Tax exemption on IT exports: Registration with SBP not necessary for service providers: LHC

The Lahore High Court (LHC) has ruled that registration with State Bank of Pakistan (SBP) is not necessary for service providers to claim income tax exemption of information technology service and software export under clause 133 of Income Tax Ordinance, 2001.

It is reliably learnt that various income tax references have been argued by Lahore-based tax lawyer Waheed Shahzad Butt on behalf of software export house before a division bench of LHC, wherein the LHC ruled that requirement of Clause 133 of Part-1 to 2nd Schedule of Ordinance of 2001 is 'export of the business' as described in this Clause and not a particular registration with the SBP.

This is a major relief provided to the service providers engaged in the software export and IT services.

The LHC order states "This order shall also dispose of ITR No. 28 of 2017 as common question of law is involved in both applications. Following question is pressed for opinion of this court, which is claimed to have arisen out of the impugned order dated 25.10.2018 passed by the Appellate Tribunal Inland Revenue ("Appellate Tribunal"). "Whether the learned Appellate Tribunal in view of the facts and circumstances of the case was justified to hold the receipts of taxpayer as expert of software in terms of clause 133 of part-1 to the second schedule to the Income Tax Ordinance, 201 ("the Ordinance") without fulfilling its requirements."

The counsel for the applicant department submitted that while allowing respondent's appeal, the Appellate Tribunal had ignored that necessary documents for registration from State Bank of Pakistan were not produced before the authorities below. He contended that in absence of those documents, exemption under Clause 133 of Part-1 to 2nd Schedule of the Income Tax Ordinance, 201 could not have been assailed by the respondent taxpayer.

The counsel for respondent taxpayer opposed the arguments and submitted that all the necessary documents to prove that software was exported in the relevant tax year were produced before all the forums including the Appellate Tribunal. He contended that the Appellate Tribunal after examining all the documents has given findings of facts that in the relevant year, respondents were engaged in the business described under Clause 133 of Part-1 of 2nd Schedule of the Ordinance of 201, which was exported from Pakistan. "We agree with the submissions by learned counsel for the respondent taxpayer that decision is based on finding of facts." The Appellate Tribunal after examining various documents has given findings that respondent taxpayer was entitled to claim exemption under Clause 133 of Part-1 of the Schedule of the Ordinance of 2001.

"We also agree to the submission by learned counsel for respondent that requirement of Clause 133 of Part-1 to 2nd Schedule of Ordinance of 2001 is export of the business as described in this clause and not a particular registration," the LHC ordered.