Immovable properties: Tax authorities issuing ‘super tax’ notices

LAHORE: Tax authorities are issuing notices of super tax to taxpayers against immovable properties on which no capital gain tax is payable because the holding period exceeded four years with zero capital gain, said sources.

They said the tax officers are applying super tax imposed under section 4C of the Income Tax Ordinance on capital gain on immovable property subject to zero capital gain.

It may be noted that Commissioners of Inland Revenue are also found turning down appeals against such orders, a situation leading to the landing of the issues with the appellate tribunals. In most cases, said sources, the tax authorities were computing capital gains of super tax instead of the income tax only.

The sources from among the tax practitioners have pointed out that capital gain on the immovable property did not fall within the ambit of section 4C of the ITO. Moreover, they said, the procedure for computation of tax on capital gain had already been provided under section 37(3A) of the ITO wherein it was clearly stated that gain is to be computed at zero where the holding period of an immovable property exceeds four years. Since most of the properties are being held for more than four years, therefore, taxpayers compute capital gain as zero in their returns.

They have further pointed out that super tax is chargeable on income. In contrast, due to the holding period, the capital gain in the cases of immovable properties becomes zero where the holding period exceeds four years. They said the imposition of super tax cannot be charged at zero income from capital gain and all such orders are being passed without providing an opportunity of being heard and that arbitrary approach on the part of tax collectors was illegal and without justification.

However, the departmental sources while conceding that even though immovable properties are exempted from income tax under section 37(3A), the amount of capital gain declared irrespective of the exemption would be considered as income for super tax. Therefore, they said, the levy of super tax was correctly being charged in all such cases.

But the tax practitioners are yet of the view that the law clearly states that where the holding period of an immovable property exceeds four years, then gain on disposal shall be zero and no capital gains tax is chargeable thereon. They said the department gives an unscrupulous twist to the law of capital gain because it is the gain which is zero and not the tax liability. According to them, the capital gain was not only exempted in such cases but also was zero for computation purposes.

They added that two different computations of the same income were not possible for the levy on income tax and super tax unless where the law specifically provides so. It may be noted that the vires of sector 4B have been declared constitutional and valid by the high courts, but a wrong application of the same has not been entertained in any appellate forum.

Copyright Business Recorder, 2023