Under Foreign Assets Act, 2018: Info on any foreign asset not enough to disregard declarant’s rights: LHC

ISLAMABAD: The Lahore High Court (LHC) has held that any information received with respect to any foreign asset, even from information received under Common Reporting Standards (CRS) under the Convention of Mutual Administrative Assistance in Tax Matters and Mutual Administrative Assistance in Tax Matter and Multilateral Competent Authority Agreement for the Automatic Exchange of Information of Organisation for Economic Cooperation and Development to which Pakistan is signatory, is not enough to disregard the rights of the declarant under the Foreign Asset (Declaration and Repatriation) Act, 2018.

The judgment authored by Justice Shahid Karim set aside the Federal Board of Revenue's (FBR) notice to Ali Khan (petitioner). It decided issues relating to Foreign Assets (Declaration and Repatriation) Act, 2018 and Asset Declaration (Procedures and Conditions) Rules, 2019.

The judgement also held that contribution in a foreign trust does not necessarily represent an investment by the settlor. The beneficial owners of the trust assets have the right to claim that contribution in the trust represents his asset and the same cannot be questioned under the Income Tax Ordinance, 2001 unless the tax department has “definite information” about the sources of that contribution in the trust by any person other than the declarant.

The LHC’s judgement relied on Rule 14(4) of the Asset Declaration (Procedures and Conditions) Rules, 2019, which states; “No declaration shall be declared void under Section 13 of the Act unless definite information regarding misrepresentation or suppression of facts is available with the Commissioner of Inland Revenue or his delegate”.

This judgement has settled the matter of enquiry and the challenge of information contained in the declarations made under the Asset Declaration laws of 2018 and 2019.

In many cases the tax department has challenged the declaration on the bases and reasons which are not permitted under the law.

This includes the information received under CRS and other sources.

This judgement of the High Court has settled the matter that declarant is not required to provide information with respect to assets declared.

Tax department is only allowed to undertake proceedings against the declaration if the department has definite information that assets declared have been created out of proceeds of crime.

The judgement has also explained the concept of “beneficial ownership” in a trust.

Ali Khan had filed a petition under Article 199 of Constitution and made federation through secretary Revenue Division, FBR, Commissioner Inland Revenue, Lahore, and Deputy Commissioner Inland Revenue, Lahore as respondents.

The FBR had issued show cause notice to the petitioner under rule 14(4) of Assets Declaration (Procedure and Conditions), Rules, 2019. It was asserted in the impugned show cause notice that the department is in possession of definite information under Section 122 (5) and (8) of the Ordinance read with Common Reporting Standard (CRS) of the Income Tax Rules, 2002 in the form of electronic record received under Convention on Manual Administrative Assistance in Tax Matters and Multilateral Competent Authority Agreement for the Automatic Exchange of Information of Organization for Economic Cooperation and Development to which Pakistan is a signatory under Section 107 of the Ordinance.

The court noted that the rest of the allegations in the show cause notice related to Jahangir Tarin (father of the petitioner), who has been alleged to be an account holder and a settlor for the accounts mentioned in the show cause notice.

An inference was drawn that since Jahangir Tarin was the settlor of the Trust, that is, a person who created the Trust and transferred property to the Trustee, it would be presumed that Jahangir Tarin is the person who placed the fund in the said account.

Copyright Business Recorder, 2022