Exemption Certificate

2022 PTD 1619 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss. 53, 133, 159, 161 & Second Sched. Part IV, Cl. 47BWithholding taxExemption CertificateRecovery of tax

Dispute between parties was that in absence of Certificate of exemption under S.159 of Income Tax Ordinance, 2001, applicant/Tax payer was liable to recovery of tax under S.161 of Income Tax Ordinance, 2001, as per Cl. 47B of Part IV of Second Schedule read with S.53 of Income Tax Ordinance, 2001

Validity

Withholder was not to form his own opinion that a person's case fell within the ambit of Cl. 47B of Part IV to Second Schedule of Income Tax Ordinance, 2001, unless a valid exemption certificate issued under S.159(1) of Income Tax Ordinance, 2001 was presented

Even the person whose payments were otherwise liable for advance tax deduction under Ss.150, 151 & 233 of Income Tax Ordinance 2001, could not insist that he was to be extended benefit of Cl. 47B of Part IV to Second Schedule of Income Tax Ordinance, 2001, in absence of exemption certificate in the face of provisions of S.159(2) of Income Tax Ordinance, 2001

Entitlement of concession under Cl.47B of Income Tax Ordinance, 2001, can be availed only when exemption certificate was presented to withholder and upon such presentation obligation of withholder to deduct advance tax as provided under S.159(2) of Income Tax Ordinance, 2001, stood discharged

Benefit under Cl. 47B of Part IV to Second Schedule of Income Tax Ordinance, 2001 could not be availed by withholdee out-rightly and directly from withholder on account of bar contained in S.159(2) of Income Tax Ordinance, 2001 unless withholding person had a valid exemption certificate issued to him under S.159(1) of Income Tax Ordinance, 2001

Reference was disposed of accordingly.

2017 PTD 665 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

S. 206, Second Schedule, Part-IV, Cl. 72BFBR Circular No. 8 dated 3-9-2013FBR Circular No.12 dated 11-11-2013Exemption certificateImposing of conditions through Circulars

Taxpayer was aggrieved of FBR Circular No. 8 dated 3-9-2013 and Circular No.12 dated 11-11-2013, on the plea that the same were against the provision of Cl. 72B of Part-IV, Second Schedule, to Income Tax Ordinance, 2001

Validity

Federal Board of Revenue under S. 206 of Income Tax Ordinance, 2001, could not clothe itself with power which the statute itself did not give to it

Federal Board of Revenue had no jurisdiction to introduce condition No. (iii) in Cl. 72B of Part-IV, Second Schedule, to Income Tax Ordinance, 2001, through Circulars in issue

High Court declared condition No. (iii) of Circular 8 dated 3-12-2013, as ultra vires of the powers of Federal Board of Revenue, as well as against the provision of Cl. 72B of Part-IV, Second Schedule, to Income Tax Ordinance, 2001

Constitutional petition was allowed in circumstances.

2017 PTD 1544 ISLAMABAD Judicial Precedent

Ss. 53, 150, 151, 159 & Second Schedule, Part-IV, clause, 47-BTrusts and Pension FundsDeduction of advance income taxExemptionExemption certificatePrinciples

Tax payers/petitioners were approved Gratuity/Provident Funds under Income Tax Ordinance, 2001, and their income was exempted from tax under clause 57(3) of Part-1 of Schedule-II to Income Tax Ordinance, 2001

Taxpayers were aggrieved of circular Letter dated 12-5-2015, directing the authorities to apply S. 159 of Income Tax Ordinance, 2001, to petitioners

Validity

Application of Ss. 150 & 151 of Income Tax Ordinance, 2001, in case of Trusts and Pension Funds, was not excluded under clause 47-B of Part-IV of Second Schedule to Income Tax Ordinance, 2001

Where Commissioner was satisfied under S. 159(1) of Income Tax Ordinance, 2001, that income falling in Division II or III (which included Ss.150 & 151 of Income Tax Ordinance, 2001, as those fell in Division III) was exempted from payment of tax, he could grant a certificate to such effect

Legislature by laying down the requirement of obtaining exemption certificate where income was exempted had not taken away the exemption but rather had provided a mechanism to ensure that exemption was not misused in any way

Any person under S. 159(2) of Income Tax Ordinance, 2001, who was required to deduct advance tax under Division II or III would do so while making payment to the person entitled to receive the same unless the payee produced exemption certificate duly issued under S. 159(1) of Income Tax Ordinance, 2001

Payee had to provide a certificate specifically covering exemption deduction of advance tax and could not claim immunity from deduction on the basis of clause 47-B of Part-IV of Second Schedule to Income Tax Ordinance, 2001 or any other provision by asserting exemption due to operation of law

High Court declined to interfere in the matter

Constitutional petition was dismissed in circumstances.

2016 PTD 2257 PESHAWAR-HIGH-COURT Judicial Precedent

Ss.53(1), 122-B, 151, 159(2), 206, Second Sched., Part-I, clause 57(3), Second Sched., Part-IV, clause 47B & Sixth Sched. VI

Exemption certificate

Trust

Grievance of taxpayers was that they were not required to obtain or produce exemption certificate and in turn the payer of their profits on investments was not to deduct income tax under Ss.151 & 159 (2) of Income Tax Ordinance, 2001

Validity

Provisions of S.151 read with S.159(2) of Income Tax Ordinance, 2001, commanded the 'payer' who while acting and withholding agent on behalf of the Revenue, to deduct taxes at source at the time of making payment to persons

Complete immunity could not be given to all funds, who claimed to be validly approved under Income Tax Ordinance, 2001

Once the Commissioner granted such approval/recognition certificate to a fund under enabling provisions of Schedule-VI to Income Tax Ordinance, 2001, then it could only be interfered with, as and when the same was revoked

Allowing persons to seek immunity from operation of S.151 of Income Tax Ordinance, 2001, on the basis of such certificate, without its period of validity stated therein, would leave much room for its abuse

Trust, though approved and falling within the purview of clause 47B of Part-IV of Schedule-II to Income Tax Ordinance, 2001, also fell within the mischief of requiring to produce exemption certificate to withholding agent under S.151 of Income Tax Ordinance, 2001, to avail exemption from payment of income tax on their profits under clause 57(3) of Part-I of Second Schedule to Income Tax Ordinance, 2001

High Court declined to interfere in the matter

Constitutional petition was dismissed in circumstances.

2016 PTD 427 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss. 152(4A) & 153FBR Circular No.2 of 2012, dated 27-7-2012Constitution of Pakistan, Art. 199Constitutional petitionExemption CertificateBeneficial legislationRetrospective effectPrinciples

Assessee was aggrieved of order passed by Authorities whereby Exemption Certificate granted in its favour had been withdrawn

Validity

Only purpose and intent for carrying out amendment in Ss.152 & 153 of Income Tax Ordinance, 2001, through Finance Act, 2012, was to simplify and harmonize withholding tax regime pertaining to Permanent Establishments of Non-Resident Persons in Pakistan, as there was some overlapping and confusion with regard to withholding and deduction of tax on such establishments

Federal Board of Revenue clarified through circulars, that to remove such problem, mechanism of payments in respect of Permanent Establishments of Non-Residents through Finance Act, 2012 was omitted from S. 153 of Income Tax Ordinance, 2001 and were made part of S. 152 of Income Tax Ordinance, 2001

Insertion of subsection (4A) in S. 152 of Income Tax Ordinance, 2001, through Finance Act, 2015, was remedial and curative in nature as it had rectified an apparent mistake and omission, hence the same would be applicable retrospectively on the case of petitioner, as the petitioner's case was pending when such amendment was introduced in Income Tax Ordinance, 2001

Assessee was entitled for issuance of Exemption Certificate during the period prior to 2015 as well

High Court set aside the orders passed by authorities whereby Exemption Certificate dated 19-06-2014, already issued to assessee was withdrawn/recalled

Petition was allowed in circumstances.

2016 PTD 2601 ISLAMABAD Judicial Precedent

Ss. 65-D & 175Show cause noticeExemption certificate

After the benefit under S. 65-D of Income Tax Ordinance, 2001 was granted to the assessee, the authorities initiated investigation to confirm claim of assessee and its entitlement to the tax credit

Validity

Respondent authority was not vested with power or jurisdiction under S. 65-D of Income Tax Ordinance, 2001 nor in the circumstances powers under S. 175 of Income Tax Ordinance, 2001 could have been invoked

Notice in question was palpably without jurisdiction and an adverse order, as actions completed therein were an infringement of right to privacy, dignity and liberty of assessee

Constitutional Petition before High Court was maintainable and notice was declared to be issued without jurisdiction and lawful authority

Petition was allowed in circumstances.