' S. SAEED ASHHAD, J.---The aforesaid three Constitutional petitions have been filed by the aforementioned two petitioners who are public limited companies incorporated under the Companies Ordinance, 1984. The petitioners in consequence of the policy Framework and Package of Incentives for Private Sector Power Generation Projects came forward to establish and install electric Power Plants in different districts of Karachi for generating electricity and for its supply to M/s. Karachi Electric Supply Corporation (KESC). The implementation agreement was singed between the President of Pakistan on behalf of Islamic Republic of Pakistan and the petitioners which contained sovereign guarantees and assurance in respect of exemptions from and facilities for payment of all kind of levies and taxes and removal of clogs and constraints in the matter of leases, licences and permits at various stages and levels. According to Item No, 1 of the First Schedule to the Implementation Agreement it was provided that the maximum income-tax liability of the non-resident contractors in respect of the construction, erection, testing and commissioning of the complex would be four per cent. Of the relevant payments made by the company to non- resident Contractors and the Contractors to their non-resident direct sub-contractors. The income of the petitioners from an electric power generation project was exempted from charge to tax under clause (176) of the Second Schedule to the Income Tax Ordinance (hereinafter referred to as the Ordinance). In consequence thereof the petitioner applied for exemption certificates under the proviso to section 50(5) of the Income Tax Ordinance to the Commissioner of Income Tax, who after examining the provisions of law and the facts of the case issued certificates of exemption as well as non-deduction of income-tax on the import of the machinery, plant and equipment required for the power plants. Petitioner M/s. Tapal Energy Ltd. Entered into agreements with M/s. Stork Wartsila Diesel BV for supply of the machinery, plant and equipment and M/s. Power Construction Company BV of Netherlands for constructions, erection, testing and commissioning of their power plant. Petitioner Gul Energy Ltd. Entered into agreements with M/s. Tomen Power Singapore (Pvt.) Limited for construction, erection, testing and commissioning of their power plant and five other contracts for performing various other jobs and works which were connected with the construction and commissioning of the power plant. According to Item No, 1 of the First Schedule to the Implementation Agreement the petitioners were required to deduct withholding tax from the payments made by them to the non-resident contractors engaged by them for the construction, erection, testing and commissioning of four per cent. -It was stated that this rate of deduction of tax at 4% had also been provided in paragraph E, sub-para. 2, clause (c) of Part 1 of the First Schedule to the Ordinance. Accordingly, the petitioners deducted with holding tax at the rate of four per cent. From the payments made by them to the various non-resident contractors engaged by them as per Item No,1 of the First Schedule to the Implementation Agreement and paragraph E sub-para. (ii), clause (c) of Part 1 of the First Schedule to the Ordinance. The petitioners filed returns of income for the assessment years 1996-97 and 1997-98 and their assessm ents were finalised for the assessment years 1996-97 and 1997-98 by the predecessor of respondent No,3. After the aforesaid assessment orders respondent No,3 issued show-cause notices to the petitioners under section 52 read with section 86 of the Ordinance informing them that they had not correctly deducted the withholding tax under section 50 from the payments made by them to the contractors at the required rate of 8% and calling upon them to show cause as to why the short fall in the withholding tax due to deduction at a lower rate be not recovered from them. The deduction on withholding tax at 8% as disclosed by respondent No,3 was that such contracts were turnkey contracts wherein withholding tax was to be deducted at the rate of 8% of the payments made to the contractors. The petitioners through their Income Tax Advisors/Chartered Accountants explained to respondent No,3 that in accordance with the provisions of item No, 1 of the First Schedule of the Implementation Agreement and paragraph E, sub-para. (ii), clause (c) of Part 1 of the First Schedule to the Ordinance the petitioners were required to deduct withholding tax at the rate of 4% (four per cent.) from the payments made by them to the contractors engaged in the construction, erection, testing and commissioning of the power plants which they had done and requested respondent No,3 to withdraw the show-cause notices issued by them 8 they could not be held to have failed to deduct the withholding tax or to have deducted the same at the working rate. The explanation advanced by the petitioners was not accepted by respondent No, 3 who held that the contracts awarded by the petitioners for the purpose of constructions, erection, testing and commissioning of the power plants were in the nature of "turnkey contract" and according to para. Of Part 1 of the First Schedule to the Income Tax Ordinance the petitioners were under obligation to deduct withholding tax at the rate of 8% from the payments made by them to the contractors. Respondent No, 3 was informed alongwith evidence that more than one contractors were engaged by both the petitioners for the purpose of carrying out different jobs and works to be undertaken for the purpose of constructions, erection, testing and commissioning of the power plants that the contracts in respect of both the power plants were not turnkey contract that the deduction at 4% were made according to the law and did not amount to short deduction as to why the amounts and the same had been duly deposited in the Government treasury. The petitioner further submitted that this action of respondent No, 3 was in pursuance of the instruction issued by the Central Board of Revenue to all the Income Tax Authorities to treat all contracts of power projects plants as "turnkey contract" and to deduct the withholding tax at the rate of 8%. It was further averred that respondent No,3 did not take into consideration the explanation advanced by the petitioners, the relevant provision of the Ordinance and the facts of the case and merely on the instructions of the Central Board passed the impugned orders under section 52 read with section 86 of Ordinance holding the petitioners as the assessees in default and issued demand notice under section 85 of the Income Tax Ordinance calling upon the petitioner Tapal Energy Limited to make payments of the sums of Rs,38,94,56,732.00, and Rs,52,44,260 and M/s. Gul Ahmed Energy Ltd. Of the sum of Rs,31,40,28,671 which according to him was the short payment on account of deduction of withholding tax wrongly at the rate of 4% instead of 8% by the petitioners from the payments made to the contractors. Since the aforesaid orders of respondent No, 3 were in clear disregard of the evidence and the facts of the two cases, the concessions and the implementation agreement entered into between the petitioners and the Islamic Republic of Pakistan the scheme and the principle relating to the turnkey contract and the provisions of law, the petitioners considered them to be unlawful, illegal, contrary to law, mala fide and of no legal consequence being void ab initio. The petitioners submitted that in view of the above they were not required to resort to the proceedings provided under the Income Tax Ordinance as it was submitted by the petitioners that it is an established principle that an order which is illegal, without jurisdiction or corum non judice being of no legal effect be directly challenged by the aggrieved party in the Constitution jurisdiction of this Court.
Hence these petitions, wherein they prayed for the following reliefs:--
(a) Quash the order passed by the respondent No, 3 under section 52 read with section 86.
(b) Declare the order passed by the respondent No, 3 under section 52 as being without jurisdiction, or in excess of jurisdiction without lawful authority and of no legal effect.
(c) Restrain the respondent No, 3 from taking any measures including notice under sections 92, 93 or 94 of the Income. Tax Ordinance, 1979 and otherwise restrain him to take any measures of recovery of the impugned tax of Rs,5,244,260.
(d) Award costs of this petition to the petitioner. Respondent No, 3 filed his comments in all the three petitions wherein he denied the various averments made by the petitioners in their petitions.
It was submitted that according to the Implementation Agreement the construction contractors were supposed to perform the functions of (i) designing; (ii) manufacture; (iii) engineering; (iv) procurement; (v) construction; (vi) installation; (vii) completion; (viii) start up; (ix) testing; and (x) commissioning. He further submitted that the construction contract was designed to be a single compact contract to be awarded to a single contractor who was to perform all the afore stated functions. Petitioners on their own bifurcated the contracts and awarded contracts to contractors other than the construction contractors for performing some of the aforesaid functions in violation of the Implementation Agreement with a view to defeat the concept of turnkey contract. It was also submitted that plant and machinery was part of turnkey contract and the same was different from the concept of imports of plant and machinery as pleaded by the petitioners. Respondent No, 3 further submitted that there was no provision in the Implementation Agreement which required the petitioners to import plant and machinery as a commercial import and the same would be treated as procurement of plant and machinery for installation, completion and commissioning of the project on turnkey basis.
2. In respect of the petition filed by M/s. Gul Ahmad Energy Ltd, it was submitted that they entered into four different contracts which was contradictory to the terms of the Implementation Agreement as the construction contractor in their case consisted of a consortium of two contracts which was to perform all the functions enumerated hereinabove but with mala fide intention in order to avoid deduction of withholding tax at the rate of 8% on the basis of turnkey contract the petitioner M/s. Gul Energy engaged more contractors to perform some of the functions to be performed by the construction contractor. Respondent No, 3 further submitted that there is no provision in the Implementation Agreement which required the petitioners to deduct withholding tax from the non-resident contracts at the rate of 4% and the tax was to be deducted according to law detailed in the Ordinance. Respondent No, 3 denied the submission of the petitioner that withholding tax was to be deducted at 4% from the payment made to the contractors non-resident in accordance with para. E, sub-para. (ii), clause (c) of Part 1 of the First Schedule to the Ordinance and submitted that the same was to be deducted at the rate of 8% in accordance with para. E, subpara. (ii), clause (b) of Part 1 of the First Schedule to the Ordinance. It was submitted that the rate of 4% would be applicable where there are many contracts or sub-contracts for a project,.
Which is not the case of the petitioners as according to the terms of the Implementation Agreement there was to be one contractor for performing all the functions on turnkey contract basis.
3. With regard to the assessm ents made by his predecessor, respondent No,3 submitted that he did not consider and examine the nature of the contract as to whether it was a turnkey contract, whether deduction of withholding tax-at 4% was proper and legal and whether non-deduction of withholding tax from the contractor who supplied plant and machinery was legally correct and on examination of these issues the petitioners were to have defaulted and were deemed as assessees in default which warranted initiation of proceedings against them under section 52 read with section 86 of the Ordinance. Respondent No, 3 denied that he had no authority or jurisdiction to proceed under sections 52 and 86 of the Ordinance though admitting that jurisdiction to assess the non-residents was with companies. It was submitted that as he had jurisdiction to make assessm ents in respect of the petitioners, he could proceed against them as assessees in default in view of the provisions of section 52 of the Ordinance. He further submitted that the orders made by him under sections 52 and 86 of the Ordinance were on the basis of the jurisdiction vesting in him after examining all the facts and legal position. He further submitted that he had not exercised jurisdiction over non-residents.
4. Respondent No,3 also challenged the maintainability of these Constitutional petitions as effective, alternate and adequate remedy has been provided by section 129 of the Ordinance by way of appeal before the Additional Appellate Commissioner. It was also submitted that controversial and intricate questions of law were involved which could not be decided on the basis of evidence/material on record in these Constitutional petitions and the forums established under the Ordinance would be the proper forums to decide such controversial and intricate questions of facts. It was submitted that the Constitutional petitions were liable to be dismissed on these grounds alone.
5. We have heard the arguments of both the learned counsel Mr. Sirajul Haq, for the petitioners and Mr. Shaikh Haider, for the respondents. Both of them were put on notice that these Constitutional petitions would be finally heard and disposed of on merits, if need be, after admission thereof to regular hearing. As the facts and circumstances in the three petitions are almost similar and identical questions of law are involved, we would, dispose of these Constitutional petitions by this common order.
6. Mr. Shaikh Haider fully supported the impugned orders both on factual and legal aspects and submitted that respondent No, 3 had proceeded with and made the impugned orders in exercise of the jurisdiction vesting in him and on consideration of the various provisions of the Ordinance applicable to the facts of these petitions.
7. Mr. Shaikh Haider the learned counsel for the respondents vehemently objected to the maintainability of the aforesaid Constitutional petitions on the ground that the respondent No,3 had made assessm ent order under section 52 read with section 86 of the Ordinance and his order were liable to be challenged by way of first appeal before the Commissioner of Income Tax, file second appeal before the Income Tax Appellate Tribunal. He further submitted that the petitioners instead of taking recourse to the appeals provided under the Ordinance had approached to this Court in its Constitutional jurisdiction which is not legally permissible. In support of his above contention he placed reliance on the case of Mrs. Farzana Kamran v . District Magistrate and others reported in 1992 SCM R 2434, (2) Adamjee Insurance Co. Ltd. v. Pakistan and 5 others reported in 1993 SCM R 1798, and (3) Income Tax Officer v. Chappal Builders, reported in 1993 SCM R 1108. Mr. Siraj Haq, the learned counsel for the petitioners refuted the objection raised by Mr. Shaikh Haider and submitted that the principle referred to by Mr. Shaikh Haider of availability of adequate and alternate remedy would be applicable for challenging an order only passed by a Government functionary on proper appreciation of the evidence and material on record and in lawful exercise of the powers confessed on him by law but if the Government functionary had passed an order which is contrary and not consistent with the evidence and material on record, is based on misreading and misinterpretation of the provisions of the agreement or the contents arrived at between the parties and is also violative of the statutory provisions the party would not be required to have recourse to the remedies available under a particular statute under which the illegal and void orders had been passed and it would be open to such aggrieved party to directly approach this Court in its Constitutional jurisdiction. In support of his arguments he placed reliance on the case of Mst. Farzana Kamran v. District Magistrate and others, reported in 1992 SCM R 2434, which had also been relied upon by Mr. Shaikh Haider. In this case the Honourable Supreme Court was pleased to hold that order which was neither mala fide nor suffered any jurisdictional defect could not be challenged directly in a Constitutional petition and the specific remedy provided in the relevant statute would be adequate for obtaining the desired relief. The pronouncement made in this case is applicable to all fours to the facts of these cases inasmust as the impugned orders passed by respondent No, 3 have been described petitioners to be without jurisdiction, contrary to and inconsistent with the evidence and material on record based on misreading and misinterpretation of the provisions of the Implementation Agreement and the covenants agreed upon the parties in violation of the statutory provisions and illegal and mala fide made solely with a view to collect more revenue. Mr. Siraj Haque, also referred to us to the cases of (i) M/s. Julian Hoshang Dinshaw v. Income Tax Officer and others reported in 1992 SCM R 250, and (ii) Collector of Customs and others v. M/s. Ahmed & Co. Ltd., reported in 1999 SCM R 138. We have considered the arguments of the learned counsel for the parties regarding the maintainability and we are of the view that the aforesaid Constitutional petitions are maintainable notwithstanding the fact that adequate and alternate remedy by way of first and second appeals before the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal respectively were available to the petitioner. In view of the fact that the impugned orders passed by respondent No, 3 appear to have been made by a wrong Authority, illegal exercise of the jurisdiction and also that in arriving at the findings respondent No, 3 appears to have ignored/disregarded the relevant material on record, the pronouncement made in the case of M/s. Al-Ahram Builders (Pvt.) Ltd. v. Income Tax ' Appellate Tribunal (1993 SCM R 29) to the following effect would be attracted: "The tendency to bypass the remedy provided under the relevant statute and to press into service the Constitutional jurisdiction of the High Court has developed lately, which is to be discouraged.
However, in certain cases invoking of Constitutional jurisdiction of the High Court instead of availing remedy provided for under the statute may be justified, for example when the impugned order/action is palpably without jurisdiction and/a mala fide. To force an aggrieved person in such case to approach the forum provided under the relevant statute may not be just and proper."
8. Mr. Shaikh Haider also objected to the maintainability of the petitions on the ground that the same involved interpretation and enforcement of the agreements entered into by the petitioners with the Government of Pakistan and it is a settled law that contractual rights and obligations are not to be decided in Constitutional petitions. We are mindful of the above established principle.
However, we may refer here to the cases of: (1) Muhammad Ashraf Ali v. Muhammad Naseer and others, reported in 1986 SCM R 1096 and (ii) M/s. Wake Orient Power & Light Ltd. v. Government of Pakistan and others, reported in PLD 1998 Lah. 665, wherein it has been held that writ petition is permitted to be resorted to in cases involving contract between a private party and State.
9. On consideration of the case-law relied upon by the learned counsel for the parties, we are satisfied that the facts of these petitions are such that they warranted the petitioners to invoke the Constitutional jurisdiction of this Court for agitating their grievance arising out of the alleged illegal impugned orders of respondent No, 3.
10. The first ground on which the orders of respondent No, 3 holding the petitioners as assessees in default for their alleged failure to deduct or collect tax from the payments made by them to the contractor assailed by Sirajul Haq was that respondent No,3 had no authority to call in question the issue regarding the failure of the petitioners to deduct tax altogether or a less than on the specified rate and deposit the same in Government Treasury within the specified date in the course of the income-tax assessm ent proceedings relating to the assessment of income of the petitioners. It is to be observed that the profits and gains derived by the petitioners from their respective power plants were exempted from charge to income-tax by clause (176) of the Second Schedule to the Ordinance. Respondent No,3 in finalizing the assessment of the petitioners was to confine himself to the inquiry whether all the conditions postulated in sub-clauses (a), (b) and (c) of clause (176) of the Second Schedule to the Ordinance existed or were 'complied with by the petitioners. Once it was established that three conditions were complied with the petitioners would be entitled to have their income exempted from charge to income-tax. In these proceedings the issues of declaring the petitioners as assessee in default on their failure to deduct tax from the payment made by them to non-resident contractors and to deposit the same in Government Treasury could not be initiated in view of the provisions of sections 52 and 86 of the Ordinance. The alleged default is not making. Deductions at the rate postulated by respondent No, 3 were not receipts of the payments rather they were the "Buyers" as envisaged in section 50(4) of the Ordinance for a better understanding of the issue and for resolving it with clarity it would be appropriated to reproduce sections 50(4) and 52 of the Ordinance hereunder:-- "Section 50(4). Notwithstanding anything contained in this Ordinance---
(a) any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person (being resident) (hereinafter referred to respectively as 'payer' and 'recipient'), on account of the supply of goods or for service rendered to, or the execution of a contract with the Government, or a local authority, or (a company) (or a registered firm), or any foreign contractor or consultant or consortium shall (where the total value, in any financial year, of goods supplied or contracts executed exceeds fifty thousand rupees, or of services rendered exceeds ten thousand rupees), deducted advance tax, at the time of making such payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any financial year shall, subject to the provisions of section 53(d), be given in computing the tax payable by the recipient for the assessm ent year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, if any, in which the 'said date', as referred to therein falls, whichever is the later: ' Provided that the provisions of this clause shall, mutatis mutandis, apply to any payment made on or after the first day of July, 1992, to any non-resident person as they apply to any payment made to a resident recipient on account of execution of a contract for construction, assemble or like project in Pakistan;
(b) the Commissioner may, on an application made by any recipient and after making such inquiry as he thinks fit, allow, by an order in writing, any person responsible for making such payment not to deduct any tax from any payment or payments made to such recipient in any financial year; and where such order is made, the person responsible for making any payment shall thereafter, and until such order is cancelled, make such payment without deduction of tax under clause (a), (and): ' Provided that;
(i) Nothing contained in clause (a) or clause (b) shall apply to any payment made on account of the refund of any security deposit; and
(ii) nothing contained in subsection (1) shall apply to companies as payers, 'Section 52. Liability of persons failing to deduct or pay tax.---Where any person fails to deduct or collect, or having deducted or collected, as the case may be, fails to pay the tax as required by, or under, section 50, he shall, without prejudice to any other liability which he may incur under this Ordinance, be deemed to be an assessee in default in respect of such tax."
11. From a plain reading of the afore-referred two sections it transpires that the alleged failure of the petitioners to deduct tax at the specified a rate from payments made by them to the contractors would not legally permit initiation of proceedings under section 52 read with section 86 of the Ordinance for holding them as deemed assessee in default in the assessment proceedings relating to the petitioners. This would be so because on their failure to deduct the tax they would be deemed to be assessees in default instead of original or actual assessees, the non-resident contractor engaged by the petitioners and to whom payments were made from which deduction of tax and deposit of the same in Government Treasury was to be undertaken by the petitioner. The tax was to be charged on the payments made to the nonresident contractors and was to be paid by them but the responsibility of deducting, collecting and depositing the same in the Government Treasury on their behalf was put on the petitioners by section 50(4) of the Ordinance. The contractors being the recipients of money, failure in not deducting the tax or deducting it at a rate other than the specified rate would in reality be a default by the non-resident contractors as the case may, but no action could be initiated against the contractors as they were under no obligation to deduct or collect the tax from the payments received by them by way of their income and deposit the same in Government Treasury which duty was cast upon the petitioners and on their alleged non-compliance thereof would be deemed to be assessee in default in view of the provision of section 52 of the Ordinance and liable to be proceeded with under sections 52 and 86 of the Ordinance.
12. The issue which now crops up for decision is as to whether the proceedings under sections 52 and 86 of the Ordinance against the petitioners could be initiated in the income-tax assessment proceedings of the petitioners or in the assessment proceedings relating to the contractors. In this connection it would be beneficial to refer to the sections 9, 11 and 50(9) of the Ordinance and for the sake of brevity they are reproduced hereunder:-- "Section 9. Charge of income tax.---(1) Subject to the provisions of this Ordinance, there shall be charged, levied and paid for each assessment year commencing on or after the first day of July, 1979, 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.
' Section 11. Scope of total income.---(1) Subject to the provisions of this Ordinance, the total income, in relation to any assessm ent year, of a person--
(a) who is a resident, includes all income from whatever source derived, which--
(i) is received, or is deemed to be received, in Pakistan in the income year by, or on behalf of, such person; or
(ii) accrues or arises, or is deemed to accrue or arise, to him in Pakistan during such year; or
(iii) accrues or arises to him outside Pakistan during such year;
(b) who is a non-resident, includes all income from whatever source derived, which--
(i) is received, or is deemed to be received, in Pakistan in the income year by, or on behalf of, such person; or ' Section 50(9)---For the purpose of this section,-
(a) 'person responsible' means the prescribed person and includes,-
(i) in the case of a company; local authority or an association of person, the principal officer thereof; and
(ii) in every other case, the payer himself; and
(h) any sum from which tax is deductible under this section shall be deemed to be income chargeable to tax under this Ordinance."
13. From the afore stated section 9 it is to be observed that income-tax is to be charged on the total income earned by every person during an income year. Section 11 defines the total income and the definition is wide enough to bring the contractual payments made by he petitioners to the contractor within its scope section 50(9)(b) of the Ordinance specifically provides that any sum paid to any person from which tax is to be deducted under section 50(4) shall be deemed to be income chargeable to tax. Thus, the contractual payments made by the petitioners to the contractors were to be deemed to be the income of the contractor. The petitioners had brought to the notice of respondent No, 3 the payments made by them to the contractors for performance of different kinds of works and jobs in- respect of the construction, erection, testing and commissioning of the power plants. The moneys had been paid by the petitioners and had gone out of their hands in the hands of recipients/contractors. In view of these facts such payments not being the receipts in the hands of the petitioners could not be treated as income of the petitioners.
As these payments/morays did not reflect the income of the petitioners, respondent No,3 had no authority to initiate proceedings for holding them as assessees in default in such assessment proceedings as the petitioners had not been guilty of any overt act of commission or omission in respect of their income-tax assessm ent. They could be held to be defaulters only in their capacity as "persons responsible" within the meaning of section 50(9) (a) (ii) of the-Ordinance for deducting the tax as envisaged by section 50(4) if they had failed to deduct the tax at the rate postulated by the respondents. It is also to be noted that the responsibility to collect the tax at the proper rate did not lie on respondent No,
3. This responsibility was on the Deputy Commissioner of Income-tax having jurisdiction to frame assessments of the contractors,. The concerned Deputy Commissioner of Income Tax would have the authority to initiate proceedings for collecting the tax and/or for making up the shortfall of the alleged less deduction in the assessment proceedings of the contractor from whom either deductions were not made or were made at a rate less than the required rate. As the responsibility to deduct the tax from the payments to the contractor did not lie on them but was placed on the petitioners, they were to be deemed as assessees in default in place of the contractors due to the provisions of section 50(4) of the Ordinance. Any proceedings for such default could not be initiated in the income-tax assessment proceedings of the petitioners as the alleged default had no nexus with the facts, rights and liabilities of the petitioners in their own income-tax assessm ent, At the most that respondent No,3 could legally do was to disallow these moneys as an expenditure on the alleged failure of the petitioners to deposit the same in Government Treasury in view of the provisions of section 24(b) of the Ordinance and to bring to the notice of the concerned Deputy Commissioner of Income-tax the alleged default made by the petitioner for taking appropriate action against them. The impugned orders passed by respondent No, 3 cannot be considered to valid and legal orders and are void ab initio be being against the Scheme of the Ordinance.
14. The next ground on which the impugned orders of respondent No,3 have been assailed is related to the first objection on which the orders were challenged. Mr. Sirajul Haq submitted that as the proceedings under section 52 read with section 86 of the Ordinance for holding the petitioners as assessees in default for their alleged failure in making, not deducting or deducting the withholding tax at a lesser rate from the payments made by them to the contractors could not be initiated in the assessm ent proceedings of the petitioners but could only be initiated in the assessm ent proceedings relating to the contractors, respondent No, 3 had no jurisdiction to initiate and finalize such proceedings and his orders are illegal, coram non judice and void ab initio. In this connection he drew our attention to section 5 of the Ordinance which deals with the jurisdiction exercisable by the various Income-tax Authorities. The relevant provisions of section 5 is clause (c) of subsection (1) of the Ordinance and it will be appropriate to reproduce the same as under:-- "Section 5(l)(c). The Inspecting Assistant Commissioner and the Income-tax Officers shall perform their functions in respect of such persons or classes of persons or such areas as the Commissioner, to whom they are subordinate, may direct; and the Commissioner may, with the prior approval of the Central Board of Revenue or, if the Central Board of Revenue so directs, the Regional Commissioner, by generating special order in writing direct that the powers conferred on the Income Tax Officer and the Inspecting Assistant Commissioner by or under this Ordinance shall, in respect of all or any proceedings relating to specified cases or classes of cases or specified persons or classes of persons, be exercised by the Inspecting Assistant Commissioner and the Commissioner, respectively, and, for the purposes of any proceedings in respect of such cases or persons references in this Ordinance or in any rules made thereunder to 'Income Tax Officer' and 'Inspecting Assistant Commissioner' shall be deemed to be references to 'Inspecting Assistant Commissioner' and 'Commissioner', respectively; and...."
15. From a plain reading of the aforesaid clause (c) of section 5(1) of the Ordnance it is to be noted that jurisdiction is to be conferred on Deputy Commissioners of Income-tax by the Commissioners either with the approval of the Central Board of Revenue or of the Regional Commissioners for exercising powers for proceeding with the assessment of proceedings of the different assessment.
It is only after conferment vesting of such jurisdiction by the Commissioners that Deputy Commissioner of Income Tax would be legally competent to exercise the jurisdiction in respect of all proceedings to specified cases or classes of cases or specified persons or classes of persons.
Mr. Sirajul Haq submitted that in exercise of the powers contained in clause (c) of section 5(1) of the Ordinance the concerned Commissioner of Income-tax issued Notifications dated 3-10-1995 and 28-11-1997, whereby respondent No, 3 in the aforesaid petitions was assigned the jurisdiction to proceed with the cases of the petitioners whereas the jurisdiction to proceed with the assessment of non-resident contractors in the territorial jurisdiction of Sindh and Balochistan Provinces was conferred on the Deputy Commissioner of Income-tax, Cir-10/COS-V, Karachi.
16. It was further submitted that the issue, as to whether the petitioners had made deduction of the withholding tax under section 50(4) of The Income Tax Ordinance and had deposited the same within time could not have been raised and considered in the assessment proceedings of the petitioners as respondent No,3 had no authority or jurisdiction to question the payments made to the non-resident contractors as well as the deductions made by way of withholding tax from such payments.
17. Mr. Shaikh Haider, learned counsel for the respondent submitted that challenge with regard to the authority and jurisdiction of respondent No,3 to initiate and finalize the proceedings under section 52 read with section 86 of the Ordinance against the petitioners during the course of assessm ent proceedings relating to the petitioners could not be taken up in these petitions as the petitioners had not raised such objections in reply to the show-cause notices issued to them as to why proceedings under section 52 read with section 86 of the Ordinance should not be initiated and that they had participated in the proceedings initiated in consequence of the aforesaid show- cause notices voluntarily. Mr. Shaikh Haider further submitted that in view of the provisions of subsection (5) of section 5 of the Income Tax Ordinance the petitioners are estopped from raising objection relating to the jurisdiction of respondent No,
3. From a perusal of section 5(5) of the Income Tax Ordinance we are unable to find any force in the contention advanced by Mr. Shaikh Haider as the aforesaid subsection (5) would not be applicable to the facts and the circumstances of these cases inasmuch as the petitioners were neither required to file returns of total income nor show-cause notices issued to them related to the filing of such returns within the specified period.
The provisions of section 5(5) of the Ordinance cannot be pressed into service regarding issuance of show-cause notices relating to initiation of proceedings under sections 52 and 86 of the Ordinance. Even, otherwise failure of the petitioners to question the authority or jurisdiction of respondent No, 3 to issue the alleged notices and to initiate the said proceedings against them would not confer jurisdiction on respondent No, 3 which did not vest in him in law. It is an established principle that submission to jurisdiction of a Court or Authority does not confer jurisdiction on such Court or Authority and in support thereof reliance is placed on the case of Muhammad Afzal v. Board of Revenue. West Pakistan and others reported in PLD 1967 SC 314. It may also be pointed out that the objection as to the jurisdiction can be raised at any stage and for the above reliance is placed on the cases of: (i) Shagufta Begum v. The Income Tax Officer reported in PLD 1989 SC 360, and (ii) Pir Sabir Shah v. Shad Muhammad and others reported in PLD 1995 SC 66.
The objection raised by Mr. Shaikh Haider is not sustainable and is overruled.
18. Respondent No, 3 was vested with the powers to proceed with the assessments in all cases of companies as defined in section 2(16) of the Ordinance whose names began with letters "G" and "T". Obviously respondent No,3 hereinabove had no authority to call in question the examination of the issues relating to the payments made to the non-resident contractors and the deductions made by the petitioners by way of withholding tax from the payments made to them inasmuch as such issues/disputes could have been called in question by the Deputy Commissioner of Income- tax, Circie 10 COS-I to whom jurisdiction to proceed with the assessment of non-resident contractors was conferred in terms of clause (c) of section 5(1) of the Income Tax Ordinance and Notification dated 3-10-1995 issued by the Commissioner of Income-tax, Companies "1", Karachi. As we have already come to the conclusion that proceedings under sections 52 and 86 of the Ordinance could not have been initiated in the assessment proceedings relating to the petitioners and could have initiated in the assessment proceedings of the non-resident contractors on the basis of the statements which the non-resident contractors were required to file under section 143 of the Ordinance to the Deputy Commissioner of Income Tax having jurisdiction to assess the non- resident contractors, consequently it would be obvious that Deputy Commissioner of Income-tax, Circle 10 COS-I, Karachi would have the authority and jurisdiction to call in question to consider and examine the issues relating to the payments made to the non-resident contractors by the petitioners and whether the petitioners had made deductions as required by law and to initiate the proceedings under sections 52 and 86 of the Ordinance if the petitioners were found to be defaulters in respect of the said issues. Respondent No, 3 in passing the impugned order assumed jurisdiction which did not vest in him and in illegal exercise of such assumed jurisdiction, directed the petitioners, M/s. Tapal Energy Ltd., to make payments of the sum of Rs, 39,47,00,992 and M/s. Gul Ahmed Energy Ltd. To make payments of the sum of Rs,31,40,28,671. The Supreme Court in the case of M/s. Adamjee Insurance Co. Ltd. v. Pakistan and 5 others (1993 SCM R 1798) declared that want of jurisdiction is usually described as unlawful assumption of power. Accordingly, the impugned orders were illegal, without jurisdiction, void ab initio and of no legal consequence.
19. Mr. Sirajul Haq further attacked the validity and correctness of the findings of respondent No,3 holding that the contract for construction, erection, testing and commissioning of the power plants was a turnkey contracts and deductions from the payments made to the non-resident contractor were to be made at the rate of 8% by the petitioners on the following grounds:-
(a) that the same were perverse as they were in complete disregard, ignorance and contrary to the evidence and material on record which consisted of the comments and the sanctions in the Implementation Agreement arrived between the petitioners and the Government of Pakistan which provided that the maximum income-tax liability of non-resident contractors in respect of the constructions, erection. Testing and commissioning of the power plants would be 4% (four per cent.) of the relevant payments made by the petitioners to the non-resident contractors; (b) that the same were in complete disregard of the provisions of the Ordinance contained in para. E of sub-para. (II), clause (c) of Part 1 of the First Schedule to the Ordinance which unambiguously provides a deduction of four per cent. From the amount of payment in respect of execution of contracts or sub-contracts for designing, supplying of plant and equipment for construction of power plants; (d) that the same were absolutely in violation of the facts, the principle and the concept of the turnkey contracts as acknowledged and accepted in view of the definition of turnkey contract to be found in various law dictionaries; (e) that the concept of turnkey contract was absolutely foreign to the factors of present cases as no where and at no stage the contractual parties had intended the contract for construction, erection, testing and commissioning of the power plants to be turnkey contracts; (f) that same were in complete disregard of the principle enunciated by the Income Tax Appellate Tribunal in the case reported in 1998 PTD 2338 relating to the conditions and the requirements which are necessary for holding a contract to be a 'turnkey contract' and which did not exist in the present case; (g) and lastly that respondents were stopped from treating the contract in question as 'turnkey contract' by way of promissory estoppel in view of the covenant in Schedule 1 of the Implementation Agreement and clause (c) of para. E, sub:para.
(ii) of the Ordinance."'
20. Mr. Shaikh Haider, learned counsel for the respondents submitted that the covenant relied upon by the petitioners as Item/Consent No, 1 of Schedule 1 of the implementation agreement was absolutely devoid of force inasmuch as that no approval or consent in terms of the definition of the word 'consent' in clause (9) of the Implementation Agreement was given by the concerned authority so as to hold the said Item No, 1 as a covenant having any binding force or sanction behind it and the petitioners could not take any benefit thereunder. He further submitted that the work of construction erection, testing and commissioning of the power plants had been given by both the petitioners to one contractor. The other contractor engaged, if any, were not required to carry on the work of construction, erection, testing and commissioning of power plants. They were required to perform work which could not be said to be the functions or works even remotely connected with the construction, erection, testing and commissioning of the power plants and, therefore, the construction, erection, testing and commissioning of the power plant would be deemed to be "turnkey contracts" even assuming that more than one contractors had been engaged by the petitioners as then it would be deemed to be a consortium of contractors.
Mr.Shaikh Haider, also submitted that even assuming for the sake of augments that more than one contractor had been appointed by the petitioners to perform and carry out certain work and jobs allied to or connected with the construction, erection, testing and commissioning of the power plants, the same was done with mala fide intention solely with a view to bring the main contracts out of the definition of the "turnkey contact". In this connection he submitted that the petitioner M/s. Tapal Energy had assigned the work of supply of the plant equipment to a separate contractor which could have been easily performed by the contractor who was assigned the work of construction, erection, testing and commissioning of the power plant and these circumstances reflected a mala fide intention of the petitioner to get undue advantage. Mr. Shaikh Haider, further submitted that the provisions of the implementation agreement relied upon by the petitioner relating to the charge/deduction of withholding tax at the rate of 4% was contrary to the provision of clause (b) of para. E of sub-para. (ii) of the First Schedule to the Income Tax Ordinance and could not be acted upon as the parties could not contract out of law.
21. In view of our observation that the impugned orders passed by the Deputy Commissioner of Income Tax, respondent No, 3 were ab initio void and of no legal effect as the Deputy Commissioner had no jurisdiction to initiate proceedings under section 52 read with section 86 of the Income-tax against the petitioners, we do not consider it proper to consider and dilate upon the issue regarding the status of the contracts awarded by the petitioners to the non-resident contractors for construction, erection, testing and commissioning of the power plants for the reason that a pronouncement on this issue would require examination of disputed and intricate factual controversies and question, for example, whether the contracts awarded to M/s. Power Projects BV and M/s. Tomen Power, Singapore for the construction, erection, testing and commissioning of the power plants were self-sufficient for the purpose which they were awarded or whether they were dependent on the performance of various jobs and works assigned to other contractors. For deciding the said intricate and disputed factual controversies the material on record is not sufficient.
22. By a short order, dated 22-3-1999 we had admitted these petitions to regular hearing and had allowed these, the impugned orders to be illegal and void ab initio and had set aside the same. It was further ordered that the issue whether the contracts in question were turnkey contract would be decided in fresh proceeding to be initiated against the non-resident contractors, if legally so permissible and the question whether the deduction from the payments made to the non-resident contractors/assessees to be made at the rate of 4% or 8% would follow the finding regarding the nature of the contracts. These are the reasons for the said short order.