' I. MAHMUD, J.-This Constitutional Petition raises a short question of law whether a sum of money which is to be paid to the beneficiary of a commercial Letter of Credit against presentation of documents is money due to him or held for and on his account which is liable to be attached under section 46(5-A) of the Income-tax Act, 1922.
2. The petitioner, the First National City Bank, .a Banking Company incorporated in the U. S. A.
Carries on banking business in Pakistan through a registered branch office in Karachi. Messrs Abbas Steel Industries, Karachi (hereinafter referred to as "Abbas Steel") had agreed to purchase a ship m. v. "Gulf Diamond" ex "Baltistan" and were required under their contract to remit the purchase price of U. S. $ 779,145.05 to Messrs W. J. Towell & Company Agencies (Kuwait)
(hereinafter referred to as "Towell & Co."). Accordingly, on 19-9-1974 at the request of Abbas Steel and upon the guarantee of their bankers the Agricultural Development Coop. Bank Ltd., Karachi, the petitioner opened a confirmed and irrevocable Letter of Credit in the said amount in favour of Towell & Co. Through the National Bank of Kuwait S. A. K., Kuwait (hereinafter referred to as "The Kuwait Bank") available by negotiation of sight draft drawn on Abbas Steel and accompanied by certain named documents, namely a Bill of Exchange, a Bill of Sale, Invoice etc. A copy of the L/C dated 19-9-1974 is Annexure `E' to the petition. After making payment to Towell & Co. Against the documents on 30-10.1974, the Kuwait Bank forwarded the documents to the petitioner with a request for re-imbursement by placing the said amount to the credit of their A/C with the petitioner's Bank in New York.
3. It appears that Towell & Co. Were defaulting assessee against whom there were arrears of Pakistan income-tax and penalty for the assessment years 1971-72 and 1972-73. Upon coming to know of the opening of the L/C. The Income-tax Officer, the respondent No, 1, issued two notices to the petitioner under section 46(6-A) of the Income-tax Act, 1922 on 6th and 7th November 1974 respectively, requiring the petitioner to pay to him forthwith the sums of Rs, 51,41,544 and Rs, 62,19,475 which were the arrears of tax outstanding against Towel! & Co. For the respective assessm ent years. It would be sufficient to reproduce one of the said impugned notices :- "Notice under section 46(5-A) of the Income-tax Act, 1922.
No, Cir XIV/74-75/139 Office of the Income-tax Officer, Circle XIV, East. Dated : 6-11-1974.
To, The Manager, First National City Bank Estate Life Insurance Building, McLeod Road, Karachi.
' In the account of Messrs W. J. Towel! & Co. Agencies, Kuwait against L. C. No, 8476 opened by Messrs Abbas Steel Industries.
' Whereas a sum of Rs, 51,42,544 (Rupees Fifty-one lacs forty-two thousand five hundred and forty- four) is due from Messrs W. J. Towel] & Co. Agencies, Kuwait on account of income-tax and penalty and has not been paid, I hereby require you under section 46(5-A) of tLe Income-tax Act, 1922 to pay to me forthwith the said sum of Rs 51,42,544 out of the money which is due from you to the said defaulteror if the money is not now due from you, then forthwith upon the money becoming due or upon the money coming into your possession. If the money which is due from you or which may become due from you or which you may subsequently hold or possess on account of the said defaulter is equal to or less than the aforesaid arrears of income-tax and penalty, then you should pay to me the whole of such money.
' This notice will remain in force until it is revoked by me in writing.
' Any payment made in compliance with this notice shall be deemed to have been made under authority of the said defaulter Mr./Messrs W. J. Towell & Co. Agencies, Kuwait and my receipt shall constitute a good and sufficient discharge of your liability to him/them to the extent of the amount stated in such receipt.
' If after receipt of this notice you discharge any liability to the said defaulter you shall be personally liable to me to the extent of the liability discharged or to the extent of the liability of the said defaulter or the income-tax and penalty whichever is less.
' A copy of this notice has been forwarded to the defaulter Messrs W.
7. Towell & Co. Agencies, Kuwait.
' The duplicate copy of this notice should be returned to me acknowledging receipt of the original (see below).
(Sd.)
' Seal of the Income-tax Officer. Income-tax Officer, Circle XIV, Karachi.
6-11-1974."
' The petitioner replied immediately pointing out that the impugned notices issued to them were misconceived and should be revoked because neither any money was due or was to become due from them to Towel! & Co., nor did it hold any money for and on account of Towell & Co. And that, in any case, Towel! & Co. Had collected the amount of the L/C on 30-10-1974, after negotiating the Letter of Credit with the Kuwait Bank, well before receipt of the impugned notices. The respondent No, 1 declined to accept this explanation or withdraw the impugned notices. In his letter dated 12-11- 1974 he replied as follows :- "It has been ascertained and confirmed that the remittance of U. S. $ 774,122.94 had not been sent by you till 6-11-1974. You are advised in your own interest not to remit the above and pay up as per notice under section 46(5-A) served on you on 6-11-1974 and 7-11-1974. Any attempt to remit the above amount outside Pakistan would make you liable to the extent of the amount of remittance.
' If even after the above clarification you still insist that no amount is du for remittance to the assessee Messrs W. J. Towell & Co. Agencies, Kuwait you will be required to produce documentary evidence establishing that you had received the entire amount for sale o M. V. Diamond by M/s. W.
J. Towell & Co. Agencies, Kuwait, from Messrs Abbas Steel Industries, Karachi and had remitted the same as per foreign exchange regulation before 6-11-1974."
4. In view of the petitioner's stand that the impugned notices under section 46(5-A) of the Income- tax Act were misconceived, the petitioner remitted the amount of U. S. $774,122.94 on 12-11-1974 to its head office in New York for the credit of the account of the Kuwait Bank, in reimbursement of the amount paid to Towell & Co. Under the Letter of Credit. On the same day, the petitioner presented the documents to the Agricultural Development Co-op. Bank Ltd. The bankers of Abbas Steel and debited their account on 20-11-1974 with the total sum of Rs, 77,07,485 (including L/C charges) in reimbursement of the amount remitted by the petitioner to the credit of the New York account of the Kuwait Bank.
5. There the matter rested for a few months. But on 9-5.1975 the petitioner received a Recovery Notice from the respondent No, 2, the Tax Recovery Officer, Circle VII, East Zone, Karachi, demanding payment of Rs, 77,50,000 on the basis of a Recovery Certificate said to have been issued by the respondent No, 1 treating it as a defaulter and threatening to take further steps to realise the amount under the Income-tax Recovery Rules, 19t9 in case of default. The Notice reads as follows :- "Subject Recovery of Income-tax Demand under section 46(5-A).
' Messrs W. J. TowelI & Co. (Agencies) have not paid huge demand of income-tax which is outstanding against them. The Income-tax Officer, Circle XIV, East Zone, Karachi has issued notices under section 46(5-A) of the Income-tax Act, to your Bank and the same were served on you on 6- 11-1974, and 7-11-1974, for Rs, 77,50,000 as this amount of money was due from you to Messrs W. J.
Towell & Co. And under section 46(5-A) you were required to pay the said sum of Rs, 77,50,000 to the aforesaid Income-tax Officer but you did not pay the same and by this way you have defaulted and you have been treated as defaulter.
' Resultantly the Income-tax Officer, Circle XIV, has issued Recovery Certificate under section 46-A of Income-tax Act, to my office to recover Rs, 77,50,000 from you. You are therefore, required to pay the amount aforesaid within 15 days from the service of the attached notice, to the undersigned or State Bank of Pakistan, Karachi. In case of default steps will be taken to realise the amount in accordance with the Income-tax Recovery Rules, 1969.
(Sd.)
Seal of the (MUHAMMAD ASLAM KHAN), Income-tax Tax Recovery Officer, Circle VII, Recovery Officer East Zone, Karachi."
' Considering itself aggrieved thereby, the petitioner has filed the present petition to challenge the aforesaid impugned notices, as being without lawful authority and of no legal effect.
6. The short legal question which arises for consideration in this case whether by opening the L/C at the request of a customer for a specified mount in favour of a beneficiary, money is due or becomes due from the an opening the credit to the beneficiary. The submission of Mr. Nomani, earned counsel for the petitioner is that the Income-tax Officer, the respondent No, 1 completely misconceived the meaning of a commercial /C and particularly, the legal relationship which is created when an L/C is pened, between the opening or issuing bankers and the beneficiary of the credit, and that the impugned notices issued to the petitioner under section 46(5-A) of the Income-tax Act, 1922. Treating the petitioner as a ebtor from whom money became due to Towel] & Co. Are without lawful authority and of no legal effect.
7. In order to appreciate the nature of the legal relationship which arises between an opening banker and a beneficiary upon the opening of a Letter of Credit, it is necessary to state briefly the main features of a documentary commercial Letter of Credit. The essential features of a Letter of Credit have been aptly described by A. R. Sheikh, J. Of the High ourt of Lahore in the case of Australasia Bank Ltd. v. M. Abdullah and ethers (1). A good account of it may be reproduced from Halsbury's Laws of England, Fourth Edition, Vol. 3, Article 131 as follows :- "It is often made a condition of a mercantile contract that the buyer shall pay for the goods by means of an irrevocable credit, and it is then the buyer's duty to procure that his banker, known as the issuing or opening banker, issues an irrevocable credit in favour of the seller by which the banker undertakes to the seller, either directly or through another banker in the seller's country, known as the correspondent or intermediary (advising, confirming, paying or negotiating) banker, to pay or accept drafts drawn upon him for the price of the goods, against the tender by the seller of the shipping documents."
8. The Letter of Credit in the instant case (Annexure `E' to the petition), was an irrevocable documentary credit and was opened at the request of Abbas Steel on 19-9-1974. It was addressed to Towell & Co. As beneficiary and was forwarded to the Kuwait Bank, who although shown therein as Advising Bank, was the paying Bank. The Letter of Credit was for an amount of U. S. $ 779,145.05 and it read as follows :- "We hereby issue in your favour this documentary credit which is available by Negotiation of your draft at sight drawn on above-named applicant (Messrs Abbas Steel Industries c/o Agricultural Development Co-op. Bank Ltd.) accompanied by the following documents :
(1) Bills of sale.
(2) Your signed commercial invoice in octuplicate certifying merchandise of U. K. Origin covering a vessel m. v. "Gulf Diamond" ex"Baltistan" as per contract... . No, GTS/74/1767 dated August 31, 1974 of Messrs Gulf Trading & Shipping Co. Ltd., Karachi.
' We hereby engage with drawers and/or bona fide holders that drafts drawn and negotiated in conformity with the terms of this credit will be duly honoured on presentation."
9. The above-mentioned undertaking contained in the last paragraph
(1) PLD 1966 Lah. 67 of the L/C, which is in the usual form, contains a promise by the issuing banker that upon presentation of the required documents by the beneficiary, the issuing banker will pay the amount or accept the Bill of Exchange drawn and negotiated in conformity with the terms of the credit. The legal effect of the undertaking is that it creates a contractual obligation between the issuing banker and the beneficiary, which renders the issuing banker directly liable to the seller for damages in case of its breach. In this connection, Halsbury's Laws of England, 4th Edition, Article 133 may be reproduced :- "As between the seller and the banker, the issue of the credit duly notified to the seller creates a new contractual nexus and renders the banker directly liable to the seller to pay the purchase price or to accept the bill of exchange upon tender of the documents..The contract thus created between the seller and the barker is separate from, although ancillary to, the original contract between the buyer and the seller, by reason of the banker's undertaking to the seller, which is absolute."
10. The aforesaid obligation is purely contractual and is contingent upon tender of the documents by the beneficiary in accordance with th terms of the credit. But no right to immediate payment vests in th beneficiary by the mere issue of the credit in his favour. Nor does the issue of the credit create a vested right to payment at a future date upon tender of the documents. If the paying banker or the issuing banker fail to make payment against tender of the documents, the right of the beneficiary is to sue for damages for breach of the aforesaid undertakings and the claim does not become a debt "due" until it has been adjudicated by a Court or is admitted. The reason is that no relationship of debto and creditor is created between the issuing banker and the beneficiary by the issue of the Letter of Credit. Therefore, there is no existing debt "due" to the beneficiary from the issuing banker. The provisions contained in section 46(5-A) of the Income-tax Act, 1922 are analogous to attachment of debts in execution of decrees by granishee notices under Order XXI, rule 46 of the Civil Procedure Code, 1908. Th expressions used in subsection (5-A) of section 46 of the Income-tax Act "money is due or may become due to the assessee" mean an existing debt either presently payable or an existing debt payable at a future date. But it is not a debt until it is an actually existing debt, that is, a perfected and absolute debt although it may be payable at a future date. In. Harid Acharjia Chowdhry and others v. Baroda Kishore Acharjia Chowdhry and others (1), the word "debt" was explained as follows : "We think it is clear that a debt may include a sum of money due by one person to another, and which is actually payable at the time as well as sum of money which is due but not actually payable then..All the authorities seem to show that a debt must be a perfected and absolute debt, not merely a sum of money which may or may not become payable at some future time, or the payment of which depends upon contingencies which may or may not so happen."
' This interpretation was followed by the Full Bench of the Lahore High Court in Mela Ram v. Firm Ram Das Joshi & Sons through Jagat Ram and others (2). To the same effect is the ruling in Varjivandas Jamanadas and others v. Maganlal Chhabildas (3), where it was held that the term "debt"!
(1) I L R 27 Cal. 38 (2) AIR 1942 LA. 275 (3) AIR 1937 Bom. 382 includes a sum of money due by one person to another, which is actually payable at the time, or which is due, though not actually payable then.
11. The impugned notices appear to have been issued under a misconception on the part of the Income-tax Officer as to the nature of a documentary commercial Letter of Credit and also in the mistaken belief that the petitioner had received from the Abbas Steel the entire amount of the L/C in advance which it believed the petitioner had credited "in the account of Messrs To well & Co.
Against the L/C No, 8476". It was this misconception which led the Income-tax Officer to assume that the petitioner was holding the amount "for or on account of the assessee", which could be attached. This is further borne out by the reply of the Income-tax Officer dated 12-11-1974 calling upon the petitioner to prove its allegation that money had been paid to Towel! & Co. On 30-10-1974 before receipt of the impugned notices, by producing documentary evidence establishing that the petitioner had received the entire amount of the sale from Abbas Steel and had remitted the same "as per foreign exchange regulation before 6-11-1974." This of course was not the case, because the L/C was opened upon the security of the guarantee given to the petitioner by the Agricultural Development Co-op. Bank Ltd., Karachi, the bankers of Abbas Steel. But at no time did the petitioner possess or hold any money belonging to the assessee or place any money to the credit of his account, which could be attached as a debt. The money which it actually recovered from the bankers of Abbas Steel by debiting their account, was in reimbursement of the payment made to the Kuwait Bank and was its own money.
12. For the foregoing reasons, I am of the view that the impugned notices issued by the Income-tax Officer, the respondent No, 1 under D subsection 46(5-A) are illegal and without lawful authority and of no legal effect.
13. Mr. S. A. Nusrat, Advocate for the respondents submitted that the petition is not maintainable as the petitioner had not availed of the other remedies provided under the Income-tax Recovery Rules, 1969 which according to him, afforded adequate remedy. No doubt upon receiving the recovery notice from the Tax Recovery Officer dated 9-5-1975, the petitioner could have objected to the attachment of the money under rule 9(1) of the said Rules, which requires the Tax Recovery Officer to proceed to investigate the objection. The order of the Tax Recovery Officer was also appealable under rule 74 to the Inspecting Assistant Commissioner of Income-tax, as is also provided in section 30(A) of the Income-tax Act. A further revision and review is also provided. But where the impugned action is patently without jurisdiction, relief in Constitutional petition cannot B be refused on the ground that an alternate remedy is available. See Nagina Silk Mill, Lyallpur v. The Income-tax Officer and others (1), Premier Cloth Mills Ltd. v. Saks Tax Officer (2) and The Murree Brewery Cold v. Pakistan (3). Therefore, I find no force in the submission of Mr. S. A. Nusrat.
14. For the foregoing reasons, I would allow the petition with cost.
(1) PLD 1963 SC 322 (2) 1972 SC MR 257 (3) PLD 1972 SC 279