SC suspends SHC ruling against FBR’s tax collection

FBR's counsel says SHC ignored correct application of new amendments made through finance act

ISLAMABAD:

The Supreme Court has suspended Sindh High Court’s (SHC) ruling that quashed proceedings of the Federal Board of Revenue (FBR) against taxpayers who did not declare their foreign assets, incurring foreign expenditure, earning foreign income and owning foreign liabilities through their separate Foreign Income and Asset Statement, starting from the tax year 2019.

A three-judge bench of the apex court led by Justice Umar Ata Bandial on Monday took up the FBR petition against December 22, 2020, SHC judgment.

The bench has granted leave to appeal and issued notices to all respondents for further proceedings.

Advocate Hafiz Ahsaan Ahmad Khokhar represented FBR in the apex court against the judgment of SHC in cases related to the challenging of show cause notices proceedings issued to resident taxpayers under new legal amendments in the Income Tax Ordinance 2001.

The respondents, who are resident taxpayers and own foreign assets and income, failed to file their tax returns being resident taxpayers for the tax year 2019 as per new amended requirements made in Section 116A (1) of Income Tax Ordinance, 2001.

SHC held that in absence of notified format required under section 116A (2) of the Income Tax Ordinance 2001, and whereas, nothing has been concealed nor there is any consequence either on income or tax liability of petitioners for non-filling of foreign income and assets statement along-with return of income for Tax Year 2019, as required under section 116A1, the penal provisions under section 182 (2) of the ordinance could not be invoked.

The SHC further maintained that the department failed to establish wilful default or mens rea on the part of taxpayers. Therefore, issuance of notices under section 182 (2) could not be validated and declared as illegal and resultantly of no consequence.

As per the petition, after the amendments in the law, under the jurisdiction of AEOI Zone Karachi alone, 650 taxpayers were required to file the statement under Section 116A (1) of the said ordinance along with tax return for the tax year 2019, out of which 433 duly complied and filed it in time as required under the amended law.

However, show cause notices were issued by the department to the remaining 217 taxpayers upon established default. Out of them, 182 taxpayers complied with the notices, filed their replies and adopted the due course provided under the provisions of Income Tax Ordinance, 2001.

The FBR’s counsel stated that the SHC ignored the correct application of new amendments made through Finance Act 2018 in Section 116A (1) and Section 182(1) that the legislature intended and had clear in wisdom to tax foreign income earned from offshore trusts and companies controlled by resident Pakistanis through new legislation which was simultaneously enacted through Finance Act, 2018 along with legislation for filing of foreign income and assets statement under Section 116A (1) of the ordinance.

He submitted that Sindh High Court failed to appreciate that Foreign Income and Assets Statement under Section 116A (1) of the Income Tax Ordinance, 2001 were different in nature and provide different financial positions of taxpayers.

He said that the SHC invalidated show cause notices proceedings in constitutional jurisdiction on presumptions when regular adjudication proceedings were pending before the Authority under the prescribed provision of the ordinance.

Hafiz Ahsaan Ahmad Khokhar told the court that the SHC ought to have looked into the matter with different angles as to whether compliance of law at the time of invoking show cause notices proceedings has been made or if any of the provisions have been omitted or violated.

He further submitted that it is an admitted proposition of interpretation of statutes that the law should be saved rather than to be destroyed and the court must always lean in favour of upholding the constitutionality of legislation keeping in view the rules of constitutional interpretation.

After hearing both sides, the bench accepted the contentions of FBR counsel and issued a leave granting order and suspended the judgment of the Sindh High court.