1986 PLP 248 (SCMR)

ZAFFAR HUSSAIN MIRZA, J.‑‑These six petitions for leave to appeal are by General Bank of Netherland Ltd., which is a foreign company doing banking business in Pakistan and as a common question of law has been raised therein we propose to dispose of these petitions by this order.

2. The petitioner bank is non‑resident company having its registered Office in Holland. For the purposes of operating branches in Pakistan the petitioner's Head Office had deposited dollar securities in the National Bank of Pakistan in New York. In the six assessment years, namely, 1967‑68, 1968‑69, 1969‑70, 1970‑71, 1971‑72 and 1973‑74, the aforesaid dollar securities had earned interest in New York, which was included by the Income‑Tax Officer as taxable income accrued and arising from business connection in Pakistan. The petitioner challenged the six assessment orders passed by the Income‑tax Officer, in separate departmental appeals on the ground that the interest earned on the securities in New York is not income either accruing or arising or deemed to accrue or arise to the petitioner in Pakistan within the meaning of section 42(1) of the Income‑tax Act, 1922. The Income‑tax Appellate Tribunal having rejected the appeals filed by the petitioner regarding the taxability of interest income on the aforesaid securities, they filed separate applications under section 66(1) of the Income‑tax Act, 1922, before the High Court of Sind to consider the following question of law:‑ "Whether in the facts and circumstances of the case the Tribunal is right in holding that the interest earned by the applicant's Head Office from securities deposited outside Pakistan is liable to tax under section 42(1) of the Income‑tax Act, 1922?"

3. The High Court of Sind by its judgment dated 29th May, 1984, decided the case against the petitioner by answering the question in the affirmative. The High Court held:‑ "(i) that the inrterest earned on the securities in question cannot be said to be profits or gains accruing or arising from any business connection in Pakistan; (ii) however in terms of section 13(3) (4) of the Banking Companies Ordinance, 1962 and Banking Companies Rules the securities are the assets transferred by the applicants (petitioners) assessees as capital assets to Pakistan, as held by the Income‑tax Appellate Tribunal; (iii) the factum that the above securities were deposited in National Bank of Pakistan in New York is of no consequence as the National Bank of Pakistan for all intents and purposes is the agent of the above securities which in fact stand transferred in favour of the State Bank of Pakistan in terms of sub‑rule (4) of Rule 5 of the Banking Companies Rules."

4. Being aggrieved by the aforesaid judgment the petitioner now seeks leave to appeal by means of these six petitions. After hearing Mr. Ali Athar, learned counsel for the petitioner we feel that the following questions, being questions of general public importance raised by the petitioner require consideration:‑ "(a) The High Court has erred in determining the place of accrual of income by reference to the provisions of the Banking companies Ordinance, 1962, and Banking Companies Rules, 1963. (b) The High Court has further erred in ignoring the legal position that the provisions of Banking Companies Ordinance, 1962 and Banking Companies Rules, 1963 are intended to control and regulate the business of banking in Pakistan and to protect the interest of Banks, customers depositors and creditors of Banks and have no relevance on the determination of the place where income accrues or can be deemed to accrue. (c) The High Court has also erred in ignoring the fact that the interest income from securities accrues to the owners of securities by virtue of ownership and not by virtue of the actual location of the scrips of the securities. (d) The High Court has erred in ignoring legal position that the interest income on securities would accrue at the place where the securities are issued, can be encashed and where the interest income is receivable. (e) That the High Court has erred in holding that "the securities are assets transferred to Pakistan by the applicants assessed as capital asset to Pakistan. Petitioners submit that even if such a transfer took place the interest on the securities would still accrue outside Pakistan. (f) The High Court has further erred in holding that deposit of security amounts to transfer of capital asset under section 42(1) of the Income‑tax Act, 1922. (g) The High Court has also erred in holding that transfer of capital asset to Pakistan is taxable in Pakistan. Petitioner submits that only transfer of capital assets in Pakistan attracts section 42(1) of the Income‑tax Act, 1922 and that for purposes of capital gains tax".

5. In support of these points reliance has been placed by the learned counsel on Commissioner of Income‑tax v. Bansilal Motilal, AIR 1930 Bom.

381. It seems that an authoritative opinion of this Court is necessary on the aforesaid points of law. We, therefore, grant leave to appeal in all these petitions. Security for costs Rs.1,000 in each petition. M.I. Leave granted.