ISLAMABAD: The income of the bank to be taxed based on gross advances to deposit ratio has been challenged before the Islamabad High Court (IHC) on the basis that the Federal Board of Revenue (FBR) has no authority to issue directions to regulate the banking business which is sole discretion/authority of the State Bank of Pakistan (SBP).
According to an order issued by the IHC, till the next date of hearing no coercive action will be taken against the bank on the basis of any calculation made by the tax department by applying rule 6C(6A) of the 7th Schedule of the Income Tax Ordinance to its income.
The IHC has also issued notices to the FBR/Attorney General for Pakistan to file report and para-wise comments within a period of two weeks.
The petitioner bank has impugned Rule 6C(6A) of the 7th Schedule of the Income Tax Ordinance, 2001.
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The counsel for the petitioner (bank) stated that the tax department is seeking to tax the income derived by the petitioner, which is a banking company, from investments made in federal government securities by prescribing the tax rate on the basis of gross advances to deposit ratio.
In doing so, the respondents (FBR/tax department) are seeking to regulate the banking business of the petitioner, which falls beyond the scope of a Money Bill and is consequently ultra vires Article 73 of the Constitution.
He further states that the manner in which the charge has been imposed is retroactive, as investments made in Federal Government Securities did not mature during the financial year and the tax chargeable in relation to such investments could not have been enhanced and made applicable retrospectively.
He also states that the impugned rule is in conflict with Section 46B(3) of the State Bank of Pakistan Act, 1956, as the said statute vests in the State Bank the authority to issue directions to banks regulated by the State Bank of Pakistan and prohibits other public authorities from issuing directions, which are in conflict with the policies declared by the State Bank of Pakistan (SBP).
The petitioner undertakes banking business pursuant to the prudential regulations issued by the State Bank of Pakistan and no other authority is vested with jurisdiction to issue directions to regulate the banking business of the petitioner, which is what has been done through the impugned rule, petitioner added.
Copyright Business Recorder, 2024