1981 PLP 192 (PTD)

5. Certified copies of the judgment of the learned Additional District Judge, Lahore, and the statement made by the petitioner appearing as D. W. 1 have been supplied. In his statement before the Court which appears to have been recorded on 7‑14.1976 the petitioner took up a categorical stand that he was not a partner of the defendant Company nor even shareholder thereof.

6. The provisions of section 43 of the Income‑tax Act which deal with the liability of a person for appointment as an agent of a non‑resident reads as follows; "Section 4.3; Any person employed by or on behalf of a person residing out of Pakistan or having any business connection with such person, or through whom such person is in the receipt of any income, profits or gains upon whom the Income‑tax Officer has caused a notice to be served of his intention of treating him as the agent of the non‑resident person shall for all the purposes of this Act, be deemed to be such agent ." Thus before a person could be served with a notice under the provisions of section 43 it must be shown that‑

(a) such person is employed by or on behalf of the non‑resident ; or (b) is a person having business connection with the non‑resident ; or (c) is a person‑through whom a non‑resident is in receipt of any income, profits or gains. It is not the respondent's case that the petitioner was employed by or on behalf of the non-resident Company within the meaning of clause (a) likewise the respondent does not contend that the non‑resident West Germany Company is in receipt of any income through the petitioner. The respondent seeks to saddle the petitioner with the liability to be treated and assessed as an agent of the non‑resident for the sole reason that the petitioner admitted before the learned Additional District Judge that he was an associate of the non‑resident company. Relying upon certain dictionary meaning the respondent came to the conclusion that his position was that of a partner. The arguments con veniently overlook a part of the statement of the petitioner before the learned Civil Judge where he expressly repudiated the suggestion that he was a partner or a share‑holder of the company. The respondent did not even make a positive assertion as to the existence of business connection but stated that the "possibility of business relation between Abdul Rehman Mian and M/s. Ingenieurburo Oskar Von Miller GinbH cannot be ruled out."

7. I regret my inability to agree with the leaned counsel for the respon dent that the liability as an agent could be founded only on the mere possibility of existence of business relation between the petitioner to non‑resident Com pany without there being any evidence upon which it could be open to the Income‑tax Officer to reasonably draw the conclusion that the non‑resident Company had in point of fact business connection with the petitioner.

8. The respondent appears to have chosen to declare the petitioner is an agent of Messrs Ingenieurburo Oskar Von Miller GmbH West Germany in an attempt to assess and recover the income‑tax liability of the Company from the petitioner. I have no doubt that before the respondent could do so he was obliged to show that the petitioner falls in any of the three category of persons against whom proceedings could be taken under section 43 of the Act. I am equally clear that section 43 which operates to impose a burden shall have to be strictly construed and even if two interpretations were possible, the interpretation favourable to the subject shall have to be adopted. Under section 18 of the Income‑tax Act, 1922, it is the obligation of every person making payment of any amount liable to tax under the provisions of the Act to deduct income‑tax on such payment unless he is himself liable as an agent of such non‑resident. The provision which is a pointer to the liability of a person making payment to the non‑resident, appears to have been com pletely lost sight of by the respondent. Normally the liability to tax has to be examined with reference to the point of time when the payments are made to a non‑resident. It' is to be examined at that time whether the person making the payment or any other person is an agent of the non‑resident. Unfortunately no steps were taken at the right time to determine and assess the agent.

9. The impugned notice dated 4‑2‑1979 shows that the foreign company had been operating in Pakistan possibly during the previous years relevant to the assessment for 1976‑77, 1977‑78 and 1978‑79 but left Pakistan thereafter. The learned counsel for the respondent is unable to satisfy me that the provisions of section 43 will ansure to the benefit of the respondent even after the business connection has ceased to exist as in the present case. There being nothing on record to show that the fiduciary relationship or business connection between the petitioner and the aforesaid West Germany Company ever exited, the action of the respondent treating the petitioner as agent was arbitrary and wholly without any material basis. Upon a review of the material before the respondent I have come to the conclusion that, in any case, the statement made on 7‑6‑1976 and the special power of attorney dated 15‑4‑1976 do not warrant the conclusion that the petitioner had any business connection with Messrs Ingenleurburo Oskar Von Miller GmbH West Germany and could not for that reason be saddled with liability to assessment as au agent under the provisions of section 43 of the Income‑tax Act, 1922.

10. Having given the matter my anxious consideration I have come to the conclusion that the action of respondent in treating the petitioner as an agent for the purposes of assessment years 1976‑77, 1977‑78 and 1798‑79 was an act without lawful authority. The notices and order dated 8‑7‑1974 under section 43 of the Income‑tax Act, 1922 are accordingly quashed and the petition is allowed with costs. Petition accepted.