2025 PLP (Trib (PTD)

MIAN TAUQEER ASLAM, CHAIRMAN.

The titled appeal filed by the taxpayer is directed against the appellate order dated 07-04-2023 passed by Commissioner Inland Revenue (Appeals-VIII), Lahore.

2. Brief facts of the case are that the appellant taxpayer was registered in Pakistan on 6th April, 2011 under the Societies Registration Act XXI of 1860 as a non-profit-organization ("NPO"). The primary function of the Foundation is to relieve suffering caused by natural disasters, to save lives and protect livelihoods, to reduce chronic hunger and to establish centres for providing food and shelters to the disabled and poor people with suitable training to enable them to stand on their own, financially and economically. Tax return for the year in question was filed, declaring a surplus of Rs.695,

221. The learned assessing officer, initiated proceedings based on definite information in terms of Section 122(8) of the Income Tax Ordinance, 2001 ("the Ordinance"). A show cause notice was issued on 14.05.2022 under Section 122(9) read with Section 122(5) of the Ordinance, wherein the taxpayer was confronted with discrepancies in the bank account details. It was alleged that the taxpayer is maintaining bank account No. 1320100006379 with Askari Bank, Main Market Gulberg Lahore, into which an amount of Rs.190.15,535 was deposited, which doesn't reconcile with the declared turnover of Rs.170,998,

000. The assessing officer intended to add the differential amount of Rs.19 154.535 as suppressed revenue, invoking Section 111(1)(d) read with Section 111(2) of the Ordinance. In response to the show-cause notice, the taxpayer. through an authorized representative, explained that the taxpayer was not using the normal tax year (i.e., from 1st July 2015 to 30th June 2016) but instead adopted a special tax year (i.e., from 1st January 2015 to 31st December 2015). As a result, the alleged amount was incorrect. The assessing officer reviewed this submission, cross-verified it from the records, and found it satisfactory. However, an addendum to the show cause notice was issued on 30.06.2022, alleging that as an NPO, the taxpayer had received donations of Rs.169,898 000 from Messrs Vision Developers (Private) Limited, an associated company. It was revealed that in the audited accounts, the donor company had recorded the amount as an interest-free loan rather than a donation. The taxpayer's reply was considered, and it was determined that the difference in accounting treatment did not result in any loss of revenue, so no adverse inference was drawn on this point. However, the taxpayer was found in violation of Section 100C(2)(a) of the Ordinance, leading to the disallowance of the tax credit under Section 1000. Since the taxpayer case was selected for audit under section 214C and deemed assessment was already amended under section 122(1) vide order dated 06.08.2018, therefore, in the instant case the assessing officer concluded the proceedings on 30.06.2022 vide order under Section 122(4) of the Ordinance, determining a tax liability of Rs.89,657.

3. Being aggrieved by the treatment meted out by the learned Assessing Officer, the taxpayer filed an appeal before the Commissioner (Appeals), who upheld the impugned order on the grounds that the taxpayer failed to provide supporting evidence for the donation received from Messrs Vision Developers (Private) Limited and proper justifications for the disallowance of tax credit under Section 100C of the Ordinance, in view of violation of the provisions of Section 100C(2)(a) of the Ordinance. Dissatisfied with the appellate order dated 07 04 2023. the taxpayer has filed a second appeal before this forum, on the grounds as set-forth in the memo of appeal.

4. The case has been heard today. The AR of appellant contended that the proceedings initiated and concluded by the learned assessing officer were based on vague and self-assumed legal and factual foundations, which have no effect in the eyes of the law. He emphasized that the learned CIR(A) has overlooked the factual and legal aspects of the case, dismissing the appeal mechanically without addressing the core issue, which was the violation of Section 100C(2)(a) of the Ordinance by the taxpayer. The learned AR further argued that the taxpayer had been granted the status of a Non-Profit Organization (NPO) by the department itself through approval under Section 2(36), as evidenced by the letter dated 28-10-2013 (No. J-1605). Therefore, the alleged violation of Section 100C(2)(a) was arbitrary and contrary to the facts of the case. He also explained that the taxpayer's NPO status had been officially recognized by the department, which had consequently allowed the tax credit under Section 100C for Tax Years 2015 and 2017. Even, for the tax year under consideration, the taxpayer's claim for the tax credit under Section 100C of the Ordinance was accepted vide order dated 06.08.2018 passed under section 122(1) of the Ordinance. He further argued that these facts should be considered when assessing any potential violation or disallowance of tax benefits. Additionally, the AR stated that the foundation had received an amount of Rs.169,898,000 from Messrs Vision Developers (Private) Limited as a voluntary contribution/donation. To support this claim, the appellant submitted a certificate issued by "Vision Developers (Private) Limited" and relevant bank statements confirming that the funds were received through proper banking channels.

5. In response, the learned Departmental Representative (DR) has pleaded to uphold the decisions of the Assessing Officer and the First Appellate Authority, requesting that the orders be sustained as legally valid and lawful.

6. We have considered the arguments of rival parties and perused the relevant available record. The grounds of appeal, in the light of the pleadings of the learned representatives, are taken up and disposed of in terms of observation recorded as under:

7. So far, the pivotal issue of the case, namely "whether the tax credit available under Section 100C of the Ordinance is subject to any restrictions or conditions?" It is observed that the appellant has claimed tax credit under Section 100C of the Ordinance as a Non-Profit Organization ("NPO"), asserting to have received approval from the learned Commissioner of Inland Revenue ("CIR") under Section 2(36)(c) of the Ordinance. For ease of reference, the provisions of Section 2(36)(c) are reproduced as follows: "(36) "non-profit organization" means any person- a) Established for religious, educational, charitable, welfare or development purposes, or for the promotion of an amateur sport: b) Formed and registered under any law as a non-profit organization: c) Approved by the Commissioner for specified period, on an application made by such person in the prescribed form and manner, accompanied by the prescribed documents and, on requisition, such other documents as may be required by the Commissioner; and none of the assets of such person confers, or may confer, a private benefit to any other person;

8. From the definition of a Non-Profit Organization (NPO) given above, it is clear that it includes welfare institutions established for welfare purposes, formed/registered under any law as an NPO, and approved by the Commissioner of Inland Revenue (CIR) in the prescribed manner, as described in Rules 211-217 of the Income Tax Rules, 2002. It is imperative to mention here that no organization or institution can enjoy the status of an NPO unless it receives approval from the CIR under the provisions of the law. Once an organization is declared an NPO under Section 2(36)(c) of the Ordinance, read with Rules 211-217 of the Income Tax Rules, 2002, it may claim the tax credit under Section 100C of the Ordinance, subject to the fulfillment of certain conditions specified under the said section. For ease of reference, the relevant provisions of the section are reproduced below: "100C. Tax credit for certain persons (1) The income of Non-profit organizations, trusts or welfare institutions, as mentioned in subsection (2) shall be allowed a tax credit equal to one hundred per cent of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, subject to the following conditions, namely: a) Return has been filed: b) tax required to be deducted or collected has been deducted or collected and paid c) withholding tax statements for the immediately preceding tax year have been filed."

9. From the above provisions of law, it is clear that non-profit organizations, trusts, or welfare institutions are entitled to claim the benefit of the tax credit under Section 100C of the Ordinance, subject to the fulfillment of the conditions outlined therein, along with the approval granted by the CIR under Section 2(36)(c) of the Ordinance, read with Rules 211-217 of the Income Tax Rules, 2002. A concerning aspect of this case, which has been brought to the attention of the Bench, is that the department accepted the taxpayer's status as an NPO for the Tax Years 2015 and 2017 and allowed the tax credit under Section 100C for those years, as evidenced by the respective orders. Even, for the tax year under consideration, the taxpayer's claim for the tax credit under Section 100C of the Ordinance was accepted in audit proceedings concluded vide order dated 06.08.2018 passed under section 122(1) of the Ordinance. However, the said claim has been rejected without providing any plausible reasons on record under the impugned order passed under section 122(4) of the Ordinance. Nevertheless, the taxpayer had obtained approval under Section 2(36) of the Ordinance, as evidenced by the letter dated 28-10-2013 (No. J-1605), and the taxpayer's NPO status was officially recognized by the department. Consequently, the tax credit under Section 100C was granted for Tax Years 2015 and 2017, even, for the tax year under consideration, the taxpayer's claim for the tax credit under Section 100C of the Ordinance was accepted vide order dated 06.08.2018 passed under section 122(1) of the Ordinance. There is no rebuttal to the fact that the taxpayer is a foundation registered under the Societies Registration Act, 1860, and operates in accordance with the provisions of the Societies Act, 1860 as a non-profit organization. Moreover, there is no allegation that the taxpayer has misused the foundation's funds or properties, or that any of its members have benefited from surplus funds or profits accruing to the foundation. Accordingly, we hold that the appellant is legally entitled to the full 100% tax credit under Section 100C of the Ordinance, as no violation has been committed by the appellant that could impede or disqualify the appellant from availing the credit under the law.

10. We have also examined the relevant documents submitted by the learned AR, which establish that the taxpayer received an amount of Rs.169,898,000 from Messrs Vision Developers (Private) Limited as a voluntary contribution/donation through proper banking channels. To support this claim, the learned AR submitted a certificate issued by "Vision Developers (Private) Limited" along with the relevant bank statements confirming that the funds were received through proper banking channels. Upon review, we have found the documents to be in order and have accordingly placed them on record.

11. In view of foregoing discussion, we are inclined to hold that orders of the authorities below are illegal, without jurisdiction and against the facts of the case, hence, annulled and consequently appeal of appellant is allowed. We order accordingly. MQ/26/Tax(Trib) Appeal allowed.