LAHORE: Companies falling under a special law can use Workers Profit Participation Fund (WPPF) for their business operations and the income from such funds including capital gain would be exempted from levy of tax.
According to details, a taxation officer had re-assessed the tax return filed by a beverage company and created an additional demand on account of WPPF and interest thereon, which was confirmed by the Commissioner Appeals.
The department stressed on justifying the levy of tax while the taxpayer opposed it on the ground that deduction made on account of the Companies Profits (Workers Participation) Act, 1968 does not fall within the ambit of the income tax. But the taxpayer said the relevant Act is a special law that clearly provides an exemption on income of the funds including capital gain.
It may be noted that the income tax law specifies that where an allowance or deduction has been made for any year in respect of any loss, bad debt, expenditure or trading liability, which has not been paid within three years of the income year in which it was allowed, such liability deemed to be income from business of the year in which such finding is made.
However, the department could not prove that whether the transferred amount to the WPPF by the taxpayer fell within the definition of trading liability or was a statutory liability.
The tribunal maintained that the income arising out of funds was declared exempt from the incidence of income tax, therefore, the assessing officer was not justified to make addition to the self-assessed income tax return. It was further pointed out that companies falling under the scheme of the Act were allowed to use funds for their business operations, however, they were obliged to pay profit @2.5% above the bank rate to compensate the use of these funds in the business operations.
According to the tribunal, the aforementioned Act is a special law and would prevail over the Income Tax Ordinance and the department was making an incorrect reading of the law.
Copyright Business Recorder, 2024