Tax demand in respect of Q2 2022 advance tax: IHC sets aside order of DC IR Islamabad

ISLAMABAD: The Islamabad High Court (IHC) set aside the order of Deputy Commissioner Inland Revenue, Islamabad creating tax demand in respect of advance tax of 2nd quarter of the tax year 2022 on National Highways Authority (NHA) under Section 147 Income Tax Ordinance, 2001.

However, the court reiterated that the tax authorities shall be at liberty to impose additional surcharge under Section 205 of the Income Tax Ordinance, 2001 in case the estimate filed by the NHA (petitioner) is incorrect, but it can only be done at the time of assessing/ evaluating income tax return for the said year.

The NHA challenged the Assistant/ Deputy Commissioner Inland Revenue, Enforcement and Collection, Corporate Tax Office, Islamabad (respondent) order dated 22-06-22 creating tax demand of Rs1,0684,427,562 in respect of advance tax of 2nd quarter of the tax year 2022 under Section 147 Income Tax Ordinance, 2001 by rejecting the estimate filed the petitioner.

The counsel for the petitioner inter alia contended before the court that in light of Section 147 of the Income Tax Ordinance, 2001 and the interpretation rendered thereto in the case reported as Fauji Fertilizer Company Ltd vs. federation through Secretary Ministry of Finance (2018 PTD) the estimate cannot be questioned and in case, same is erroneous, appropriate proceedings can be initiated in terms of Section 205 of the Income Tax Ordinance, 2001.

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The counsel for the respondents vehemently contested the position and submitted that estimate is erroneous and hence needs to be stuck down.

The court noted that in Fauji Fertilizer case it has already held that the estimate has to be filed for the purpose of advance tax for a particular tax year and the advance tax on the basis thereof needs to be paid on a quarterly basis. It was also observed and held by this Court that if the estimate is erroneous, it cannot be questioned; however, the tax authorities are empowered to impose additional surcharge on the taxpayer under Section 205 of the Income Tax Ordinance, 2001 in case the estimate is found to be incorrect. Similar observations were made by this Court in case M/s Pak Telecom Employees Trust vs. federation (WP No2426/2016).

The IHC said that in view of the facts and circumstance of the case, the demand generated by the tax authorities vis-à-vis advance tax and the estimate filed by the taxpayer, are without lawful authority. The tax authorities can have recourse by way of imposition of surcharge under Section 205 of the Income Tax Ordinance, 2001 in case the estimate is found to be incorrect in the returns filed by the taxpayer.

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