1985 PLP 155 (PTD)

AJMAL MIAN, J.‑‑ The applicant through this reference has raised the following question of law. "Whether on the facts and circumstances of the case the Tribunal was justified in holding that super‑tax @ 25% to be charged on commitment commission in view of the double taxation avoidance agreement between Pakistan and the United Kingdom?" The brief facts leading to the filing of the above reference are that the assessee‑Company is a resident of U.K. being incorporated and having its registered office in U.K. The Income‑tax Officer while assessing the income‑tax and super‑tax for the year 1966‑67 levied super‑tax @ 25%. However, the Assistant Appellate Income‑tax Commis sioner in exercise of suo motu power under section 34‑A of the Income‑tax Act (hereinafter referred to as the Act) by his order, dated 28‑‑10‑1970 held that the assessee‑Company was liable to pay super‑tax @ 30% and not 25%. The assessee‑Company being aggrieved by the above order filed appeal before the learned Income‑tax Appellate Tribunal, which was allowed subject to the proviso that the super‑tax should be charged @ 25% on commitment commission of the assessee subject to verification that the assessee satisfies the requirements laid down in explanation 1 of section 23‑A of the Act. The applicant has filed the present reference and has solicited the penal of this Court on the above‑quoted question.

2. The case has been called out several times since morning but nobody has turned up for the respondent. It is now 11.30 a.m. We have, therefore, proceeded with the case. Mr. Waheed Farooqui, learned counsel for the applicant in support of the above reference has invited our attention to Part II of Schedule 4 to the Finance Act, 1968 (P L D 1968 Central Statutes relevant portion at page 201) which provides 30% as the rate of super‑tax on the whole of the total income excluding income to which subparagraph 1 of paragraph B of Part I applies. Proviso (i) (a) provides a rebate of 5% inter alia in respect of profits, out of which effective arrangements as may be prescribed by the Central Board of Revenue in this behalf have been made for declaration and the payment in Pakistan dividends. Sub‑para. (iii) of the above proviso provides a further rebate of 10% for every company to which sub‑clause (a) of clause (i) applies if it is a company in which the public are substantially interested within the meaning of explanation 1 to subsection (1) of section 23‑A of the Act.

3. It has been contended by Mr. Waheed Farooqui, learned counsel for the applicant that since neither the proviso (i) (a) nor the proviso (iii) was applicable to the respondent‑assessee, the super‑tax was chargeable @ 30% and not @ 25%. However, we have noticed that there is an agreement between the Government of Pakistan and Government of U.K. to avoid double taxation. Article VI(1) of the whole agreement provides as follows. "The second proviso to Article VI(1) of the D.I.T. agreement between Pakistan and the U.K. provides that the maximum differential in rate of super‑tax between a company which does and a company which does not make prescribed arrangements, for the declaration and payment dividend in Pakistan should not exceed 10%." As per the above clause there cannot be maximum differential more than 10$ between a company which does not and a company, which does not make prescribed arrangement for declaration and payment as dividend in Pakistan.

4. It may be observed that company who qualifies under the above provision (i)(a) and proviso (iii) of the Part II of Schedule 4 to the Finance Act of 1968 was liable to pay super‑tax to the extent of 15%. In this view of the matter maximum differential provided under above Article of the agreement, namely, 10% could made it 25% if a company which had not made arrangement for declaring dividend but was covered by explanation 1 of section 23‑A of the Act. The Tribunal has held that the respondent assessee shall be liable to pay super tax at 25% on commitment commission subject to verification that the assessee satisfies the requirements laid down in explanation 1 to section 23‑A (1) of the Act. The above order seems to be in consonance with the provision of law. Our answer to the above‑quoted question is in the affirmative. M. B. A. Question answered in affirmative.