ABDUR REHMAN Versus INCOME-TAX OFFICER

The petitioner in this case is aggrieved by the order dated 8‑3‑1979 passed by the respondent declaring him as an associate/agent of M/s. Ingenieurburo Oskar Von Miller GmbH, 8 Munchen 90, Waranguerstr, 46 West Germany for the assessment years 1976‑77, 1977‑78 and serving on him notices under sec tions 34 and 22 (2)/22 (4) of the Income‑tax Act, 1922 for 1978‑79 assessment year.

2. According to the petitioner, the facts of the case ale that through a deed dated 15‑4‑1976 M/s. Ingenieurburo Oskar Von Miller GmbH, appointed the petitioner as their attorney to do and/or execute all or any of the acts or things mentioned therein in connection with the Civil Suit No.279/1/79 Pending in the Court of Sh. Abdul Razzaq, Civil Judge, Lahore. This suit was instituted against the aforesaid Company by one K. D. Kolgarth lie claims to have accepted the position as an attorney Ex‑gratin. On 11‑10‑1979 the respondent issued a notice calling upon the petitioner to show cause why he should not be treated as an agent of the aforesaid Company for the purposes of its assessment under the Income‑tax Act, 1922. By his letter dated 21‑4‑1978 the petitioner explained that the West German Company named above was in litigation with one of their dismissed employee who has been making false allegations against the petitioner and stated that he does not represent the Company nor has ever represented Messrs Igenieurburo Oskar Von Miller GambH, in any business deal in Pakistan or anywhere else and had no business connec tion with the aforesaid concern. He explained that on the reference of the Company to suggest the name of a competent lawyer to represent it in the case filed by the ex‑employee, he suggested the name o: Mr. Aitzaz Ahsan, Bar‑at- Law who was engaged. He also expressed his willingness to act as their special Attorney for the purposes of the aforesaid case and that he was briefed and had been advising their counsel in Pakistan and that while the legal aspects of the case were being attended to by the lawyer, the financial natters were being looked after through the Embassy of the Federal Republic of Germany.

3. The respondent appears to have called upon the petitioner to attend his office on 30‑12‑1976 alongwith necessary evidence whereupon the petitioner attended. Also placed on record is the copy of an undated letter which appears to have been delivered to the respondent on 16‑2‑1979. This was followed by a formal show‑cause notice No. 350/CCI dated 4‑2‑1979 requiring the petitioner to show cause why he should not be treated as an agent of M/s. Ingenieurburo Oskar Von Miller GambH West Germany in Pakistan in pursuance of section 43 of the Income‑tax Act, 1922. In reply to the afore said notice the petitioner stated that he had earlier received an identical letter dated 26‑12‑1978 and had replied thereto by letter dated 16‑1‑1979 and sub mitted a copy of the aforesaid reply. The respondent then issued the impugned notice No. 1923/CCI dated 8‑3‑1979 holding the petitioner as an agent of the West Germany company in Pakistan and forwarded to him notices under section 43 for the years 1976‑77 and 1977‑78 and notices under sections 22(2) and 22(4) for the assessment year 1978‑79.

4. In the parawise comments submitted on 5‑4‑1979 the respondent relied on certain observations made by Mir Mohammad Afzal, Additional District Judge, Lahore, wherein Civil Appeal No. 92 of 197'7 and quoted a part of para. 11 of the judgment dated 21‑1‑1977 where the petitioner was described as an associate of the Company. The respondent took up the position that in admitting that he was an associate of the aforesaid West Germany Company, the petitioner admitted that his position was that of a partner in the business of the foreign company. Para. 10 of the parawise comments (later adopted as para. 10 of the written statement) reads as under :‑

"From the para, 11, page 7 of District Judge, Lahore Division dated 31‑7‑9177 it is clear that Abdul Rehman Mian is and was an associate of M/s. Ingenieurburo Oskar Von Miller GambH. In this respect it is also admitted that the said concern had left Pakistan and that it was assigned the status of art "A. O. P." Being an associate of the AOP in question, notice under section 43 of the Act was issued to Mr. Abdul Rehman Mian.

The very admittance of Mr. Abdul Rehman Mian that he was an `associate' of M/s. Ingenienurburo Oskar Von Miller GambH betrays the fact that he was associated in the business of the said concern. "Associate" according to [he Shorter Oxford English Dictionary, Vol. I means 'to join with', 'to combine for a common purpose' and 'to make oneself a partner in (a matter)'. The word 'Associate' is defined in Ballentine's Law Dictionary as" .. ..................member of an associate. In the broad sense, one joined with another or others in the pursuit of a common purpose or design whether such be good or bad" and 'a partner', the partner's common purpose apparently appears to be business. So the possibility of business relating between Mr. Abdul Rehman Mian and M/s Ingenieuburo Oskar Von Miller Gambli cannot be ruled out. Once the business relationship is established in the notice under section 43 of Income‑tax Act, 1922 may be issued.

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

6. The provisions of section 43 of the Income‑tax Act which deal with the liability of a person for appointment as an agent of a non‑resident reads as follows;

"Section 4.3;

Any person employed by or on behalf of a person residing out of Pakistan or having any business connection with such person, or through whom such person is in the receipt of any income, profits or gains upon whom the Income‑tax Officer has caused a notice to be served of his intention of treating him as the agent of the non‑resident person shall for all the purposes of this Act, be deemed to be such agent ."

Thus before a person could be served with a notice under the provisions of section 43 it must be shown that‑---

(a) such person is employed by or on behalf of the non‑resident ; or

(b) is a person having business connection with the non‑resident ; or

(c) is a person‑through whom a non‑resident is in receipt of any income, profits or gains.

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

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

8. The respondent appears to have chosen to declare the petitioner is an agent of Messrs Ingenieurburo Oskar Von Miller GmbH West Germany in an attempt to assess and recover the income‑tax liability of the Company from the petitioner. I have no doubt that before the respondent could do so he was obliged to show that the petitioner falls in any of the three category of persons against whom proceedings could be taken under section 43 of the Act. I am equally clear that section 43 which operates to impose a burden shall have to be strictly construed and even if two interpretations were possible, the interpretation favourable to the subject shall have to be adopted.

Under section 18 of the Income‑tax Act, 1922, it is the obligation of every person making payment of any amount liable to tax under the provisions of the Act to deduct income‑tax on such payment unless he is himself liable as an agent of such non‑resident. The provision which is a pointer to the liability of a person making payment to the non‑resident, appears to have been com pletely lost sight of by the respondent. Normally the liability to tax has to be examined with reference to the point of time when the payments are made to a non‑resident. It' is to be examined at that time whether the person making the payment or any other person is an agent of the non‑resident. Unfortunately no steps were taken at the right time to determine and assess the agent.

9. The impugned notice dated 4‑2‑1979 shows that the foreign company had been operating in Pakistan possibly during the previous years relevant to the assessment for 1976‑77, 1977‑78 and 1978‑79 but left Pakistan thereafter.

The learned counsel for the respondent is unable to satisfy me that the provisions of section 43 will ansure to the benefit of the respondent even after the business connection has ceased to exist as in the present case.

There being nothing on record to show that the fiduciary relationship or business connection between the petitioner and the aforesaid West Germany Company ever exited, the action of the respondent treating the petitioner as agent was arbitrary and wholly without any material basis.

Upon a review of the material before the respondent I have come to the conclusion that, in any case, the statement made on 7‑6‑1976 and the special power of attorney dated 15‑4‑1976 do not warrant the conclusion that the petitioner had any business connection with Messrs Ingenleurburo Oskar Von Miller GmbH West Germany and could not for that reason be saddled with liability to assessment as au agent under the provisions of section 43 of the Income‑tax Act, 1922.

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

Petition accepted.