1. These are the six appeals filed by the department challenging the combined order, dated 12th August, 1987 of the learned CIT (Appeals) for the charge years 1982-83 to 1986-87 and separate order, dated 18th June, 1988 for the charge year 1987-88 directing the ITO to take 20% of the payment arising in taxable territories as against 30% taken by the ITO and for amending the status of assessee in view of the pronouncements of ITAT in ITA No. 1020(PB), dated 14th June, 1986.
2. The facts giving rise to these appeals are as follows:
3. The assessee (hereinafter referred to as the respondent) is an individual deriving income from contracts of supply and carriage with Pakistan Army. In the past 30% of the payments were treated taxable as arising in taxable territories of Pakistan and remaining portions of payments were taken as payments relating to the areas where Income Tax Laws had not been extended. In the returns of income for the charge years 1982-83 to 1984-85 percentage of taxable payments was reduced by the respondent to 9%. The ITO found the income as having been under assessed for the charge years 1982-83 to 1984-85, therefore, assessments were re-opened under section 65. The respondent in compliance to notice under section 65 filed the returns on 26th January, 1986 declaring income as before. The respondent had kept no books of account and insisted for the acceptance of his returns showing 9% payment in taxable territories of Pakistan. He submitted the chart of income indicating areas covered during the course of transportation. The ITO did not accept the contention for the reasons that no record was kept and as per history of the case 30% of the payments were treated as- taxable. The ITO took into consideration the overall business operation, i.e., location of the offices of paying authority, acceptance of tenders and partners spending lot of time in the taxable areas and thus concluded that for this purpose they must also be residing in such areas. In view of these facts the ITO presumed that at least 30% of the payments could have taken place in the taxable areas. He therefore, rejected the declared version and computed income as under:- "1982-83" Total payments as per certificate including income tax of Rs. 93,686 Rs. 31,80,341 30% taxable payments N.P. @ 10% as before 1983-84: Gross payments including Rs. 9,54,102 Rs. 95,410 Income Tax Taxable payments @ 30% N.P. @ 10% on taxable payments 1984-85: Total payments including Rs. 21,02,371 Rs. 6,30,711 Rs. 63,017 Income Tax Taxable payments @ 30% Rs.
30,68,583 Rs. 9,20,570 N.P. @ 10% on the taxable payments. Rs. 92,057" {{TABLE MISARRANGED}}
4. The assessm ents for the charge years 1985-86 and 1986- 87 were made under sections 62 and 63 respectively. In these years too 9% of the total payments were declared as taxable by the respondent which the ITO raised to 30% on the same old basis and computed the income as under: "1985-86: Total payments in including Income Tax ded: Rs. 1,03,51 Taxable payments @ 30% as before N.P. @ 10% as before Rs. 34,53,424 Rs. 10,36,027 Rs. 1,03,603 1986-87: Total payments as per certificate of the paying authorities including Rs. 37,02,200 30% taxable payments considered Rs. 11,10,660 N.P. (a 10% applied as before Rs. 1,11,066" The assessment for the charge year 1987-88 was also made as in the past and income was computed as under: "1987-88: Total credits as per bank statement available on record comes to Rs. 37,76,497.
30% taken in the case as per history of Rs. 11,32,949 the case N.P. (o 10% as fixed by the CIT(A), Rs. 1,13,294 Peshawar Income-tax (a 30% applied which Rs. 33,988" comes to. {{TABLE MISARRANGED}}
5. All the above assessm ents were challenged in first appeal by the respondent and learned CIT(A) vide combined order, dated 12th August, 1987 for the charge years 1982-83 to 1986-87 accepted the arguments that unlike the past the respondent was lifting the Army goods from Nowshera and that distance covered in the taxable territory did not exceed 8/9%. He was of the view that no justification existed for treating 30% payments arising in the taxable territory. Learned Commissioner of Income Tax (Appeals), therefore, directed that 20% of the payments be taken as arising in the taxable territories in respect of all the five years under appeal. The Income Tax Officer was directed to amend the status of the respondent in accordance with the judgment of the ITAT pronounced in ITA No.l020(PB) of 1979-80, dated 14th June, 1986.
6. The appeal for the charge year 1987-88 was disposed of in the same manner except that ITO was directed to treat the respondent as resident.
7. The department feeling aggrieved from the treatment meted out by the learned CIT(A) has preferred these appeals before the Tribunal.
8. We have heard Mr. Abdul Ali Khan, D.R. And Ehsanul Haq, ITP for the respondent.
9. The arguments addressed at the bar were confined to the issue of status of the respondent. The learned D.R. Argued that the status of the respondent in the charge years 1985-86 and 1986-87 was that of resident. Learned A.R. Replied that status was mentioned on the basis of decision of ITAT in ITA No. 1202(PB) of 1979-80. The learned counsel for the parties addressed no arguments on the taxable payment limits. The issues raised in these appeals precisely are:
(1) Whether CIT(A) was not justified to reduce the taxable payment limits from 30% to 20% of the total payments.
(2) Whether the status assigned would determine the taxability of income.
10. In so far as the first issue is concerned we are of the view that assessments for the years under appeal made on the basis of percentage of payments is not warranted by law. Past history of the case could not form the basis for the charge of tax. The method adopted has in fact resulted into litigation. The department claims that payment to the extent of 30% is taxable while the assessee- respondent has shown this limit to be of 9%. This controversy is raised in as much as the tax is apportioned on the basis of distance covered in the taxable and non-taxable territories. The learned CIT(A) reduced the taxable payments limit to 20% as in his view unlike the past goods were lifted from Nowshera to Gilgit and thus the distance covered was less than that covered earlier when the goods were lifted from Rawalpindi to Gilgit. The appellant's contention is that in the past also goods were lifted from Nowshera and as such reduction of taxable limit was not justified.
Learned D.R. Failed to convince us that in the past also goods were lifted from Nowshera. He admitted that payments etc. Were made at Rawalpindi where offices were situated. Be that as it may, controversy of taxable payment limit would not have arisen if the assessments were made keeping in view the provisions of Income Tax Ordinance, 1979. This brings us to the second issue about the status of the respondent. The department in grounds of appeal have reproduced an extract from SRO-1(80) of 22nd May, 1980 which is reproduced here: "All persons who are non-resident in Pakistan but are residents of Tribal Areas, Provincially- administered Tribal Areas and Federally- administered Areas. Clearly reveals that a resident of Tribal Area is non-resident in Pakistan."
11. On the basis of the above mentioned SRO it is argued that the status assigned to the respondent was that as given in the past. Learned D.R. Addressing arguments on this issue brought to our notice the application, dated 23rd July, 1989 wherein prayer is made for the withdrawal of ground No. 2 (asserting the status as non-resident) and instead seeking permission to raise additional ground. The additional ground raised is as follows:- "The worthy CIT(A) having assigned the status of resident to the assessee, was not legally justified to apportion income on the basis of its having been carried in taxable and non-taxable areas, is in clear contravention of provision of section 11 of Income Tax Ordinance, 1979. It is prayed that the entire income of the assessee may be subjected to tax."
12. Having considered the submission of the learned D.R. We decided to allow the additional ground to be raised because our discussion would be about the status of the respondent. Learned CIT(A) vide combined order, dated 12th August, 1987 for the charge years 1982-83 to 1986-87 while discussing the issue of status observed as follows:-- "The appellant has been assigned the status of non-resident. The learned counsel appearing for the appellant produced a judgment of the ITAT in the case of I.T A. No. 1020(PB) of 1979-80, dated 14th June, 1987 wherein following observations have been made: Therefore, there is no distinction with regard to the status of a person resident in a settled district and that of a person who lives in a Provincially or Federally-administered Tribal Area. Both are Pakistanis subject to the exception that by virtue of clause (3) of Article 247 of the Constitution ibid, no Act of Parliament or of a Provincial Legislature is applicable to Provincially or Federally- administered Tribal Areas. Similarly, a person- residing in a Federally or Provincially-administered Tribal Area, will become liable to tax the moment he carries on business in a settled district".
13. In view of the decision of the learned Tribunal the appellant could not be assigned the status of non-resident. Hence the I.T.O, is directed to amend the issue of status in accordance with the abovementioned pronouncement.
14. It will be seen from the above that learned CIT(A) directed the ITO to amend the issue of status in accordance with the pronouncement of the Tribunal in I.T.A. No.l020(PB) of 1979-80, dated 14th June, 1986. The department instead of considering the issue as directed by learned CIT(A) has come in second appeal before the Tribunal, raising the same issue of the status of the respondent.
They want this Tribunal to declare the respondent as non-resident without any verification. The I.T.O, also did not care to verify the status of the respondent while making assessment under section 62 for the charge year 1987-88. For this year the learned CIT(A) vide impugned order, dated 18th June, 1988 relying on the order, dated 12th June, 1989 for the charge years 1982-83 to 1986-87 directed the ITO to treat the respondent as resident.
15. We have considered the issue and have come to the conclusion that controversy has been resolved by the decision of Full Bench of this Tribunal reported in (1989) PTD (Trib.) 882. The findings are as follows: "Held, residential status of an individual assessee should govern his liability for payment of tax.
Section 9 provides for charge of income- tax in respect of total income of the income year or years as the case may be of every person at the rate or rates specified in the First Schedule.
The provision of section 2(4) of the Ordinance would show that income-tax in respect of the total income of the income year or years, as the case may be, of every person at the rate or rates specified in the First Schedule is to be charged, levied and paid for each assessment year. Resident in relation to any income year means an individual who is in Pakistan in that year for a period of, or periods amounting in all to, one hundred anti eighty-two days or more, or is in Pakistan for a period of, or periods amounting in all to, ninety days or more in that year and who within the four years preceding that year, has been in Pakistan for a period of, or periods amounting in all to, three hundred and sixty-five days or more. Viewed thus the assessee's status is not that of a resident as defined in the Ordinance. He being non-resident his income from salary was not chargeable to tax.
The Area of Swat District where the assessee was employed no doubt forms part of Pakistan Territories under Article 1(2) of the Constitution but its tribal status has also been acknowledged under Article 246 of the Constitution. A person residing in tribal area will be liable to pay tax provided the status is covered by the definition of the word "resident" given in section 2(40) of the Ordinance."
16. Similar issue was discussed in the case reported in (1989) PTD (Trib.) 835. Relevant portion of the order reads as follows: "Subject to the provisions of Income Tax Ordinance, section 9 charges tax on the total income.
Section 11 defines the scope of total income in terms of residence. Total income of a non-resident comprises of only income which accrues or is received or deemed to accrue or to be received in Pakistan while a resident's total income consists of income accruing in any part of the world. After determining the question of residential status of an assessee, items of income includible in his total income must be ascertained with reference to section 11, and then income be computed in the manner laid down in the Ordinance. It, therefore, emerges that residential status of an assessee is very much relevant for the determination of total income of an assessee and forms a part ot-the particulars of income of an assessee."
17. The above decisions on the issue go to show that the residential status of the assessee determines the total income with reference to section 11 of the Ordinance and wherever the ITO faces such eventuality, he has to first determine the status of the assessee for determination of his total income. In the appeals before us no such verification appears to have been made by the assessing officer. Non-application of the Ordinance to the Tribal Areas in the circumstances prevailing should not hamper the work of the Income Tax Department provided that assessments are made strictly in accordance with the provisions of the Ordinance. Even the pronouncements of the Tribunal in I.T.A. No. 1020(PB) of 1979-80, dated 14th June, 1986 do not debar the Income Tax Department to charge to tax the income of an individual the moment he carries on his business in a settled district. What the department has to see is to verify the status of the individual. In these cases before the verification about the status of the respondent was made the respondent no doubt described himself as resident for the charge year 1987-88 but that appears to be misconception and misreading of the order in I.T.A. No. 1202. The order also does not give blanket cover to all those residing in the tribal areas from the payment of tax albeit doing business in the settled districts. We are of the view that the status of the respondent for assessment purposes has to be verified first. For doing so we set aside the assessments for all the years under appeal and direct that assessm ents for all the years be made after affording reasonable opportunity to the assessee respondent of being heard.
In the result appeals are disposed of as indicated.