LETTER FROM LAHORE LAW ASSOCIATES TO THE MEMBER POLICY

LETTER FROM LAHORE LAW ASSOCIATES TO THE MEMBER POLICY (DIRECT TAXES) FEDERAL BOARD OF REVENUE <!--[if gte mso 10]> LETTER FROM LAHORE LAW ASSOCIATES TO THE MEMBER POLICY (DIRECT TAXES) FEDERAL BOARD OF REVENUE LLA/FBR/2009 [30th July, 2009] (Re: S.R.O. 392(1)/2009 of 7-4-2009 -- Ultra vires insertion -- Rule 23ID(5) -- Request for amendment) The Member Policy (Direct Taxes) Federal Board of Revenue, Islamabad SUBJECT: S.R.O. 392(I)12009 OF 7-4-2009 -- ULTRA VIRES INSERTION -- RULE 231D(5) -- REQUEST FOR AMENDMENT Dear Sir, Please refer to S.R.O. 392(I)/2009 of 19 May, 2009 through which rule 231D has been inserted in the Income Tax Rules, 2002 in pursuance of section 59AA(6) of the Income Tax Ordinance, 2001 ["the Ordinance"]. Kindly note that while exercising subordinate legislative powers of rule making, the following illegality has been committed due to some oversight that requires immediate attention: Sub-rule (5) of Rule 231D reads as under:- 1. "(5) The return for the tax year of the holding company.... However for that purpose, no effect shall be taken for losses including unabsorbed depreciation of subsidiary companies for the tax year prior to the exercise of option for group taxation. Along with .." [underlined for the emphasis for us] 2. Section 59AA(4) of the Ordinance reads as under:--- "(4) The relief under group taxation would not be available to losses prior to the formation of, the group." 3. It is evident from underlined portions above that Rule 231D(5) is framed on the basis of misreading of law. The words "formation of the group" have been construed as "losses prior to exercise of option for group taxation" sub-rule (5) of Rule 231D of the, Income Tax Rules, ,002 is certainly in violation of the main provision of law under which it is enacted. 4. Needless to highlight that group taxation takes place when 100% holding-subsidiary relationship is established. Such a group alone is entitled to be taxed as single fiscal unit under section 59AA(l) of the Ordinance. 5. The misconstrued Rule 231D(5) tantamount to neutralizing the, benefit of group taxation. i.e. setting-off intra-group losses provided by the legislation by the F.B.R. Sub-rule (5) of Rule 231D has abrogated its controlling section 59AA(4) that clearly states that the relief of group taxation would not be available to losses prior to the formation of the group. The words "losses prior to the formation of the group" have been erroneously substituted with the words "prior to the exercise of option for group taxation" in the Rule 231D(5). 6. It is established law that any rule that is derogatory to the provision under which it is enacted is nullity in the eye of law. In view of above, it is requested that the above mentioned illegality be removed immediately for which we shall be highly obliged.