ISLAMABAD: A Division Bench of Sindh High Court (SHC) has barred the banks/tax department from deduction of withholding tax on bank profits of Provident Funds and Pension and Gratuity Funds which were earlier recognised and approved under the Income Tax Ordinance, 2001 after their registration under the Trust Act 1892.

Petitioners (trustees of a company’s management-staff pension fund) had challenged the notices issued by the Commissioner Inland Revenue Corporate Tax Office, Karachi, whereby, in response to their application for issuance of exemption certificate under section 159 they were required to be registered under the Sindh Trust Act, 2020, enacted upon the repeal of Trust Act, 1892, after devolution under the 18th Amendment of the 1973 Constitution.

According to the SHC’s order, the petitioners are trustees of provident fund, pension fund and gratuity fund of the employees of the packages group and the said funds were created through trust deeds, respectively, in the years 1958, 1977, and 1983, and are recognised and approved funds under the Income Tax Ordinance, 2001, and enjoy exemption from income tax under the said Ordinance.

Every year an exemption certificate is issued to the petitioners under section 159 of the Ordinance 2001. However, when the petitioner approached Commissioner IR (Enforcement) Corporate Tax Office, Karachi for such an exemption certificate recently, notice was issued where it was prescribed that the Trust be registered under the newly-promulgated Sindh Trust Act, 2020 enacted upon the repeal of the Trust Act 1882 after devolution.

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The newly-promulgated Sindh Trust Act, 2020, as can be seen from scheme of law, is primarily enacted in respect of the Trusts which solely operate within the Province of Sindh while through section 12(2), a condition has been placed that Trusts created under the 1882 Act would be required to be registered under the new Act; however, as per learned counsel, the petitioners are running the subject Trust and Funds on a trans-provincial basis which could not to be treated as a Trust falling within the parameter of Section 12 of the Trust Act 2020.

Reference is made to the case of Sui Southern Gas Company Ltd. vs Pakistan which declared that all subjects which transcend provincial boundaries become federal legislative subjects and to enjoy such sanctity.

The counsel said that the Commissioner IR (Enforcement) Corporate Tax Office Karachi having imposed the condition of registration of the Trust under the Sindh Trust Act, 2020 has been misguided and failed to consider that the Trust at hand is represented by trans-provincial employees of the Packages Group which operate throughout the country; therefore, requirement of having such a trust registered under the newly-promulgated Sindh Act would be violative of various judgments of the Supreme Court and the scheme enshrined by the Constitution.

The counsel added that the non-issuance of exemption certificate to the petitioner is causing irreparable losses on account of deductions of sums made by various withholding agents/ banks by the investments made by the Trust for the benefit of the employees solely.

The SHC has issued notices to the FBR and Commissioner Inland Revenue (Enforcement) Corporate Tax Office, Karachi till the next date of hearing and no withholding tax be deducted from sums owed or heed by the petitioners in respect of their recognized provident funds, approved pension and gratuity funds under the Income Tax Ordinance, 2001.

Copyright Business Recorder, 2022