FAHIM AHMED SIDDIQUI, J. The applicant preferred these Income Tax References Applications for determination of a teaming number of questions of law but it was admitted on 16.12.2008 for answering the following sole question of law: "Whether on the facts and circumstances of the case, the learned Tribunal was justified in treating the joint venture AOP as Non-Resident by imposing @ 15% instead of 5%?"
2. Since the question of law is common in both the References, while the material facts are also identical; therefore, this single order will serve to dispose of both the aforementioned references.
3. The factual matrix of the case is that the applicant entered into an agreement with a joint venture comprising M/s. ARCADIS BMB Management Consulting for Development and Sidat Hyder Morshed Associates (Pvt.) Ltd., for providing Management Consultants Services for Institutional Reforms of M/s. Sindh Irrigation and Drainage Authority (SIDA). The applicant has made payments of service charges to the said AOP. The concerned taxation officer issued notice to the applicant and subsequently levied the tax on the applicant as an assessee in default. According to assessm ent order, for the service charged, 15% withholding tax had to be made by the applicant and in default of the same, the same was leviable on the applicant, as against the applicant plea that being a resident AOP the tax ought to be at the rate of 5% only. Against such assessment, the applicant filed an appeal before Commissioner of Income Tax (Appeals) but the same could not sustain. Eventually, applicant approached the Income Tax Appellate Tribunal but he faced the same result, hence in the instant Reference Applications, the aforementioned question of law was preferred for the opinion of this Court.
4. Mr. Anwar Kashif, the learned counsel for the applicant submits that the applicant entered into an agreement with a joint venture comprising the aforementioned two companies. He submits that since the applicant had signed an agreement with a resident ADP; therefore, the tax-deductible should be 5% instead of 15%. According to him, all the fora below could not assimilate that the agreement was not with the individual companies separately but with an AOP. After referring to the definition of AOP given in the law, he submits that even from the contents of the agreement, it is clear that the agreement was between the applicant and an AOP. He draws attention towards some vouchers from which it reflects that the payments were made 'to AOP and not to the individual companies of the joint venture.
Mr. Kafeel Abbassi, the learned counsel appearing for the department, strongly contradicts the arguments of Mr. Kashif. According to him, the applicant has signed the agreement with a foreign company and the entire amount was paid to that company, as such the liability was rightly fixed upon the applicant. He submits that the assessing officer has done a thorough inquiry and M/s. ARCADIS BMB Management Consulting filed their Income Tax Return at Lahore as a non-resident company, hence tax could not be deductible as a resident in the present case. He submits that although it is reflected from the agreement that it was with a joint venture but the AOP has never filed its Income Tax Return, which is a violation of the law. According to him, the non-filing of a separate Income Tax Return by AOP was sufficient to establish that the said AOP did not exist. He submits that even if it was an AOP then the same would be not a resident AOP as the foreign member of the AOP has preferred to file Income Tax Return as a non-resident.
6. We have scanned the available material in the light of valued submissions and also sought guidance from different statutory provisions.
7. The matter was hotly contested before the lower fora, where a plea of the joint venture or AOP was taken but the same was not properly appreciated. So far as the contention raised here regarding non-filing of Income Tax Return by AOP is concerned, the same was not taken earlier before any forum; therefore, it would not be advisable to ponder upon the same. It is an admitted position that the applicant entered into an agreement with the aforementioned two companies jointly and signed an agreement showing them working in association for the project. In this respect, not only the title but the preamble or intro of the agreement is meaningful, which clarified that the agreement was signed with a joint venture instead of single and separate entities. The preamble or intro of the said agreement is shown as: "This CONTRACT (hereinafter called the "Contract") is made the 8th day of the month of May, 2001, between on the one hand, The Sindh Irrigation and Drainage Authority, 28-A, Civil Lines, Hyderabad, Pakistan (hereinafter called the "Client" which expression shall include the successors, legal representatives and permitted assigns) and, on the other hand, a joint venture consisting of the following entities M/s. ARCADIS BMB Management Consulting for Development, Beaulicustraat 22, P.O. Box 441 AK; Arnhem, the Netherland, (hereinafter called BMB) and Sidat Hyder Morshed Associates (Pvt) Ltd, Progressive Plaza Room No. 601-603, Beaumont Road, Karachi, Pakistan, thereinafter called SHMA), each of which will be-jointly and is severely liable to the Client for all the Consultants' obligations under the Contract, (hereinafter collectively called "Consultants" which expression shall include its successors, legal representatives and permitted assigns)."
8. In the above introductory paragraph of the agreement, the phrase "a joint venture consisting of the following entities", itself indicates that the agreement was made by the applicant (SIDA) with a Joint Venture or Association of Companies. Similarly, in the title, the expression "in association with" is used to link the referred two entities as consultants, which also conveys that both of them forms an AOP, as such the same unquestionably falls under the category of Association of Persons as defined in Sections 2(6) and 80 of the Income Tax Ordinance, 2001.
9. We are not persuaded with the contention of the learned counsel for the department that M/s. ARCADIS BMB Management has filed separate 'Income Tax Return' as a non-resident company. It will make no difference that one of the members of the association has filed their Income Tax Return as non-resident; as the same will not change the legal position of AOP. Besides, in such a situation, the AOP shall remain a resident AOP, as defined under Section 84 of the Income Tax Ordinance, 2001, which reads as under: "84. Resident association of persons.----An association of persons shall be a resident association of persons for a tax year if the control and management of the affairs of the association is situated wholly or partly in Pakistan at any time in the year."
10. From the above definition it is clear that if the place of effective management either wholly or partly of an AOP is situated in Pakistan for a tax year, the AOP shall be treated as a resident in the country for that year. Since one of the member companies of the association is a resident of Pakistan; therefore, the AOP is a resident AOP irrespective of the fact that one of the members of the association has filed separate returns as a non-resident or not.
11. On the facts and circumstances of the present case, we are of the view that the learned Tribunal has erred in treating the aforementioned AOP as a non-resident and in concurring to the finding that being non-resident, tax is required to be deducted @ 15% instead of 5%. Hence, the referred question is replied in NEGATIVE that is in favor of the tax-payer and against the department. The instant ITRAs stand disposed of in the above terms.
12. Let a copy of this order be sent to the Registrar Income Tax Tribunal for information and compliance.