COMMISSIONER OF INCOME-TAX, LAHORE Versus GOVT. JALLO ROSIN & TURPENTINE FACTORY, LAHORE

MUHAMMAD AKRAM, J. This is a reference application directly made to ‑the High Court by the Commissioner of Income‑tax, Lahore Zone, Lahore . against Messrs Government Jallo Rosin and Turpentine Factory, Lahore under section 66 (1) of the Income‑tax Act, 1922 pertaining to the assess . went year 1963‑64.

2. Briefly the relevant facts necessary for the disposal of this petition before us are these. The Government is running a factory under the name . and style of the Government Jallo Rosin and Turpentine Factory near Jallo at Lahore, situated within the then Province of West Pakistan. It was manufacturing rosin, resin and turpentine for sale within the Province of West Pakistan, outside it in the then Province of East Pakistan and exports abroad to other countries. The distribution of these products was entrusted by the Government to Messrs Sadiq Traders Ltd., Karachi as its sole selling agents in accordance with the terms and conditions of an agree ment executed between them.

2. On the 28th of June, 1968 the Income‑tax Officer Companies Ward 111, Lahore made the original assessment against the respondent for the assessment year 1963‑64 on an income of Rs. 1,36,735 made on the sales. In his opinion this income made on the sales in Pakistan and abroad, outside the Province of West Pakistan, was not exempt from tax under the law. The assessee went up in appeal against the order which was allowed by the Appellate Assistant Commissioner of Income‑tax, B Range, Lahore on the 31st of March, 1971. He relied on the provisions contained in Article 137 of the Constitution of Islamic Republic of Pakistan, 1962. In his opinion no part of the business done by the Provincial Government of West Pakistan was carried on outside its territories and the income made on the business thus carried on was immune from payment of the tax. He, therefore, cancell ed the assessment as illegal. But on further appeal (I. T. A No. 2523 of 1970‑71) the Income‑tax Appellate Tribunal (Pakistan), Lahore remitted the case to the Income‑tax Officer as it was complained that some of the busi ness activities of the Provincial Government were in fact carried on outside the territories of the Province of West Pakistan, as it was then constituted and no adequate opportunity was allowed to the Department to establish the assertion. In sending the case back, the Tribunal directed the Income‑tax Officer to hold enquiries in order to ascertain if any part of the business of the assessee was carried on outside the limits of the Province of West Pakistan.

3. After the remand, on 29th of April, 1972 the Income‑tax Officer, Company Circle 111, Lahore restored the assessment on income of Rs. 1,36,735 arising from sales made to East Pakistan and foreign countries. The respon dent was dissatisfied with the order and filed an appeal (I. T. A. No. 11340‑A of 1971‑72) against it directly before the Tribunal. On the 21st of September, 1972 the Tribunal disposed of the appeal by a consolidated order passed together in respect of five assessment years 1963‑64, 1965‑66, 1966‑67, 1968‑69 and 1969‑70 against the same assessee. In the opinion of the Tribunal the income in all these years was earned by the Provincial Government from business activities carried on within its territorial limits and was, therefore, immune from tax.

4. In these circumstances the Commissioner of Income‑tax, Lahore has filed the above reference application directly in the High Court referring the following question of law said to arise out of the appellate order passed by the Tribunal for its opinion under section 66 (1) of the Act:‑

"Whether on the facts and in the circumstances of the case the Appellate Tribunal rightly held that the income derived by the respondent from trade activity outside the Province of West Pakistan is not liable to tax under the Income‑tax Act?"

5. We have heard the learned counsel for the parties at considerable length in this and the other connected cases. It is common ground before us that all the sales in question to the customers in East Pakistan and abroad were made through Messrs Sadiq Traders Limited, Karachi, in accordance with an agreement executed with the respondent. They were appointed as the sole selling agents for the purpose of selling, clearing and forwarding rosin and turpentine manufactured by them. A copy of this agreement was produced before us at the hearing. It was agreed between them that the agent shall have the sole and exclusive right to sell in retail and wholesale the manufactured goods, inland within specified areas, in East Pakistan and exports abroad to other countries. It was further agreed that the Agent shall during the term of the agreement accept and take into charge and trust all such turpentine, rosin and resin despatched by the respondent and shall do its best endeavor to sell and dispose of the same to their beat advantage and profits. The respondent undertook to furnish the agent with particulars of the minimum prices at which turpentine and rosin entrusted to them may be sold and the agents agreed not to sell the products at a price lower than the minimum thus notified to them. It was expressly laid down in the agreement that no sales shall be considered to be complete by the agent unless the same has been approved by the respondent. The agent was enjoined to keep true and faithful accounts of all the goods entrusted to them. The agent also undertook to diligently collect all debts owing to the respondent for goods supplied through them and deposit the moneys as soon as realised in the National Bank of Pakistan, Karachi in the name of the respondent. It was stipulated that the agent shall be responsible for all sales, recoveries and shall make good all the amounts in case of incomplete recoveries or non‑recoveries. The agent was entitled to commission at specified rates on the amount realized on the sales. The respondent agreed to pay to the agent all inciden tal expenses for storing its goods. It was also agreed that the agent may ship the manufactured goods on its own account from the assessee's godown at Karachi to any port in Pakistan and outside.

6. The answer to the question reproduced above lies in the true interpretation of Article 137 (2) of the Constitution of the Islamic Republic of Pakistan, 1962. It inter alia lays down that if a trade or business of any kind is carried on by or on behalf of a Government of a Province out side any income arising from that trade or business be taxed under a Central Law or under a Provincial Law of the other Province. In this connection before the Tribunal the case of the assessee‑respondent was that during the relevant year it had made all the sales within the Province of West Pakistan through Messrs Sadiq Traders Limited, Karachi as their sole selling agents on commission under the agency agreement. They used to effect the delivery of their products to Messrs Sadiq Traders Ltd., Karachi and thereafter they had no connection whatever in the further disposal and dis tribution of those goods in East Pakistan and abroad. As such the business carried on by Messrs Sadiq Traders Ltd., in selling those goods was not their business and with it the Government had nothing to do. In fact the respondent had no business connection with any of the customers in East Pakistan and abroad. Alternatively it was argued that assuming, though not conceding, that Messrs Sadiq Traders Ltd. were acting merely as the agent for the respondent and that the property in the goods remained vested in them even after they were consigned to their agent at Karachi. From the usual course of dealings it is evident that the delivery of the manu factured goods and the payment of the sale price were made at Karachi even with respect to the goods shipped to East Pakistan and abroad and the activi ties of the respondent were all along confined only up to Karachi within the Province and not beyond it. It was, therefore, argued that the assessee was entitled to the constitutional protection in respect of all those transactions. But on the other hand the case of the Departmental Representative was that under the selling agreement the relation between the principal and its agent at Karachi was that of a consignor and consignee and as a result thereof the goods consigned to the agent continued to remain the property of the principal. It remained vested in the assessee even in respect of the goods which were ultimately sold in East Pakistan and exported abroad. In this manner the income made by the assessee from the sales made in East Pakistan and abroad, outside the Province of West Pakistan, was not exempt from the payment of the tax.

7. On a consideration of the arguments advanced before it by the parties, the Tribunal held that in this case sales, including the sales to East Pakistan and abroad, were effected, so far as the respondent was concerned, within its own territories and as such the income made on them was immune from the levy of income‑tax. In coming to this conclusion the Tribunal observed that:‑‑

.. the further conclusion that the appellant carried on business in East Pakistan or abroad when its selling agents made certain sales in these territories cannot be correctly inferred from the terms of this agency agreement. From the manner in which the business was carried on in respect of the sales made in East Pakistan and abroad, it is clear that in respect of the contracts for sales made by the agents at Karachi, the appellant cannot be said to be working outside its territories. Similarly for the goods were despatched from Karachi by the agents for places in East Pakistan or abroad, the businese activity of the appellant even if it is attributed to it, was confined to Karachi and not beyond its territories. Finally when the sale proceeds were deposited in the appellant's account at Karachi even this part of the appellant's business activity was confined to Karachi. The appellant had no connection whatsoever with the importers from East Pakistan or abroad as from the various shipping documents and invoices issued by Sadiq Traders Limited it is patent that all these goods were despatched to East Pakistan or abroad by Messrs Sadiq Traders Limited who alone were known to the outside parties without any reference whatsoever to the appellant. We must, there fore, hold that the appellant's business activities, if any, even in this behalf did not extend beyond Karachi. As a matter of fact there is no evidence on record to show that the appellant played any part in procuring despatch of goods to East Pakistan or exporting the same abroad. It had no offices anywhere outside the Province of West Pakistan. It had no dealings with any of the customers out side West Pakistan. It could not bill any of the parties in East Pakistan or abroad. It did not receive directly any money from the parties in East Pakistan or abroad. To sum up, the various restrictions placed on the selling agents were designed only to keep a price control on the goods of the appellant and also to ensure‑ that the benefit of earning bonus vouchers may not go to the selling agents, in case any of the products of the appellant were consigned abroad, though the appellant all through had neither any business nor any business connection, nor carried on any business activity outside the territorial jurisdiction. Thus, in a nutshell, all the sales including the sales to East Pakistan and abroad, were affected, so far as the appellant is concerned, within its territorial jurisdiction. All the sale proceeds were also realised within its territorial jurisdiction. All other ancillary business activities were also confined to its own territorial jurisdiction and there is no dispute about the fact that all the goods were produced also within its territorial jurisdiction. Therefore, all the Income earned by the appellant, was earned from activities that were carried on within its own territorial jurisdiction and as such the constitutional immunity from the levy of Income‑tax in respect of income earned from the business carried on within its own territorial jurisdiction continues to operate. Thus the income that is attributed to these operations was also immune from the levy of income‑tax. We will accordingly vacate the Income‑tax Officer's orders."

8. On an analysis of these findings the Tribunal has held (i) that in respect of the contracts for sales made by the agent in Karachi the respondent could not be said to be working outside its territories, (ii) that the goods were despatched from Karachi by the agent for places in East Pakistan and abroad, (iii) that the business activity of the respondent even if it was attributed to it, was confined to Karachi and not beyond its territories, (iv) that the sale proceeds‑from the exports were deposited in the respondent's account at Karachi, (v) that the respondent had no connection whatever with the impor ters from East Pakistan and abroad, (vi) that from the various shipping documents and invoices issued by Messrs Sadiq Traders Limited it was evident that all the goods were despatched to East Pakistan and abroad by them who alone were known to the outside parties, (vii) that there was no evidence on the record to show that the respondent played any part in procuring the despatch of goods or exporting the same abroad, (viii) that the respondent had no office anywhere outside the Province of West Pakistan and it had no direct dealings with any of customers outside the province, (ix) and that it did not receive directly any money from the parties in East Pakistan or abroad.

To sum up, the Tribunal concluded that the respondent all through had neither any business nor any business connection, or activity outside the territorial limits of the Province and all the sales including the sales to East Pakistan and abroad, were effected, so far as respondent was concerned, within its territorial jurisdiction.

9. To recapitulate, Article 137 (2) of the Constitution of 1962 lays down that if a trade or business of any kind is carried on by or on behalf of the Government of a Province outside that Province, that Government may, in respect of any property used in connection with that trade or business or any income arising from that trade or business; be taxed under a Central Law or under a Provincial Law of the other Province. The real question, therefore, is as to whether in the circumstances of this case can it be said that the trade or business was carried on by or on behalf of the Government outside the Province.

10. In Goswani Shri 108 Shri Girdhariji Shri Govindraiji Shri Govindraiji Maharaj v. Shii Goverdhanlalji Girahariji Maharaj ( (1893) 21 1 A 13 ) their Lordships of Privy Council generally observed that : "the phrase 'carrying on business' has been often said, is a very elastic one, and is almost incapable of definition. The Tribunal must in each case look to the particular circumstances." These observations were made in connection with clause 12 of the Letters Patent under which the High Court was empowered to try suits of every descrip tion if the defendant was carrying on business within its limits.

11. In Sulley v. Attorney‑General ( 157 E R 1364 ) the facts were that the defendant, a partner in the firm of L. L. & Co. resided at Nottingham, the other partners were residing at Ne,v York, in the United States of America, where the principal business of the firm was carried‑ on. At Nottingham the defen dant transacted the business of the firm in England, which consisted of purchasing and shipping goods for exportation, but no money was received in England except from New York. The profits arose on the resale of the goods at an increased price in America. The Crown made the defendant liable, not merely for his own share of profits, but also in respect of the profits accruing to the firm generally, including the share of the other non resident members of the firm, who were the citizens of the United States of America. In these circumstances a question was raised as to whether there was a "carrying on or exercise of trade" in England. In answering the question in the pagative Cockburn, C. J. observed:‑

"I think there is not, looking at the sense in which the term is used and having regard to the subject‑matter of the statute. Wherever a merchant is established, in the course of his operations his dealings must extend over various places; he buys in one place and sells in another. But he has one principal place in which he may be said to trade, viz,, where his profits come home to him. That is where he exercises his trade. It would be very inconvenient if this were otherwise. If a man were liable to income tax in every country in which his agents are established, it would lead to great injustice, The argument for the Crown must be carried to this extent, that merely buying goods in this country is a trade exercised here so as to subject the purchaser of the goods to income‑tax. In the present case the defendant is a partner; but if the argument is well‑founded, this American firm might be taxed in the same way if he had been merely an agent. It would be most impolitic thus to tax those who come here as customers. The subjects of a foreign State, not resi dent here, cannot be made amenable to our laws. How then are their profits to be made amenable to the fiscal law? Simply by the provision that whosoever carries on the business and receives the profits here shall be assessed. Bu: in the present case no profits are received by the firm, or exist in this country. When the sections referred to by Mr. Mellish are looked into, they shed abundant light, if light were wanting, on the subject under discussion. The profits of the firm in America do not accrue in respect of any trade carried on in this country, but in respect of the trade carried on in New York, where the main business is conducted. The profits which come home to this country as the share of the individual partner resident here are taxable; but as to the main profits which go into the pockets of the partners in America, we think they are not. Therefore the judg. ment of the Court below must be reversed."

12. In Erichsen v. Last (1881 8 Q B D 414) the facts were that the appellants, a foreign company domiciled in Copenhagen, had three marine cables in connection With Aberdeen and Newcastle, communicating with the telegraph lines of the Post Office in the United Kingdom. They had also work‑rooms with clerks in London, Newcastle, and Aberdeen. Messages from United Kingdom were forwarded over the lines of the Post Office and the cables of the appellants to Denmark and thence by their wires and the wires of foreign Governments to Russia, China, Japan and India. The total charges paid for transmitting such messages were collected by the Post Office, and, after deducting their dues, handed to the appellants who retained the amount due to them for the transmission of messages over their cables and lines, and paid the residue to the various Governments and companies respectively entitled to it. No profits were made by the appellants from the trans mission of messages over the land lines in the United Kingdom. In the circumstances the Court held that the appellants must be taken to exercise a trade in the United Kingdom within the meanings of the statute chargeable to income‑tax on the balance of profits or gains from their receipts in this country for the transmission of messages. In that connection Brett. L. 1. observed that it would be nearly impossible, and wholly unwise, to attempt to give an exhaustive definition of what is a "trade exercised in this country." In his opinion the only thing he was called upon to decide was, whether, upon the facts of that case, this company could be said to carry on profit earning trade in the country. In that connection he observed that:‑

"A company in this country who regularly undertakes the carriage of goods abroad for money as part of their ordinary business, carry on trade in this country, although the whole of the carriage is done abroad. The mere fact that they enter into contracts in this country with English subjects for the right of carriage, appears to me to be the same thing as if they were to make similar contracts for the sale of goods. Whether it is the right of carriage or the right to transmit a message, appears to me to make no difference. Again, if a railway company with a station at Dover and a station at Calais were to carry passengers from Dover to Calais as a regular practice, that, I think, would be a trading in Dover, so far as regard the passengers carried from Dover to Calais. Therefore, in the present case, there is a trading within the meaning of the statute."

13. In Baillie v. Goodwin & Co. ( (1886) 33 Ch. D 604 ) the defendant firm was carrying on business in Scotland and had employed as their agent in London one G. N. Macphail to procure and transmit to them specifications and drawings of any publically advertised work which they proposed to tender for. But he had no authority to take orders for them. In the circumstances it was argued that the defendants had no place of business in England and Macphail was only their agent, he was not their servant, and that the business in England was his business and not theirs. In that connection the Court observed:‑

"Now in my opinion it is clearly shown that Macphail is not the servant of the defendants, but is their agent. They are not carrying on business at his office. Two things are said to militate against that view; first, that their name is affixed to his office; and secondly, that their note‑paper contains a heading referring to his office as their London address. Those are no doubt matters that deserve consideration, but they are not sufficient to rebut the evidence before me: that satisfies me that there is an agency but nothing more."

14. In the case of The Commissioner of Income‑tax, Bombay Presidency & Aden v. Chunilal B. Mehta of Bombay ( 176 1 C 15 (P C) ) the assessee was trading in Bombay for several years past as a broker and speculator in cotton, silver and other commodities. He had his offce in Bombay only. In the speculation business, the assessee used to carry on his business not only with the parties in British India but also with parties outside British India, at Liverpool, Lords and New York. All that was done in a business of this kind was merely to issue an order to a broker for forward purchase or sale and then issue another order closing the transaction. Profit or loss from such business as was done in his own account was his. A question arose as to whether in the circumstances of the case the profits and gains which accrued and arose to the assessee from the business of future delivery contracts entered into with parties outside British India, in which no delivery was ever taken or given, could be said to have accrued or arose in British India. In that context their Lordships of the Privy Council observed:‑

"To determine the place at which such a profit arises not by reference to the transactions or to any feature of the transactions but by reference to a place in India at which the instructions therefor were determined on and cabled to New York is, in their Lordships' view, to proceed in a manner which cannot be supported if the transactions are to be looked at separately and profits of which transactions considered by themselves. There is distinct paradox in the contention that the profits resulting from an order placed in New York would have accrued or arisen in the same place (Bombay). Had the order been sent to Liver Pool with like result, but that had the assessee decided on and directed the same New York transaction when in Hyderabad the same profits would have arisen in a different place (Hyderabad)."

In conclusion the Privy Council observed :‑

"These considerations lead their Lordships to the conclusion that under the Indian Act a person resident in British India, carrying on business there and controlling transactions abroad in the course of such business is not by these mere facts liable to tax on the profits of such transac tions. If such profits have not been received in or brought into British India it becomes or may become necessary to consider on the facts of the case where they accrued or arose. Their Lordships are not laying down any rule of general application to all classes of foreign transactions, or even with respect to the sale of goods. To do so would be nearly impossible and wholly unwise‑to use the language of Lord Esher in Erichsen v. Last."

15. In The Firm Haranand Murti Dhar v. Gurmukh Rai Radakishen ( A I R 1923 Lah. 427 ) the defendants had no permanent office at Amritsar but there was only a travelling agent residing at that place. He used to secure orders for the defendants and forwarded them to their head office at Calcutta. He had no power to enter into any contract or to receive any moneys on behalf of the defen dants. In these circumstances it was held that the defendants could not be said to be carrying on business at Amritsar. Also in Hasi v. The Industrial & Prudential Assurance Co. ( A I R 1937 Sind 17 ) the agent at Karachi had no authority to accept any offer for his principal. He was merely to canvass business which was accepted by the defendants at Bombay. In these circumstances it was held that the company could not be deemed to carry on business at Karachi. Similarly in Messrs Fleming Shaw & Co v. Messrs K. J. Bahadur & Co. (A I R 1936 Sind 121) it was observed that "the expression carry on business within the jurisdiction of a Court has been the subject‑matter of several judicial dccjstons both in England and in India. Whether a firm is carrying on business at a particular place or not is a question of fact. If a firm has an office of its own at a place at which a partner or manager is in control carrying on business, that is considered sufficient: (1894) 1 Q B 784 and (1891) 1 Q B 552. But if the firm has only an office where business for the firm is done by an agent, the question whether it is carrying on business at the place where it has its offce depends upon the power and authority of the agent. If the agent has authority merely to take orders and to transmit them to his firm or show samples, that is not carrying on business: (1886) 33 C D 604 and (1924) 1 K B 715. It would however be different if the agent has power to conclude binding contracts on his own initiative on behalf of the firm: (1899) A C 43 1 and (1902) 1 K B 342."

16. But the above discussion does not clinch the fate of this case and even if, as discussed above, it is held that in the instant case the Provincial Government of West Pakistan cannot be said to be carrying on the business outside its territorial limit, it does not really set at rest the entire controversy before us. Article 137 (2) of the Constitution expressly lays down that if a trade or business of any kind is carried on "by or on behalf" of the Govern ment of a Province outside that Province, that Government may, in respect or any income arising from that trade or business, be taxed by a Central Law. In the instant case the goods manufactured by the respondent‑assessee were ex ported to East Pakistan and abroad through their selling and commission agents namely Messrs Sadiq Traders Ltd., Karachi and from the terms and condi tions of their agency agreement reproduced above, it cannot be doubted that they were carrying on the export business as agents, for and on behalf of the Provincial Government. For this reason, therefore, the business' thus carried on through them was not exempt from income‑tax, under their Central Law. The Tribunal has altogether overlooked and ignored this aspect of the case. Therefore, for these reasons of our own we are of the opinion that the Tribunal was not justified in holding that tile income derive by the respondent from exports to East Pakistan and abroad through Messrs Sadiq Traders Ltd., Karachi, as their sole selling and commission agents, was not liable to income‑tax. Our answer to the question referred to this Court is returned accordingly.

17. In this case we had reserved our judgment after hearing the argu ments addressed to us at the hearing. But before we could announce our above judgment on the question referred to the High Court, on 5‑8‑1975 the petitioner (the Commissioner of Income‑tax, Lahore) filed an application under section 151 of the Code of Civil Procedure. It was alleged that through oversight the petitioner could not raise a constitutional issue to the effect that this dispute between the Central and the Provincial Governments regard ing the liability of the latter to the income‑tax, in relation to its business activities, was not cognizable by the Tribunal and should have been referred to the Supreme Court under Article 184 (1) of 1973 Constitution which corres ponds with Article 57 of the 1962‑Constitution. It was, therefore. prayed that since this constitutional issue goes to the very root of the case, it may be allowed to be raised at that late stage even. We have, therefore, heard the learned counsel on this application and also on the merits of the additional objection sought to be raised before us.

18. The respondent opposed the application. There is no doubt that this precise objection was not raised at any stage before the Income‑tax Officer and the Tribunal. Nonetheless the objection now raised is apparent on the face of the record and goes to the very root of these proceedings. In Rajendra Narain Chowdhary v. Satish Chandra Chowdhry ( A I R 1924 Cal. 233 ) it was held that the question as to whether Civil Court has jurisdiction to try a suit, though abandoned in the trial Court, can be raised in appeal (See also 14 1 A 160 (P C)). Also in Pullgadda Venkatasubba Rao and others v. Yella Pragoda Sivaramayya ( A I R 1941 Mad. 287 ) it was held that where the decision of the point in appeal affects the jurisdiction of the lower Court, the appellate Court cannot refuse to adjudicate upon it merely because of an unwise and ill‑advised concession made by the appellant in the lower Court. In Madhori Saran v. The Collector ( A I R 1946 Lah. 177 ) an objection going to the root of the case and apparent on the face of the record, was allowed to be raised for the first time before the High Court in appeal. In Muhammad Swabh v. Messrs United Grain and Fooder Agencies ( P L D 1964 S C 97 ) the Supreme Court of Pakistan observed that if an order is nullity, then every Court before whom it is brought is not only entitled, but bound to ignore it.

19. In Hunza‑Asian Textile & Woollen Mills Ltd. ( (1974) 29 Taxation 1 ), a Division Bench of this Court, on a careful consideration of the law, observed that the amendments introduced into section 66 of the Income‑tax Act and section 17 of the Sales Tax Act were far‑reaching in their character and held that:‑

"But then under these two amended sections a right is conferred to the assessee on the Commissioner by an application to directly refer to the High Court any question of law arising out of the appellate order passed by the appellate Tribunal. As a matter of strict interpretation, on the language of the section, the word `arising' out of the order of the Tribunal in the context has a wider import and connotation than the word 'raised' before the Tribunal. A question of law may still 'arise' out of the order of the Tribunal although it was not actually raised before it. In this connection it would be pertinent to reiterate the observations reproduced above in paragraph 10 of this judgment, made by the Supreme Court of India in the Commissioner of Income‑tax, Bombay v. Scindia Steam Navigation Co. Ltd. (1961 4 Taxation 103). In interpreting the old section 66 (1) of the Act the Court remarked that the language of section was wide enough to admit of questions of law on the facts found by the Tribunal and that there was no justification in cutting down its amplitude. We find that these remarks are all the more pertinent now after these amend ments introduced in section 66 (1) of the Act in this country by the Finance Ordinance, 1971. In these circumstances it calls for a more liberal interpretation to be placed on the amended provision for a direct reference of the question of law arising out of the appellate order passed by the Tribunal. Indeed it seems to us that the power of High Court on reference after these amendments is now more akin and similar to that vested in it in a second appeal."

In re: Ram Datta Sita Ram of Basil ((1947) 15 I T R 61) the Allahabad High Court held that if the legality of an order is questioned, it is question of Law arising out of that order within the meanings of section 66 of the Income‑tax Act. We, have, therefore, permitted the petitioner to raise this additional question before us even at this late stage in the proceedings pending in the High Court under section 66 of the Income‑tax Act.

20. On the merits the additional objection raised before us has consider able force. In this connection Article 185 (1) of the 1973‑Constitution lays down that the Supreme Court shall, to the exclusion of every other Court, have original jurisdiction in any dispute between any two or more Governments. In the 1962‑Constitution there was a corresponding provision in the form of Article 57. It may be mentioned here that a somewhat similar provision also existed in section 204 of the Government of India Act, 1935. Under it a trade or business of any kind carried on by or on behalf of the Government of a Province in any part of Pakistan outside that Province was not exempt from Federal taxation. In 1952 a similar dispute was taken to Federal Court under section 204 of the Government of India Act. The dispute arose between the Federation of Pakistan and the Province of Punjab in regard to the liability of the latter to income‑tax, on income derived from the Jallo Rosin and Turpentine Factory run by the Province. The Income‑tax Officer served a notice under section 34 of the Income‑tax Act, on the managing agents of the Factory requiring them to furnish a return for income from the factory for the assessment year 1942‑43 and completed for the assessment against the Province of the Punjab. On this the Punjab Province filed the suit against the Federation of Pakistan in the Federal Court under section 204 of the Government of India Act, 1935 and questioned the jurisdiction of the Income‑tax Officer to complete the assessment. The Federal Court held that the assessment against the Province of Punjab was ab initio void and without jurisdiction (See Punjab Province v. Federation of Pakistan ( PLD1956FC 72 ). In that connection relying on section 204 of the Government of India Act the Federal Court observed:‑

"On the plain words of the section, therefore, this Court has exclusive jurisdiction in the matter, and it was admitted by Mr. Faiyaz Ali that if the Income‑tax Officer were a `Court' and the objection to his jurisdiction to assess the Province were taken before him, he could not have adjudicated upon the merits of the dispute, because in that case the dispute would have been exclusively cognizable by this Court. We do not consider it necessary to decide whether an Income‑tax Officer is a Court, because it appears to us to be perfectly plain that keeping in view the essential nature of the dispute and the parties to it the case falls within the four corners of section 204, and we have exclusive jurisdiction in the matter. The principle underlying that section which creates a special jurisdiction is that all disputes, whether of law or of fact, on which the existence or extent of a legal right depends must be determined by this Court if the parties to the dispute happen to be the Federation on the one side and any one or more of the Provinces on the other or if two or more Provinces are arrayed against one another, because it is in the highest degree un desirable that the Federation and the Provinces should be fighting out their battles in ordinary Courts like common litigants."

The Court was also of the opinion that the Income‑tax Officer had no jurisdiction in the case to complete the assessment against the Province under the Income‑tax Act. In this connection the Court further observed:‑

"The learned Advocate‑General had to resort to this construction in a desperate effort to support the argument that because the Income tax Act provides a complete machinery for the adjudication of dis putes relating to income‑tax, being an exhaustive code not only governing rights and liabilities arising out of assessment to such tax but also the procedure for obtaining the determination of disputes relating to such rights and liabilities, section 204 must be read subject to the provisions of the Income‑tax Act, with the result that any dispute relating to income‑tax, even though it may be between the Federation and a Province, must be determined by the appropriate authority mentioned in the Income‑tax Act and not by any other Court including the Federal Court. We see no warrant in the words of the section for this forced interpretation, particularly when by giving effect to such contention we should not only be reading in the section what is not there but also arriving at the absurd conclusion that while the original jurisdiction of all other Courts including the High Court to decide disputes between the Federation and a Province are taken away, an ordinary official like the Income‑tax Officer should have been intended to be constituted the sole arbiter of disputes relating to his own jurisdiction to tax, whose decisions subject to a right of appeal or revision, were to carry an absolute finality. We see no reason for any such forced construction of the section and taking it to mean what its plain words say we hold that in the present case the necessary conditions of our exclusive jurisdiction are satisfied and that the dispute is cognizable by us alone."

In our respectful opinion this authority goes a long way in interpreting Article 57 of the 1962 Constitution. In can, therefore, be safely held that the exclusive jurisdiction to settle this dispute between the Central and the Provincial Government vested in the Supreme Court. Therefore, not only that the impugned order passed by the Tribunal was bad the assessment completed by the Income‑tax Officer from its very inception was ab initio void and without jurisdiction.

21. In this conclusion our above findings on the merits of this reference made to the High Court is thus rendered redundant. Here we cannot help observing that it is the petitioner who has himself invited this decision by making the miscellaneous application before us.

This case is disposed of accordingly. But there is no order as to costs in the circumstances of the case. s. A. A. Order accordingly.