1985 PLP 698 (PTD)

MUHAMMAD AFZAL LONE, J.‑This reference application has been brought by the Commissioner of Income‑tax, under section 136(1) of the Income‑tax Ordinance, 1979 praying that the following question of law said to have arisen out of the Tribunal's order dated 18‑7‑1979, be decided by the High Court. "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the liability of the appellant‑Company under section 18(3‑B) of the Income‑tax Act, 1922 in respect of the tax‑free payments made to the non‑resident A. O. P. Messrs Mitsubishi Heavy Industries Ltd. was restricted to 30 %. of the. amount actually paid to the said non‑resident A. O. P. without the inclusion of the amount representing the tax paid on its behalf."

2. The necessary facts constituting the background of this case are that during the assessment year 1967‑68, the assessee made tax‑free payment to an Engineer of a non‑resident company namely Messrs Mitsubishi Heavy Industries Ltd., who supervise installation of the imported machinery in the assessee's mills. There is no dispute that this payment stood at Rs. 3,51,

852. It is also on the record that on the Income- tax Officer's demand under section 18(3‑B) of the Income‑tax Act, 1922, the assessee paid a sum of Rs. 1,05,564 as income‑tax at the maximum rate. It appears, that subsequently, the department came forth with the claim that the respondent was liable to pay the levy not only on the actual payment made to the non‑resident company but also on the amount of the tax paid there on. The Tribunal under its order dated 18‑7‑1979 refuted this contention and maintained :‑ ...... We do not see any default on the part of the assessee except extent of delay in payment from the due date to the date of actual deposit. It would be pertinent to point out that the default under section 18 (3‑B) is to be judged with reference to "deduction of Income‑tax at the maximum rate out of sums paid to the non‑resident only. The demand created against the non‑resident as a result of assessment based on calculation of tax‑on‑tax (or on any other basis) is quite irrelevant for the purpose of deduction at source section 18 (3‑B) which is to be at the maximum rate (i. e. 30%) at the time of payment and not with reference to the ultimate assessment." In the same wake an application under section 136 of the Income‑tax Ordinance, filed by the department was also rejected by the Tribunal.

3. We have heard the learned counsel. He reiterated the stand taken up by the department before the Tribunal and urged that the tax paid by the assessee on behalf of the non‑resident company, for the purpose of section 18 (3‑B), has got to be treated as a receipt by the latter, on which the assessee was liable to pay the income‑tax.

4. The argument of the learned counsel does not march with the language of section 18(3‑B). To facilitate the reference, this subsection, so far as relevant for the purposes of this case is reproduced below :‑ "Any person responsible for paying to a person not resident in Pakistan any sum ........chargeable under the provisions of this Act shall at the time of payment, unless he is himself liable to pay any income‑tax. ..thereon as an agent, deduct, in the case of a company, income‑tax at the maximum rate.............. " Under this subsection, a person who himself is not liable to pay tax as an agent under section 43 of the Income‑tax Act 1922, is burdened with the liability to deduct tax at the maximum rate, on the payment made by him to a non‑resident company and such deduction is to be made at the time of payment. Upon the language of this subsection it is obvious that the event to make the deduction arises when the actual payment is made. Thus, the obligation to deduct the tax, cannot be pegged on the ultimate assessment which in the case of a non‑salaried person, may be different from the payment made to him during the assessment year. The finding recorded by the Tribunal in this behalf is, therefore, well grounded. The deduction is relat able to the amount paid to the non‑resident person or the company and not to the tax paid on such payment.

5. We, therefore, concur with the Tribunal and hold that its order does not give rise to any question of law. Consequently this reference application is dismissed in limine. M. B. A. Application dismissed.