1990 PLP 787 (PTD)

WAJIHUDDIN AHMAD, J.‑‑The facts giving rise to this application under section 0fi(2) of the Income‑tax Act, 1922, are rooted in an order of assessment dated 17‑5‑1976, passed by the Income‑tax Officer, Companies Circle V, Karachi. Relevant to these proceedings the Income‑tax Officer observes that the assessee Company, respondent herein, "had been remitting (payments for) technical and engineering services and other fees to its principals Messrs ESSO Eastern Chemicals Inc (EEC:) and its affiliates under the Engineering and Miscellaneous Charges Agreement dated 30‑9‑1968". During the account year under assessment (1973‑74) the Company showed aggregate charges of $237,887.17, as payable to EEC for technical and engineering services rendered, Head Quarters services and charges for services utilised in purchase of material and supplies. It was claimed by the assessee that all such charges were billed on cost basis and no profit element was involved. As such no tax was deducted by the assessee Company on such payments. A copy of Auditors' report was brought on record stating that these charges were in accordance with the provisions of the agreement dated 30‑9‑1968 and, being at cost, were not liable to tax in Pakistan. It is observed by the Income Tax Officer that there never had been any commitment from the Government of Pakistan that such remittances would be exempted. Coming to hold the view that under subsection (3‑B) of section 18 of the Income‑tax Act, 1922, the Company was bound to deduct tax on any sum, chargeable under the Act, paid to a non‑resident party, the former was served with a letter dated 6‑5‑1976 for action in terms of section 18(7) of the Income Tax Act, on failure to deduct tax under section 18(3‑B) of such Act. Reply dated 7‑5‑1976 was submitted, the explanation being that service charges were billed to the Company at cost and there being no element of profit involved deduction under section 18(3‑B) ibid was not required. The Income Tax Officer, on making reference to some case law, came to the conclusion that it is the gross revenue receipts which are ‑chargeable under section 19(3‑B) of the Income Tax Act, and that such persons, as are bound to make deductions at the time of payment, are not concerned with the ultimate result of any income or otherwise to the payee. Through a separate order, the Assessing Officer charged additional tax as provided under section 18(7) on the total amounts disbursed for technical, engineering, Head Quarters and other services.

2. The respondent Company appealed but such appeal was disallowed by the Assistant Commissioner on 14,12‑1976 through an elaborate order of that date. A further appeal was taken before the Income‑tax Appellate Tribunal at Karachi and such appeal was allowed per order of the Tribunal dated 27‑5‑1977. Aggrieved by this order, the Commissioner of Income‑tax, Central Zone `B', Karachi, sought a reference from the Tribunal under section 66(1) of the Income -tax Act to this Court but through order dated 3‑3‑1979 the Tribunal rejected the reference application and declined to state the case on the ground that no questions of law arose therefrom. In this background the present application under section 66(2) of the Income Tax Act, 1922, has been preferred and it is claimed that question of law do arise from the decision of the Tribunal, dated 27 5‑1977, and such questions have been included in the statement of the case. It is prayed that this Court be pleased to frame necessary questions and decide the same according to law.

3. In the statement of the case, submitted before the Tribunal, the following questions arc found to have been raised:‑‑ (1) "Whether on the facts and in the circumstances of the case, the Income- tax Appellate Tribunal was justified in entertaining the appeal against the order of the Income‑tax Officer passed under section 18(7) in view of section 30 of the Income‑lax Act. (2) Without prejudice to the above question the Appellate Tribunal was justified in holding that no income was chargeable to tax in view of agreement between the assessee and non‑resident company of September, 1908."

4. We propose to examine the second question first as such question touches the main controversy in these proceedings whereas the first such question is of a technical nature and has been brushed aside on the ground that the same was not raised before the Tribunal at all and, therefore, did not arise for making a reference. Even as regards the second question we cannot fail to see that the same besides, apparently, containing clerical or typographical errors is also not happily worded. However, being mindful that in such cases it is the essence of the controversy which has to come up for examination, the same being deducible from the record, which is available before the Court, and a proceeding, otherwise competent, should not be allowed to flinch merely because of an avoidable error, we have thought fit to examine the scope of the remedy at this level in the proceedings. Under Section 66(2) of the Income‑tax Act, 1922, as it originally stood, there could be some scope for errors in drawing up questions for references to assume proportions, as it used to be on refused questions that this Court could call upon the Tribunal to "state the case and to refer it". This scope has considerably widened with the substitutions made of subsections (1), (2), (3) and (4‑A) in section fib ibid through the Finance Act, 1974. Section (4)(2), as it read at the time of repeal of the Act of 1922, is as under:‑‑ "66(2). If on an application made under subsection (1) the Appellate Tribunal refuses to state the case on the ground that, no question of law arises, the assessee or the Commissioner, as the case may be, may within ninety days from the date on which he is served with notice of the refusal, apply to the High Court and the High Court may if it is not satisfied with the correctness of the decision of the Appellate Tribunal frame a question of law and proceed to hear the case." In the substituted provision, as above‑quoted (which is substantially in line with section 136(2) of the Income Tax Ordinance of 1979) on refusal to make a reference under section 66(1) and on being duly moved by the party aggrieved, this Court has a discretion vesting in itself "to frame a question of law" if "not satisfied with the correctness of the decision of the Appellate Tribunal". We have, therefore, to examine the case placed before us and then, if we conclude that the decision of the Tribunal was incorrect, to frame due questions and answer the same appropriately.

5. At the outset, on examining the facts and circumstances of the case, it is to be stated that the points in controversy before the Appellate Tribunal were, as to what payments or sums can be termed chargeable under Section 18(3‑B) of the Income Tax Act, next, whether deduction from such payments is obligatory on the part of the person responsible to pay, and if so, whether the latter can bifurcate such sum(s) as regards chargeability and, finally, whether the agreement of September, 1968, operates as an exemption for the assessee to effect deduction under such section even though the payments of sums involved are otherwise liable for deduction. Before embarking upon a detailed examination of the case, it would be pertinent to observe that in the Income‑tax Appellate Tribunal there was, to start with, a difference of opinion between Mr. Mazhar Ali, then Judicial Member and Mr. M. Karim, Accountant Member, in that the former was of the opinion that the officers below had lost sight of the real issue in the matter namely, whether the entire sums or any part thereof paid to EEC, the non resident company, had the characteristics of being chargeable under the provisions of the Act, more particularly under the charging provision of section 4(1)(c) of the Act, the contention of the assessee having always been in the negative on that score but himself left that question open on the ground that, in the meantime; the assessee had been issued a notice under Section 43 of the Income Tax Act and had been treated as an agent of EEC; but the latter disagreed, being of the view that the responsibility to deduct begins and ends at the time of payment/deduction, the subsequent event of the remitter, having been saddled as agent, being of no relevance. The Accountant Member, further opined that liability of the remitter under sections 18(7) and 43 of the Income‑tax Act was co‑extensive, once default in making due deductions occurred. Being of such views he dismissed the appeal. Here, it would be advantageous also to mention that even the then Judicial Member, now an Honourable Judge of this Court, did not see eye to eye with the contention of the appellant before him that the payments, in question, were not liable to be taxed by virtue of Article III(c) of Agreement for the Avoidance of Tax between Pakistan and the U.S.A. and repelling that contention agreed with the findings of the Appellate Assistant Commissioner on the point. The appeal before the Division Bench of the Tribunal partially succeeded in so far as Mr. Mazhar Ali, the Judicial Member, was concerned but, as seen, totally failed with Mr. M. Karim, the Accountant Member. There was thus no difference of opinion between the members of the Bench, as originally constituted, on the question that the payments under reference, if otherwise chargeable, were liable to be taxed irrespective of the provisions in Article III(c) of the Agreement for the Avoidance of Tax between Pakistan and the U.S.A. Since under Section 5‑A(7) of the Income Tax Act, corresponding to section 133(7) of the present statute viz. the Income Tax Ordinance, 1979, a reference to the President of the Tribunal could only be "on i the point or points" on which such members had differed, it is such "point or points" alone, which could be decided on the reference and none other or others These are the manifest meanings of section 5‑A(7) and its current equivalent section 133(7) ibid. It would be useful to reproduce here the very words in which the reference was made by the differing members:‑‑ "On account of difference of opinion between us with respect of the interpretation of the provisions of sections 18(3‑B) and 43 of the Income -tax Act, and their application to the facts of this case, we would refer the case to the learned President for necessary action under Section 5(7) of the Act."

6. As it turned out, the President constituted another Bench following upon the reference, which included himself and quite another set of Judicial and Accountant Members to decide upon the difference referred. This under subsection (7) of Section 5‑A, aforesaid, he could undoubtedly do and the outcome would rest on the opinion of the majority of the Bench so constituted together with the differing members, making the reference. However, such majority opinion would be restricted only to the point or points in the difference referred and not beyond. In so far, therefore, as the members of the newly-constituted Bench expressed themselves on Article III(c) of the Agreement between Pakistan and the U.S.A. that expression of opinion inasmuch as it travelled beyond the reference is invalid and the original opinion of the Bench initially constituted on that subject shall hold the field. Accordingly on the facts and circumstances of the case, we are unable to examine the terms of the agreement in question and the views of the originally constituted Bench should be conclusive. In relation to that matters and such views are clearly spelled out in the order of Mr. Mazhar Ali, aforesaid, with which, on the point, the other member did not disagree. Our examination of the case would, therefore, be limited only to such part of the controversy, as remained to be examined before the Tribunal on reference and, correspondingly, as raised in this Income‑tax case.

7. In passing, per para 5 above, we have already adverted to some obvious legal controversies, which came up before the Appellate Tribunal. Such are germane to question No. 2 raised by the applicant before the Tribunal, for making a reference to this Court. It has been seen that question No. 2, as framed for the Tribunal to make reference, was unhappily worded but questions of law relevantly did arise. Similar infirmities also occur in relation to question No.1 posed by the applicant. On the language of Section 66(2) of the Act, which corresponds to Section 136(2) of the Income Tax Ordinance, 1979, we have the D necessary discretion to frame and answer appropriate questions. For the reasons which we have recorded in para 4 herein and coming to the conclusion that the decision of the Tribunal, opining that no question of law arose before it for making reference under Section 66(l) of the Income‑tax Act, was too technical, we have thought 6t to reframe the questions as set out below:‑‑ Question No. 1. "Whether on the facts and in the circumstances of the case, the Income‑tax Appellate Tribunal was justified in entertaining the appeal against the order of the Income‑tax Officer, passed under section 18(7) in view of the bar in Section 30 of the Income‑tax Act?" Question No. 2. "Without prejudice to the above question, whether the Appellate Tribunal was justified in holding that no income was chargeable to tax under section 1838) of the Income‑tax Act?" We have underlined the insertions which fairly arose and which we have made in the question proposed before the Tribunal and have also omitted the phrase pertaining to the Agreement of 1968 occurring in question No. 2 so as to bring the questions reframed by us in line with our observations recorded earlier on.

8. This then brings us directly to the controversy pertaining to the interpretation of Section 18(3‑B) of the Income‑tax Act, 1922, as covered by question No. 2 above, question No. 1 being left for consideration later on. At this stage, it would be in order to read Section 18(3‑B) in the Act of 1922 as it stood at the relevant time:‑‑ "(3‑B) 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 he is himself liable to pay any income‑tax and super‑tax thereon as an agent, deduct (in the case of 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." Section 18(3‑B), above reproduced, has been re‑enacted as Section 50(3) in the Income Tax Ordinance, 1979. There are no significant changes in the re‑enacted provision except that the proviso appended to Section 50(3) of the Ordinance of 1979, broadly, introduces a provision in the nature of section 18(3‑C) of the then Indian Income‑tax Act of 1922 but the effect of such section 18(3‑C) will be examined, when relevant, herein below.

9. It is correct, as opined by the majority in the Tribunal that for an obligation to arise to make deduction under subsection (3‑B) above, it is essential that the subject‑matter of the deduction should be "chargeable under the provisions" of the Income‑tax Act. It also admits of no controversy that in the context of chargeability in respect of subsection (3‑B) ibid. Such chargeability relates back to section 4(1)(c) of the Act of 1922 (more or less similar provision occurs in section 11(1)(b)(ii) in the Income Tax Ordinance, 1979). Here, we would prefer to reproduce verbatim such provision:‑‑ "4(1). Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which‑‑‑ (a)

(b)

(c) if such person is not resident in Pakistan during such year, accrue or arise or are deemed to accrue or arise to him in Pakistan during such year:"

10. Before embarking upon the construction of section 4(1)(c), above reproduced, in order to avoid a common error, it falls to be pointed out, that a non‑resident is not entitled to the benefit of the second proviso to section 4(1), since such proviso applies only to person "not ordinarily resident in Pakistan" and income, profits and gain, which accrue or arise to such persons outside Pakistan are not to be included in their total income unless the same are derived from a business controlled in or a profession or vocation set up in Pakistan or unless they are brought into or received in Pakistan during the year of relevance. A non -resident, obviously cannot be equated with "a person not ordinarily resident in Pakistan". This aspect was necessary to be dilated upon as the benefit from and scope of such provision lies in a small compass and should not be confused tot extend to non‑residents.

11. Reverting, directly, now to section 4(1)(c) above, the first question to be addressed is as to what is signified by the expression "Income, profits and gains from whatever source derived which‑‑‑‑‑‑accrue or arise‑‑‑‑" to a non‑resident in Pakistan, employed in the provision under consideration. The words underlined (by us) have been interpreted to denote ideas, more or less similar, though, perhaps, not identical; and the difference lies in that one may be more appropriate than the other, when applied to particular situations. On such basis, the rule seems to be that income or profits and gains "accrue" within the meanings of section 4(1)(c), when they first, come into existence or the right to receive them emerges but, correspondingly, such may be said to "arise" i.e. spring up, appear, come into activity) when the method of accounting crystallises them in the shape of income, profits or gains. Thus, income may accrue at a point of time prior to its quantification or computation, which is not a condition precedent to accrual. Next, it arises to due accounting or computation. Such words (accrue or arise) singly or together, besides, are used in contradistinction to the word "receive" and indicate a right to receive and, accordingly, both represent a stage anterior to the point of time when the income becomes receivable. In addition, and this is crucial, income may accrue or arise in one place and be received in another. On this reasoning, irrespective of the place where a business is carried on or a profession or vocation is practised in the context of a non‑resident, for the purposes of chargeability under Section 4(1)(c), the minimum requirement to be satisfied is the accrual of income, profits or gains in Pakistan in the year of relevance. If such minimum is satisfied it is altogether irrelevant whether the income, profits or gains have also arisen or been received, either actually or notionally. Mr. Ali Athar, in the context of chargeability, has referred us to the decision of the Bombay High Court in Commissioner Income‑tax v. Cooper Engineering Ltd. (1968) 68 I.T.R. 457) where Kotwal, C.J. recorded the following broad proposition:‑‑ "By virtue of section 4(1) the Act can only apply to income, profits or gains which are received or deemed to be received in the taxable territories." With respect, we differ and cannot subscribe to such a proposition for interpreting section 4(l)(c) of the Income‑tax Act, 1922. As seen, such provision does not go as far as to contemplate receipt or income, profits or gains and on the contrary, for good reason, employs the phraseology of income, profits and gains accruing or arising or even deemed to be accruing or arising in Pakistan. Manifestly, as shown, the concept covered by the phrase "accrue or arise" contemplates a stage prior to or even corresponding with the actual receipt of such income, profits or gains but the charge comes into operation with mere accrual or arising of the income, profits or gains, as the case may be, and is completely divested from their actual or notional receipt.

12. With this we move on to the other concept in Section 4(1)(c) of the Income‑tax Act, 1922, and that pertains to "income, profits and gains from whatever source derived which‑‑‑if such person is not resident in Pakistan‑‑‑are deemed to accrue or arise to him in Pakistan‑‑‑‑". In such context the clear intendment of the legislature is to bring within the mischief of the provision cases where, in actuality, income does not accrue or arise in Pakistan but, by fiction of law, that which in reality is not income, not having accrued or arisen in Pakistan, is deemed to be so. Thus, salaries taxable under section 7 of the Act are deemed to accrue in Pakistan, wherever paid, if the same are earned in Pakistan. Similarly, as regards profits from business, taxable under section 10, such are deemed to accrue in Pakistan in the case of any business connection in Pakistan. Thus, in appropriate cases, even where income, profits or gains have not actually accrued or arisen in Pakistan the same may still be taxable under the Act of 1922, if such are deemed to have accrued or arisen in Pakistan. Co‑extensive to this, it would be the obligation of the person liable to make payment of such deemed income to a non‑resident, to also make necessary deductions under section, 18(3‑B) in such behalf.

13. Reverting now to section 18(3‑B) of the Act, that provision casts an obligation on "any person responsible for paying to a person not resident in Pakistan any sum‑‑‑chargeable under the provisions of this Act‑‑‑‑at the time of payment, unless he is himself liable to pay‑‑‑as an agent" to deduct relevant tax "in accordance with the provisions of subsection (1) of Section 17". The liability to deduct seems to be absolute except for two conditions namely, the sum payable should be chargeable under the provisions of the Income‑tax Act and further the person responsible for paying should not himself be liable as an agent of the non resident. As to agency, we shall deal with that question when we come to it. But as regards the first condition, for the obligation to arise the question of chargeability is covered by section 4(1)(c) of the Act already discussed above. As seen, which obligation would emerge on income or gains accruing or arising or deemed to be so accruing or arising to a non‑resident in Pakistan and for that purpose neither actual receipt of the same is relevant nor the place where such payment is, in effect, received. It is on record that the three disputed sums pertained to EEC, for technical and engineering services rendered, for Head Quarters' services, and for charges against services rendered in purchase of material and supplies. The case of the respondents is and has been that, as per certificate submitted, there is no ingredient of profit involved in such payments and that these became due and were disbursed on costs basis alone.

14. In the foregoing legal and factual background, as projected, several mutually exclusive and alternative situations, can come into view for consideration. This, however, would be on the assumption that the agreement of 1968 remains inapplicable. In the first place, controversy would arise and the respondents would have been obliged to deduct from the whole amount if, on admitted facts, the entire remittances consisted purely of income, profits or gains due to the non‑resident. Secondly, in case the amount or amounts in question were of a composite nature then, according‑to the respondents, they would he obliged to deduct due taxes only on the profit ingredient and remit the balance whereas according to the department, taxes would be deductible on the whole composite dues payable to the non‑resident. Here, significantly the respondents do not elaborate as to how such profit ingredient would be determined before deduction. Thirdly, if in reality no income or profits whatever were involved and that were an admitted position, nothing need have been retained by the respondents according to the stand taken by them but for the department even on such total dues deduction should have been enforced, leaving the matter for the Revenue to determine, at the time appropriate.

15. The dispute thus is limited to the second and third points, as isolated in the proceeding paragraph. The departmental stand, in the words of Mr. Shaikh Haider, is that the respondents have no attribute of an assessing authority under the Act and it is not for them to determine as to what amount constitutes income, profits or gains of the non‑resident. All that they have to do is to perform their duty and to discharge their obligation in making deductions, as required under section 18(3‑B) of the Act and whether the whole or part of the sum(s) so deducted is not chargeable under the Act lies within the exclusive functions of the assessing and taxing authorities, to whom the non‑resident must revert on due deductions having been made and, depending on its duly showing partial or complete non‑amenability to tax, can get due refund. The respondents' counter argument, through Mr. Ali Athar, is that such a course would result not only in harassment and unnecessary controversies where none in fact arise but even to absurd results. This contention, in turn, is based on a plea that the payments under consideration do not apply to what may be termed as trading receipts in the hands of the recipient, for Income Tax is chargeable on income and trading receipts are not income, the latter being determinable only after expenditure is deducted from receipts. The argument is fortified by pointing out that when price of goods supplied is paid to a non‑resident seller no deduction of tax has to be made under section 18(3‑B), although upon making up accounts at the end of the year it may be found that an element of profit was contained in the receipt of the sale price. Such argument is supportable on some remarks in Kanga and Palkiwala's "Law and Practice of Income‑tax" Volume I, page 1043 (Seventh Edition). The short answer to this contention is that the concept of goods supplied and the element of profits comprised in payments made therefore are matters which, where relevant in the context of deduction, have been elsewhere dealt with in the Income‑tax Act of 1922 and more particularly in its successor statute viz. the Income Tax Ordinance of 1979 (see Section 18(3‑BB) of the Income Tax Act, 1922 and Section 50(4) of the Income Tax Ordinance, 1979). Similarly, as to importers or exporters, concerning imports in or exports from Pakistan, the matter of taxation, is embraced in the authority conferred on the customs Collector to make necessary deductions or collections in the manner prescribed (See subsection (3‑BB) of Section 18 of the Act of 1922 and Section 50(5) of the Ordinance of 1979). In either such cases, however, there being nor reality available machinery for making computations, deductions are to he made in the mode and manner prescribed. Thus, there being a similar lack of mechanism in relation to matters falling under section 18(3‑B), the legislature could, if it so chose, provide a ready method of reckoning in that behalf as well, That it opted not to do so could not be without significance. This leads to the inescapable inference that it is not "pure income profits" alone, as they are sometimes termed, which are chargeable, under section 18(3‑B). either its such as on being isolated from sum(s) of composite nature, but composite amount(s) as a whole, since and if, ".pure income ,profits" only were in contemplation in section 18(3‑B), as sum(s) chargeable, the legislative intendment would stand substantially frustrated as the remitter spoken of in that provision would have had no means of due ascertainment in relation to composite sum(s) and could deduct nothing therefrom, more so, because our enactment of 1922, as distinguished from the Indian statute, has no provision in the nature of subsection (3‑C.) of Section 18 of that statute, enabling the payer to seek interim splitting up of, income, profits or gains, from figures or a composite nature. Some use, though, of a similar character may be made of the second and third provisos to Section 42(1) of the Income‑tax Act, here applicable, in cases of agents and those apprehending to be charged as agents but that too only when the non‑‑resident disputes the quantum of deduction. The analogy drawn is thus not in order.

16. The payments in dispute here could be payments of an altogether different Sort but since that question does not, directly, arise in these proceedings only a passing reference to that aspect may suffice. Such payments, avowedly, are in the context of some specialized and other services rendered, which could correspond or partake the nature of income, profits or gains from business, profession or vocation as such concepts and, particularly, those of "business" and "income" (in section 2(4) and 2(6‑C) of the Act) have been very liberally defined and interpreted. Thus, in Lakshminarayan Ram Gopal & Son Ltd. v. Government of Hyderabad (1951) 25 I.T.R. 449 the Indian Supreme Court found that rendering of various and continuous services as managing agents to a company would amount to carrying on business, even if the services arc rendered to only one company. Agent's remuneration, on this view, would be taxable as business profits and not as salary. Be that as it may, this is a question on which, with respect, we do not feel obliged to dilate upon here since the determination would depend on the facts of each case and facts could not be duly determined in this case, since no deductions were made and no facts were pleaded by the non resident itself. The departmental view, therefore, regarding which no exception is taken by the respondents, that the matter fell within the purview of income, profits or gains arising from business, profession or vocation covered by sections 4(1)(c) and 18(3‑B) must prevail. However, speaking in passing, a connection of sorts between service and salary, depending always on the facts of each case, could not also, be ruled out altogether. But if that was so, the case would have fallen under section 18(2‑B) of the Income‑tax Act, and the mode and extent being pre‑determined thereunder the deduction could undeniably have been made from the whole amount(s). This, however, as said, does not arise in the present circumstances and the matter has to be dealt with as falling under section 18(3‑B) aforesaid.

17. This draws us to a, purportedly, anomalous situation, where the remitter could be confronted with a perplexing predicament as to from and in respect of which portion of the sums) payable the required deductions should be made. Such a predicament, on the argument before us, could arise and did arise in respect of composite sums) comprising income or profits as well as deductable expenditure etc. by the non‑resident. As already seen, the charging provision in section 4(1)(c) of the Act makes the mere accrual of income, profits or gains taxable and a distinction has been made between the words "accrue" and "arise", the word "accrue" denoting the mere emergence or coming into existence of the income, profits or gains and the latter word, "arise" apparently, signifying the separation of the pure ingredient of income, profits or gains from receipts of a composite character. It follows, therefore, that whether income, profits or gains merely accrue or are determined to arise, in either case, such are chargeable under the Income‑tax Act and any sum which is chargeable and is due to a non resident must be subjected to deduction by the person responsible to make payments to such non‑resident under Section 18(3‑B) of the Income‑tax Act. The moment, therefore, the person obligated to make payment under section 18(3‑B) has reason to believe that what he is liable to pay or disburse could be chargeable to tax under the Act, he must make deduction from such sum. There is no distinction here for sums of a composite nature though, as seen above, there is some scope for splitting up of composite sums in cases covered by the second and third provisos to section 42(1) of the Act and now, of course, under the proviso appended to section 50(3) of the Income Tax Ordinance, 1979. Under section 18(3‑B) of the 1922 Act, in cases involving composite sums, the deduction must be from the whole of the sums, for the payer has no means of sifting the taxable portion of the gross receipts. He has no authority to separate the wheat from the chaff and that function must be performed where it belongs. When, however, he is constituted an agent or apprehends to be made liable as such and when the non‑resident disputes the quantum of deductions on estimation proposed by him, to save or curtail his own liability, he may resort to applying and obtaining a certificate under the second proviso to section 42(1) of the Income‑tax Act, 1922 and would then be protected in terms of the third proviso to that subsection. Like would be the incidence of deductability when the non‑resident claims immunity or purports to do business on non‑profit basis. Deductions, apart from section 42(1) ibid, must be made from the whole such composite or possibly composite sums, for the payer cannot presumptuously exercise the powers or the jurisdiction of the taxing authority. His obligation and his burden is absolute. If he does not discharge his burden or fails in his statutory duty, he becomes personally liable under Section 18(7) of the Income‑tax Act, irrespective of the fact whether the non‑resident was or was not liable. This must be so, because on account of such person having volunteered to intervene between the taxation authorities and the non‑resident, the latter of whom alone could have explained whether the amount deducted from his dues was or was not chargeable, the Revenue can conceivably stand to suffer. In cases involving a non‑resident doing business with a Pakistan connection on a projected non‑profit basis, even a deemed liability could spring up under Section 42(2) of the Income‑tax Act, which envisages a course of business and arrangement between a resident and a non‑resident, so as to artificially preclude profits to the resident. Such a situation was considered by the Indian Supreme Court in Mazagaon Dock Ltd. v. Commissioner of Income‑tax (1958) 34 ITR

368. Those who are charged with the responsibility to deduct under section 18 of the Act have, therefore, got to be extremely careful if the sum(s) payable by them, even remotely, could attract full or partial chargeability. In Indian Aluminium Co. Ltd. v. Commissioner of Income‑tax (1967) 64 ITR 457, the assessee, Indian Aluminium Co. Ltd., which carried on the manufacture of aluminium products, with its registered office at Calcutta, was provided technical information, advice and service for an annual retainer by the Aluminium Laboratories Ltd., of Canada for which payments of Rs. 2,50,808, without deduction under section 18(3‑B), were made. The Indian company was treated as an assessee in default under section 18(7) of the Act and the Calcutta High Court, on refusal of the non‑resident to reimburse, the assessee, declined either to allow deduction of such sum from the profits of the assessee or to permit writing off the same as bad debt. Reliance in this connection was made on Commissioner of Income‑tax v. Abdulla Bhai Abdul Kadar (1901) 41 ITR 545 which had reversed the Bombay High Court opinion in Commissioner of Income‑tax v. Abdulla Bhai Abdul Kadar (1957) 31 ITR

72. The Supreme Court of India in Aggarwal Chamber of Commerce Ltd. v. Ganpat Rai Hiralal (AIR 1958 S.C. 269), called upon to consider the liability to deduct under Section 18(3‑B) (these provisions being similarly couched in the then Indian and Pakistan statutes) in the context of a non‑resident, who claimed not to be liable to any deductions in India, on the ground of his world income being in red, observed as under :‑‑ "If the Hapur firm (the payer) rightly paid the tax on the profit, the respondent cannot be allowed to challenge the amount on the ground that his total world income was not taxable and he was entitled to his profits without deductions. This is a question which has to be agitated by the non‑resident assessee at the time of his assessment. Those persons who are bound under the Act to make the deduction at the time of payment of any income, profits or gains are not concerned with the ultimate result of the assessment. The scheme of the Act is that the deductions are required to be made out of salaries, interest on securities' or `other heads of income, profits and gains' and adjustment are made finally at the time of assessment. Whether in the ultimate result the amount of tax deducted or any lesser or bigger amount would be payable as income‑tax in accordance with law in force would not effect the rights, liabilities or powers of a person under section 18 or of the agent under Section 40(2) or 42(1)." Similar view was expressed in Gulberg Textile Mills v. Commissioner of Income -tax 1978 PTD 126 by a Division Bench of this Court, comprising of I. Mahmood and Zaffar Hussain Mirza, JJ., when called upon to decide a question of deduction under section 18(3‑B) from Commissions paid abroad. It was opined that section 18(3‑B) is expressed in the widest possible terms and, barring minor exception, covers all sums chargeable under the provisions of the Act and payable to a non‑resident, which are in the nature of income "that is pure income, as opposed to payment of a sum which in the hands of the recipient, is a trading receipt e.g. price of goods sold to a non‑resident seller." The aspect pertaining to supply and import of goods has already been dealt with and need not detain us here. In Commissioner of Income‑tax v. Noor Sugar Mills 1984 PTD 87 Mohammad Akram, J., then in the High Court, who spoke for a Lahore Division Bench, observed that even in a case where the resident was appointed an agent under section 43 of the Act it did not necessarily mean that such person was "himself' liable to pay the tax due from the non‑resident. On the contrary, till completion of assessment in the name of the agent he was charged with a continuing duty under section 18(3‑B) to deduct tax at the source from payments due to a person who is not resident in Pakistan. On failure he would be deemed to be an assessee in default as laid down in section 18(7) of the Act.

18. Now, as seen above, we have arrived at pinning responsibility on the person liable to pay sum(s) due to a non‑resident in respect of receipts of a composite nature, basically, on the ground that the liability to deduct emerges immediately on income, profits or gains accruing and since at the stage of accrual the ingredient of income, profits or gains could be of an indefinite and indeterminate character and besides, there being then, virtually, no machinery to isolate the income from gross receipts the payer must make deductions from the total gross sum(s) due. Exactly the same question has been answered by the Calcutta High Court, in an identical manner, though for different reasons, as reflected in P.C. Ray & Co. v. A.C. Mukerjee (AIR 1959 Cal. 131), where Chakravartti, C.J., resolved the issue by observing that the word "chargeable" in section 18(3‑B) was not to be treated as equivalent of "assessable" to income‑tax and connoted a sum "liable in its nature to be brought into computation in an assessment, that is to say, as belonging to one or other of the heads of income as set out in section 6 of the Act". In such view all sums covered by any of these heads, if otherwise falling within section 18(3B) would be liable to deduction. This is yet another mode of interpretation and would absolve the remitter of sifting and segregating "pure income profits", as such. Mr. Ali Athar, however, has attempted to distinguish this decision, inter alia, on the ground that in the Indian statute there is an express provision in the shape of subsection (3‑C) of Section 18 whereunder, in case the person responsible for paying "considers that the whole of such sum would not be income chargeable", he may apply and obtain determination of "the appropriate proportion of such sum so chargeable'". According to him the mere availability of subsection (3‑C) in the Indian enactment would make subsection (3‑B) of Section 18 workable, even on such interpretation, as prevailed in the Calcutta High Court. We are afraid this argument, actually, goes against the respondents. Section 18(3‑B) of our Act is a code in itself and virtually covers all sums payable to non‑residents, chargeable under that Act and such sums may or may not be of a determinate character. In the category, obviously, would be included sums of a composite nature, requiring determination at the appropriate time, in the forum relevant. Absence of a provision in the Pakistan statute equivalent to subsection (3‑C) ibid. leaves no machinery for the remitter to resort to, with a view to find out the proportionate amount chargeable and he, being not armed with powers of an assessing authority, must, therefore, withhold all or any sums as a whole, which have elements of chargeability or, on failure, become personally liable under section 18(7) of the Act. We, therefore, agree with the department that it is none of the functions of the person obliged to make disbursement under section 18(3‑B) of the Act to sift and assess as to whether and what portion of the amount projected to be disbursed is taxable or none at all is so taxable. He must retain from such amount as a whole, the moment he comes to have reasons to believe that the same wholly or in part could possibly by chargeable to tax. Thereupon, and for the rest, the duty shall devolve on the taxing authority on the appearance of and submission of returns by the non‑resident, to see and to determine whether the whole or part' of the sum or sums so deducted are or are not liable to tax. In the event the person liable to remit fails to perform his duty, he would render himself liable as an assessee in default under section 18(7) of the Act of 1922. Like would be his fate even if, admittedly there is no clement of income, profits, or gains involved in the remittance, for the admission would be valid or relevant only between the payer and the non‑resident and the department, bereft of a provision similar to that in the proviso to section 50(3) of the 1979 Ordinance, or, for the matter of that, subsection (3‑C'.) of Section 18 in the Indian Act, would be no party to it.

19. This brings us to the current dispensation as in section 50(3) of the Income Tax Ordinance, 1979. In order to alleviate hardship, as is under discussion, in the Income Tax Ordinance, 1979 a proviso has been enacted in section 50(3), whereby the person responsible to make payment to a non‑resident may obtain a certificate from an Income‑tax Officer certifying that either no deductions need be made in a particular case or that the recipient may deduct tax at lesser rate than prescribed. The Ordinance, as already pointed out, does not, however, apply to the present case and the present assessment year.

20. What then should be the connection, if any, of the liability to deduct under section 18(3‑B) of the Income‑tax Act, 1922, with that of the recipient being constituted an agent and made liable under Section 43 of the Act; the question on which the members in the Appellate Tribunal had initially differed. In such a case as well the agent, in his own interest and in order to save or curtail his own liability, should continue to make deductions under section 18(3‑B) of the Act. Such view is supportable on the ratio in Commissioner of Income‑tax v. Noor Sugar Mills 1984 PTD

87. The liability, however, of the payer under section 18(3‑B) is independent of section 43 of the Income‑tax Act till such time as the payer comes, if at all, to be saddled with the responsibility of an agent under section 43 of the Act and subsequent to his constitution as an agent is merged therein. The two concepts, however, are to be approached and enforced differently till the point or incident of merger, if any. Accordingly, for the foregoing reasons, our answer to question No. 2 is in the negative.

21. Taking up now question No. 1, as framed above, we cannot fail to note that the relevant argument from which such question could arise was not advanced in the Appellate Tribunal. It was too much to expect a forum in which an argument is not addressed at all to frame a question arising therefrom and to refer it to another forum i.e. this Court. This, however, was a pure question of law and, as observed, our own discretion under Section 06(2) of the Income‑tax Act is wide enough to embrace even such questions. We have, therefore, thought fit to frame the question and proceed now to deal with it. The argument is that under Section 30 of the Income‑tax Act no appeal lay in respect of an order passed under section 18(7). It is correct that in section 30 no appeal is expressly provided against an action taken under section 18(7). However, under the provision last referred, the remitter is deemed to be an assessee in default. Under section 30(1) of the Act an appeal is generally provided to a person "denying his liability to be assessed under this Act". It appears to us that these words contemplate a broad category of persons and also cover the case of an assessee in default, if he disputes liability We arc, therefore, of the view that an appeal did lie and was properly taken and, thus, there was no bar for the Tribunal to adjudicate upon the ultimate appeal taken to it. Our answer to question No. 1 accordingly, would be in the affirmative. M.B.A./C‑158/K Order accordingly.