Hyundai Engineering Co. Ltd. Vs. NBR and others, 2016(1) LNJ 91

Case No: Writ Petition No. 11919 of 2013

Judge: A. F. M. Abdur Rahman,

Court: High Court Division,,

Advocate: Mr. A. F. Hassan Ariff,Mr. S. Rashed Jahangir,Mr. Kamal-Ul-Alam,,

Citation: 2016(1) LNJ 91

Case Year: 2016

Appellant: Hyundai Engineering Co. Ltd.

Respondent: NBR and others

Subject: Income Tax,

Delivery Date: 2014-3-4


HIGH COURT DIVISION
(SPECIAL ORIGINAL JURISDICTION)
 
A. F. M. Abdur Rahman, J
And
Md. Emdadul Haque Azad, J

Judgment on
03.03.2014 and 04.03.2014
 
Hyundai Engineering Co. Ltd. Korea (HECL) Represented by its Administrative & Finance Manager Se Joon Oh of GTCL Compound Fertilizer Road, Police Station-Ashugonj, District-Brahmanbaria.
....writ-petitioner.
            Versus
1. National Board of Revenue, Represented by its Chairman
 
2. Member (Tax Policy) National Board of Revenue
 
3. Member (Tax appeal & Exemption) National Board of Revenue
 
4. Second Secretary (Income Tax Law & Rule), National Board of Revenue
 
5. Bangladesh represented by the Secretary Internal Resources Division, Ministry of Finance.
 
6. Gas Transmission Company Ltd. Bangladesh (GTCL) Represented by its Managing Director.
…Respondents.
 
 
Interpretation of Constitution
A question which is a pure question of law connected with the interpretation of the provision of constitution cannot be raised, considered or disposed off by any Arbitrator. The provision of the constitution or any law can only be interpreted by this Highest Court of Bangladesh Supreme Court…......(44)
 
Income Tax Ordinance (XXXVI of 1984)
Section 52
Whether the writ-petitioner company is entitled to the provision of the convention or whether the deduction of Advance Income Tax can be applicable against the writ-petitioner company is a pure question of law as appears from the provision of section 52 of the Income Tax Ordinance, 1984 and the provision of Convention and therefore this court is of firm view that the instant writ petition is a maintainable as the question as has been raised by the writ-petitioner company does not come under the purview of the Arbitration Clause embodied in the contract agreement clause 45.5 of the GCC…....(44)
 
Income Tax Ordinance (XXXVI of 1984)
Section 52
Income Tax Rules, 1984
Rule 16
In this case admittedly the writ-petitioner company has obtained the consideration price of those permanent materials within the periphery of Korea by way of receiving payment from their bank pursuant to the L/C opened by the employer GTCL as the payment has been made in Korea as consideration of the permanent materials that cannot be treated as have made in Bangladesh. Although the contract for sale has been made within the purview of the contract agreement dated 21.10.2011. Under this aspect of the case the writ-petitioner company is not liable to pay any tax in Bangladesh including Advance Income Tax so far the sale and supply of the permanent materials are concerned. Under the reasoning and discussion as above, this court finds merit in the rule that the deduction of the Advance Income Tax (AIT) @ 5% by the employer GTCL company from the bill of the writ-petitioner company as has been evidenced by Annexure-17 appended to affidavit-in-reply filed by the respondent No. 8 has been made without any lawful authority and therefore this rule nisi is required to be made absolute.                   . . .( 54 and 55)
 
Mr. Kamal-ul-Alam, Adv. With
Mr. Md. Bakir Uddin Bhuiyan, Adv.
Mr. Md. Moshiur Rahman Shamim, Adv.
Mr. S.M. Iqbal Bahar Bhuiyan, Adv.
...For the Writ-petitioner.
Mr. F. Hasan Arif, Adv. With
Mr. Abul Nashar Azad, Adv.
…For the Respondent No. 8
Mr. Rashed Jahangir, DAG with
Ms.  Nurun Nahar, AAG with
Mr. Saikat Basu, AAG.
...For the Respondent No. 6.
 
Writ Petition No. 11919 of 2013
 
JUDGMENT
 
A.F.M. Abdur Rahman, J:
        
1.      On an application under Article 102 of the Constitution the writ-petitioner Hyundai Engineering Company Limited Korea has obtained the rule nisi in the following terms;
 
Let a Rule Nisi be issued calling upon the respondents to show cause as to why the deduction of money @ 5% as Advance Income Tax (AIT) at source from the contract price/bills of the petitioner against Contract Agreement No. GTCL/CSP/EPC/002 dated 21.10.2011 (Annexure-B) so far as it relates to the transaction took place outside the taxable territory of Bangladesh i.e. in Korea for selling and supplying of the plant, mandatory spare parts, equipments and other materials to respondent No. 8 in Bangladesh shall not be declared to be without any lawful authority and is of no legal effect and as to why the respondents shall not be directed to refund back the money amounting to Tk. 19,51,56,447.59 to the petitioner deducted @ 5% as Advance Income Tax (AIT)at source from the foreign currency portion of the contract price/bills of the petitioner as shown in Serial Nos. I and II in the Table as mentioned in paragraph No. 7 GTCL/CSP/EPC/002 dated 21.10.2011 (Annexure-B) and/or pass such other or further order or orders as to this Court may seem fit and proper.  
 
2.      It has been asserted in the writ petition that the writ-petitioner Hyundai Engineering Company Limited Korea (HECL) is a company incorporated under the Laws of Republic of Korea; engaged in the business of technical services, introduction of know-how (technology), research and development, manufacturing and selling of general machinery for industrial facilities, to provide specialized business for energy conservation, overseas construction, civil engineering and construction business, electrical engineering, to develop information technology and software business etc. having its registered office at Hyundai 41 Tower, 3F, 917-9 Mok-dong, Yangeheon-gu, Seoul, Korea. The writ-petitioner entered into an agreement with the respondent No. 8 Gas Transmission Company Limited, Bangladesh, (GTCL) on 21.10.2011 and by the said contract the respondent No. 8 employed the writ-petitioner as contractor for design, build, plant, installation, construction, testing, commissioning, start up, operation, and maintenance together with ancillary facilities of Natural Gas Transmission Pipeline Compressor at Ashugonj in Brahmanbaria and at Elenga in Tangail. The said contract agreement dated 21.10.2011 provides that the plant mandatory spare parts commissioning and operational spare parts special tours, consumable and design are to be imported from the principal office of the writ-petitioner situated in Korea and some other foreign countries by opening letter of credit (LC). The price of those tools equipments and materials are fixed in foreign currencies and for sale and supply of these materials the writ-petitioner company shall receive the payment in Korea in foreign currency. The respondent No. 8 as employer shall paid all duties VAT, Custom Charges, Clearing Charges and all taxes livable on those tools equipments and materials at import stage as a principal in Bangladesh.
 
3.      It has been further asserted in the writ petition that the writ-petitioner company does not have any permanent ‘establishment in Bangladesh’ within the meaning of Article-5 of the Convention between the People’s Republic of Bangladesh and the Republic of Korea for the avoidance of Double Taxation and the prevention of fiscal evasion with respect to taxes on income and as such the writ-petitioner company is exempted to be taxed in Bangladesh for its income, profit and earning generated outside territory in Bangladesh therefore in Korea. On its export and supply of tools equipments and materials to the respondent No. 8 for which the writ-petitioner  is liable and is paying taxes as applicable in Korea which includes the corporate tax for its off-shore total income for supplying materials to BCSC project in Bangladesh. The writ-petitioner is an income tax payer in Bangladesh under its TIN 699-200-0165/Circle-222 against its income in Bangladesh and the writ-petitioner is paying Advance Income Tax (AIT) at source @ 5% for the payment receipt for rendering services in Bangladesh from the contract price portion involved the income generated in Bangladesh and accordingly the writ-petitioner has submitted its income tax return for the assessment year 2013-2014. But the writ-petitioner is exempted from paying any money as taxed in Bangladesh under the convention dated 3.10.1984 on the off-shore portion of bill i.e. on the income generated in Korea. But the employer respondent No. 3 GTCL most illegally started deducting Advance Income Tax (AIT) @ 5% at source on the entire bill both on the off-shore income and on shore portion of bills against the constructed works and the respondent No. 8 by four installments on 26.1.2013, 30,4,2013, 31.7.2013 and on 8.10.2013 deducted money as Advance Income Tax (AIT) amounting to Tk. 19,51,56,447.59 from the off-shore portion of bills of the writ-petitioner i.e. income generated from the outside taxable territory of Bangladesh. Prior to such deduction by the respondent No. 8 the writ-petitioner company on 7.1.2013 filed the representation before the respondent No. 2 upon having sank of illegal deduction from their bill prayed for a direction upon the respondent No. 8 GTCL paid a clarification from the National Board of Revenue for non-deduction of Advance Income Tax (AIT) from the bill of the imported materials from the portion of payment involved the importation. But without any response.
 
4.      It has been further asserted that there is a convention between the government of People’s Republic of Bangladesh and the government of Republic of Korea executed and signed on 10.5.1983 which has been notified in the Bangladesh gazette on 3.10.1984 with the object against avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. This convention was made pursuant to the power conferred under the provision of section 144(1) of the Income Tax Ordinance 1984 and the Government of Bangladesh has given effect to the said convention in Bangladesh and the same is in force in Bangladesh.
 
5.      It has been asserted further that the said contract agreement dated 21.10.2011 (Annexure-B) is a composite contract but the payment of contract price are divided into two portion i.e. (I) in foreign currency portion for sale and supply of equipments and materials and (II) in local currency portion i.e. in BDT for installation, co and aim services in Bangladesh. It has been asserted that the writ-petitioner has no objection if the respondent No. 8 the employer deducts money @ 5% as Advance Income Tax (AIT) at source for the payments receipt for services rendered/done in Bangladesh.
 
6.      Having been failed to get any favorable relief from the respondents the writ-petitioner upon service of a notice demanding justice  preferred the instant writ petition and obtained the rule Nisi as aforementioned.
 
7.      Upon service of notice of the rule, the respondent No. 6 second secretary (Income Tax Law and Rules National Board of Revenue) entered appearance through the learned Deputy Attorney General Mr. S. Rashed Jahangir and filed affidavit-in-opposition wherein it has been stated that the writ-petitioner is not entitled to get the benefit of taxes exemption as per Convention dated 10.5.1983 executed between the People’s Republic of Bangladesh and the Peoples Republic of Korea since the writ-petitioner  runs his business in Bangladesh as a permanent establishment. The writ-petitioner is to pay tax as per the income tax law and rules of the Income Tax Rules 1984. The payment of tax by the writ-petitioner in Korea by way of corporate tax or any other tax has no relevance with regard to getting any benefit as per the income tax law and rules 1984 and the double taxation avoidance agreement with Korea. Although the writ-petitioner has filed a representation on 7.1.2013 but as the tax is deductable at source from the bills of the writ-petitioner to be paid by the employer no response to the said letter is required to be made. The importer the Gas Transmission Company Limited Bangladesh (GTCL) Dhaka is bound to deduct tax at source Advance Income Tax (AIT) @ 5% at the time of payment of bill under section 52 of the Income Tax Ordinance 1984 and rule 16 of the Income Tax Rules 1984 for execution of contract work and accordingly the GTCL has deducted tax at source in four installments amounting to Tk. 19,51,56,447.59 both for op-shore and on shore portion of bills against the execution of contract work as per the agreement of the provision of section 62 of the Income Tax Ordinance 1984 and rule 16 of the Income Tax Rules 1984. Therefore, all the actions as have been taken by the GTCL is within the permitted parameter of the income tax law and accordingly the rule nisi as has been issued by this court is required to be discharged.
 
8.      The respondent No. 8 Gas Transmission Company Limited (GTCL) entered appearance by the learned Advocate Mr. Abu Nashar Azad and filed affidavit-in-opposition on behalf of the respondent No. 8 wherein it has been stated that the respondent No. 8 Gas Transmission Company Limited (GTCL) has entered into a contract with the writ-petitioner (HECL) on 21.10.2011 for the design bill and turnkey supply, installation, construction, testing, commissioning and operation and maintenance of natural gas transmission pipeline compressor station at Ashugonj and Elenga which provides that plant, mandatory spare parts, commissioning and operational spare parts, special tools, consumables etc. are to be imported from the principal office of the writ-petitioner company situated in Korea and some other foreign countries by opening letter of credit and the said parts and permanent materials were imported by means of import permit and not by way of opening letters of credit and the same were imported from approved vendors/manufacturer from Asian Development Bank from allegeable countries as stipulated in the appendix No. 5 of the said contract through the writ-petitioners company.
 
9.      It has been further stated that the respondent No. 8 denies that the writ-petitioner company has no temporary or permanent business establishment in Bangladesh and also denies that the Board of Investment (BOI) gave the writ-petitioner company “limited permission……to carry out only the contracted works at Ashugonj in Brahmanbaria and Elenga in Tangail”.
 
10.    As per the Clause No.1 of the Board of Investment (BOI) permission dated 15.3.2012 the writ-petitioner company was permitted to carry on consultancy on engineering procurement and construction service for Ashugonj and Elenga Natural Gas Pipeline and 150MW-CCP Project which covers all the works contracted for under the contract dated 21.10.2011 and therefore the said permission issued by the Board of Investment is not limited by any means.
 
11.    The Article No. 5 of the Convention between the Republic of Korea and the People’s Republic of Bangladesh dated 10.5.1983 clearly states that the permanent establishment includes a Branch office given that the writ-petitioner company Branch office in Bangladesh which opened with the effect from 29.2.2012 and is still operational in addition to other officers as assembly project side therefore the writ-petitioner company has a permanent establishment in Bangladesh. The writ-petitioner did not file any proof as to their payment of corporate tax to the National Tax service in Republic of Korea for any part of its income under the contract dated 21.10.2011. The Advance Income Tax (AIT) is being deducted from the writ-petitioner companies bill for all works under the contract dated 21.10.2011 in accordance with the provision of section 52 of the Income Tax Ordinance 1984 read with rule 16 of the Income Tax Rules 1984. Although the respondent No. 8 Gas Transmission Company Limited (GTCL) has paid all customs and import duties VAT and other taxes livid in Bangladesh for the plant of machinery supplied by the writ-petitioner company but the same remained the liability of the writ-petitioner company to be deducted from the bill to be paid to the writ-petitioner at an appropriate period. The materials which have been imported from abroad do not go to the possession of GTCL but remained under the custody of the writ-petitioner company in Bangladesh until all of its obligation under the aforesaid contracts are discharged. All payment either op-shore or on shore made to the writ-petitioner company under the provision of contract dated 21.10.2011 are liable to be subjected to deduct of Advance Income Tax under section 52 of the Income Tax Ordinance 1984 and rule 16 of the Income Tax Rules 1984 and as such the deduction as made are lawful act on the part of the employer GTCL.
 
12.    It has been categorically denied in the affidavit-in-opposition that the GTCL imported plant and other parts by means of import permit and not by way of opening letter of credit, the four letter of credit mentioned in paragraph No. 14 of the writ petition were opened by the GTCL for effecting payment to be made to the writ-petitioner company for the works to be rendered under the contract. The notice demanding justice as served by the writ-petitioner does not call for any response as the point which has been raised in the said demanding justice notice is not lawful. The GTCL deducted 5% Advance Income Tax and deposited to the same to the Government ex-chaquer from every payment it made to the writ-petitioner company for works done by the writ-petitioner company under the contract dated 21.10.2011 including the payment for supply of plants tools etc. pursuant to the provision of section 52 of the Income Tax Ordinance 1984 and rule 16 of the Income Tax Rules 1984 which was agreed by the writ-petitioner company in the contract.
 
13.    During the progress of hearing of the rule nisi a number of pleading have been exchanged by the parties by way of supplementary affidavit and replied to the supplementary affidavit wherein the facts that have been asserted in the writ petition and the affidavit-in-opposition has been reiterated.
 
14.    The learned Advocate Mr. Kamal-ul-Alam along with the learned Advocate Mr. Bakir Uddin Bhuiyan appeared on behalf of the writ-petitioner while the learned senior counsel Mr. F. Hasan Arif along with the learned Advocate Mr. Abu Nashar Azad appeared on behalf of the respondent No. 8 and while the learned Deputy Attorney General Mr. S. Rashed Jahangir argued on behalf of the National Board of Revenue at the time of hearing of the rule.
 
15.    The learned Advocate Mr. Kamalu-ul-Alam, appearing on behalf of the writ-petitioner at the very outset has taken this court through the contract agreement dated 21.10.2011 and the gazette  notification of the convention between the People’s Republic of Bangladesh and People’s Republic of Korea for the avoidance of Double taxation and the prevention of fiscal evasion with respect to taxes on income as annexed with the writ-petition and strenuously argued that the writ-petitioner and the respondent No. 8 Gas Transmission of Company Limited (GTCL) entered into an agreement for the design build, installation, construction, testing, commissioning and operation and maintenance of natural gas transmission pipeline compressors station at Ashugonj and Elenga and although the said contract is a composite contract and the writ-petitioner company would supply the plant, equipments and the contracted materials along with the installation, operation and maintenance in Bangladesh of the said gas compressor  station in two places in Bangladesh yet the two parts of the contract are distinct and devisable and one part is not dependable on the other and as such the supply of materials has nothing to do with the rendering of the installation operation and maintenance service to Gas Transmission and Company Limited (GTCL).
 
16.    In elaborating his argument the learned Advocate Mr. Kamal-ul-Alam referred the particular portion of the contract agreement dated 21.10.2011 i.e. 2.2 and 2.1 and further strenuously argued that the terms of payment categorically established the fact that the agreement for supply of permanent equipments has got distinct identity from the job of installation, operation & maintenance  and commissioning of the said permanent equipments at two gas stations in Bangladesh. The writ-petitioner company herein acted in two aspects one being the supplier/seller of the tools equipments and materials to the respondent No. 8 and on other hand acting as a employee under the employer GTCL so far the installation, operation & maintenance and commissioning of the said equipments are concerned.
 
17.    The learned Advocate Mr. Kamal-ul-Alam vigorously argued that the tools, equipments and materials have been imported by the employer GTCL respondent No. 8 on their own instance by opening Letters of Credit from the writ-petitioner company in Korea and also from different countries through the writ-petitioner company pursuant to the provision of the contract agreement dated 21.10.2011 and upon releasing the said tools, equipments and materials the employer GTCL paid the all required taxes and duties at the Chittagong Port including Advance Income Tax (AIT) @ 5%. That being their responsibility in their shoulder under the provision of the contract agreement dated 21.10.2011 the same cannot be transferred to the shoulder of the writ-petitioner company by way of deducting the same from the bills to be paid to the writ-petitioner company for the job done apart the job involving the installation, commissioning of the gas compressors station at Ashugonj and at Elenga.
 
18.    The leaned Advocate Mr. Kamal-ul-Alam further argued that the Clause 14 of the General Conditions of Contract deals with the provisions of payment of Taxes and Duties under the contract and in Clause 14.3 it has been stipulated that if any tax deduction, reductions, allowances and privileges may be available to the Contractor in the country where the site is located, the Employer shall use its best endeavors to enable the Contractor to benefit from any such tax savings to the maximum allowable extent which indicates that the petitioner is exempted to pay AIT @5% on its foreign portion of bills under the provision of the Convention between the People’s Republic of Bangladesh and the Republic of Korea for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income dated 10.5.1983 circulated vide Notification dated 02.10.1984 published by the Internal Resources Division of the Ministry of Finance (MoF) in the Bangladesh Gazette on 03.10.1984 (Annexure-D) to the writ petition)
 
19.    The learned Advocate Mr. Kamal-ul-Alam emphasized on the point that the writ-petitioner being the supplier and seller of the materials, equipments and tools in Korea earned the income therein as it received the consideration money for those materials tools and equipments in Korea and their responsibility ended so far the supply is concerned subject to the provision of the contract agreement dated 21.10.2011  up to the delivery of those equipments tools and materials on board in Korea Ocean Port. But although different other tools, equipments and materials were imported from different countries other than the Korea the same has been imported on the liability and responsibility of the employer company GTCL.
 
20.    The learned Advocate Mr. Kamal-ul-Alam by referring in Clause No. 14.1 of the contract agreement dated 21.10.2011 drawn the attention of this court to the fact that the liability of the taxes and duties on the import of permanent materials/goods has been imposed on the shoulder of the employer company GTCL the respondent No. 8 and any payment of tax including the Advance Income Tax (AIT) shall be borne by the GTCL which they have already borne while releasing the permanent materials/goods from the Chittagong Port and the liability of which cannot be transferred to the shoulder of the writ-petitioner company as the same has not permitted in Clause No. 14.1 of the contract agreement dated 21.10.2011.
 
21.    The learned Advocate Mr. Kamal-ul-Alam further drawn the attention of this court to the fact that the GTCL while paying the bill to the writ-petitioner company illegally deducted Advance Income Tax (AIT) @ 5% as appears from Annexure-J series which not being a lawful act on the part of the employer company GTCL the respondent No. 8 is required to be refunded to the writ-petitioner company.
 
22.    The learned Advocate Mr. Kamal-ul-Alam while taken this court through the provision of the Convention between the People’s Republic of Bangladesh and People’s Republic in Korea for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income Annexure-G vigorously argued that the writ-petitioner company has no permanent establishment in Bangladesh and upon obtaining a permission from the Board of Investment (BOI) the writ-petitioner has opened a branch office in Bangladesh only to gather information and to onward supply the same to its Korean Head Office only to the installation and commissioning of the gas compressors station in Ashugonj and in Elenga with a categorical permission not to enter into any other business in Bangladesh and accordingly the branch office in Bangladesh is performing its duty pursuant to the permission accorded by the Board of Investment (BOI) which comes under the purview of the provision of Article-8 of the Convention wherein a branch office with such nature has been defined as not to be a permanent establishment.
 
23.    The learned Advocate Mr. Kamal-ul-Alam further argued that under the Convention Article-7 the income of the writ-petitioner company accrued in Korea cannot be taxed in Bangladesh since the writ-petitioner company will be taxes in Korea and actually have been taxed therein as appears from the certificate issued by the National Tax Service as annexed with the writ petition and therefore the deduction of 5% from the payment of the foreign currency portion is a palpable illegality committed by the employer GTCL, the respondent No. 8.
 
24.    The learned Advocate Mr. Kamal-ul-Alam categorically argued that the statement made in the affidavit-in-opposition filed by the respondent No. 6 as to liability of the GTCL the respondent No. 8 to deduct the Advance Income Tax (AIT) under the provision of section 52 from the bills of the writ-petitioner company not being made in accordance with law the same is required to be adjudicated by this court by making the rule absolute.
 
25.    The learned Advocate Mr. Kamal-ul-Alam referred the case of Dhaka Power House & another-Vs-Assistant Collector of Customs and others reported in 11 BLD (AD) 327, in the case of Bangladesh Telecom (Pvt) Ltd.-Vs- Bangladesh Telegraph & Telephone Board and other reported in 48 DLR(AD)20, in the case of Hyundai Corporation -Vs- Deputy Commissioner of Taxes and another reported in 51 DLR 333, in the case India Thermit Corporation Limited-Vs-The Commissioner of Taxes reported in 6 BLC 536, in the case of M/S. Commitment International and others-Vs-Government of Bangladesh and others reported in 1 CLR 65 and judgment passed on 10.1.2013 in the case of Standard Chartered Bank -Vs- The Commissioner of Taxes (unreported).
 
26.    On the other hand the learned senior counsel Mr. F. Hasan Arif appearing on behalf of the writ-petitioner Gas Transmission Company Limited Bangladesh (GTCL) at the very outset drawn the attention of this court to the fact that the GTCL being the employer entered into an agreement with the writ-petitioner company Hyundai Engineering Company Limited (HECL) for the purpose of design bill and turnkey supply, installation, construction, testing, commissioning and operation and maintenance of natural gas transmission pipeline compressor station at Ashugonj and at Elenga and the said agreement is a composite agreement meaning thereby not to be devisable into parts as have been claimed by the writ-petitioner the entire responsibility of commissioning of the said gas compressor station and to maintain the same for 730 (seven hundred thirty) days lies on the shoulder of the writ-petitioner company and as such the imports of the permanent materials by the employer GTCL the respondent No. 8 cannot be treated as a responsibility lies on the shoulder of the employer GTCL since the entire work being on turnkey basis shall be performed by the writ-petitioner company and as a matter of convenience the GTCL has landed its co-operation in importing those machineries, tools and equipments which after release from the Chittagong Port now remaining the custody of the writ-petitioner company which clearly shows that the entire installation has to be performed under a turnkey basis.
 
27.    The learned senior counsel Mr. F. Hasan Arif while taken this court through the provision of Clause No. 14.1 of the Special Condition of Contract (SCC) drawn the attention of this court to the provision of that the employer shall deduct the taxes including withholding tax and VAT from the total contract price (all currencies) as per the Government of Bangladesh (GOB) rules and prescribed rates imposed by National Board of Revenue (NBR) from time to time and shall deposit the same to the GOB in the credit of the contractor. Accordingly the employer GTCL has although paid the AIT @ 5% at the time of releasing the permanent materials but the same always remained as the liability of the contractor the writ-petitioner company which is required to be deducted from the bill to be paid to the writ-petitioner company and accordingly the employer GTCL the respondent No. 8 has deducted the said 5% AIT amount from the bill of the writ-petitioner company.
 
28.    The learned senior counsel Mr. F. Hasan Arif argued that the GTCL has acted as a collecting authority under the provision of section 52 of the Income Tax Ordinance 1984 and rule 16 of the Income Tax Rules 1984 as the law has imposed the liability upon the GTCL as the GTCL is required to pay the bill to the writ-petitioner company and the law has not divided any payment as to the foreign part or as to the local part rather any bill to be paid to the contractor a amount of 5% AIT is to be deducted from the said bill and in order to discharge the liability under the statute the GTCL has deducted the same from the bill to be paid to the writ-petitioner company.
 
29.    The learned senior counsel Mr. F. Hasan Arif argued that the payment made under the aforesaid contract agreement dated 21.10.2011 cannot be classified as op-shore and on shore payment as all the works done under the contracts are all collected to and dependent upon one another making the contract one true composite contract with one obligation at union of meaning.   
 
30.    The learned senior counsel Mr. F. Hasan Arif raised a very serious question as to the maintainability of this writ petition company on the ground that the contract agreement dated 21.10.2011 contends a Clause for Arbitration of dispute and since the writ-petitioner company has raised the dispute under the provision of contract the same is required to be referred to the Arbitrator instead of filing a writ petition before this court as a long light of decision has established the fact when the contract agreement contends a clause for Arbitration and as such the the writ-petitioner company filed by the instant writ petition is not maintainable.
 
31.    The learned Deputy Attorney General Mr. S. Rashed Jahangir, appearing on behalf of the National Board of Revenue while adopting all the argument as has been advanced by the learned senior counsel Mr. F. Hasan Arif argued that the statutory provision as has been embodied in section 52 of the Income Tax Ordinance 1984 and rule 16 of the Income Tax Rules 1984 requires the employer GTCL the respondent No. 8 to deduct 5% Advance Income Tax (AIT) from the bill to be paid to the contractor and the law has not made any distinction in between any payment for the purpose of importing any materials from out side or to installation , commissioning of that material within the periphery of Bangladesh rather the employer will be liable to penalty for the default in not  deducting the Advance Income Tax (AIT) from the bill to be paid to the contractor.
 
32.    The learned Deputy Attorney General Mr. S. Rashed Jahangir further argued that the GTCL the respondent No. 8 being the employer is liable to perform the duties as has been imposed by the provision of section 52 of the Income Tax Ordinance 1984 read with rule 16 of the Income Tax Rules 1984 to deduct 5% AIT from the bill to be paid to the writ-petitioner company for the job to be done in respect of installation and commissioning of the Gas Compressors Station at two places in Bangladesh and since they have acted in accordance with the law and paid the deducted taxes to the ex-chequer the same cannot be challenged under this writ petition as a illegal and unlawful act of the employer GTCL the respondent No. 8 and therefore the instant rule nisi is required to be discharged.
 
33.    In reply to the argument as to the maintainability of this writ petition the learned Advocate Mr. Kamal-ul-Alam strenuously argued that the question of deduction of 5% AIT being a question of law cannot be considered disposed off by way of Arbitration and that being connected with the provision of constitution a Arbitrator will be unable to dispose off the dispute as has been raised in the instant writ petition as to the liability of deduction of 5% AIT from the writ-petitioner company which not being a resident company and being under the provision of the convention for avoidance of tax evasion and double taxation and therefore the instant writ petition is squarely maintainable.
 
34.    We have heard the learned Advocates and perused the materials on record, especially the Annexure as to the contract agreement dated 21.10.2011 the convention for the avoidance of tax evasion and the double taxation executed in between the Government of Bangladesh and the Republic of Korea and other connected materials as have been appended to the different pleadings filed before this court, we have also considered the valuable arguments as advanced by the learned counsels of the parties.
 
35.    Admittedly, the writ-petitioner company is a Korean company and admitted the respondent No. 8 Gas Transmission Company Limited (GTCL) entered into a contract agreement on 21.10.2011 for the design built and turnkey supply, installation, construction, testing, commissioning and operation and maintenance of natural gas transmission pipeline compressors stations at Ashugonj and at Elenga.
 
36.    Admittedly, the writ-petitioner company has a Branch office in Bangladesh the dispute has arisen in between the parties are related to deduction of 5% Advance Income Tax (AIT) from the bill. That has been paid to the writ-petitioner company against which the writ-petitioner company obtained the rule nisi which called on the respondent to show cause as to why the deduction of money @ 5% as Advance Income Tax (AIT) at source from the contract price/bill of the writ-petitioner company against the contract agreement No. GTCL/ CSP/ EPC/002 dated 21.10.2011 (Annexure-B) so per it relates to the transaction took place outside the taxable territory of Bangladesh i.e. in Korea for selling and supplying of the plant mandatory spare parts equipments and other materials to respondent No. 8 in Bangladesh shall not been declared to be without any lawful authority and is of no legal effect meaning thereby that the writ-petitioner company has only challenged the legality and propriety of the deduction of 5% Advance Income Tax (AIT) from the payment as has been made by the employer company GTCL the respondent No. 8 in respect of purchasing and importing the permanent materials/goods imported from outside the employers country for permanent installation.
 
37.    It appears from Annexure-J series that the employer of GTCL the respondent No. 8 has deducted 5% Advance Income Tax (AIT) from the bills connected to importation of the tools, equipment and materials from abroad which has been admitted in the Annexure-17 in the supplementary affidavit filed by the respondent No. 8 for a better appreciation (Annexure-17) is reproduced below;
 
Installation of Compressor Station at Ashugonj and Elenga Project.
Statement of adjustment of Tax and VAT deductible from Foreign Currency Payment FY:2011-2012
 
39.    Being aggrieved with the such deduction of 5% Advance Income Tax (AIT) from the foreign currency part of the payment the writ-petitioner company submitted a representation before the respondent No. 2 Member (Tax Policy National Board of Revenue) on 7.1.2013 in order to appreciate the grievance and the claim of the writ-petitioner company the entire representation being Annexure-G is reproduced here;
 
………………………………………………
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  1. that the contract are being executed in Bangladesh and HECL have been carrying out the execution of the contract for installation and other services under GTCL. The materials i.e. plant, mandatory spare parts, commissioning and operational spare parts, special tools, consumables as well as design services forming as one part of the Contract for supply as indicated in Para 1(ii)A are being imported by GTCL from different foreign countries. GTCL by making payment against L/C opened by GTCL have been purchasing these materials & services from the head office of HECL. The materials have become the property of GTCL as soon as they are shipped from different foreign countries. The materials are carried in Bangladesh and to the stores of GTCL as their property. The goods from the ports of despatch from foreign countries to the port of destination in Bangladesh are insured by GTCL and insurance charges are paid by GTCL. Clause 14.1 of the Contract states that customs and import duties, VAT and other taxes, if any, levied by the Employer’s Country at the port of entry on permanent materials/goods imported from outside the Employer’s Country for permanent installation except materials for civil works shall be paid by the Employer. GTCL has made payments of all duties & taxes accordingly. The payments for the materials are being made in South Korea in foreign currency by GTCL to HECL upon clearance from the Customs Authority at the port of destination in Bangladesh, and the ownership and possession of the materials have been passed over to GTCL.
  2. That although the contract work is in one composite contract, it was agreed between HECL and GTCL that HECL will supply the necessary materials i.e. plant, mandatory spare parts, commissioning and operational spare parts, special tools, consumables as well as design services supplied from abroad to GTCL forming as one part of the contract. Installation and other services will be done by HECL in Ashuganj and Elenga forming other part of the contract. Yet the two parts of the contract are distinct and divisible. One is independent of the other. The supply of materials has nothing to do with the rendering of services to the GTCL. Payments received by HECL in Bangladesh to the extent of the portion for execution of the contract only attracts deduction of advance tax under Section 52 of the I. T. Ordinance, 1984 and in the manner as provided under Rule- 16. HECL being a non-resident company, the payments received by it outside taxable territories on the sale of plant, mandatory spare parts, commissioning and operational spare parts, special tools, consumables as well as design services of Bangladesh through export cannot be considered as payments to HECL inviting action for deduction of advance tax under u/s 52 read with Rule -16.
  3. That, besides our foregoings, NBR has referred, while giving decisions, to its office memorandum under নথি নং- ৮(৪০১) দ্বিঃ সঃ-১৭ (কঃ অঃ-২)/৯৮ তারিখ- ১৪/০৮/২০০০ ইং wherein NBR has clarified in a very clear way as reproduced below: 
‘‘আমদানীকারক স্বয়ং উৎসে আয়কর সংগ্রহীত হয়েছে এরূপ আমদানীকৃত পণ্য সরবরাহ করলে ঐ সরবরাহ বিলের উপর উৎসে পুর্নবার আয়কর কর্তনযোগ্য হবে কিনা এ প্রশ্ন বিভিন্ন মহল থেকে উত্থাপিত হয়েছে।
এমতাবস্থায় জাতীয় রাজস্ব বোর্ড এ মর্মে স্পষ্টীকরণ করেছে যে, আমদানীকারক স্বয়ং আমদানীস্থলে উৎসে আয়কর সংগ্রহীত হয়েছে এরূপ নিদৃষ্ট পণ্য সরবরাহ করলে সরবরাহ স্থলে আয়কর বিধিমালা ১৯৮৪ এর ১৬ বিধি অনুযায়ী উৎসে আয়কর কর্তন করতে হবে না। অর্থাৎ একই ব্যক্তি যদি কোন পণ্য আমদানী করে তা সরবরাহ করেন এবং আমদানী পর্যায়ে যদি উক্ত পণ্যের উপর উৎসে আয়কর কর্তন করা হয়ে থাকে তবে সরবরাহ বিল হতে পুনরায় আয়কর কর্তন করতে হবে না। তবে যে আমদানী মূল্যের উপর আমদানী পর্যায়ে কর কর্তন করা হয়েছে- সরবরাহ মূল্য তার বেশি হলে, ঐ অতিরিক্ত অর্থের উপর সরবরাহ বিল হতে আয়কর কর্তন করতে হবে।’’
Copy of this memorandum dated 14.08.2000 is furnished for your ready reference and perusal.
  1. NBR has expressed the same view vide its office memorandum under নথি নং- ৮(৪১) দ্বিঃ সঃ-১৭ (কঃ অঃ-২)/ ২০০১ তারিখ ৩১/০৫/২০০১ ইং as quoted below:
‘‘আমদানীকারক স্বয়ং উৎসে আয়কর সংগ্রহীত হয়েছে এরূপ পণ্য Execution of Contract এ ব্যবহার করলে Execution of Contract বাবদ প্রাপ্ত বিলের উপর পুর্নবার আয়কর কর্তনযোগ্য হবে কি-না এ প্রশ্ন বিভিন্ন মহল থেকে উত্থাপিত হয়েছে। 
এমতাবস্থায় জাতীয় রাজস্ব বোর্ড এ মর্মে স্পষ্টীকরণ করেছে যে, আমদানীকারক স্বয়ং আমদানী পর্যায়ে উৎসে আয়কর সংগ্রহীত হয়েছে এরূপ নিদৃষ্ট পণ্য চুক্তিবদ্ধ নির্মাণ কাজে (Execution of Contract) ব্যবহার করলে প্রাপ্ত ঠিকাদারী বিল থেকে আমদানীর পর্যায়ে কর্তিত করের সমপরিমাণ টাকা আয়কর অধ্যাদেশ ১৯৮৪ এর বিধি- ১৬ অনুযায়ী কর্তন করতে হবেনা। অর্থাৎ একই ব্যক্তি/ প্রতিষ্ঠান কোন পণ্য আমদানী করে তা চুক্তিবদ্ধ কার্য্য সম্পাদনে (Execution of Contract) ব্যবহার করেন এবং আমদানী পর্যায়ে যদি উক্ত পণ্যের উপর উৎসে আয়কর কর্তন করা হয়ে থাকে তবে বিধি ১৬ অনুযায়ী বিল প্রদানের সময় আমদানী পর্যায়ে কর্তিত করের সমপরিমাণ অংকের কর মোট কর্তনযোগ্য করের সাথে সমন্বয় করা যাবে।’’ 
 Copy of this memorandum dated 31.05.2001 is provided herewith for your ready reference and perusal.
  1. That it is evidently clear from both the clarifications as referred to (v) and (vi) above that, in respect of payments on account of supply of imported goods and execution of contract work with the same imported goods on which advance income tax was collected at import stage, no further deduction of AIT u/s 52 read with Rule- 16 is required to be made, which is, however, subject to the condition that tax on such goods shall be liable to be deducted on so much of the value shown in the supply bill which was in excess of the value of the imported goods. 
  2. Further we hereby submit that HECL is a non-resident corporation having its Head Office in Seoul, Korea, and was permitted to work in Bangladesh in the year 2011. There is absolutely nothing showing that HECL has a permanent establishment in Bangladesh and HECL are actually doing business here in this country and that HECL itself are selling products to any person in Bangladesh. That HECL has established an office in Dhaka with the object to collect and despatch information for the Head Office at Seoul, Korea, for smooth transactions between Head Office and the importers in Bangladesh and to enable it to participate international tenders and to keep nexus between the two countries so that the business activities of HECL be quick and speedy. If any profit is earned by our principal office in Korea under the convention HECL will be taxed in Korea. But HECL cannot be taxed in Bangladesh for its earnings in Korea which is protected under the convention between the Government of the People’s Republic of Bangladesh and the Republic of Korea prepared and signed for avoiding of double taxation and also for prevention of Fiscal Evasion with respect to taxes on income which has the backing of Section 144 of the Income Tax Ordinance, 1984 and which is a solemn document entered into between these two Governments.
  3. That plant, mandatory spare parts, commissioning and operational spare parts, special tools, consumables and design services as shown in 1(ii)A above have been sold to GTCL from Korea by HECL, and all duties, taxes and other levies are being paid at the point of custom clearance of the goods/materials at Chittagong and Dhaka by GTCL as importers. The materials are in possession and stored by GTCL and issued to HECL in Bangladesh for execution of the contract as shown in 1.B above. It signifies that GTCL has engaged HECL in Bangladesh for execution of the contract with the supplied materials imported, owned and stored by GTCL. Hence, AIT may be applicable for the portion of work for execution of the contract only.
 
In view of the aforesaid facts and circumstances, a clarification by NBR may be issued for non-deduction of AIT paid by GTCL for the imported materials from the portion of payments for execution of the contract bills by HECL and oblige.
With Regards
…………………………..
Ki Hun Yeom
Enclosures: As stated above.
 
39.    In the aforesaid representation the writ-petitioner company has raised three fault claim; (I) that the job classified under the contract agreement dated 21.10.2011 can be divided into two parts (i) for the importation of the permanent materials (ii) the installation and commissioning of those permanent materials, (II) that the liability of payment of taxes including AIT lies on the shoulder of the employer GTCL so per the same is related to the importation of the permanent materials and (III) that the writ-petitioner company being a non-resident entity in Bangladesh having no permanent establishment in Bangladesh cannot be taxed in Bangladesh under the provision of the convention as aforesaid since the tax has been imposed on them in Korea.
 
40.    Upon such claim the writ-petitioner company obtained the instant rule nisi as aforementioned.
 
41.    But as the maintainability of the writ petition goes to the route of the question we like to decide the same at the first. The question of deducting Advance Income Tax is a question of law. Section 52 of the Income Tax Ordinance 1984 rendered a liability upon the employer of a contract to deduct Advance Income Tax (AIT) at source from the bill to be paid to the contractor. Rule 16 of the Income Tax Rules 1984 provided the percentage of deduction at 5% Advance Income Tax (AIT). The provision of section 52 of the Income Tax Ordinance 1984 runs as follows;
 
Income Tax Ordinance 1984
Section 52: Deduction from payment to contractors, etc.—

1. Where any payment is to be made, whether in full or in part, or by way of advance, on account of indenting commission [or travel agency commission] or shipping agency commission or supply of goods or [execution of contract or sub-contract][or for services rendered], to any such person or class of persons as may be prescribed, the person responsible for making the payment shall, at the time of making such payment deduct tax on the amount so payable at such rate as may be prescribed.

2. Any amount deducted under sub-section (1) shall be deemed to be an advance payment of tax by the payee and shall be given credit for in the assessment of his tax.
 
42.    The liability of such deduction apparently lies on the shoulder of the employer GTCL. But the writ-petitioner company has raised a question as to the interpretation of the convention Annexure-D made in between the People’s Republic in Bangladesh and the People’s Republic in Korea for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes or income with claim that the Branch office which has been opened by the writ-petitioner company in Bangladesh under the permission of the Board of Investment (BOI) comes under the exclusion clause as have been made in Article-5 of the said convention. Both of which being a question of law cannot be decided by the Arbitration. Although the liability of payment of tax is a matter covered by the contract agreement yet the nature of the dispute does not attract the provision of Arbitration as has been stipulated in the contract agreement itself and therefore the instant writ petition is maintainable.
 
43.    This argument sounds merit.
 
44.    A question which is a pure question of law connected with the interpretation of the provision of constitution cannot be raised consider or disposed off by any Arbitrator. The provision of the constitution or any law can only be interpreted by this Highest Court of Bangladesh Supreme Court. Whether the writ-petitioner company is entitled to the provision of the convention or whether the deduction of Advance Income Tax can be applicable against the writ-petitioner company is a pure question of law as appears from the provision of section 52 of the Income Tax Ordinance 1984 and the provision of Convention and therefore this court is of firm view that the instant writ petition is a maintainable as the question as has been raised by the writ-petitioner company does not come under the purview of the Arbitration Clause embodied in the contract agreement clause 45.5 of the GCC.
 
45.    Clause No. 14 of the contract agreement dated 21.10.2011 runs as follows;
 
Clause-14: Taxes and Duties
14.1 Except as otherwise specifically provided in the Contract, the Contractor shall bear and pay all taxes, duties, levies and charges assessed on the Contractor, its Subcontractors or their employees by all municipal, state or national government authorities in connection with the Facilities in and outside of the country where the Site is located.
14.2 Notwithstanding GCC Sub-Clause 14.1 above, the Employer shall bear and promptly pay all customs and import duties as well as other local taxes like, e.g., a value added tax (VAT), imposed by the law of the country where the Site is located on the plant specified in price schedule No. 1 and that are to be incorporated into the Facilities.
14.3 If any tax exemptions, allowances or privileges may be available to the Contractor in the country where the Site is located, the Employer shall use its best endeavors to enable the Contractor to benefit from any such tax savings to the maximum allowable extent.
14.4 For the purpose of the contract, it is agreed that the Contract Price specified in Article 2 (Contract Price and Terms of Payment) of the Contract Agreement is based on the taxes, duties, levies and charges prevailing at the date twenty-eight (28) days prior to the date of bid submission in the country where the Site is located (hereinafter called “Tax” in this GCC Sub-clause 14.4). If any rates of Tax are increased or decreased, a new Tax is introduced, an existing Tax is abolished, or any change in interpretation or application of any Tax occurs in the course of the performance of Contract, which was or will be assessed on the Contractor, Subcontractors or their employees in connection with performance of the Contract, an equitable adjustment of the contract price shall be made to fully take into account any such change by addition to the Contract price or deduction there from, as the case may be, in accordance with GCC Clause 36 hereof. 
 
46.    Clause 14.1A imposed the liability of payment of customs and import duties VAT and other taxes levied by Bangladesh at the port of entry on the shoulder of the employer the GTCL.
 
47.    Annexure-7, 8, 9 and 10 appended to the affidavit-in-opposition filed by the respondent No. 8 are the L Series opened by the Basic bank Limited at the instance of the employer the GTCL which shows the documents as a irregular documentary credit, this documents have been claimed not to be an L/C rather a import permanent in the affidavit-in-opposition submitted by the respondent No. 8 which not being a true writ petition of the document cannot be taken into consideration that the respondent No. 8 has not open L/C for importation of the permanent materials for the two Gas Compressor Stations.
 
48.    It appears that admittedly the employer GTCL released the permanent materials from the Chittagong Port upon paying all necessary customs duties including the Advance Income Tax @ 5%. Not it appears that the GTCL by deducting the said AIT from the bills of the writ-petitioner company claiming that the liability of payment of such AIT lies on the shoulder of the writ-petitioner company. We are unable to accept the contention.
 
49.    The provision of Clause 14.1 categorically imposed the liability of payment of taxes including the AIT upon the shoulder of the GTCL and from the facts of the circumstances it appears that the GTCL has discharged its duties accordingly and paid the said AIT at the source when releasing the permanent materials.
 
50.    Article-2.2 of the contract agreement dated 21.10.2011 imposed the liability of such importation upon the employer GTCL and accordingly the payment has been made in two distinct aspects one being the foreign currency aspect and the other being the Bangladeshi currency aspect which would be paid for the job to be done in respect of installation and commissioning of the Gas Compressor Station. So far the permanent materials are concerned few of those have been sold by the writ-petitioner company in Korea and others are imported from different parts of the World and accordingly the payment which has been stipulated in the contract agreement allowed to be paid in Great Britain Pound. US$, Euro and Korean KRW. Therefore this court finds that the responsibility of payment of income tax on the importation of permanent materials lies on the shoulder of the employer GTCL which cannot be transfer under provision of the Contract Agreement dated 21.10.2011 to the writ-petitioner company the contractor.
 
51.    It appears that the government of Bangladesh and the Republic of Korea entered into a convention for the purpose of avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income. Admittedly the writ-petitioner company is a Korean company and it has opened the branch office in Bangladesh. Article-5 of the said Convention deals in the matter of permanent establishment which runs as follows;
 
Article-5
PERMANENT ESTABLISHMENT
 
1.   For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
 
2.   The term “permanent establishment” includes especially;
  1. A place of management;
  2. A branch;
  3. An office;
  4. A factory;
  5. A workshop;
  6. A warehouse, in relation to a person providing storage facilities for others; and
  7. A mine, an oil or gas well, a quarry or any other place of extraction of natural resources. 
3.   A building site or construction, installation or assembly project constitutes a permanent establishment only if it lasts more than 183 days.
 
4.   Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include;
  1. The use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise;
  2. The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display;
  3. The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
  4. The maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;
  5. The maintenance of a fixed place or business solely for the purpose of advertising, for the supply of information, for scientific research or for similar activities which have a preparatory or auxiliary character, for the enterprise;
  6. The maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (c), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character. 
5.   Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include the use of facilities or maintenance of a stock of goods or merchandise belonging to the enterprise for the purpose of occasional delivery of such goods or merchandise.
 
6.   Notwithstanding the provisions of paragraphs 1 and 2, where a person, other than an agent of an independent status to whom paragraph 7 applies is acting in a contracting state on behalf of an enterprise of the other contracting state, that enterprise shall be deemed to have a permanent establishment in the first-mentioned contracting state in respect of any activities which that person undertakes for the enterprise, if such a person;
  1. Has and habitually exercises in that state an authority to conclude contracts in the name of the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph; or
  2. Has on such authority, but habitually maintains in the first-mentioned state a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise. 
7.   An enterprise shall not be deemed to have a permanent establishment in a contracting state merely because it carries on business in that state through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.
 
8.   The fact that a company which is a resident of a contracting state controls or is controlled by a company which is a resident of the other contracting state, or which carries on business in that other state (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.
 
52.    Clause-2 of the Article 5 made the Branch a permanent establishment with the exclusion made in clause-4 out of which sub-clause-E is relevant and applicable to the case of the writ-petitioner company. The Branch office which has been opened in Bangladesh has been categorically limited by the Board of Investment (BOI) in the permission it has accorded not to enter into any other business other than the business as obtained in the contract agreement dated 21.10.2011 and no allegation has been raised by the respondent that the writ-petitioner company is engaged in any other business then the contract agreement business. The responsibility of this Branch office has been argued by the learned Advocate Mr. Kamal-ul-Alam that only to gather information and to pass on the same to the Korean head office and to facilitate the smooth installation and commissioning job of the Gas Compressor Station in Bangladesh. This cannot be treated as may by Branch office a permanent establishment in derogation to the exclusion clause as has been made in Article-5(4)(e). In this respect the referred case in Writ Petition No. 3730 of 2005 has got relevance wherein their lordship in a Division Bench of this court categorically came to the decision upon considering the cases reported in 47 DLR and others that a Branch office opened for the purpose of gathering information and to pass on the same to its principal company does not come under the definition of permanent establishment. Therefore, this court finds that the writ-petitioner company has got no permanent establishment in Bangladesh.
 
53.    Article-7 of the said Convention runs as follows;
 
Article-7
BUSINESS PROFITS
  1. The profits of an enterprise of a contracting state shall be taxable only in that state unless the enterprise carries on business in the other contracting state through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in  the other state but only so much of them as is attributable to that permanent establishment.
  2. Subject to the provisions of paragraph 3, where an enterprise of a contracting state carries on business in the other contracting state through a permanent establishment situated therein, there shall in each contracting state be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.
  3. In determining the profits of a permanent establishment, there shall be allowed as  deductions expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the state in which the permanent establishment is situated or elsewhere.
  4. No profits shall be attributed to a permanent establishment by reason of the mere purchases by that permanent establishment of goods or merchandise for the enterprise.
  5. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the country.
  6. Where profits include items of income which are dealt with separately in other Articles of this convention, then the provisions of those Articles shall not be affected by the provisions of this Article. 
54.    From Clause-1 it appears that the business enterprise of the contracting states meaning thereby business enterprise of Korea if taxable in Korea shall not be taxes in any manner in Bangladesh. The income that has been accrued to the writ-petitioner company from the sale of permanent materials to the employer GTCL cannot be termed as accrued in Bangladesh since the point of sale (POS) of those permanent materials has not been occurred in Bangladesh rather abroad. The moment of the permanent materials were boarded the responsibility of the seller ended on that point and the installation and commissioning of the sale cannot be connected with the sale of those materials although the writ-petitioner company is liable to maintain those permanent materials for a period of 730 (seven hundred thirty) days in Bangladesh. In this case admittedly the writ-petitioner company has  obtained the consideration price of those permanent materials within the periphery of Korea by way of receiving payment from their bank pursuant to the L/C opened by the employer GTCL as the payment has been made in Korea as consideration of the permanent materials that cannot be treated as have made in Bangladesh. Although the contract for sale has been made within the purview of the contract agreement dated 21.10.2011. Under this aspect of the case the writ-petitioner company is not liable to pay any tax in Bangladesh including Advance Income Tax so far the sale and supply of the permanent materials are concerned.
 
55.    Under the reasoning and discussion as above, this court finds merit in the rule that the deduction of the Advance Income Tax (AIT) @ 5% by the employer GTCL company from the bill of the writ-petitioner company as has been evidenced by Annexure-17 appended to affidavit-in-reply filed by the respondent No. 8 has been made without any lawful authority and therefore this rule nisi is required to be made absolute.
 
56.    In the result, the rule nisi is made absolute.
 
57.    The deduction of money @ 5% as Advance Income Tax (AIT) at source from the contract price/bills of the writ-petitioner company against contract agreement No. GTCL/CSP/EPC/002 dated 21.10.2011 (Annexure-B) so far as it relates to the transaction took place outside the taxable territory of Bangladesh i.e. in Korea for selling and supply of the plant, mandatory spare part, equipments and the other materials to the respondent No. 8 in Bangladesh is hereby declared to have made without any lawful authority and is of no legal effect.
 
58.    All the respondents are directed to refund back the money amounting to Tk. 19,51,56,447.59 deducted as 5% Advance Income Tax (AIT) at source from the foreign currency portion of the contract price/bills of the writ-petitioner company  as shown in Serial Nos. I and II in the table as mentioned in Paragraph No. 7 in the writ petition against contract agreement No. GTCL/CSP/EPC/002 dated 21.10.2011 (Annexure-B) within 45 (forty five) days from the dated of receipt of the certified copy of this judgment.
 
59.    Let the proceeding be treated as a continuous mandamus and the respondents are directed to file affidavit of compliance within 15 (fifteen) days after the actual payment made to the writ-petitioner.
 
60.    Let this matter appear in the list on 05.5.2014 as for order.  
        
However, there shall be no order as to costs.
        
Ed.