1. SALEEM AKHTAR J. -Common questions of law have been referred by the Tribunal in I. T. R. No. 8 of 1977 to I. T. R. No. 41/77. In I. T. R. No. 19/77 Pakistan Tobacco Co. Ltd. And in rest of the cases its employees are the applicants. This judgment in I. T. R. No. 19/77 will dispose of all the aforestated connected matters.
2. Pakistan Tobacco Co. Ltd. Hereinafter referred as the applicant is a private limited Company engaged in the manufacture of cigarettes. It is one of the associated Companies of British American Tobacco Company incorporated in England. The British American Tobacco Company created overseas Pension fund, by a trust deed and the said Company itself, and all the associated Companies all over the world including the applicant are members of that fund. The employees of all the member Companies are known as contributors. The trustees appointed under the trust deed act as agents of the members as well as the employee-contributors and in that capacity they realise contribution both from the members and the employees. The purpose of the fund inter alia is to provide retirement benefits to the employees of the member Companies in the shape of pension.
3. The applicant bad been regularly remitting to this fund its contribution and on behalf of the employees as well. On 28-9-1983 the applicant received a letter from the Assessing officer demanding payment of Rs. 71,46,516 being the arrears of tax payable, on the contribution made by the applicant to the overseas pension fund on behalf of the employees. The Assessing Officer treated the Company's contribution to the fund as an income of the employees and as this amount was not included in the salary and tax was not deducted at source, the applicant- Company was treated an assessee in default under section 18 (7) of the Income-tax Act and was called upon to pay the arrears of tax amounting to Rs. 71,46,516. Notices were also issued by the Income--tax Officer in respect of those demands of arrears in the case of 34 expatriate employees to which objections were filed, but rejected by the Income-tax Officer. The applicant had contended that contributions made by the applicant to the Overseas Pension Fund were not taxable as salaries under section 7 of the Income-tax Act and there was no failure in discharge of its obligation under section 18 (2) of the Income-tax Act but it was rejected. The applicant therefore, filed an appeal before the Tribunal which held that the contribution made by the members of the Overseas Pension Fund on behalf of their employees constituted income in the hands of the employees during the years in which contributions were made and were covered by section 7 (1) of the Income-tax Act. On the basis of these facts the Tribunal has referred the following questions: -
(1) Whether on the facts and in the circumstances of the case, the contributions made by the applicant Company to the Overseas pension fund on behalf of the employees of the British American Tobacco Company were part of their salary and as such taxable under sec--tion 7 (1) of the Income-tax Act?
(2) Whether the applicants were rightly treated as assessee in default and made liable for payment of the demand of arrears?
4. Mr. Mansoor Ahmed Khan, the learned counsel for the applicant has entirely relied on judgment in A. J. Hartshorn v. Commissioner of Income-tax (West), Karachi 1984 PTD 53, Edwards v. Robbert 19 Taxation 618 and L. W. Russel's case (1964) 53 I T R 91.
5. The admitted position is that the employees of the applicant are members of a fund created under a trust and the contribution made by the Company was not due and payable to the employee immediately on such contribution being made in the funds. Such contributions were payable to the employee on happening of certain contingencies. Such contingencies have been specified in the taunt-deed and only 6 has been reproduced in the order of the learned Tribunal which reads as follows: "If a contributor shall cease to be employed by a member for any reason whatsoever before attaining retiring age (except in the circumstances provided for in rules 14, 15, 18 and 19) or if a contributor shall cease to be qualified under the Rules to continua to be a contributor (except on declaration by the Committee under rule 2 (b) (iv) or if a contributor shall die in the service of member before a pension becomes payable to him then and in any of the said case, he or his representa--tives (as the case may be) shall be entitled to receive from the fund a sum equal to the total amount from tithe to time contributed by himself to the fund together with compound interest thereon at the rate of 3% per annum calculated to the date of payment subject in appropriate cases to the proviso to rule 11."
6. It is quite clear that the entitlement of the employee to receive the contribution trade by the Company was dependent on happening of certain events and possibility that such events may not happen cannot be ruled out. This aspect of the case has been dealt by as in detail in A. J. Hartshorn v. C. I. T., Karachi where on similar facts, taking into consideration the pro--vision of section 7 of the Income-tax Act following observation was Made: -- "The word "due" signifies a fixed and settled obligation or liability which has to be determined in each case from its own context and usually is neither contingent nor dependent on any happening.
7. Keeping these meanings in mind it seems that under section 7 an assessee is liable to pay tax under the head "salaries" in respect of any salary, wages, pension annuity, gratuity, perquisites, fee, benefits and profit if it is due to him whether paid or not. The main criterion is that all such amounts which fall under the head "salaries" shall be subjected to tax provided they are due to the assessee.
8. If the amount is not due to him, tax is not payable under section 7. In the present case, the contribution paid by .The employer Company in the `pension funds` does not become due and payable to the applicant immediately on its payment by the employer Company It is the obligation of the employee Company to pay regularly which is payable to the applicant only on the happening or certain contingencies may be retirement, termination of service or death. It i3 also possible, in certain circumstances that although this amount has been paid by the employer Company in the fund, it may not be payable to the applicant at all. As the payment of pension fund to the assessee is dependent on happening of certain conditions which have neither happened nor complied with during the charge year it cannot be termed as an amount due and payable and therefore cannot be included under the head "salaries" for the purpose of charging tax. The tax will be charged if it is due and payable during the charge year, though not paid or received by the assessee."
9. Again after discussing the aforesaid authorities we observed as follows:- "In all these authorities the principle has been enunciated that where the benefit to the assessee under any scheme is only contingent and indeter--minate and the right to recover/receive is dependant upon happening o certain event or on future date, no vested interest in the sum is created and therefore the amount cannot be said to have accrued or become due to the assessee before happening of the contemplated contingency. An amount which is payable on the happening of certain contingency cannot be claimed by an assessee as a matter of right as it wilt become payable only when pre-conditions attached to it are fully satisfied. Applying the principle to the facts of the present case we find from the t observations made by the learned Tribunal that the amount of contribution paid by the employer would be payable to the employee only in the event of completion of a specified period of service. This is not the case of the department that the amount included in the income of the applicant is payable in the accounting year in terms of the scheme under which the employer's contribution is made. In these circumstances the contribution paid by the employer company in the pension fund could not be treated as a salary of the respondent under section 7 of the Income-tax Act."
10. For the aforesaid reasons we reply question No. 1 in the negative.
11. So far question No. 2 is concerned the applicant has been treated as a defaulter mainly because it had failed to declare the amount of contribution I the salary of the employees and bad not deducted the tax at source. Mr. Mansoor Ahmed Khan the learned counsel has contended that as the applicant was not a defaulter the question of demanding arrears of tax does not arise. As the applicant was justified in not deducting the tax at source it cannot be treated as a defaulter and consequently the demand of arrears created against it cannot be recovered.
12. We, therefore, answer question No. 2 in the negative.