' NASIR-UL-MULK, J.---We propose to dispose of F.A.Os. Nos.42 of 2000, 43 of 2000 and W.P. No, 249 of 2002 by single judgment as the parties are the same and the same points of law are involved therein. All the three matters arise from the judgment and order of the Income Tax Appellate Tribunal, Peshawar, dated 23-12-1999. Against the said order, the Commissioner of Income Tax has filed the two appeals pertaining respectively to the assessment years 1996-97 and 1997-98. The Tribunal had reversed the orders of the Commissioner of Income Tax (Appeals) Peshawar, dated 15-6-1999 and that of the Assessing Office, dated 19-5-1998 and held that two of the foreign companies, namely, Impregilo SpA, an Italian Company and Ed Zublin AG, a German Company, who had entered into a joint venture with two Pakistani Companies as contractors for Ghazi Barotha Hydro Project, were to be assessed on the Net Income Basis (NIB) and could not be subjected to the presumptive tax regime (PTR) under section 80C of the Income Tax Ordinance.
Writ Petition No,249 of 2002 was filed by the said two Companies essentially for the implementation of the judgment and order of the Income Tax Appellate Tribunal when it had attained finality upon the dismissal for non-prosecution of F.A.Os. Nos. 42 and 43 of 2000. The two appeals were however subsequently restored after the writ petition was admitted to full hearing. The questions raised in the writ petition are the same as those stated in the two appeals and thus the fate of the petition would depend upon the decision in the appeals.
2. The brief background of the dispute is that a joint venture agreement was executed between four companies, two foreign and two Pakistanis, for the execution of civil works of WAPDA, in Ghazi Barotha Hydro Project. The Italian Company, Impregilo SpA, had 57.80% share of participation in the work, the German Company, Ed. Zublin AG, 35.20%, whereas the two Pakistani Companies/Firms were Saadullah Khan and Brothers had a share of 4.70% and Nazir Ahmad and Company (Pvt.)
Limited with 2.40% share. Thus, the aggregate share of the two foreign companies was 93%. These four companies jointly entered into agreement as Ghazi Barotha Contractors (G.B.C.) with WAPDA on 19-12-1995 for the execution of the work.
3. Upon entering into contract with WAPDA, G.B.C. Registered itself as Resident Association of Persons (AOP) with the Income Tax Officer (ITO) Attock Circle and was allotted National Tax Number (NTN) on 22-1-1996. It also filed statement under section 143-B of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance). However, the G.B.C. Received a letter dated 29- 9-1996 from the Deputy Commissioner of Income-tax/Wealth Tax Circle-II, Peshawar asking G.B.C.
To submit its income-tax return for the assessment year 1995-96 to him as the place of business of the G.B.C. Was situated within the territorial jurisdiction of the said Circle. Notice under section 56 of the Ordinance was also dispatched with the letter. In response, a letter, dated 11-11-1996 was addressed on behalf of G.B.C., to the Deputy Commissioner Income Tax, at Peshawar seeking advice as to whether G.B.C. Is to be subjected to the presumptive tax regime or the individual partners are to be assessed on the Net Income Basis. The Deputy Commissioner Income Tax responded by letter, dated 27-11-1996 that in view of the latest instructions of the C.B.R. Contained in Circular No,36 of February 1986 and C.B.R. Letter, dated 19-4-1993, the proposal put forth by the G.B.C. "to file return of income of non-resident components of G.B.C. At Peshawar in any capacity would be legally justified". Thereupon the G.B.C. On 19-5-1998 filed revised statement under section 143-B of the Ordinance showing its income as A.O.P. At nil and simultaneously the individual co- venturers filed their respective returns; the foreign components as Foreign Non-resident Companies.
4. Meanwhile, the Assistant Commissioner Income Tax Circle-II, to whom the G.B.C. Case at Attock had been transferred on account of administrative changes, framed assessment order under section 59-A of the Ordinance against the statement submitted under section 143-B. This order was challenged by the two foreign companies before the Commissioner of Income Tax in separate appeals for the two assessm ent years i996-97 and 1997-98. The appeals were dismissed. It was upon the reversal of the decision of the Assistant Commissioner and the Commissioner of Income- Tax (Appeals) by the Income Tax Appellate Tribunal that the two appeals have been filed by the Commissioner of Income Tax.
5. In the memorandum of appeal, 8 questions were formulated for determination of this Court.
During the course of hearing, on the proposal of the learned counsel for the respondents, the learned counsel representing the appellant agreed to recast the points of law, and accordingly reformulated the following six questions for determination:--
(i) Whether the Income Tax Appellate Tribunal was justified to direct the assessment of the income of the assessee based upon the Circular of the Central Board of Revenue instead of express provision of Income Tax Ordinance, 1979.
(ii) Whether on the facts and circumstances the assessee was justified for assigning itself the status of a company as against status of AOP admitted and claimed during the assessment.
(iii) Whether on the fact and circumstances the assessee is estopped by the law and his conduct to change filing of his return on presumptive basis.
(iv) Whether the Assessing Officer acted beyond his jurisdiction by passing the order under section 59-A of the Income Tax Ordinance, 197.9.
(v) Whether admitted status of AOP being question of fact can be interfered by the Income Tax Appellate Tribunal.
(vi) Whether on the facts and circumstances of the case the tax deducted under section 50(4) of the Ordinance and disclosed in the statement under section 143-B of the Income Tax Ordinance, 1979 is the statutory liability of the assessee.
6. These cases were first heard by another Division Bench. Arguments were concluded and judgments were reserved. The Hon'ble members of the Division Bench could not pronounce judgments on account of difference of opinion. One of the Hon'ble Judges had written his opinion on the merits of the case whereas the other Hon'ble Judge was of the opinion that the case required re-hearing on a limited question. The Hon'ble Chief Justice referred the case to a third Judge (incidentally the author of this judgment). After obtaining the proposal from the counsel representing the parties as to how to further proceed with the case, it was ordered that the entire case be re-heard by another Division Bench. The Hon'ble Chief Justice therefore directed the rehearing of the appeals and the writ petition.
7. Mr. Muhammad Ilyas, Advocate, appearing for the appellant objected to the re-hearing of the cases on the rule laid down in the case of Mubarik Ali Khan v. Anjuman Islamia, Punjab, Lahore (PLD 1982 SC 315). He contended that the cases cannot be re-heard and the points of difference between the members of the Division Bench who had earlier heard the case have to be decided by the Referee Judge. We deem it appropriate to reproduce the order passed by the Referee Judge for the re-hearing of the two cases in order to whether the rule laid down in Mubarik Ali Khan's case could be applied to the present cases:-- "F.A.O. No,42 of 2000, F.A.O. No,43 of 2000 and W.P. No,249 of 2002 were heard together by a Division Bench of this Court comprising of the Hon'ble Mr. Justice Tariq Parvez Khan and Hon'ble Mr. Justice Shahzad Akbar Khan. After the conclusion of the arguments judgment was reserved. The Hon'ble Mr. Justice Shahzad Akbar Khan wrote the judgment expressing his opinion on merits of case. The Hon'ble Mr. Justice Tariq Parvez Khan however, was of the opinion that the cases should be re- heard on a limited point. The Hon'ble Mr.. Justice Shahzad Akbar Khan however, made the following comments on the question of re-hearing:-- "In view of the note, dated 14-6-2003 given by my brother Mr. Justice Tariq Parvez Khan which indicates the necessity of rehearing, this case is, therefore, sent to the Hon'ble Chief Justice to this Court for order. I have however to mention that since I have expressed my absolute view in the proposed judgment, therefore, I would not be able to sit in the Bench if constituted for re-hearing of this case".
(2) After receiving the notes of the two Hon'ble Judges the Hon'ble Chief Justice referred the case back with the following observations:-- "Since points for decision by another Hon'ble Judge or Judges have not been formulated by the Bench in accordance with Rule 5 of Chapter 4, Part 11 Vol. V of the High Court Rules and Orders, the matter may be placed before their Lordships for the purpose".
(3) Thereafter the Hon'ble Judges formulated separate questions for reference to the Referee Judge. The Hon'ble Mr. M. Justice Tariq Parvez Khan formulated the following questions:- "Whether the Appellate Court can decide the two appeals when no arguments were addressed by the counsel for respondents that if on one hand he claims himself to be a non-resident but the definition of word "resident" prima facie includes his clients, no final judgment in appeals can be delivered or can be delivered particularly when this point was also not discussed before learned Income Tax Appellate Tribunal?"
(4) The Hon'ble Mr. Justice Shahzad Akbar Khan formulated the question in the following terms:- "Whether in view of the material referred to in the proposed judgment and particularly with reference to this statement under section 143-B filed by Ghazi Barotha Contractors, wherein it manifestly described itself as AOP and resident supported by the verification by its administrative manager, the status of Ghazi Barotha. Contractors as resident has not been established. This is -a question formulated for the purpose of referring the matter to a Referee Judge."
(5) After the above formulation of the questions for reference the Hon'ble Chief Justice referred the case to me as a Referee Judge in the following terms:- "The points on which the Hon'ble Judge, i,e, Mr. Justice Tariq Parvez Khan and Mr. Justice Shahzad Akbar Khan have differed have separately been formulated by the Hon'ble Judges. The points are referred to the Hon'ble Justice Nasir-ul-Mulk for hearing under Rule 5 of Chapter IV of Part II Vol. V".
(6) Upon the above reference notices were issued to the parties and the learned counsel representing them were asked to assist the Court as to how to further proceed with the case. On the following date of hearing, Mr. Abdul Latif Yousafzai, Advocate, appearing for Ghazi Barotha Contractors submitted that after consulting the senior counsel, Mr. Wasim Sajjad, Advocate, their stand point is that since one of the Hon'ble Judges had not given his opinion on merits, there is no common point formulated for decision by the Referee Judge. It was, therefore, submitted that the case be placed before Hon'ble Chief Justice for re-hearing of the case by another Division Bench.
(7) Mr. Eid Muhammad Khattak, who had appeared for the Commissioner, Income Tax was unable to make any proposal as the senior counsel Mr. Muhammad Ilyas Khan, Advocate, who was not in attendance, had desired that the opinion of the Hon'ble Mr. Justice Shahzad Akbar Khan be disclosed. The learned counsel however was directed that this cannot be done presently as it has to be first determined as to whether I can proceed with the hearing of the case in the present situation. On subsequent date the senior counsel Mr. Muhammad Ilyas Khan, Advocate furnished written submissions on the point through the Deputy Commissioner Income Tax. According to the learned counsel for the petitioner the Hon'ble Judge who has not given his opinion on the merits of the case may be requested to record his reasons leading to the conclusion to dissent with the judgment. The learned counsel had placed reliance upon Rule 34 of Order 41, C.P.C. Read with Item No,5 (iv to vi) Chapter D of the Rules of the Peshawar High Court.
(8) As stated above one of the Hon'ble Judge had expressed his opinion on the merits of the case whereas the other Hon'ble Judge had for reasons recorded by him considered that the case requires re-hearing on the particular point referred in his formulation of the point for reference: The.
Hon'ble Mr. Justice Shahzad Akbar Khan, who had written his full opinion, did not agree with that formulation and formulated his own question to the effect that as to whether the status of Ghazi Barotha Contractors as resident under the Income Tax Ordinance has not been established. The Hon'ble Judges have therefore, not formulated a common question for reference to the Referee Judge. Be that as it may since Hon'ble Mr. Justice Tariq Parvez Khan has not expressed his opinion on merits and the points formulated by the two Hon'ble Judges relate essentially to the question as to whether or not the case be re-heard by the same Bench for that limited question stated in the formulations of the two Hon'ble Judges. Obviously, as a Referee Judge I can neither hear the case on merits, as one of the Hon'ble Judges has not given his opinion on merits, nor indeed am I empowered to ask the Hon'ble Judge to give his Judgment on merits when the Hon'ble Judge is already of the considered opinion that without a re-hearing on the particular point it would not be possible for him to decide the case on merits. On the other hand if I have to decide the limited question of whether or not Ghazi Barotha Contractors are residents, or whether there is a need for rehearing of the case by the same Bench on the question as to whether or not Ghazi Barotha is a resident, the only consequence of determining these questions would be that the case will eventually have to go back to the same Bench. As stated earlier the Hon'ble Mr. Justice Shahzad Akbar Khan had already expressed his inability to re-hear the case on the ground that has he already expressed, his opinion on the merits of the case.
(9) Even on the legal plane as a Referee Judge I cannot decide the case as under Rule 5 of Chapter 4 of Para. H Vol. V, which provides for procedure for difference of opinion in between Judges of a Division Bench, a matter is to be:-- ' referred to a Referee Judge if the two Judges are "equally divided in opinion as to the decision on a point" who shall "state that point for reference" to a Referee Judge. As the two Hon'ble Judges are still not divided on the merits of the case and they have not stated a common point for reference, I cannot adjudicate upon the case as a Referee Judge.
' In view of the rather complex situation there does not seem to be any other option except that all these matters be re-heard in entirety by another Bench. The case be, therefore, placed before the Hon'ble Chief Justice for fixing the same for re-hearing before another Division Bench of this Court.
8. The objection raised by the learned counsel for the appellant cannot be sustained for two reasons. Firstly, we agree with Barrister Wasim Sajjad, appearing for the respondents, that the above order passed by the Referee Judge was a judicial order which has not been questioned judicially and therefore, had attained finality. That the Division Bench re-hearing the cases has no authority to review the judicial order of the Referee Judge. Secondly, the rule in Mubarik Ali Khan's case is inapplicable to the present case. According to the facts of that case, the members of the Division Bench had differed on merits of the case. They wrote their separate opinion, which the Hon'ble Chief Justice referred to a third learned Judge. The learned Referee Judge referred the case back to the Honourable Chief Justice on the ground that the two learned Judges of the Division Bench had not formulated the points of difference between them for determination of the Referee Judge. The learned Chief Justice ordered that the case be re-heard. Accordingly, a Special Division Bench was constituted which re-heard the case and pronounced judgment, which came before the Honourable Supreme Court. Relying upon the principle laid down in the an earlier case of Muhammad Sayyar v. Vice-Chancellor, University of Peshawar (PLD 1974 SC 257) and referring to clause (26) of. The Letters Patents of the High Court and section 98 of the Code of Civil Procedure, the Hon'ble Supreme Court held that the jurisdiction of the Judge, to whom the points of difference are referred between the Judges of the original Bench flows from the factum of the difference of opinions and is confined only to the decision or opinion on such point or points of difference alone.
That it was only when the Referee Judge recorded his opinion on the points of difference, such opinion is to be forwarded to the original Bench for pronouncing the decision of the case by the majority opinion. Quoting from the case of Muhammad Sayyar Khan, it was held that a Referee Judge has no jurisdiction to decide anything else besides the point on which there is difference of opinion, as the whole case or appeal is not before him. The Hon'ble Supreme Court concluded that the learned Referee Judge should have himself discerned the points of difference in the two opinions even if the points were not formulated by the Division Bench for determination. The judgment of the subsequent Division Bench was, therefore, set aside and the case remitted to the High Court to be dealt with from the stage where the first Division Bench recorded their opinions.
9. In the cases before us, as stated earlier, there was no difference of opinions on merits. The opinion of the Referee Judge would not have been the decision by the majority opinion as one of the Hon'ble Judges of the earlier Division Bench had not expressed his opinion on merits. If the Referee Judge was to decide the case and had he differed from the opinion of the Hon'ble Judge who had expressed his decision on merits, the case would then had to be referred to another Referee Judge. As can be seen from the order of the Referee Judge, reproduced above, the Hon'ble members of the Division Bench, for obvious reasons, were unable to agree on points of difference between them and thus formulated their own points. The only difference discernible from the points formulated was whether or not there should be a re-hearing of the appeals. Had the Referee Judge decided that there was a case for rehearing, the matter had to be referred back to the Division Bench, one of the Hon'ble members of which had already declined to sit on the Bench if the case was to be re-heard. The facts would show that it was an unusual situation and if one may use the phrase the proceedings before the Division Bench just stood vitiated.
10. Before adverting to the contentions of the learned counsel for the parties it is necessary to deal with an important aspect of the case. Though there was no question formulated on the application of clause 9-A of Part IV of the Second Schedule to the Ordinance, much of the discussion by the learned counsel for the parties revolved around interpretation of the clause and its application to the facts of the case. Prior to the amendment of the clause by the Finance Act, 1996, it read as follows:-- "(9A) The provisions of section 80C shall not apply in respect of a non-resident person (other than the person engaged in the execution of a contract or sub-contract for designing, supply of plant and equipment and construction of power and transmission line projects) who opts out of the presumptive tax regime: ' Provided that a declaration of final and irrevocable option is furnished in writing alongwith the r'eturn of total income under section 55."
' The Finance Act, 1996 brought about the following change in clause (9):-- "(9A) The provisions of section 80C shall not apply in respect of a non-resident person unless he opts for the presumptive tax regime: ' Provided that a declaration of final and irrevocable option is furnished in writing alongwith the return of total income under section 55."
11. The above clause was pressed into service by the learned counsel for the respondents and contended that there was no declaration made by the respondents in accordance with the proviso to the clause opting for the presumptive tax regime. Alternatively, the learned counsel submitted that the Tribunal having found as a fact that the respondents had not made any such declaration, no question of law arises on the point and by non formulating a question on the issue, the appellant by implication accepted the finding of the Tribunal.
12. The learned counsel for the appellant however submitted that the registration by the respondents with the Income Tax Officer, Attock as resident AOP, issuance of NTN in that status and submission by them of statement under section 143-B of the Ordinance amounted to exercise of option for presumptive tax regime within the meaning of clause 9-A.
13. In addition to the above contentions, the learned counsel for the appellant argued that deduction at source was made by WAPDA under section 50(4) of the Ordinance without any objection by the respondents, who subsequently filed statements under section 143-B not just for one for two assessm ent years. That these statements were filed consciously as the Chartered Accountant had referred to G.B.C. As resident AOP in his correspondence with the Income Tax Officer, Attock. That therefore, the respondents are now estopped from changing their stand and are therefore, liable to be treated as resident AOP and thus subject to the PTR. The learned counsel referred to the filing of the revised statement under section 143-B of the Ordinance by the respondent and submitted that under the said provision only statement and no return is filed and thus there was no scope for filing revised statement thereunder. Once such a statement is filed, it cannot be reopened and is a complete discharge of the liability of the assessee under subsection
(4) of section 80-C of the Ordinance. That once statement under section 143-B has been filed after deduction of tax under section 50(4) of the Ordinance, it is no longer open to the assessee to change his position and file returns under section 55 of the Ordinance and it is only such return that can be revised under section 57. The learned counsel pointed out that since the respondents had filed statement under section 143-B, which was a complete discharge of their liability, no assessm ent order could be framed under section 59-A of the Ordinance which can be drawn only upon tiling of the returns under section 55 of the Ordinance. It was next contended that the G.B.C.
Was issued NTN as resident AOP, the same could not be now changed and further that the respondents registered themselves as AOP and not as a Company. Referring to the two Circulars of the C.B.R. No,4 of 1964 and No,8 of 1986, on which reliance was placed by the respondents, the learned counsel for the appellant submitted that these were administrative instructions and must give way to statutory provision and that the C.B.R., being not a judicial forum, does not qualify to interpret statutory provisions. Reliance was placed on the case of Central Insurance Company v.
Central Board of Revenue and others (1993 SCM R 1232) and The Central Board of Revenue, Islamabad v. Sheikh Spinning Mills Limited, Lahore (1999 SCM R 1442). The learned counsel quoted extensively from the judgment of the Hon'ble Supreme Court delivered in the case of Messrs Elahi Cotton Mills Limited and others v. Federation of Pakistan (PLD 1997 SC 582) for the elaborate discussion on the presumptive tax regime.
14. Responding to the above arguments, the learned counsel for the respondents in addition to the submissions made on clause 9-A of Part IV of the Second Schedule, referred to above, pointed out that admittedly the respondents, who are foreign companies, are individually nonresident and their tax liabilities are regulated by the double taxation treaties between Pakistan and the country of their origin, which has been given overriding effect by section 163 of the Ordinance. The learned counsel referred to Article 7 of the Convention for the avoidance of double taxation between Pakistan and others countries, including Italy and Germany the provision of which excludes the application of presumptive tax regime on the residents of the contracting States. Invoking the two circulars of the C.B.R., the learned counsel contended that these do not violate any provisions of the law and further that in view of section 8 of the Ordinance, the Department of Income Tax must follow the same and that in any case, the Departments are estopped from questioning the correctness of these circulars. For the last proposition, the learned counsel placed reliance upon two judgments of the Supreme Court of India, Julian Hoshang Dinshaw Trust v. Income Tax Officer and others (1992 PTD 1) and Paper Products Limited v. Commissioner of Central Excise (2001 PTD 2253).
15. As regards the filing of the statements by the respondents under section 143-B of the Ordinance, the learned counsel submitted that it was on account of misguidance by the Income Tax Officer at Attock, which was the nearest office to the work place of the respondents. That the advice of the officer was accepted in good faith and consequently G.B.C. Was registered as a resident AOP. The learned counsel submitted that the officer may have been prompted in misguiding the respondents to take credit for the collection of tax by his office from the G.B.C. He further argued that mistaken submission of an assessee to a tax liability casts a duty on the Income-tax Officer to correct the error. That such erroneous submission to a tax liability does not operate estoppel against the assessee as there can be no estoppel against law. Reference was made to the case of Pir Sabir Shah v. Shad Muhammad Khan (PLD 1995 SC 66). .16. The present cases relate to the two foreign companies of the G.B.C. The two local companies, according to the judgment of the Appellate Tribunal are to be dealt with separately. Though the appellant has not formulated a separate question as to whether the two foreign companies are to be taxed on the net income basis or subjected to presumptive tax regime the answer to the questions formulated would lead to the determination of the kind of tax regime to which the respondents shall be subjected to. There is no determination by either of the forums below that the respondents would individually be considered residents or non-residents. The Assessing Officer and the Commissioner Income Tax Appeals held the respondents to be residents on account of their registration alongwith the domestic companies as resident AOPs. This also was an argument advanced before us by the learned counsel for the appellant. When asked as to what would be the status of the respondents if considered individually and not as AOPs, the learned counsel for the appellant candidly admitted at the Bar that they would be non-resident companies. The Tribunal did not touch upon this question as probably it was not raised by the Department. In the present appeals, no question has been formulated on the point that even if the respondents are not considered as AOPs, they are in their individual capacities resident companies. In fact it has never been the case of the Department that the two respondent-companies are either resident or domestic companies. Quite rightly so as they do not fall within the definition of "domestic company", given in clause (21) of section 2 of the Ordinance or "resident company" as defined in clause (40) thereof. A "foreign company" has been defined in clause (23) to mean a company which is not a domestic company and non-resident under clause (30) means a person who is not resident. A Non-Pakistani Company would be included in the definition of a Domestic Company only if it makes arrangement for payment of dividends out of its income within Pakistan whereas a Non-Pakistani Company would fall within the definition of Pakistani Resident Company under clause (c) of clause (40) of section 2 if the control and management of its affairs are situated, wholly in Pakistan. Neither it is the case of the Department nor is there evidence that the two respondent companies have made arrangements for payment of dividends in Pakistan or their affairs are wholly controlled in Pakistan. We therefore, proceed on the premises that the two foreign C companies are non-resident when considered separately from the two local joint venture. The effect of their being registered as resident AOPs would be taken up later.
17. We would first proceed to give our findings on the contentions raised before us and then answer the questions formulated on behalf of the appellants for our determination. We would begin by adverting to the double taxation treaties which Pakistan had entered into separately with Italy and Germany, to which the two foreign companies belong. The treaties are in the form of a Convention enforced in Pakistan by the issuance of S.R.O. 326(1)/92, dated 20-4-1992 in the case of Republic of Italy, and S.R.O. No, 23(1)/96, dated 8-1-1996 in the case of Federal Republic of Germany. These S.R.Os. Have been issued by the Government of Pakistan in exercise of the powers conferred upon it under section 163 of the Income Tax Ordinance, 1979. The S.R.O. Pertaining to Italy had come into force on 1-1-1992 and that relating to Germany on 30-11-1995. The two Conventions have identical provisions and the ones relevant to the issue involved in these cases are embodied which of the two tax regimes would apply to the Enterprises of the two in Article 7 of the Convention. The Article does not explicitly state as to contracting States but two provisions indicate the regime applicable.
Clause (1) of the Article opens with the words "the profits of an Enterprise of a contracting Stateshall be taxable only in State unless-,-". Clause (3) further provides "In the determination of profits of a permanent establishment there shall be allowed as deduction expenses which are incurred for the purpose of the permanent establishment---". There are two features of the above provisions.
Firstly, it is the profits which are taxable and secondly, deduction of expenses is to be allowed in the determination of the profits. These features of taxation on net income basis and not the Presumptive tax Regime under section 80-C of the Ordinance where tax is charged on income and not profits and deduction of expenses are not permissible. Thus, under the double taxation treaties non-resident companies of the contracting States carrying business in Pakistan are not to be subjected to PTR.
18. The treaties have been enforced in Pakistan by the Government in exercise of the powers under section 163 of the Ordinance. Subsection (1) of section 163 empowers the Federal Government to enter into an agreement with other Governments for the purpose of "avoidance of double taxation and prevention of fiscal evasion". Subsection (2) provides that matters listed therein regarding which notification is issued under subsection (1) shall have effect notwithstanding anything contained in any law for the time being in force. One such matter mentioned in clause (b) of subsection (2) is "determining the income accruing or arising, or deemed to accrue or arise to non-residents from source within Pakistan". Income has been defined in clause (24) of section 2 of the Ordinance to include any income, profits or gains, from whatever source derived, chargeable to tax under the provision of the Ordinance under any head specified in section 15. The combined effect of these provisions are that any provision in an agreement of double taxation enforced through S.R.O. Under section 163 regarding income chargeable to tax of a non-resident belonging to a contracting State will have over-riding effect over other laws for the time being in force.
19. It appears that it was in line with the above stated provisions in the treaties providing for taxation on profits on non-residents that clause 9-A of Part-IV of the Second Schedule to the Ordinance was enacted. The said clause has been reproduced is para. 10 above as in force before and after the Finance Act, of 1996. Prior to the change the provision of section 80(C), which incorporates the Presumptive Tax Regime was not to apply to those non-resident persons who opted out the P.T.R. The non-resident was therefore, not to be subjected to P.T.R. Unless he exercised his option by way of a declaration not to be charged under the Regime. The amendment brought above by the Finance Act of 1996 is more in consonance with the relevant provision of the Treaties.
The amendment excludes non-residents from P.T.R. Unless they opt for it through a declaration in writing. The arguments advanced by the learned counsel for the parties on clause 9-A gives rise to two questions. Firstly, whether the filing of the statement under section 143-B of the Ordinance by G.B.C. As resident A.O.P. Amounts to exercise of option for the P.T.R. By the two foreign companies and secondly, whether the amended clause 9A or the unamended clause would be applicable to the facts of the case.
20. The answer to the first question is to be found in the proviso to clause 9A, which remains the same after the amendment. For the purpose of exercising the option, the proviso states that the non-resident person shall furnish in writing alongwith the return of total income under section 55, a written declaration that he has exercised the option finally and irrevocably. Under the amended clause 9-A, the non-resident who opts for the P.T.R. Must make a declaration in writing, which shall state that it is final and irrevocable and the same must be filed alongwith the return of total income under section 55. This envisages a separate declaration which is to be filed alongwith the returns. Simply filing of the return or for that matter a statement under section 143-B of the Ordinance as resident, without appending with it a written declaration by the non-resident would not amount to exercise of option under the proviso to clause 9-A.
21. The learned counsel for the appellant contended that clause 9(A) as in force prior to the Finance Act, 1996 would apply to these cases as the first of the two relevant income years is 1995-96, which falls in the period preceding the coming into force of the, 1996 Act. The ojLion by the non-resident under clause 9-A, whether opting out of or opting for the Presumptive Tax Regime is to be exercised at the time of filing H the returns. The G.B.C. Had filed the statement under section 143-B on 21-12- 1996, after the coming into force of the Finance Act, 1996. They had not filed any return or statement before 1-7-1996. Therefore, clause 9-A as amended by the Finance Act of, 1996 would apply in the present case.
22. On the point of application of clause 9A, we would thus conclude that the respondents had not furnished any declaration opting for the Presumptive Tax Regime under the amended clause 9-A of Part IV of the Second Schedule to the Ordinance.
23. We next examine the legal standing and effect of the two Circular of the C.B.R., No,4 of 1964 and No,8 of 1986. The primary Circular is No,4 of 1964 whereas Circular No,8 makes further clarification that the provisions of Circular No,4 of 1964 do not apply to joint Ventures between Pakistani Companies and is restricted to Joint Ventures between Pakistani and foreign Companies. Circular No,4 of 1964 reads:-- "(1) It has been brought to the notice of the Central Board of Revenue that Pakistani Companies entering into a "Joint Venture" arrangement with foreign companies are not quite clear about their liability to Pakistan Income Tax.
(2) The position is that in case of Joint Venture, each participant in such venture is liable to tax on its own share of profits and at the rate applicable to its total income.
(3) To avoid complications when a Pakistani company desires to enter into a joint venture arrangement with a reputable and reliable foreign company, such arrangement may, if necessary, be got cleared before hand from the Central Board of Revenue."
24. The effect of the above Circular is that foreign companies entering into a Joint Venture with Pakistani Company in Pakistan are to be taxed separately on the income they derive from the venture. In other words, they are not to be taxed as AOPs together with the residents on the joint income of the venture. The Commissioner Income Tax (Appeals) in his order had held that the C.B.R. Was not empowered under the Ordinance to judicially interpret the provisions of the Ordinance and thus the directives embodies in Circular No,4 can be ignored. The same argument was also advanced before us on behalf of the appellant. The principle that the C.B.R. Is not a judicial forum under the Ordinance to quality for interpretation of any provision of the Ordinance is well-settled (see Central Insurance Company v. The Central Board of Revenue (1993 SCM R 1232).
However, the above directives are neither violative of nor interpret, any provision of the Ordinance.
Rather they are in consonance with the double taxation treaties and clause 9-A of the Part IV of the Second Schedule to the Ordinance as L discussed above. That is why, the Income Tax Appellate Tribunal had in its impugned judgment observed that the Tribunal has consistently held that on account of the treaties for avoidance of double taxation between Government of Pakistan and other States the income of the foreign companies had to be determined on net income basis rather than in accordance the presumptive basis. Although there is nothing on the record but there appears to be truth in the explanation put forth by the learned counsel for the foreign companies that Circular No,4 of 1964 was necessitated for the determination of the tax liability of the foreign companies involved in the mid sixties in the construction of Turbela Dam undertaken by the Turbela Joint Venture.
25. Having held that the two foreign companies were to be assessed on Net Income Basis and not under section 80-C of the Ordinance, we now have to examine the legal effect of the registration of the foreign companies alongwith the two domestic companies as resident AOPs and the filing of statement under section 143-B of the Ordinance under that status. The main argument on behalf of the appellant was based on the principle of estoppel. 'Association of person' has not been defined in the Ordinance but is included in the definition of 'person' in clause (32) of section 2. Accordingly, a number of persons can register themselves as AOPs to be considered as a single person for tax purposes. Such Association will however not be possible if the constituent members are subject to different regime of taxation. The respondents being foreign companies could not, in their individual capacities, be subjected to PTR in that clause 9A of Part IV of Schedule II of the Ordinance does not just exempt, but excludes them, from the application of section 80-C of the Ordinance. Thus the respondent-companies could not have been registered alongwith the two domestic companies as AOPs unless they had exercised the option in terms of the proviso to clause 9-A, which as held above, they had not done. Additionally, as mentioned in para. 16 above, the definition of foreign and non-resident companies on the one hand and domestic and resident companies on the other, are mutually exclusive so that a foreign and non-resident company cannot be registered as a domestic or resident company. There is no provision in the Ordinance under which a foreign or non-resident company. The Income Tax Officer at Attock could not in the, first place have registered the two foreign companies as resident A0P- alongwith the domestic concerns in the light of the double taxation treaties, clause 9-A of Part IV of Schedule II of the directives of the C.B.R.
Even if the respondent companies had applied to be registered as resident AOPs, the Income Tax Officer ought to have declined the registration. The Income Tax Officer is under a duty to apply the law notwithstanding the claim of an assessee, even if the result would be favourable to the assessee, in the same way as he would decline assessee's claim for concessions if not admissible under the law. The filing of statement of G.B.C. Under section 143-B and its registration as resident AOP being against the provisions of law would not serve as estoppel against the foreign companies. It is well-entrenched rule that there can be no estoppel against law (see Pir Sabir Shah v. Shah Muhammad Khan, ibid). Resultantly, the respondent-companies are to be assessed separately on the income they derive, according to their shares, from the joint venture. Needless to state that by these findings, the foreign companies are not exempt from paying taxes but are to be taxed on the profits rather than under the Presumptive Tax Regime, though this may he more favourable to them.
26. The result of the above discussion is that we uphold the findings of the Income Tax Appellate Tribunal. Questions Nos. 1, 2, 4 and 5 formulated by the appellant in the appeals are answered in the positive and questions Nos.3 and 6 in the negative.
27. In Writ Petition No,249 of 2002, it has been prayed that WAPDA be directed not to deduct tax from the payments made to the petitioners and that the amounts already deducted be refunded.
Further that the respondents, that is, the Department of Income Tax shall assess the petitioner on net income basis as held by the Income Tax, Appellate Tribunal. In the light of the findings given in the two appeals, the writ petition is allowed in the terms prayed for.