Exemptions

2020 PTD 27 KARACHI-HIGH-COURT-SINDH Judicial Precedent

S. 92Specific Relief Act (I of 1877), Ss. 42 & 54Chartered Accountants of Pakistan Ordinance (X of 1961), S. 23Suit for declaration and injunctionSuper taxTax return, filing ofFirm and partnersExemptions

Plaintiffs were both partnership firm and its partners who assailed that there was no compulsion or restriction as per vires of S. 92 of Income Tax Ordinance, 2001 that partners were required to pay tax and file returns after firm had already done so

Validity

Held, there was no prohibition or restriction in S.92(1) of Income Tax Ordinance, 2001 to effect that either association of persons or partners could pay their taxes and if it was so, then association of persons was not liable to pay any further tax

Under S. 92 of Income Tax Ordinance, 2001 it was only association of persons or firm which had to file its return of total income and pay tax accordingly and not partners individually in respect of income received from association of persons or firm

Once tax was paid by firm, partners were not required to pay any tax on such part of income of which tax was already paid, however, they were required to file independent return and pay tax on other income if any

High Court set aside applications made by firm and its partners as firm had not deposited any such amount

Suit was dismissed accordingly.

2017 PLD 68 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss. 3, 4 & 11Constitution of Pakistan, Art. 199

Government of Punjab Notifications No. AEA-III-3-5/2011 (Vol-III) dated 04.12.2015 and No.AEA-III- 3-3/03 (VOL-III) dated 6.12.2006; (issued under S.11 of the Punjab Industries (Control on Establishment and Enlargement) Ordinance, 1963)

Object, scope and interpretation of the Punjab Industries (Control on Establishment and Enlargement) Ordinance, 1963

Restrictions on establishment/enlargement of industrial undertakings

Exemptions

Public interest considerations

Relocation of existing sugar mills to a new location

Nexus between ban on establishment of new sugar mills and relocation of existing sugar mills

Considerations of relocation policy and scheme of the law were location-specific and not production-capacity specific

Judicial review of Government policy

Judicial estoppel

Scope

Petitioners, which were operating various sugar mills, impugned issuance of Notification No.AEA-III-3-5/2011 (Vol-III) dated 04.12.2015 ("impugned notification") whereby existing sugar mills were allowed to relocate within the Province

Contention of the petitioners, inter alia, was that under the garb of shifting/relocating of an existing sugar mill, respondents were in fact establishing new sugar mills despite the ban imposed on establishment of new sugar mills under S. 3 of the Punjab Industries (Control on Establishment and Enlargement) Ordinance, 1963 read with Notification No. AEA-III- 3-3/03 (VOL-III) dated 06.12.2006

Validity

Question to be determined was whether relocation of sugar mills fell within ambit of establishment of new sugar mills as provided under Punjab Industries (Control on Establishment and Enlargement) Ordinance, 1963, read with the ban imposed by notification dated 06.12.2006

Impugned notification reiterated the ban imposed by the earlier notification dated 06.12.2006, meaning thereby that the ban on establishment or enlargement of new sugar mills continued by way of policy of the Government and bare reading of clauses of the impugned notification revealed that relocation must be considered in context of the ban on establishment of new sugar mills as well as public interest

Impugned notification therefore, created a direct nexus between relocation of a sugar mill and establishment of a new sugar mill

Relocation of a functional sugar mill meant that the mill would close its operations in one area and relocate to another area and in the present case, relocation was without increasing the production capacity of sugar mills, so essentially relocating the sugar mill meant moving from one location to another, based on the licensed production capacity of the sugar mill

2016 PTD 2091 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Taxing Statute/RulesExemptionsExemptions, under taxing statutes, should be construed strictly

As a general rule, grant of exemption should be construed in such a way which gives rigid interpretation against assertion of the taxpayer, and in favour of the taking power, and basis of said rule was the same as that supporting rule of strict construction of positive revenue loss; that burden of taxation should be distributed equally and fairly among members of the society.

2016 PTD 2585 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss. 3, 7, 13 & Sixth Sched. entry 81Sales Tax Special Procedure Rules, 2007, Rr. 58X & 58Y(1), (3)Notification S.R.O. 188(I)/2015, dated 5-3-2015In-house useExemptionsRole of Federal GovernmentPetitioners were running cotton ginning units and they used cottonseeds in their in-house operationsPetitioners were aggrieved of Notification S.R.O. 188(I)/2015, dated 5-3-2015 and challenged vires of the notification

Plea raised by authorities was that petitioners had entered into agreement through their Association to act as withholding/collecting agent regarding sales tax

Validity

Federal Government could regulate the manner in which exemption granted was to be availed and it was only to the extent and for the purpose that conditions could be imposed by Federal Government

Power of Federal Government in terms of S. 13(1) of Sales Tax Act, 1990, was strictly limited and it could not trespass on the area that legislature had reserved for itself

When cotton ginning units made a supply of cottonseed as contemplated by Chapter XV of Sales Tax Special Procedure Rules, 2007, they were not acting as withholding/collecting agents rather they had primary legal liability to pay sales tax in respect of such supply which was equally applicable to in-house use of cottonseeds by composite units

Such use had to be a supply within the meaning of Sales Tax Act, 1990

Undertaking or agreement through the Association and reliance placed thereon by authorities was misconceived and the same could not lend any support to them

High Court declared Chapter XV of Sales Tax Special Procedure Rules, 2007, as inserted by notification S.R.O. 188(I)/2015, dated 5-3-2015 ultra vires Sales Tax Act, 1990, and without any legal consequence or effect wheatsoever

High Court further declared that sales tax collected or paid on the supply of cottonseed was unlawfully demanded/claimed, as being contrary to entry No.81 of Sixth Schedule to Sales Tax Act, 1990

High Court restrained authorities from making any claim or demand for payment of sales tax in terms of Chapter XV of Sales Tax Special Procedure Rules, 2007, or from enforcement of any of the provisions of the said Chapter and any proceedings pending or initiated in such regard or any order made were quashed and set aside

High Court declared that petitioners were entitled to refund of any sales tax paid in terms of Chapter XV of Sales Tax Special Procedure Rules, 2007

Petition was allowed accordingly.

2015 PTD 2011 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Second Sched., Part-1, Cl. (74)"Term deposit"Exemptions

Interest income earned from "term deposit" by tax payer did not cover exemption as provided in Clause 74 , Part-I of Second Schedule of Income Tax Ordinance, 2001 until same was brought back to regular stream of business operation

"Term deposit" attracted a higher profit compared to normal deposits due to their long term removal from routine or ordinary course of tax-payer's business operation therefore assessing authority was justified not to extend benefit of exemption on such deposit

Clause (74), Part-I of Second Schedule of Income Tax Ordinance, 2001, provided exemption only to bank deposit relating to routine business operation of tax payer and not long term deposit

Exemption provisions were to be strictly construed

If the intention of legislature had been to extend exemption to entire profit on debts/interest income, words "bank deposits" would have not been expressed in Clause 74 , Part-I of Second Schedule of Income Tax Ordinance, 2001.

2015 PTD 804 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Second Sched: Part-I, Cl. 126FExemptionsProfits and gains

Only those companies which earn 'profits and gains' were entitled to exemption under Cl. 126F of Part-I of the Second Schedule to the Income Tax Ordinance, 2001.

2015 PTD 487 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Second Sched: Part-I, Cl.126F, Ss. 170(4), 122(5A), 128(5) & 120(1)(b)FBR Circular No.14 of 2011 dated 6-10-2011FBR's clarification letter C.No.476224 dated 16-6-2013ExemptionsTax years 2010 and 2011Cement supplies

Exemption was claimed by the taxpayer with a view that business had been carried out in Peshawar, which was the most affected area prescribed under Cl.126F of the Part-I of the Second Schedule to the Income Tax Ordinance, 2001 and filed application for issuance of refund

Revenue contended that cement supplies were not exempt under Cl.126F of the Part-I of the Second Schedule to the Income Tax Ordinance, 2001 and secondly in case of commission receipts the tax deducted at the rate of 10% of the total commission was final tax liability

Taxpayer contended that in such like situation in cases of presumptive income, in numerous cases giving exemption under Cl.126F presumptive income, refunds had already been issued but department was reluctant to amend the order under the relevant provision of law as had been amended in the case of present taxpayer

Validity

Taxpayer was earning its income from the sale of cement, while as per Cl.126F supply of cement was excluded from provision of Cl.126F of the Second Schedule to the Income Tax Ordinance, 2001

Legally tax deducted at the rate of 10% of the commission was final tax liability and it fell under the Presumptive Tax Regime

On identical issue granting exemption to presumptive income by the authority below, the ATIR had made its own interpretation placing reliance on the judgment of the Supreme Court holding that "profit and gains" as used in Cl.126F were relevant only to the "head business income" and not to any other class of income as specified in S.11 of the Income Tax Ordinance, 2001

If income under all heads were covered under the "profit and gains" then what was the need to prescribe five heads of income

Appellate Tribunal observed that there was rational behind it

For each head there was separate provision of taxation and expense were prescribed, presumptive income which was also called "deemed income" did not fall under any head of income as specified in S.11 of the Income Tax Ordinance, 2001

If all incomes were related to "profit and gains" then why the salaried person had been charged to tax while the other categories were exempted by Federal Board of Revenue and thereafter retracted from its earlier clarification

In case of presumptive income for which filing of statements under S.115(4) of the Income Tax Ordinance, 2001 had been described while in case of normal income, return was to be filed under S.114 of the Income Tax Ordinance, 2001

After insertion of Cl.126F to the Second Schedule to the Income Tax Ordinance, 2001, law had not been amended

Persons falling under presumptive tax regime were still required to file the statement under S.115(4) of the Income Tax Ordinance, 2001, in cases falling under the other heads of income requirement of law was to file the normal return under S.114 of the Income Tax Ordinance, 2001

Federal Board of Revenue was not authorized to interpret the law

When the principle was laid down and the words "profit and gains" had been interpreted by the Supreme Court, Federal Board of Revenue was supposed to know said factum, and there was no need to give clarification

First Appellate Authority had committed grave mistake by holding that taxpayer's income was exempt from the tax under the garb of Cl.126F to the Second Schedule to the Income Tax Ordinance, 2001

Taxpayer was earning its income from the commission, the tax deducted at 1/10 of the commission was the final liability and fell under presumptive income, which was not exempt under Cl.126F to the Second Schedule to the Income Tax Ordinance, 2001

Order of First Appellate Authority was totally illegal and was in deviation to the judgment of Appellate Tribunal and that of Supreme Court

Order of First Appellate Authority was vacated by the Appellate Tribunal and that of passed by the Additional Commissioner under S.122(5A) of the Income Tax Ordinance, 2001 and order passed under S.170(4) of the Income Tax Ordinance, 2001 stood restored.

2014 PTD 1369 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.13S.R.O. 575(I) 2006 dated 5-6-2006Sales Tax Ruling/ Instructions No.49/2002FBR letter C.No.3 (15) STP/99/VOL-1, dated 11-7-2002"Exemptions""Zero rating"Distinction

S.R.O. 575(I)/2006 dated 5-6-2006 was basically about the exemptions from customs and provides the exemptions of sales tax under S.13 of the Sales Tax Act, 1990 on limited items

Issue of exemption under S.13 of the Sales Tax Act, 1990 and zero rating under S.4 of the said Act had been clearly differentiated and elaborated by the Federal Board of Revenue vide Sales Tax Ruling/Instructions No.49/2002, Letter C.No.3 (15) STP/99/VOL-1, dated 11-7-2002.

2013 PTD 1651 PESHAWAR-HIGH-COURT Judicial Precedent

Ss.3, 2(3), 2(46) 13 & Sched.Constitution of Pakistan, Art. 199Constitutional petitionScope of sales taxSuppliesExemptions"Supply of books", and "printing services"DistinctionExemption available to textbooks did not extend to printing servicesTaxpayer was Textbook Board engaged in the publishing and supply of textbooks

Taxpayer was served with a show cause notice on the ground that no sales tax was collected or withheld from printers, and subsequently an assessment order was passed against the taxpayer

Contention of the taxpayer/Textbook Board was that under the provisions of the Sales Tax Act, 1990 newspapers, books, journals, and periodicals were exempted from sales tax, and the process of printing was part and parcel of a book, and was therefore also exempted from sales tax Validity

Process of printing was not excluded from the definitions envisaged in Ss. 2(c), 2(33) and 2(46) of the Sales Tax Act, 1990 and it was evident on record that the Textbook Board was also engaged in the procurement of textbooks from different printers and dealt in purchase of miscellaneous taxable times used in printing and publishing of books

Supply of books and printing services were altogether different functions and S. 3 of the Sales Tax Act, 1990 provided exemption on the supply of books but did not exempt printing services provided by different printers and vendors

Any exemption provided to printers under garb of Sixth Schedule to the Sales Tax Act, 1990 would be a sort of amendment in the Act, and the Textbook Board was not vested with the power to extend exemption to a third person, that was the printing service providers

Textbook Board, if had printed textbooks on its own, then it might claim the exemption provided by the Sales Tax Act, 1990

Where the taxpayer Textbook Board paid tax on the purchase of paper from a third party, then printing services, particularly provided by private printers could not be exempted from the levy of tax; and it was an admitted fact that the Textbook Board every year paid a huge amount to the printers on account of only printing services and raw materials which included paper used in printing of books, were provided by the Textbook Board

Supply of books was no doubt exempted from payment of sales tax, however printing services by vendors to the Textbook Board were not exempted and the Textbook Board being a withholding agent was under the legal obligation to withhold/collect the sales tax from the printers

No illegality existed, therefore, in the impugned order

Reference was answered in the negative.