ISLAMABAD: The Federal Board of Revenue (FBR) has decided to take a policy decision on the issuance of Free Tax Numbers (FTNs) to the government authorities/ departments seeking tax exemptions on the basis of allocated FTNs.
This has been communicated by the FBR to the Appellate Tribunal Inland Revenue (ATIR), Islamabad while deciding the case about the status of the M/s Wah Industries Limited, Wah Cantt (appellant).
According to the judgment of the ATIR, the FBR will take a policy decision on the issuance of the FTNs to the government authorities including local government departments and Tehsil Municipal authorities seeking tax exemptions on the basis of FTNs. Therefore, under the circumstance, the appellant was not required to deduct tax under section 150 of the Income Tax Ordinance while making payments to the POF Board. Accordingly, the orders passed by the lower tax authorities are vacated.
The ATIR has declared that the POF Board is the department of the Federal Government and any payment received by the Federal Government, a Provincial Government, or a Local Government shall not be liable to any collection or deduction of advance tax. Further, the revenue department itself issued the Free Tax Number (FTN) to the POF Board.
A tax expert challenged the judgment saying that the federal government is defined under the Constitution. The question arises whether the Board is covered under the said definition. If BOF Board has been declared as federal government then other regulatory authorities are also department of the federal government. The Section 49 of the Income Tax Ordinance 2001 clearly distinguishes the authorities from the federal government in its proviso. The section 150 of the Income Tax Ordinance has not given any exception or exemption from withholding of tax on dividends to any department, he added.
FBR to present new tax policy framework to cabinet
Details of the case revealed that the appellant, i.e., M/s Wah Industries Limited, is incorporated as a public limited company under the Companies Act. The company is wholly owned by the Government of Pakistan through the Pakistan Ordinance Factories (POF).
The company is principally engaged in manufacturing and sale of 12-Bore ammunition, Ammo containers, and sale of civil products from POF and other parties. The company also acts as a commission agent for POF to facilitate the sale of obsolete/ surplus stores and scraps. During the scrutiny of the taxpayer’s record for Tax Year 2015, it was observed that the taxpayer has not deducted withholding tax in terms of section 150 of the Income Tax Ordinance, 2001 (“the Ordinance”) while making dividend payments amounting to Rs200,000,000 to the POF Board.
Subsequently, Large Taxpayer Office (LTO), Islamabad passed an assessment order under section 161/205 of the Ordinance. Felt aggrieved, the appellant taxpayer filed an appeal before the Commissioner Inland Revenue (Appeals-I), Islamabad who decided the appeal of the taxpayer vide Order in Appeal No 89/2021 dated 24.09.2021. Being aggrieved, the appellant registered person has now come up before the ATIR and has assailed the impugned order on a number of grounds.
As per viewpoint of the petitioner’s lawyers, the dividend paid to the (POF Board) was not liable to withholding tax for the reason that it is a government organization like Federal Board of Revenue and also holding a FTN.
The judgement of the ATIR stated that the only issue involved in the instant appeal is whether the appellant was required to withhold the tax under section 150 of the Ordinance while making payment on account of dividend to the Pakistan Ordnance Factories Board? Before answering the said question, it is necessary to first determine the status of the POF Board whether it is a body corporate and comes within the ambit of section 49(4) of the Ordinance.
The principal function of the Board is to manage and administer the affairs of the factories and to run them on commercial lines to adequately meet during war and peace the needs of the defence of the country and to utilize the surplus capacity of the factories to meet the needs of the civil population. Section 7 of the Ordinance provides the power of the Board. Thus, the POF Board is the department of the Federal Government and in terms of subsection (3) of section 49 of the Ordinance, any payment received by the Federal Government, a Provincial Government, or a Local Government shall not be liable to any collection or deduction of advance tax, ATIR added.
Copyright Business Recorder, 2022
Comments
Comments are closed.