoking the "mutual agreement procedure" as provided in Articles-XVI and XVII of the Pak- Japan Tax Treaty.
8. As far as case-law cited by the learned AR is concerned, the case reported as 1983 PTD 126 deals with sale of shares of a company as a commercial activity which cannot be equated with shipping transport business. Therefore, the cited case-law is of no help to the appellant.
9. In view of the foregoing, we find no merit in appellant's captioned appeals which are dismissed being devoid of merit. Accordingly, the orders passed by both the authorities below in all the subject cases are upheld and confirmed.
10. All the captioned appeals fail.'
7. As we have already mentioned supra that the facts and grounds of present appeals are similar, therefore, keeping in view the ratio of order supra we are not inclined to agree with the arguments of learned A.Rs. That income of the assessee is exempt. Therefore, we give reasons to confirm the orders of the officers below.
8. Resultantly all the appeals filed by the assessee are without any merit and stand dismissed."
7. Learned counsel for the Applicants raised a number of points to contend that the Reference Applications should be allowed. Each counsel attacked the impugned orders from a different perspective, white also adopting the submissions of the other counsel. Dr. Ikramul Haq (who was concerned mainly with the Danish DTA) submitted that Section 80 of the 1979 Ordinance was in pari materia Section 7 read with Section 143 of the 2001 Ordinance. He contended that the Central (now Federal) Board of Revenue had itself, through its Circular Letter No. C.2(4)IT.2/95, dated 01.08.1995 ("the Circular Letter") concluded that Section 80 did not apply to charges in respect of inbound cargo, /.a, cargo being carried to Pakistan from foreign ports. His case was that the Circular Letter was equally applicable to Section 7(1 )(b) read with Section 143 and hence no tax was payable in respect of freight (and other charges, if any) in terms thereof. (For convenience, all amounts charged by the carriers in relation to the carriage of goods are herein after referred to as the "freight charges".) He submitted further that the Tribunal had completely misunderstood Section 7(1 )(b) on its own terms. His case was that in the absence of any permanent establishment in Pakistan, the place of accrual of income for the carrier in relation to the carriage of goods was the place where the cargo was placed on board, which meant the foreign ports. He submitted that Section 7 was expressly subject to the 2Q01 Ordinance. This meant that the freight charges would be "received" or "receivable" in Pakistan only if the amounts were received by the carrier itself (e.g., through a permanent establishment). None of the carriers had any permanent establishment in Pakistan, It was insufficient that the amount was being received, as was the case at hand, through an agent/representative in the country. Income arose when the recipient first obtained the money under his control, which in the case of the carriers was outside Pakistan. He placed reliance on Section 101 in support of the foregoing submissions, and contended that that Section applied to Section 7 since the latter provision was expressly made subject to the other provisions of the Ordinance. He further submitted that even if Section 7(1)(b) were applicable, the case of the Applicants was covered by Article 8(3) of the Danish DTA, which provided that the profits from the operation of ships in international traffic were to be taxed in the State in which the effective management of the carrier was situated. This was admittedly outside Pakistan. While Article 8(3) permitted the other State (in this case, Pakistan) to tax such profits as were "derived from sources within" that other State, learned counsel submitted that this applied only in relation to outbound cargo (i.e., cargo carried from Pakistan to foreign ports), In other words, his case was that Section 7 was subject to Section 107 (since it was subject to the 2001 Ordinance) and the latter provision made the Danish DTA applicable to the facts and circumstances of the case, In terms of Article 8(3) thereof, Pakistan could tax that carriage of goods which came within the ambit of Section 7(1 )(a), but not the carriage covered by Section 7(1 )(b). He pointed out that outbound cargo and inbound cargo were obverse cases, and to allow Pakistan to charge tax in respect of both would, in effect, rob Article 8(3) of all meaning. Since both the Applicants and the Department accepted that tax could be charged in respect of outbound cargo (under Section 7(1)(a)) that necessarily meant that it could not be charged under Section 7(1 )(b) (for inbound cargo). He therefore prayed that the References be answered in favour of the Applicants.
8. Mr. Makhdoom Ali Khan (who was concerned mainly with the French DTA) adopted and reiterated Dr. Ikramul Haq's submissions with respect to Section 7 and other statutory provisions, and also Article 8(3), since that provision is essentially identical in both the French and the Danish DTAs. He further submitted that the Tribunal had failed completely to appreciate that all carriage of goods by sea was under bills of lading in which the buyer (in this case, the Pakistani importer) was merely the consignee. His case was that the contract for the carriage of goods, even in the case of FOB contracts, was between the shipper (i.e., the foreign seller) and the carrier. Since the Pakistani buyer was not party to the bill of lading, there was no privity of contract between him and the carrier. Any amounts paid in Pakistan could not be said to have been "received" in this country within the meaning of Section 7(1)(b). He pointed out that if the freight charges remained unpaid, the carrier could hot hold the consignee (i.e., the Pakistani buyer) liable; its only recourse would be against the shipper (the foreign seller). He also placed reliance on Section 2 of the Bills of Lading Act, 1856 in support of the foregoing submissions. Learned counsel further submitted that even though the freight charges were received in Pakistan by the carrier's agent, the latter had nothing to do with the contract of carriage. The functions performed by the carrier's "agent" did not amount to a true agency within the meaning of law. Any receipt of freight charges by the "agent" also did not establish any "business connection" in Pakistan of the Applicant that would bring the amount to tax under the 2001 Ordinance. Learned counsel emphasized that even otherwise, there was no "business connection" in the facts and circumstances of the case, In this context, he also placed reliance on Section 101.
9. Mr. Agha Faquir Mohammad adopted the submissions of the other learned counsel and stressed certain aspects with particular reference to the Japanese DTA (with which he was mainly concerned). As will be seen later, this DTA is different from the other two DTAs. Learned counsel submitted that in general, DTAs could be divided into two broad categories: comprehensive and of limited scope. He emphasized that the Japanese DTA fell in the former category, and that the Tribunal had erred materially in coming to the contrary conclusion. His case was that Article III of the Japanese DTA provided that "industrial or ^commercial profits" of an enterprise of one State (in this case, Japan) would be taxable in the other State (i.e., Pakistan) only if the enterprise carried on business in Pakistan through a permanent establishment, It was an admitted position that the Applicants did not have any permanent establishment in this, country. Article III (or any other provision of the DTA) did not make any exception in respect of profits earned through the shipping business. Learned counsel therefore contended that its terms were broad enough to cover all profits (i.e., income), including those from shipping business, and hence by virtue of Section 107, Section 7(1 )(b) did not apply in the facts and circumstances of the case, In fact, his case was that the Japanese DTA was so comprehensive that even Section 7(1 )(a) did not apply to Japanese carriers. He therefore also prayed that the References be answered in favour of the Applicants and against the Department.
10. All the learned counsel filed written synopses and relied on case-law and other material, which will be referred to at the appropriate place in the paras herein below.
11. Mr. Jawaid Farooqui, learned counsel for the Department, opposed all the Reference Applications. His case was that Section 7 was a special provision, which was in the nature of a self- contained code in its own right. He submitted that the said Section applied in its own terms, and inbound cargo clearly came within the ambit of Section 7(1 )(b) and hence the freight charges were liable to tax in terms thereof. He contended that any reference to Section 101 in relation to Section 7 was misconceived. He further contended that in any case, there was a clear "business connection" in the facts and circumstances of the case, and thus, the freight charges had rightly been brought to tax. In relation to the Danish and French DTAs, his case was that Article 8(3) permitted Pakistan to tax the freight charges. He submitted that in respect of profits from shipping business, the DTAs intended for the tax revenue to be shared between the Contracting States, which allowed Pakistan to tax the freight charges under Section 7(1 )(b). As regards the Japanese DTA, he submitted that there had to be an express exemption applicable in the case of shipping business. Since the DTA admittedly did not have any such exemption, reliance could not be placed on the general provisions of Article ill thereof. He also contended that the Japanese carriers were admittedly paying tax under Section 7(1)(a). Since the Japanese DTA had no equivalent to Article 8(3) of the Danish and French DTAs, that necessarily meant that Section 7(1 )(b) was equally applicable to the Japanese carriers. He submitted that the Tribunal had come to the correct conclusion, both in law and on the facts and hence prayed that the References be dismissed. Like learned counsel for the Applicants, he filed written synopses and relied on certain case-law, which will be referred to at the appropriate place in the paras herein below.
12. We have heard learned counsel for the parties, examined the record with their assistance, and considered the case-law and other material relied upon by them. The issues raised before us can be divided into two broad questions. The first question is whether Section 7(1 )(b) of the 2001 Ordinance is applicable in the facts and circumstances of the case, i.e., in respect of goods sold by foreign sellers to Pakistani buyers on FOB basis, with the freight charges paid or payable in Pakistan at the conclusion of the carriage. If the answer to this question is in the affirmative, then the second question arises, namely, whether by reason of Section 107. Read with the relevant DTAs, such freight charges cannot be brought to tax in Pakistan. If at all the second question arises, it will have to be tackled in two parts, one in relation to the Danish and French DTAs and the other in relation to the Japanese DTA. We propose to address the issues before us in the foregoing order.
13, Section 7 of the 2.0:-1 Ordinance provides as follows:- "7. Tax on shipping and air transport income of a non-resident person.- (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division V of Part I of the First Schedule, on every non-resident person carrying on the business of operating ships or aircrafts as the owner or charterer thereof in respect of:-
(a) the gross amount received or receivable (whether in or out of Pakistan) for the carriage of passengers, livestock, mail or goods embarked in Pakistan; and
(b) the gross amount received or receivable in Pakistan for the carriage of passengers, livestock, mail or goods embarked outside Pakistan.
(2) The tax imposed under sub-section (1) on a non-resident person shall be computed by applying the relevant rate of tax to the gross amount referred to in sub-section (1).
'(3) This Section shall not apply to any amounts exempt from tax under this Ordinance."
Section 7 is part of a group of three Sections (Sections 5 to 7) in respect of which Section 4 makes specific provision. Section 4 is the general charging Section of the 2001 Ordinance, and brings to tax all taxable income of a person in accordance with the provisions of the Ordinance. Sub-sections
(4) and (5) however, provide as follows:- "(4) Certain classes of income (including the income of certain classes of persons) may be subject to:-
(a) separate taxation as provided in Sections 5, 6 and 7; or
(b) collection of tax under Division II of Part V of Chapter X or deduction of. Tax under Division III of Part V of Chapter X as a final tax on the income of the person.
(5) Income referred to in sub-section (4) shall be subject to tax as provided for in Section 5, 6 or 7, or Part V of Chapter X, as the case may be, and shall not be included in the computation of taxable income in accordance with Section 8 or 169, as the case may be."
14. Section 7, which is expressly made "subject to this Ordinance", applies to all non-resident carriers. On the face of it, the section applies to two situations.. Firstly, it applies to freight charges for the carriage of cargo embarked in Pakistan, whether the charges are received or receivable in,, or outside, Pakistan. This is sub-section (1)(a). The second situation is freight charges for the carriage of cargo "embarked outside Pakistan". This applies only if the charges are received or receivable in Pakistan. This is of course sub-section (1)(b), which lies at the heart of the present dispute.
15. The first point to note is that if learned counsel for the Applicants are correct, and Section 7(1 )
(b) does not apply to the fact-situation of the present case, then the question which arises is, what does it apply to? Lt is telling that although we expressly invited learned counsel to assist us on this question, there was no substantive answer forthcoming, It is of course well-settled that if two or more reasonable interpretation of a charging provision are possible, then the one in favour of the taxpayer will be preferred. But an interpretation that effectively robs the provision of all meaning, and makes it devoid of any substantive content, can hardly be regarded as reasonable. Section 7(1)(b) must after all, apply to something, i.e., to some fact-situation. What is that fact-situation?
We address this question by taking up and considering the various elements that must be found in any fact-situation to which Section 7(1)(b) is applicable. The first element of the fact- situation must be that the cargo is "embarked outside Pakistan". There cannot be any doubt that this means that the cargo must be loaded onto the ship in a foreign port. Now cargo embarked on a ship must be destined for some place, and this brings us to the second element of the fact- situation: where must this cargo be headed for? Lt is interesting to note that there is nothing in Section 7(1 )(b) itself which requires that the cargo should be headed for Pakistan. All that it requires is that the cargo be "embarked outside Pakistan", In order to address this point, reference must be made to Section 143, which provides in material part as follows:-
143. Non-resident ship owner or charterer.-- (1)
Before the departure of a ship owned or chartered by a non-resident person from any port in Pakistan, the master of the ship shall furnish to the Commissioner a return showing the gross amount specified in subsection (1) of Section 7 in respect of the ship.
(2) Where the master of a ship has furnished a return under sub-section (1), the Commissioner shall, after calling for such particulars, accounts or documents as he may require, determine the .Amount of tax due under Section 7 in respect of the ship and, as soon as possible, notify the master, in writing, of the amount payable.
(3) The master of a ship^ shall be liable for the tax notified under sub-section (2) and the provisions of this Ordinance shall apply to such tax as if it were tax due under an assessment order.
(6) This section shall not relieve the non-resident owner or charterer of the ship from liability to pay any tax due under this section that is not paid by the master of the ship.
Lt is clear from Section 143 that the tax under Section 7 is imposed on a ship-by-ship basis, and only in respect of those ships which visit Pakistani ports, In the normal course, the ship will be carrying cargo to Pakistan when it arrives (i.e., cargo embarked outside the country), and will carry cargo from Pakistan when it leaves (i.e., cargo embarked in the country). This section therefore explains, and properly limits, the second element of any fact-situation to which Section 7(1 )(b) is applicable; the cargo must be carried from the foreign port to a Pakistani port.
16. Lt will be seen that the first two elements, which must be found in every fact-situation to which section 7(1 )(b) is applicable, are clearly to be found in the fact situation presently under consideration. All the present References are concerned with cargo loaded in foreign ports ("embarked outside Pakistan", the first element) and carried to this country (the second element).
We now come to the third (and most critical) element; the freight charges must be received or receivable in Pakistan. What does this entail? Obviously, it rules out cargo in respect of which freight charges have already been paid, e.g., goods shipped CIF or C&F. Learned counsel for the Applicants submitted that on a true and proper interpretation, even the freight charges paid (or payable) in Pakistan were not "received" (or "receivable") in this country within the meaning of section 7(1 )(b). We therefore need to consider the various submissions that were made in this regard.
17. Firstly, it was contended that the freight charges had to be received through either a permanent establishment o' Ly reason of a business connection in Pakistan, and launcher existed in the facts and circumstances of the present case- Learned counsel for the Department on the other hand continued that a business connection clearly existed, and therefore the amounts had been received in Pakistan. This was of course quite apart from his basic submission that Section 7 was a self-contained code to which such considerations were not applicable. As to this, learned counsel for the Applicants emphasized that section 7 was expressly made subject to the other provisions of the Ordinance, and therefore, the requirement of receipt through a permanent establishment or by reason of a business connection in Pakistan was applicable. This requirement, according to them, applied by reason, and in terms, of Section 101, which lays down the rules by which Pakistan- source income is to be determined. The opening words ("subject to this Ordinance") made these rules applicable to Section 7, and it is this submission which must now be considered.
18. The legislative device of subjecting a provision to other provisions of the statute (or even the whole of the statute) is of course well-established. Its proper interpretation was explained as follows in C & J Clark Ltd. v. Inland Revenue Commissioners [1973] 2 All ER 513 by Megarry, J. (in the High Court):- "In my judgment, the phrase 'subject to' is a simple provision which merely subjects the provisions of the subject sub-sections to the provisions of the master sub-sections. Where there is no clash, the phrase does nothing: if there is collision, the phrase shows what is to prevail. The phrase provides no warranty of universal collision," (pg. 520; emphasis supplied)
In Harding v. Cobum [1976] 2 NZLR 577, the New Zealand Court of Appeal observed:- "The qualification, 'subject to' is a standard way of making clear which provision is to govern in the event of conflict, It throws no light, however, on whether there would in truth be a conflict without it."
(per Cooke, J., pg. 582; emphasis supplied)
In New crest Mining (WA) Ltd. v. Commonwealth [1997] HCA 38; (1997) 190 CLR 513, the High Court of Australia was concerned with the interpretation of Sections 51 and 122 of the Australian Constitution, It was observed as follows (internal citations omitted):- "In interpreting S. 122 and its relationship with S. 51 of the Constitution, the most striking feature of the relationship is that the powers conferred by S. 51 are conferred 'subject to this Constitution' while S. 122 is unqualified by that expression:... The use of the expression 'subject to this Constitution' does not itself mean that there is always conflict between S. 51 and S. 122. But it does mean that, where conflict exists, S. 122 must prevail. As Megarry J pointed out in C&J Clark Ltd. v.
IRC [1973] 2 All ER 513, 520 [w]here there is no clash, the phrase does nothing: if there is collision, the phrase shows what is to prevail.' In S v. Marwane 1982 (3) SA 717 (A), 747-8, the Appellate Division of the Supreme Court of South Africa had to construe the words '[subject to the provisions of this Constitution'. Miller JA, giving judgment for the majority, said:- 'The purpose of the phrase 'subject to' in suet a-Context is to establish what is dominant and what subordinate or subservient; that to which a provision is 'subject', is dominant - in case of conflict it prevails over that which is subject to^ it. Certainly, in the field of legislation, the phrase has this- clear and accepted connotation. When the legislator wishes to convey that that which is now being enacted is not to prevail in circumstances where it conflicts, or is inconsistent or incompatible, with a specified other enactment, it very frequently, if not almost invariably, qualifies such enactment by the method of declaring it to be 'subject to' the other specified one." (emphasis supplied)
Finally, reference may be made to The South India Corporation (P) Ltd. v. The Secretary, Board of Revenue, Trivandrum and another AIR 1964 SC 207, where the Indian Supreme Court observed:--- "The words 'subject to' other provisions of the Constitution' mean that if there is an irreconcilable conflict between the pre-existing law and provision or provisions of the Constitution the latter shall prevail to the extent of that inconsistency." (para 23)
As these judicial observations indicate, the phrase "subject to" merely makes clear which provision is to prevail in case there is a conflict between two provisions, It does not however, in and of itself necessarily mean that there is or win be a clash or conflict between the dominant (or master provisions on the one hand, and the subject provisions on the other, And it certainly does not mean that the provision being made "subject to" is to be applied as though every other provision of the statute is to be read into it. In our view, the use of this phrase in section 7 cannot therefore mean that its provisions are to be applied only by, and after,