Tax tribunal throws out FBR claims against Tareen

ATIR rules FBR’s order was based on lack of understanding and hypothesis

ISLAMABAD: A quasi-judicial panel has quashed Rs199 million tax demand against Pakistan Tahreek-e-Insaf senior leader Jahangir Tareen after the Federal Board of Revenue (FBR) could not defend its claim that Tareen understated his income by Rs648 million.

A two-member Appellate Tribunal Inland Revenue (ATIR), has ruled that the entire proceedings conducted against Tareen lacked lawful jurisdiction, while the show-cause notice and the subsequent amendment order against him was unlawful.

“The FBR’s order was based on lack of understanding and hypothesis which, to say the least, was erroneous and flawed”, the tribunal ruled. The FBR officer failed to confront Tareen as to which exact section of the Income Tax Ordinance was applicable to his case, its order said.

The tax tribunals come under the Ministry of Law in theory but the FBR carries influence on these tribunals. It is the second time that the ATIR, Lahore bench, has passed judgment against the FBR’s decision to recover an extra Rs199.1 million from the PTI lawmaker.

The demand against Tereen was raised by the Lahore Regional Tax Office (RTO) in May 2016. It was time when the PTI – then in the opposition -- was about to launch a countrywide campaign against the government over the Panama Papers leaks.

The RTO Lahore raised the demand on the grounds that Tareen understated his agriculture income and also showed a big chunk of income as gift to avoid Rs199 million tax. It said Tareen, in his income tax return for 2011, declared his agriculture income at Rs700.2 million but declared Rs160 million income in the nomination papers submitted with the Election Commission of Pakistan (ECP).

The tribunal order stated that the alleged difference of agriculture income [Rs540.3 million] did not justify the proceedings under section 111 (1) of the Income Tax Ordinance. The tribunal had given a similar decision earlier but the FBR appealed against the verdict in the Lahore High Court (LHC).

Agriculture income is exempted from the federal taxes. A study by the Federal Tax Ombudsman showed that 75% of the landlords who showed agriculture income as their source of income did not pay provincial taxes.

The FBR says Rs540.3 million income of Tareen was taxable, but the tribunal ordered that this was done with “a pre-determined mind”. The other allegation against him was that Tareen declared Rs109 million as gifts, which were also exempted from income tax.

Tareen’s counsel argued in the ATIR that he received gifts through crossed-cheques from within the family and thus remained outside the ambit of tax chargeability. The ATIR noted that the taxation officer issued the notices to Tareen without possessing the definite information.

The FBR also took into account only 1,668 acres of land, while the total cultivated land was 18,566 acres. The FBR took the position that in the absence of the registration under the Punjab Registration Act, the lease agreements could not be considered as genuine. It observed that during the course of verification, even the collective land holding of the family members were less than the stated land.

The ATIR order stated that the observations leading to adverse inference in the matter, quoting the devastating floods of 2010, also speak of “arbitrariness and lack of understanding on agriculture” on the part of the FBR