Minimum Tax

2023 PTD 134 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.113, 2(22A) & First Sched., Sr. 2, Division IXMinimum taxDistributorFast moving consumer goodsScope

Question before Appellate Tribunal was whether the household electrical appliances fell in the category of fast moving consumer goods as defined in S. 2(22A) of Income Tax Ordinance, 2001

Validity

Household electrical appliances e.g. television, refrigerator, air conditioners, etc., did not fall in the definition of fast moving consumer goods for the reason that neither they were frequently purchased by the consumer nor their costs were relatively low

Though these appliances were used in almost every house but they were also durable in nature as the consumer did not buy these items on frequent basis.

2023 PTD 134 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.113 & First Sched., Sr. 2, Division IXMinimum taxDistributorScopeQuestion before Appellate Tribunal was whether the status of taxpayer was of a distributor

Claim of taxpayer was that his case fell in Sr. 2(a) of First Schedule of Division IX and to prove that fact he had produced certificates issued by different electronic companies

Validity

Certificates issued by the companies had no sanctity in the absence of any supporting evidence i.e. sales invoices, entries in books of accounts, distribution agreements, etcetera

No agreement was placed on record by the taxpayer to prove the relationship

Taxpayer had failed to establish his status as a distributor with any documentary evidence, therefore, the assessing officer had rightly charged the minimum tax

Appeals were dismissed.

2019 PTD 1994 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss. 133 & 113Reference to High CourtMinimum TaxAdjustment of excess amount of tax paidScope

Taxpayer, while filing the return of income, had claimed adjustment of minimum tax brought from tax years 2011, 2012 and 2013

Additional Commissioner had observed that as the appellant had not paid any tax under normal tax regime, therefore, the credit under S. 113(2)(c), Income Tax Ordinance, 2001 was not available

Commissioner Inland Revenue (Appeals) had rejected the appeal of taxpayer

Appellate Tribunal accepted the appeal of taxpayer and held that S. 113(2)(c), Income Tax Ordinance, 2001 was applicable in loss cases or zero tax payable cases

Validity

Findings of Appellate Tribunal were rooted in law

Reference application was dismissed.

2019 PTD 2076 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S. 113Minimum TaxAdjustment ofScope

Appellant, while filing the return of income, claimed adjustment of minimum tax brought from tax years 2011, 2012 and 2013

Additional Commissioner observed that as the appellant had not paid any tax under normal tax regime, therefore, the credit under S. 113(2)(c), Income Tax Ordinance, 2001 was not available

Commissioner Inland Revenue (Appeals) rejected the appeal of taxpayer

Validity

Credit under S. 113(2)(c), Income Tax Ordinance, 2001 was beneficial in nature and it was incorporated to reduce burden of taxation on taxpayers earning lesser income or suffering losses

Section 113(2)(c), Income Tax Ordinance, 2001 had to be interpreted liberally

Legislature had extended a benefit in terms of S. 113(2)(c) of Income Tax Ordinance, 2001 which was in the nature of payback of tax recovered over and above the actual tax liability

Expression "no tax payable" used in S. 113(1)(e), Income Tax Ordinance, 2001 referred to zero tax payable

Minimum tax was required to be charged under S. 113(1)(e), Income Tax Ordinance, 2001 where "no tax" was "payable" or "paid" by a person or tax "payable" or "paid" was less than 1% of the turnover

Meanings associated to the terms "payable" or "paid" in S. 113(1)(e) had to be kept in view while interpreting S. 113(2)(c), Income Tax Ordinance, 2001

Zero tax "payable" or "paid" could not be considered in a manner so as to throw out the taxpayer from the ambit of S. 113(2)(c), Income Tax Ordinance, 2001

Appellate Tribunal held that S. 113(2)(c), Income Tax Ordinance, 2001 was applicable in loss cases or zero tax payable cases

Appeal of the taxpayer was allowed.

2016 PTD 2839 ISLAMABAD Judicial Precedent

Ss. 4, 113 & 153 [as amended by Income Tax (Second Amendment) Ordinance (X of 2015)]Constitution of Pakistan, Arts.25, 260 & Schedule IV, item 47Section 4, Income Tax Ordinance, 2001ViresMinimum taxReasonable classification, principle ofApplicabilityPetitioners were taxpayers who were aggrieved of recovery of minimum tax by authoritiesValidityMinimum tax fell within the scope and ambit of income tax as provided in S. 4 of Income Tax Ordinance, 2001

- Minimum tax was specie of income tax and Parliament had competence to levy the same under item 47 of Schedule IV of the Constitution

Legislature in its wisdom could classify and concept of reasonable classification was available as an exception to discrimination under Art. 25 of the Constitution

By virtue of Income Tax (Second Amendment) Ordinance, 2015, reasonable classification was made and case of petitioners did not fall within Art. 25 of the Constitution

Concept of minimum tax was neither in violation of Income Tax Ordinance, 2001, nor fell outside item 47 of Schedule IV to the Constitution

Deductions to be made from payment made for rendering services at the rate of 8% were regarded as minimum tax

If petitioners could feel that the same was expropriatory and confiscatory in any manner could approach authorities for redress of their grievance by way of representation

Provisions in questions were not ultra vires the Constitution or any other provision

High Court declined to interfere in the matter

Constitutional petition was dismissed in circumstances.

2015 PTD 1926 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S. 113Minimum taxAssessee, a distributor

Issue requiring consideration and adjudication was as to whether commission/margin of profit was amenable to the minimum tax or turnover in the case of a distributor

Marginal profit/commission as "turnover" in case of a "distributor" was amenable to minimum tax under S.113 of Income Tax Ordinance, 2001

Right of sale of goods by distributor was limited, restricted and controlled by the principal, which could not be treated as normal business/sales

For the services rendered by the distributor, principal/manufacturer would allow him remuneration in the form of discount at a fixed percentage of the value of goods distributed

Ordinary trader, having purchased the goods, had the right to sell to any person, at any rate and in any manner he could choose, but in the case of distribution, the price, the customer and the manner of sale were prescribed by the principal/manufacturer and the distributor had no choice in the matter

Ordinary trader in the case of rise and fall of the market, would make a profit or loss in respect of the stocks held by him, whereas in the distribution, the principal would increase the prices of its products the distributor was obliged to distribute the product on the price fixed by the principal when the principal would reduce the prices, the distributor had to sell the goods on the reduced price and the principal would compensate him, so that he could get the stipulated remuneration

Principal would not relinquish control over the goods till its disposal to the end consumer

No opening and closing stock had been declared by the taxpayer, even in his original return

Action of Adjudicating Authority in treating the sales mentioned in the original return as turnover for the purpose of S.113 of the Income Tax Ordinance, 2001, was unjustified and against the facts and circumstances of the case, for the reason that the taxpayer owned only margin profit/commission which could be treated turnover for the purpose of S.113 of the Income Tax Ordinance, 2001

While charging and confirming the issue of minimum tax, both the authorities below had not appreciated the true and correct facts of the case

Margin of profit/commission as declared by the taxpayer in the revised return was amenable to minimum tax under S.113 of Income Tax Ordinance, 2001, if exceeded the minimum threshold of charging turnover tax.

2014 PTD 484 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.153 (6)(iii) provisosPayments for goods and servicesCorporate sectorTaxation ofNormal taxationMinimum tax

Proviso to S.153(6)(iii) pertained to the exclusion which was evident from the "placement" of the proviso which related exclusively to subsection (iii) of subsection (6) of S.153 of the Income Tax Ordinance, 2001 and not generally

Said proviso had been appended to Sub-clause (iii) which referred to exclusion of services rendered by non-corporate sector only as the corporate sector stood already excluded through first proviso

Position with respect to 'corporate sector' remained unchanged being covered by the first proviso and taxable otherwise on net income basis

Taxation of corporate service providers (generally )continued to be governed by normal taxation and on net income basis and as such minimum tax regime was not applicable.

2008 PTD 1292 FEDERAL-TAX-OMBUDSMAN-PAKISTAN Judicial Precedent

Ss.80-DD, 50(5) & 103Income Tax Ordinance (XLIX of 2001), S.170(4)Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)RefundIntended referenceSub judiceDeletion of taxWithholding refundAppellate effectMinimum tax

Tax Collected under S.50(5) of the Income Tax Ordinance, 1979 was considered as minimum tax under S.80-DD of the Ordinance and was deleted on appeal

Refund was created

Complainant. prayed for issue of refund along with compensation

Department had opposed the request as it had filed appeal and complainant had filed writ petition which was pending adjudication and prayer to issue refund was premature

Validity

Commissioner was bound in duty to follow the decision of the Tribunal notwithstanding the fact that reference was filed by the department under S.124-A of the Income Tax Ordinance 2001

Reasons put forward by the department did not exist

Departmental appeal was dismissed and writ petition was withdrawn

Withholding the refund amounted to maladministration

Federal Tax Ombudsman recommended that the refund of relevant year be issued along with compensation.