I. T. AS. NOS. 1080/KB, 1081/KB AND 1082/KB OF 1978-79, DECIDED ON 11TH FEBRUARY 1980. Versus I. T. AS. NOS. 1080/KB, 1081/KB AND 1082/KB OF 1978-79, DECIDED ON 11TH FEBRUARY 1980.
1. A. A. ZUBERI (MEMBER). ‑The appellant‑Company agitates against consolidated order dated 2‑12‑1978 passed by the learned Appellate Assistant Commissioner Range, for assessment years 1974‑75 to 1976‑77. The dispute in all the three years relates to a disallowances of appellant's contribution to Expatriate‑Staff Pension Fund. The disallowance stood at Rs. 1,03,942 in 1974‑75 at Rs. 43,855 in 1975‑76 Rs. 60,177 in 1976‑77.
2. The learned counsel for the appellant brought to our notice, at the outset, that in the case of this very assessee, this issue has been coming before this Tribunal since the year 1965‑66 and it has always been of the opinion that payments by the appellant were not taxable under the head 'Salary' the pay ment for the Fund being outside the ambit of Pakistan Income‑tax Act, and thus there was no obligation to deduct tax. The learned counsel placed on record consolidated decision dated 11‑10‑1973 vide I. T. As. Nos. 1887 to 1889 of 1971‑72 in respect of assessments for the years 1969‑70 to 1971‑72 wherein all the relevant case‑law was examined and after a detailed discussion, this Tribunal finally placed reliance on Karachi High Court decision in Netherland Trading Society P L D 1957 Kar. 167, to hold that in the present appellant's case the Expatriate Staff Pension Fund having admittedly been maintained at a place outside Pakistan, payments out of it were not liable to tax under section 7 of the Income‑tax Act and, therefore, no obligation to deduct tax under section 18 arose. This decision has consistently been followed by this Tribunal and, References are pending with the High Court which were filed directly by the Department for the 1969‑70 to 1971‑72 and, through this Tribunal, for the years 1972‑73 and 1973‑74 vide R. A. No. 210 and 211 of 1977‑78 dated 23‑9‑1078.
3. Taking up the present appeals we discover that the learned Appellate Assistant Commissioner bad no quarrel that the claim for allowance was admissible under section 10(2)(xvi) of the Act, but upheld the disallowance with the following observation:----
4. "What the Department is seized of is the infringement of the provisions of section 18 and not the weighment of the claim of the appellant that it was allowable under section 10(2)(xvi). This being the case, it becomes abundantly clear from the records that neither the Expatriate Staff paid tax on these contributions although they were assessable under section 7 nor did the appellant deduct tax under section 18 of the Income‑tax Act for which it was duty bound. Therefore, the punitive action on the part of the Income‑tax officer for having disallowed such a claim while so exercising his powers under section 10(4)(a), was justified. Therefore, I shall maintain the addition on this account in all the three years."
5. In our view the learned Appellate Assistant Commissioner fell into an error in coming to the conclusion that in the Appellant's case provisions of section 100)(a) were attracted while a clear finding was given in the earlier years decision by this Tribunal, in this very case on 11‑10‑1973, 5‑10‑1976 and 31‑10‑1976 to the effect that the correct section was section 10(4)(a). It appears to us that the difficulties of the officers below arose from tae Funda mental mistake that they treat the Appellant's contribution to the Expatriate Staff Pension Fund as assessable under section 7 as 'salaries'. The reason for this appears to be the misunderstanding about the very nature of the Fund. It is to be remembered that Income‑tax Act recognises three kinds of fund viz. the government provident Fund, the recognised provident Fund and the unrecognised Fund. The first, is the Fund relating to Government employees created by the Provident Fund Act, 1925 contributions to this Fund are by way of, deduction out of the 'salaries' of the employee but no contributions are made by the Employer. The provisions of section 7 are clear that contributions to this Fund, out of the salaries are to be assessed as salary in each year of contribution. The accumulated payment out of this Fund, is, therefore not taxable in the hands of an employee as per last proviso to section 7. The second category is the Fund which is accorded recognition under Chapter XI‑A/IX‑B of the Income‑tax Act. Yearly contributions, both by the employer and the employee, are treated as "salary' but when the accumulated amount is paid out of tile Fund, it is not a taxable Receipt as per last proviso to section 7. The third, and the last category is that of unrecognised Fund. To this Fund, payments made by the employer are not treated as income in the year of credit but when the accumulated amount is paid (or is due) out of the Fund, the entire sum "to the extent to which it does not consist of contributions by the employee or interest on such contributions, is deemed to be profit in lieu of salary". Clause 'C' of subsection (4) of section 10 relates to this last category of Fund (i.e. the unrecognised Fund). Lest an employee escape tax on receipt of the consolidated amount, the Legislature has burdened the employer with the responsibility to make effective arrangement to deduct tax when payment is made from the fund and is taxable under the head 'salaries'. So as to make tile employee conscious of this responsibility his own contribution to the Fund is not be allowed as an expense by resort to section 10(4)(c) unless effective arrangement exists for deduction of tax at source at the time of payment to the Employee of the accumulated sum from the Fund. In the present case, both the parties agree. That Expatriate‑Staff Pension Fund was maintained abroad and the present appellant made certain con tribution in respect of such Non‑Resident Expatriate Employee. As the fund payment out of the Fund is to be made to the non‑resident outside Pakistan, obviously it cannot be brought to charge of Pakistan tax particularly when Explanation 2 to subsection (1) of section 4 does not envelope it. There was thus no obligation on the part of the appellant to make arrangement for deduction of tax at source under section 18 of the Act. It is in this background that this Tribunal in its earlier decisions, referred to above decided the issue in favour of the assessee‑appellant. The surrounding circumstances, as disentangled above, leave no room to doubt that no infringement of the provisions of section 18 occurred and as such provisions of section 10(4)(c) do not come into operation. Moreover, the facts in the present year are exactly similar with those of earlier years. We, therefore, see no valid reasons to change the view expressed by this Tribunal in the past hence adhering to the game, we ADJUDGE that the appellant's claim merits to be admitted in all the years under consideration.
6. The appeals in consequence SUCCEEDS.
7. MUHAMMAD MAZHAR ALI (PRESIDENT).‑‑I agree with the order proposed to be passed by my learned brother by following the decisions of the Tribunal on the appeals of this very assessee pertaining to earlier years. I would, however, refrain from expressing my views regarding the various types of pro vident Funds in view of the fact that no arguments what to say of full‑fledged arguments were addressed to us by parties' representatives in that behalf.
8. Appeal accepted.