TUESDAY JUNE 21: Agricultural income declared a major source of income: response to FBR assessment notices

ISLAMABAD: Some of the income tax return filers of Karachi, Lahore and other cities have declared agricultural income as major source of income in response to notices of provisional assessment under section 122 (c) of the Income Tax Ordinance 2001 according to the on-going exercise to document the economy.
Sources told Business Recorder here on Monday that the Federal Board of Revenue had issued notices to non-filers of returns under section 114 of the Ordinance 2001 based on data of property in posh areas, frequent travels and other third party information showing the person earning taxable income. In case of non-compliance, another notice was issued that the department can make provisional assessment under section 122 (c) of the Income Tax Ordinance 2001. The persistent non-compliance is subjected to the notice under section 122(c) of the Ordinance 2001 for provisional assessment.
In certain cases, either the return filers have declared agricultural income as major source of income or submitted that the movable or immovable property has been purchased from foreign remittances protected under section 111 of the Income Tax Ordinance 2001. At the time of issuance of notices, it is not possible to ascertain whether the person is earning agricultural income till he declares in his return about the exempt income. Once the return is filed, the taxpayer can be confronted to submit necessary evidence of the exempt income. As the notice is issued on the basis of the computerised national identity card number (CNIC), the department cannot ascertain whether source of income is exempt or not.
However, it is difficult to give exact number of persons or percentage of such persons declaring agricultural income as major source of income in the returns. The preliminary analysis of returns revealed that some return filers of Karachi, Lahore and Gujranwala have declared the same which needs to be verified with authentic evidence of exempted income.
Under section 41 of the Income Tax Ordinance 2001, agricultural income derived by a person shall be exempt from tax. According to sources, some of the return filers have given this explanation that they have purchased property in posh areas through farm income or agricultural income, which is exempted from the tax. However, they have to prove that the agriculture land is in the name of the concerned person used for purchase of movable or immovable property. In this regard, the return filer has to submit the necessary evidence to the tax department about the earning of exempt income. In cases of income from foreign remittances, the return filer has to submit the bank encashment certificate to prove source of investment is foreign remittance.
Sources said that the persons declaring agricultural income/foreign remittances as source of investment can specify the same in the column of 'exempt income' of the income tax returns. If persons receive notices of non-filing of returns, they can mention that they are earning 'exempt income' in the specific column of the income tax return. In this way, the FBR will know about persons earning exempt income and proceedings of section 122(c) of the Ordinance could be dropped against the concerned person.
The FBR can transmit the information to the province for enforcement and compliance at the provincial level. The Board can furnish the information to the concerned provisional departments to pursue such cases for bringing such persons into the tax net. On the other hand, the provincial government should also enforce filing of returns by persons earning agricultural income. Under section 41 of the Income Tax Ordinance 2001, agricultural income derived by a person shall be exempt from tax under this Ordinance.
In this section, Agricultural income means any rent or revenue derived by a person from land which is situated in Pakistan and is used for agricultural purposes; any income derived by a person from land situated in Pakistan from (i) agriculture; (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by such person to render the produce raised or received by the person fit to be taken to market; or (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by such person, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii); or (c) any income derived by a person from - (i) any building owned and occupied by the receiver of the rent or revenue of any land described in clause (a) or (b); (ii) any building occupied by the cultivator, or the receiver of rent-in-kind, of any land in respect of which, or the produce of which, any operation specified in sub-clauses (ii) or (iii) of clause (b) is carried on, but only where the building is on, or in the immediate vicinity of the land and is a building which the receiver of the rent or revenue, or the cultivator, or the receiver of the rent-in-kind by reason of the person's connection with the land, requires as a dwelling-house, a store-house, or other out-building, section 41 added.