Law: Income-tax Act (XI of 1922)

Section: 4(1), 42

Law: Income Tax Rules, 1922

Section: 40

(a) Income-tax Act (XI of 1922) Ss. 4(1) & 42-Application of clause (a) of S. 4(i)-Assessee, non resident, rendering specialized services in Pakistan and receiving charges there for in foreign country-Section 4(l)(a), held, not applicable to such case. On a plain reading of section 4(l)(a) the incidence of the tax is on the income, profits or gains received or deemed to be received in Pakistan, irrespective of their place of accrual. The income, profits and gains may arise or deem to arise outside Pakistan but the liability to tax under this clause depends on their receipt in Pakistan. If the income is received or deemed to be received in Pakistan, the amount is chargeable to tax in the hands of the residents and non-residents alike and there is no question of apportionment of the amount even though all the related business opera tions may not have been carried on in Pakistan. This is because the chargeability to tax is attracted on the actual or notional receipts in Pakistan: In the instant case, the assessee-Company a world-wide organization, having its head office in New York, U. S. A. and engaged in the business of Management consultancy, entered into an agreement with the Pakistan Railways to develop a comprehensive plan for the modernization and improvement of systems of accounting, compilation of statistics and finan cial management and administrative processes. The assessee agreed to depute a resident team of specialists for the work in Pakistan. In order to ensure the payments due to the assessee for its services, the Pakistan Railways gave an irrevocable letter of credit for $1,97,000 drawn on a Bank in New York. It was agreed that the assessee shall render monthly United States dollar invoices for professional time charges and reimburseable expenses to the Pakistan Railways. Upon their approval by the Pakistan Railways, they had to be presented to the said Bank in New York by the assessee for payment under the letter of credit. In dealing with the appeal of the assessee against the assessment made by the Income-tax Officer, the Tribunal observed that as the income of the assessee was assessable under section 4(1)(a) of the Act as accruing or…