AJMAL MIAN, J.---The above three income-tax references raise following, common question of law:- Whether on the facts and in the circumstances of the case the Tribunal was justified in allowing the contributions to the pension fund for which no effective arrangements for deduction of tax from payment out of it were made as required under section 10(iv)(c) of the Income-tax Act, 1922?
It may be pertinent to observe that I. T. R. 116 of 1974 relates to the assessment year 1970-71. I. T. R. 117 of 1974 pertains to the assessm ent year 1969-70 and I. T. R. 118 of 1974 relates to 1971-72. In the above three assessm ent orders the Income-tax Officer had disallowed the various amounts referred to in the assessm ent orders paid by the respondent-- assessee to foreign company Dutch Shell Group towards pension of their employees who were lent to the respondent-assessee. For the purpose of the above references it is not necessary to give the break-up of the amount. The respondent assessee filed appeals, namely, I. T. A. No 1887 of 1971-72 (assessment year 1969-70), I. T. A. No. 1888 of 1971-72 (assessm ent year 1970-71) and I. T. A. No. 1889 of 1971-72 (assessment year 1971-72) which were allowed by the Income-tax Appellate Tribunal by a common order, dated 11-10-1973. The applicant department has, therefore, filed the above three references and has sought the opinion of this Court on the above-quoted question.
2. It may be observed that Mr. A. A. Dareshani, learned counsel for the applicant, department has candidly submitted that section 10(4)(c) referred to in the question is not applicable to the instant cases as admittedly the pension fund has, not been maintained in Pakistan. His submission was that factually the relevant provision is section 10(4)(a) of the Income-tax Act (hereinafter referred to as the Act). He, therefore, has requested that the question may be reframed in order to reflect the correct provision of the law. On the other hand it was contended by Mr. A. A. Sharif learned counsel for the respondent that in the order of the Income-tax Appellate Tribunal reference has been made to section 10 (4)(a) as well as to section 10(4)(c) of the Act and since the applicant-- department has not chosen to make a reference on section 10(4)(a), it will not be just and proper to allot the applicant to substitute section 10(4)(a) in place of section 10(4)(c). We are inclined to hold that from the discussion in the order of the learned Income-tax Appellate Tribunal, it is evident that the question in issue was whether section 10(4)(a) could be pressed into service. We are further inclined to hold that this Court has ample power to reframe the question even at the stage of arguments if it does not prejudice the parties. We are of the view that substitution oil section 10(4)(a) in place of section 10(4)(c) will not prejudice the parties in this case and we are, therefore, inclined to recast the question as follows:-- Whether on the facts and in the circumstances of the case the Tribunal was justified .In allowing the contributions to the pension fund for which no effective arrangements for deduction of tax from payment out of it were made as required under section 10(4)(a) of the Income-tax Act, 1922?
3. In support of the above references Mr. A. A. Dareshani, learned counsel for the applicant- department has vehemently urged that the amount of contribution made by the respondent- assessee to the foreign company is a part of the salary of the personnel lent by the foreign company to the respondent-assessee. He has further urged that the case of they Commissioner of Income-tar, Karachi, Sind and Baluchistan v, The Nethriands Trading, Karachi PLD 1957 (W. P.) Kar.
167 relied upon by Income-tax Appellate Tribunal is factually nor applicable to the present case.
On the other hand Mr. A. A. Sharif learned counsel for the respondent-a--ssessee has urged that the contribution made by the respondent-assessee towards the pension fund maintained by the foreign company in a foreign country cannot be treated as part of the salary under section 7 and, therefore, the above section 10(4)(a) is .Not applicable. He has also contended that the above Karachi case of 1957 on all fours is applicable to the present case. He has further relied upon an unreported (Since reported) judgment in the case of A. J. Hartshorn v. Commissioner of Income-tax (Income-tax/Sales Tax) 1984 PTD 53 delivered by a Division Bench of this Court on 13-9-1983.
4. Adverting to the above c6ntentions of the learned counsel for the parties it may be observed that section 7 of the Act provides computation of tax of salaried persons. It provides that the tail shall be payable by an assessee under the bead, "Salaries" in respect of any salary or wages, any annuity, pension or gratuity and any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages which are due to him from, whether paid or not or are paid by or on behalf of the Government, a local authority, a company or any other public body or 6 association or any private employer. It further provides the for the purposes of above section advances by way of loan or otherwise of income chargeable under the above head shall be deemed to be salary due on the date when the advance is received.
In thin regard it may also be pertinent to refer to section 13(4)(a) which disallows any allowance in respect of a payment which is chargeable under the head "Salaries" on which tax has not been paid or deducted therefrom under section 18.
If the contribution made by the respondent-assessee can be treated as a part of salary in terms of above section 7 of the Act the above proviso, namely, section 10(4)(a) will be attracted to. But if it is not part of the salary, in that event the above section 10(4)(a) cannot be pressed into service. It may further be observed that in the above Karachi case reported in PLD 1957 Kar. 167 the assessee was a foreign bank having its branch at Karachi. The question before the High Court was that contribution made by the assessee-Bank towards the pension fund maintained by the bank in Amsterdam can be construed as a fund referred to in section 10(4)(c). The High Court held that section 10(4)(c) was not applicable and approved the reasoning found favour with the Income-tax Appellate Tribunal. It may be advantageous to reproduce hereinbelow relevant observations which read as follows:--- "It is common ground that the assessee has no made any effective arrangement to secure that tax shall be deducted air source, The Tribunal held that section 10(4)(c) does not apply to a case where the pension fund is maintained outside Pakistan and payments will be made in Guilders in a foreign country, and where consequently the recipient will not be taxable under the Income-tax At.
The Tribunal stated in its Appellate order that: "The pension fund maintained at Amsterdam is outside the scope of the Pakistan Income-tax Act and any payment out of this pension fund is not liable to be assessed under section 7 unless the noire-resident makes arrangements to get the pension remitted to him in Pakistan". The" Tribunal has in our opinion made a presumption that the likelihood of any payment from pension fund being liable to tax under the Income-tax Act is so remote us to be negligible, and we think that this is a presumption of fact which we cannot dispute.
The reasoning underlying the Tribunal's conclusion, therefore, is that since there will be no payments liable to tax, it is superfluous and unnecessary to make any arrangement to provide for payment of such tax, and that since the danger against which the prohibition guards does not exist, the prohibition does not apply. We agree, Cessante ratione legis, ipsa lex cessat."
Whereas in the above-unreported (since reported) judgment dated 13-9-1983 inter alia the question before a Division Bench, was whether any contribution made by the assessee-company towards pension plan which was maintained in a foreign company can be treated as a part of the salary. The above Division Bench also took the same view which found favours with the Division Bench in the above 1957 reported case. It may be pertinent to quote hereinbelow relevant observation from the judgment:- "It seems that after considering the nature of the fund and the contribution made by the employer company, the learned Tribunal by its order dated 16-4-1974 observed as follows:- We are of the opinion that the employer's contribution is definitely contingent on certain conditions.
So far its receipt by the employee is concerned the contribution of the employer should be payable to the employee only in the event of the completion of his specified period of service or upon the conduct etc. Of the employee. Therefore, there will be no title to the employee till he has fulfilled these stipulated conditions arid any payment on his behalf to these funds would give him only a contingent title. These would not, therefore, constitute his income."
The Tribunal therefore, found that the contribution paid by the employer company was of a contingent nature not payable to the employee immediately but on happening of certain events which included the retirement, death, dismissal or conduct of employee. In fact in these impugned orders the approach of the learned Tribunal was completely different and restricted to the contention that no exemption could be granted as the `pension fund' was not recognised. The crux of the matter bag properly been dealt within the learned. Tribunal's order quoted above."
5. We are inclined to bold that the contribution made by the respondent-assessee towards pension fund maintained by the foreign company in a foreign country in fact does not amount part of the salary in terms o section 7 of the Act, but it is a payment for the purpose of reimbursing the foreign company for its future liability of making payment to its employee on his retirement or on death. We are, therefore, of the view that the view found favour with the Tribunal that the above contribution could no have been disallowed by the Income-tax Officer seems to be in consonance with law. Our answer to the above reframed question is in the affirmative. There will be no order as to costs.