Law: Income Tax Ordinance, 1979

Section: 80(6),(7)

Law: Income Tax Rules, 1922

Section: 40

Income-tax Ordinance (XXXI of 1979)----S. 80 (6) & (7) [as amended]--Income-tax Rules, 1922, R. 40--Assessee, a non¬resident shipping company--Method of computing proportionate profit in the ratio of Pakistan earnings to the world earnings of assessee--Deviation from earlier method of computation of income by Income-tax Officer--When justified-¬Non-maintenance of voyage account by assessee--Effect. It is obvious from the old subsection (6) of section 80 of the Income-tax Ordinance, 1979 that the tax at 1/6th of the gross receipts of non-resident shipping enterprises was only an advance tax and in the following year the principal could claim that the assessment of the total income of the non-resident be made in accordance with the other provisions of the Income-tax Ordinance and not on the basis of the rough and ready computation 'of income at 1/6th of the gross receipts. Moreover, subsection (7) also provided at that time that the entire provisions of section 80 would be imapplicable if the I.T.O. was satisfied that the principal had an agent in Pakistan from whom the tax could be recovered. Thus it seems that the I.T.O. was not justified in assuming that 1/6th of the gross receipts of the assessee was necessarily a fair estimate of the assessee's income as finally determined or that section 80 authorised this as a method of final computation of income without taking into account the provisions of its Subsections (6) and (7). In fact the I.T.O. had wrongly adopted a method specified for determining advance tax as a method for determining final income and tax thereon without considering the options available to the assess under the said subsections (6) and (7) of section 80. In the present case the I.T.O. apparently relied on the provisions of rule 40 while departing from the history of the case but did not apparently appreciate that the said rule 40 provided that in cases where the exact Pakistan income of a non-resident could not be determined the income could be computed (a) as a reasonable percentage of turnover in Pakistan, (b) on such proportion of the total profits as the Pakistan source receipts had to the total world receipts and (c) any such other…

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