1981 PLP 235 (PTD)

ABDUL KADIR SHAIKH, J.‑The petitioner, a public Limited Company, in order to set up and install a Sugar Mill purchased heavy machinery from M/s. Mitsubshi Heavy Industries Limited, Japan, a non‑resident Company, and one of the terms of the contract for the supply of machinery was that the payment for the service by the supervisory staff deputed by the non‑resident Company would be made by the petitioner to the non‑resident Company, in accordance with the prescribed formula, free of tax, in Pakistani currency, and the tax liability rested on the petitioner. On 27‑3‑1970 the Income‑tax Officer, B‑Circle, Sargodha, completed the assessment directly against the non‑resident‑Company for the assessment years 1966‑67 and 1967‑68 under section 23 (4) .for default of notice: issued under sections 34 and 22 (4) of Income Tax Act. On 1‑4‑1970, the Income tax Officer passed another order holding the petitioner to be an assesses in default under section 18 (7) read with section 18 (3‑B) of the Income‑tax Act for income tax demand of Rs. 7,32,830 due from the non‑resident Company for the said two years. In addition, the Income tax Officer also levied penal interest for the assessment years 1967‑68 under section 18 (7) at the rate of 2 % per annum amounting to Rs. 5,52,402 for the default of deduction and payment, of tax under section 18 (3‑B). The petitioner filed three appeals before the income‑tax Appellate Tribunal two of these were directed against the assessments made on the non‑resident Company, and the third against the order under section 18 (7) of the Act hold ing the petitioner to be a defaulter under section 18 (3‑B). Two appeals were held to be incompetent for the reason that the petitioner had no locus standi to file them in respect of assessment made directly on the non‑resident Company. The third appeal was however allowed on the ground that the Income Tax Officer had already issued directions to the effect that the peti tioner‑company was the Agent of the non‑resident Company, and, therefore, the responsibility did not devolve on the petitioner to deduct the tax at the source under section 18 (3‑B), for the payments made, to the non‑resident Company. The Commissioner of Income tax, Rawalpindi feeling aggrieved by this order, made an application to the Lahore High Court, under section 66 (1) of the Income‑tax Act, 122 referring the following question of law that arose out of the order of the Income‑tax Appellate Tribunal "Whether in facts and in the circumstances of the case the Tribunal was legally justified to cancel the Income‑tax Officer's order under sec tion 18 (7) of the Income‑tax Act, in spite of the fact that the Tribunal itself did not admit M/s. Noon Sugar Mills Limited as an agent of M/s. Mitsubishi Heavy Industries Limited of Japan in their order in respects of the Income‑tax Assessment?" The Lahore High Court answered the question in the negative by the judgment dated 27‑2‑1975, and the petitioner now seeks special leave to appeal. The view that has prevailed with the High Court in reaching the conclusion is based on interpretation of sub‑section (3‑B) of section 18 which reads as follows: "Any person responsible for paying to a person not resident in Pakistan, any sum not being interest on securities, chargeable under the provisions of this Act shall, at the time of payment, unless is himself liable to pay any income‑tax and super tax thereon as an agent, deduct in the case of a company, income‑tax at the maximum rate and super tax at the rate applicable to a company and, in other cases tax in accordance with the provisions of subsection (1) of section 17." The question for consideration before the High Court depended upon the two equally possible interpretations of the expression "unless he is himself liable to pay any income‑tax and super‑tax thereon as an agent". The High Court has itself noticed the fact that there has been a great difference of opinion as to the interpretation of this expression and since a legal question which is likely to affect a large number of cases has arisen, we grant special leave to appeal. Security Rs. 2,

000. The appeal shall be made ready on the present record; it is however open to the parties to file additional documents, if any. Leave granted.