MUHAMMAD AKRAM, J, -This is an application by the Commissioner of Income-tax. Rawalpindi Zone, Rawalpindi, directly made to the High Court under section 66 (1) of the income-tax Act, 1922 referring the following question of law said to arise out of an order dated the 11th of September, 1972 passed by the,. Income-tax Appellate 'Tribunal in Appeal A.C. No. 353 Circle-B, Lyallpur of 1971-72 relating to the assessm ent year 1967-68 :- "Whether in- facts and is the circumstances of the case tile Tribunal was legally justified to cancel the Income-tax Officer's order under sec--tion 18(7) of the income-tax Act, in spite of the fact that the Tribunal itself did not admit Messrs Noon Sugar Mills Limited as an Agent of Messrs Mitsubishi Heavy Industries Limited of Japan in their order in respect of the Income-tax -Assessment?"
2. The facts necessary for the disposal of this reference are these. The respondent, Messrs Noon Sugar Mills Ltd. Bhalwal is a Public Limited Company and is running a sugar mill. Imported heavy machinery from abroad from Messrs Mitsubishi Heavy Industries Ltd. Japan (hereinafter to be called the nose-resident company) for installation of the sugar mill. In accordance with an agreement executed between them on the 1st of' April, 1966 the non--resident Company undertook to despatch supervisory engineers for the installation and erection of the machinery at the premises of the mill. --According to one of the terms of this agreement the payment for the service thus rendered was to be made by the respondent to the non-resident Company in accordance with as prescribed formula free of tax in the currency of Pakistan, Under this agreement the tax liability for the remunerations thus paid to the non-resident Company, in lieu 9f the services rendered by the foreign engineers, rested on the respondent. It was not disputed before us that these remunerations were taxable under section 4 (1) (a) of the Income-tax Act and did not rank for exemption under any Article of the Convention for the Avoidance of Double Taxation between Pakistan and Japan (vide S. R. O. 238, dated 4th of June, 1959).
3. In this connection it appears that at first the Income-tax Officer by his letter dated the 3rd of July, 1967 addressed to the respondent clearly notified his intention to appoint them as agent of Messrs Mitsubishi Heavy Industrial Limited Japan, the non-resident Company. This was followed by another letter dated the 20th of July, 1967 in which the Income-tax Officer repeated his assertion and required the respondent to file returns, etc., on behalf of the non-resident Company. Once again on the 4th of September, 1969 the Income-tax Officer wrote to the respondent informing them that "since it has already been notified to you that you are being treated as an agent of the technicians under section 43 and you have to file returns on their behalf, legal action will be taken for the default of the said notices." In another letter dated the 10th of January, 1970 addressed to the respondent the Income-tax Officer required them to file a return on behalf of the non--resident Company. But the respondent throughout remained silent and made no reply to any of these letters. From these letters it is evident that Income-tax Officer had duly apprised the respondent of the intention of appointing them as the statutory agent in Pakistan of the non-resident Company within the meanings of section 42 of the Income-tax Act.
4. Notwithstanding this the Income-tax Officer, B-Circle, Sargodha, on the 27th of March, 1970 completed the assessm ent directly against the non-resident-Company for the assessment years 1966-67 and 1967-68 under section 23 (4) for default of notices issued under section 34 (4) of the Income--tax Act.
5. After completing these assessm ents, it appears that the problem of the tax recovery came to the forefront. On the 13th of April, 1970 the Income-t-4x Officer passed an order holding the respondent to be an assessee in default under section 18 (7) read with section 18 (3-B) of the Act for the income-tax demand of Rs. 7,32 030 due from the non-resident Assessee in respect of the assessm ent years 1966-6i and 1967-68. The Income-tax Officer also levied penal internal interest at the rate of 2% per month on the sum due.
6. On this the respondent filed three appeals before the Income-tax Appellate Tribunal, two against the assessm ent made on the non-resident Company for the assessment years 1966-67 and 1967-
68. But the two appeals were held to be incompetent for the simple reason that the respondent had no locus standi to file theca in respect of the assessment made directly on the non-resident Company. The third appeal A.C.No. 353 Circle-B, Lyallpur) filed by the respondent was directed against the Income-tax Officer passed under section 18(7) of the Act. On 14-9-1972 the Tribunal accepted this appeal by the respondent and gave effect to the plea that the Income-tax Officer had already indicated his intention in his repeated letters to appoint the respondent as Agent of the non-resident Company and, therefore, the responsibility did not devolve on the respondent to deduct the tax at the source under sec--tion 18 (3-B) from the payments made by the respondent to the non-resident Company. Consequently the Income-tax Officer's order passed against the respondent under section 18(7) was held to be without jurisdiction and hence vacated.
7. In the circumstances the Commissioner of Income-tax bas referred the above question of law arising out of the appellate order passed by the Tribunal to the High Court for its opinion in the matter. We have heard the learned counsel for the parties before us in this reference. It was argued on behalf of the petitioner that the appellate order passed by the Tribune was misconceived and based on an incorrect appreciation of facts. It was also self-contradictory in itself. The Tribunal confirmed the Income-tax Officer's action in not treating the respondent as Agent of the non- resident Company by not admitting the two appeals filed by it against the question for the two assessm ent years 1966-67 and 1967-68 and holding that as those Assessments were made directly on the non-resident Company, the Pakistan Company had no locus standi to present them on behalf of the non-resident Company, and yet at the same time in accepting the third appeal filed by the respondent the Tribunal wrongly accepted its plea and held that because the Income- tax Officer read indicated his intention in his repeated latters to appoint the respondent as Agent of the non-resident Company no responsibility had devolved on it to deduct the tax at the source under section 18 (3-B) of the Act from , the payments made by it to the non-resident Company. In the opinion of the learned counsel for the petitioner the Tribunal erred in misinterpreting section 18(3-B) of the Act in finding in favour of the respondent.
8. We have carefully considered the various contentions advanced before us. Residents and non- residents of Pakistan are alike chargeable in respect of income, profits or gains accruing in Pakistan. 1n this connection section 3 read with section 4(t) (c) in particular lays down that income accruing to a person who is not a resident in Pakistan during the previous year is chargeable to tax if the income had accrued to him in Pakistan during that year. In this connection sections 42 and 43 of the Act provide the machinery, for assessment of the tax due from a non-resident. Section 42 lays down that where the person entitled to the income, profits or gains accruing, within' Pakistan, is not resident in Pakistan, he shall be chargeable to tax either in his name or in the name of his agent, and in the latter case such agent shall; be deemed to be, for all the purposes of this Act, the assessee in respect of such income taxed. In accordance with this section the agent can be made vicariously responsible for the substantive liability of the non-resident to tax. It is optional for the Income-tax Officer either to assess the non-resident in~ his own name, or in the name of his agent in Pakistan who for the purposes of the Act shall be deemed to be the assessee. In this connection section 43 deals with the appointment of a statutory agent for the non-resident under this Act. It lays down that: - .
"Any person employed by or on behalf of a person residing out of Pakistan or having any business connection with such person, or through whom such person is in the receipt of any income, profits or gains upon whom the Income-tax Officer has caused a notice to be served of his intention of treating as the agent of the non-resident person shall, for all the purposes of this Act, be deemed to be such agent: Provided further that no person shall be deemed to be the agent of a non-resident person, unless be has had an opportunity of being heard by the Income-tax Officer as to his liability.---
9. In the instant case the Income-tax Officer by his reputed letters addressed to the respondent bad sufficiently indicated his intention of treating' the respondent as the agent of the non-resident Company in accordance with) the requirements of section 43 of the Act. In our opinion there can be no) escape from the proposition that the respondent was appointed and must be deemed to be the statutory agent of the non-resident Company for the purposes of this Act. The respondent cannot, therefore, reside out of this situation created by the Income-tax Officer.
10. But this circumstance by itself is not sufficient to finally set at nest the controversy raised in this case before us. As already discussed above in spite of this appointment of the respondent as statutory agent of the non--resident Company, the Income-tax Officer was not precluded from framing the assessm ent against the non-resident Company directly in its own name; as was done in this case. In spite of the appointment of the respondent as agent o the non-resident, he did not finalize the assessm ent against the non-resident in the name of the agent as the assessee as such.
11. There are two modes of collection of tax envisaged by the Income tax Act. There is the ordinary method of collection by direct levy on t assessee. In addition to this the deduction of tax at the source is provided for in certain specified cases under the Act. Notwithstanding that the regular assessm ent in respect of any income is to be made in a later assessment yea the tax on income in certain specified cases is payable and collected at the source. In that connection inter alia section 18 provides for the payment o tax by deduction at the sources of "Salaries" "interest on securities", and any sums chargeable under the Act and paid to non-residents. In the connection the law further provides that if a default is made in this behalf~ in the deduction of the tax at the source, the tax may be collected directive from the assessee and also that the person who was bound to deduct an has apt deducted the tax may -be held personally liable and treated as aril assessee in default in respect of the tax in accordance with subsection (7) of section 18 of the Act.
12. In the same context subsection (3.B) of section 18 lays down that:-- "Any person responsible for paying to a person not being, `interest on securities chargeable under the provisions of this Act shall, at the time of payment, unless he is himself liable to pay any income-tax and super tax thereon as an agent, deduct, in the case of a company, income-tax at the maximum rate and super tax at the; rate applicable to a company and, in other cases, tax, in accordance with the provisions of subsection (1) of section 17."
The underlined (here in italics) is by us and the authorities below have differed with each other in the application of this provision of the law to the facts and circumstances of this case. It is, therefore, necessary to examine it minutely. This subsection demands that any person responsible for paying to a person not resident in Pakistan any sum (not being interest on securities) chargeable to tax under the Act, shall, at the time of payment, deduct income at certain stipulated rates. There is, however, one exception-rather more than an exception to this, rule. It is not applicable in case the person responsible for making the payment of a sum to the non-resident is "himself I liable to pay an income-tax or super-tax thereon as agent'". In case the person responsible for paying any sum o the non-resident is "himself liable" to pa the income-tax or super-tax thereon "as, agent," he is not entitled to mar this deduction at the source. The manifest intention behind this provision of the law is to see that by this arrangement there should be no evasion o tax on the income accruing in Pakistan to a non-resident. The tax on hi is deducted at the source or alternatively to proceed against his agent, if an in Pakistan who is himself liable to pay the tax. While this would ensure against any evasion of tax due from a non-resident, it at the same time provides a safeguard to him against double taxation.
13. At the hearing before us there was a great difference of opinion expressed by the learned counsel for the parties on the true interpretation of the expression "unless he is himself liable to pay any income-tax and super---tax thereon as an agent", within the meanings of subsection (3-B) of section 18 of the Act reproduced above. According to the learned counsel for the respondent the term "liable to pay" in the contex must be construed in its wider and primary sense. According to him, in this case the Income-tax Officer has already served repeated notices on the respondents informing it of his intention to treat it as the agent of the non-resident Company. This in the opinion of the learned counsel was in itself sufficient to fix the liability on the respondent; so as to take its case outside the purview of subsection (3-B) of section 18 of the Act, on which the Income-tax Officer relied in proceeding against it. On the other hand the learned counsel for the petitioner canvassed before us for a narrower and stricter interpretation of the phraise. He submitted that in the context an agent can be said to be himself liable to pay the tax for his non-resident or after he has been charged to tax in his name as the agent of the non-resident in accordance with section 42 of the Act, and the liability was actually fixed on him per--sonally.
14: The word "liable" is susceptible of two interpretations. In a wider and a broader sense it means answerable or responsible in law. In narrows and stricter sense it only connotes held liable, after the liability has been fixed on him by adjudication. There is an instructive and useful discussion in Littlewood v. George Wimpey d Co. Ltd. v. British Overseas Airway Corpora--tion (1953) 2 A E R 915 of the meaning of the terms "liable". In this connection Denning L.J. In interpreting section 6(1) (e) of the Laws Reforms (Married Women and 7ortifeasors) Act, 1935, observed as under: - "What is the meaning of the word 'liable'? There are two rival views. One is that 'liable' means `held liable'. According to this view a person is not liable for the damage unless and until he has had judg--ment entered against him. The other view is that liable' means 'responsible in law' according to this view, a person may be liable for the damage even though he leas not been used to judgment. In my opinion, the ordinary meaning of the word 'liable' in a legal context is to denote the fact that a person is responsible at law. Thus, when it is said (as Lord Chelmsford. L. C., once said (3 Macq 206) in a leading case. Bartenshill Coal Co. v. Mcguire that a master is liable for the wrongdoing of his servant, that means that he is responsible for it in a Court of law. It does not mean that he has actually been sued for it. Furthermore, a man may be `liable--- in this sense even though the remedy against him is suspended or barred for some reason or other. The law of England is familiar with the concept of a liability which exists in the eye of the law though it may not be enforceable by section. It is perhaps, more familiar to contract than in tort. Every one knows that a contract is good even though it may not be enforceable owing to the Statute of Frauds, and that a debt which is statute barred is still a debt even though the debtor may, if sued, raise the statute of limitations,"
In another case in Robert) v. Roberts L. (1962) 2 A E R 697, on behalf of one Mr. Wright it was argued that, within the meaning of section 2(5) of the Matrimonial Proceedings (Magistrates Courts) Act, 1960 he was under no law to maintain a child born of him. It was contended that the term 'liability' in the context simply meant the conditions of being under an obligation and that he was under no obligation to maintain the child until an affiliation order was made against him. The Court observed: - ".....It is in a primary sense that `liable' is used as equivalent to 'answer--able for' or 'legally amenable to' ; see the Oxford English Dictionary, which cites as an example, Blackstone's Commentaries, Vol I. p. 254. 'it is reasonable that, wherever (ambassadors) transgress (this natural and universal rule of justice) there they shall be liable to make attonment ; We readily speak of a person's liability in tort, irrespective of whether or not a judgment for damages has supervened. We say that a man is liable to maintain his wife and children. None of these usages pre-supposes an obligation arising only from judgment or contract or possibly statute to which counsel for the wife argues that the word 'liability' should be limited.
15. But in my considered opinion it is not always safe to borrow meanings attached to terms and phrases used in one statute as aid in sup of the interpretation - of a different statute meant for a different purpose an dealing with a wholly different subject-matter. It is of course permissible t have recourse to the ordinary dictionary meanings in interpreting a stain But iii the instant case even the dictionary meanings ref the term, which been interpreted differently are not conclusive and helpful in resolving the difficulty.
16. Section 23 of the Act provides the machinery for completion assessment against the nee.
Section 29 lays down that when any tax, penalty or interest is due in consequence of any order pawed or in pursuance of this Act, the Income-tax Officer shall saw upon assessee or other person liable to pay such tax, penalty or interest a anti of demand in the prescribed form specifying the sum so payable. Section 4 lays down that any amount specified as payable in a notice of demand undo section 29 or an order under appeal shall be paid within time on the place and to person mentioned in the notice or order. In this connection section 46 deals with the mode and time of the recovery. The third and last stage in the application of the Act is reached, after quantification, with the completion of the assessm ent and the question of the payability of tax comes into prominence.
17. Section 23 is the main charging section in the Income-tax Ad. In this connection in Wallace Brother & Co. Ltd. v. Commissioner of Income-Tax, Bombay City (1938)16 I T R 240 their Lordships of the Privy Council were of the opinion that the liability to tax arises by virtue of the charging section alone and it arises root later than the close of the previous year though quantification of the amount payable is postponed. The Supreme Court of India in Chatturam Horilram Ltd. v.
Commissioner of Income-tax Bihar and Orissa (1955) 27 I T R 709 observed that the income was chargeable to tax independently of the passing of the Finance Act, but until the Finance Act is passed no tax can be actually levied. In that connection the Supreme Court of Pakistan in Rudhashyam Agarwala v. The Commissioner of Income-tax, East Pakistan (Central Secretariat), Dacca PLD 1960 SC 187 observed that the basic feature of the Income-tax Act is that the various liabilities created by it arise only when their extent is determined by the Finance . Act. The machinery provided by the Act for the enforcement of a liability comes into motion only when the Finance Act determines the rate or rates of tax on the total income of different classes of assesses, for the previous year. When these rates have specified, then by virtue of section 3, tax at those rates has to be charged for the assessm ent year in question in accordance with the provisions of the Income-tax Act in respect of the total income of the "previous year", of different classes of assessee. If there be no Finance Act, the Income-tax Act remains a dormant statute, but with the passing of the Finance Act it comes at once into activity and the machinery created by it immediately gets into gear to enforce the liabilities of different classes of assessee. In this connection we wish to add, with due deference and utmost respect, that the assessee in such a case can be said to be liable for the tax but in a remoter sense only.
18. In our opinion, a person is said to be "himself liable to pay" income-tax or super-tax "as an agent" within the meanings of subsection (3-B) of action 18 of the Act only after the agent for the non-resident has been assessed in his own name in accordance with the provisions contained in section 42 of the Act. After this assessment is made in the name of the agent' he becomes the assessee for all the purposes of the Act for the tax that was due from the note-resident. This is the only rational interpretation in keeping with the scheme of things under the Act. The mere fact is that the Income---tax Officer has appointed a statutory agent in Pakistan of a person residing outside it in accordance with section 43 of the Act does not necessarily mean that agent is `himself" liable to pay any income-tax due from the non-resident. His liability to himself and to personally pay the tax due from the non--resident arises only after the assessment has been completed in his name as an agent and he is relegated to the position of an assessee in his own name in respect of the tax due from the non-resident. In our opinion until the completion of this assessm ent in the name of the agent he is charged with a continuing duty enjoined upon him under subsection (3-13) of section la of the Act to deduct the tax at the source from the payments due to the person who is not resident in Pakistan. If he fails to do so, he shall, without err-j judice to any other consequence be deemed to be an assessee in default in respect of the tax as laid down in subsection (7) of section 18 of the Act. In addition to the tax he is also liable to pay an amount at the rate of 2% per month of such tax.
19. In the instant case in accordance with the provisions contained in section 18(3-B) and section 18 (") of the Act, the Income-tax Officer treated the respondent as the assessee in default of the tax levied on the non---resident Company directly. But the order was set aside on appeal by the Tribunal. It was of the opinion that respondent was. Expressly excluded from the operation of section 18(3-B) of the Act. In hat connection the Tribunal observed that the Income-tax Officer had already unequivocally notified his intention in no unambiguous terms, to treat the respondent as agent of the non-resident Company in Pakistan. But in the light of our above discussion the Tribunal was not justified in law in entertaining that opinion and its findings on the question referred to the High Court are vitiated. For the foregoing reasons in our opinion, on the facts and in the circumstances of this case the Tribunal was not legally justified in cancelling the Income-tax Officer's order passed under section 18(7) of the Act. Therefore, our answer to the question referred to the High Court in this case is returned in the negative. The respondent ball bear the costs of this reference.