2025 PLP (Trib (PTD)

ZAHID SIKANDAR, MEMBER.

This appeal filed at the behest of the taxpayer is directed against order dated 07-06-2023 whereby the CIR (Appeals) confirmed the amended assessment order framed by the taxation officer in the appellant's case for tax year 2016.

2. Brief facts of the case are that the taxpayer being an individual filed income tax return for tax year 2016. Upon scrutiny, the said return was found erroneous in so far as prejudicial to the interest of revenue. Hence show-cause notice under section 122(9) read with section 122(5A) was issued by the OIR to the taxpayer. It was alleged that the taxpayer declared foreign remittances amounting to Rs.5,708,080/- in the return however e-folder of the return showed no evidence in respect of fulfillment of conditions of subsection (4) of section

111. In response, the taxpayer submitted reply which was not found tenable, hence the OIR finalized the amendment proceedings by way of making add backs of claimed foreign remittances of Rs.5,708,080/- in taxpayer's income under section 111(1)(b) read with section 111(4).

3. Aggrieved by the order, the taxpayer filed appeal before the CIR(A) which was regretted. Therefore, the taxpayer has come up further in this second appeal before the Tribunal.

4. Arguments heard. Orders perused.

5. The learned AR for the appellant submits that the appellant is a non- resident and a national of Germany. In order to support the stance, the learned AR presented a copy of the passport of the appellant. It is further contended that there is a double taxation treaty between Pakistan and Germany and according to Article 4(c) of the treaty if a person has habitual abode in both states or in neither of them, he shall be deemed to be a resident of the State in which he is a national. According to the learned AR, the appellant was not amenable to charging of tax under the said treaty being a resident/national of Germany. The learned AR further produced receipts/certificates of encashment of foreign currency from the exchange companies as statedly the appellant withdraw the foreign currency from his foreign bank account and got it encashed from Money Exchange dealer.

6. We have carefully examined the record and found that there is a treaty between Pakistan and Germany in respect of avoidance of double taxation with respect to taxes on income. Article 4 defines the status of resident in the said treaty and as per sub-clause (c) if a person is residing in any of the two countries he shall be deemed to be a resident of the said in which he is national. Admittedly, appellant is the national of Germany. Record further transpires that an amount of 48,780/-Euros were remitted back to Pakistan in foreign bank account of the taxpayer which were withdrawn from the foreign account bank and subsequently encashed from the money exchange duly approved by the State Bank of Pakistan. Firstly, the taxpayer being a non-resident was not amenable to tax and even otherwise the record produced by the learned AR fully substantiates that foreign remittances were remitted back from Germany to Pakistan through banking channel and was encashed from the money exchange. Certificates/receipts of Exchange companies are also available on record. The Federal Board of Revenue has issued a Circular No. 05 of 2021 dated 30.08.2021 clarifying the issue of foreign remittances through Money Services Businesses (MSBs), Exchange Companies (ECs), and Money Transfer Operators (MTOs) on the basis of a Memorandum No. EPD 30-04-2021-97865 dated 07th May 2021 issued by the State Bank of Pakistan. The FBR has accepted the SBP's position of legitimizing remittances via MSBs, Exchange Companies and MTOs equating them with 'scheduled banks' as laid down in section 111(4)(a). Further, the Government of Pakistan always encourages for more and more foreign remittances and the learned officers should be very careful while charging tax in respect of foreign remittances as the same may discourage overseas Pakistanis if they are subjected to unnecessary taxation. The facts/record of the present case clearly suggests that foreign remittance was brought in Pakistan through banking channel and after withdrawal from the foreign bank account the same was encashed from Money Exchange dealer duly approved by State Bank of Pakistan hence, the taxpayer has been subjected to unnecessary taxation especially when there is also a treaty between Germany and Pakistan in respect of Avoidance of Double taxation with respect to taxes on income and admittedly taxpayer is a German national. Needless to mention that as per verdicts of apex court, international treaty of avoidance of double taxation between Pakistan with any other country would prevail over provisions of Income Tax Ordinance. Reliance is placed on 2023 SCMR 1011.

7. Giving the facts, we are of the view that the officer has wrongly made addition in taxpayer's income under section 111 and charged tax stating that conditions of subsection (1) of section 111 were not fulfilled as record suggests otherwise. The CIR(A) has also erred in law while confirming the assessment order which is not based on correct appreciation of law and facts of the case. The order of CIR(A) is accordingly set-aside.

8. Consequently, the taxpayer's appeal is allowed. MQ/29/TAX(TRIB) Appeal allowed.