The Lahore High Court (LHC) has issued notices to Federal Board of Revenue (FBR) and concerned commissioners to file para-wise comments as to how the FBR issued a clarification on April 28, 2011 that all persons providing services falling within the provision of section 153 (1) (b) of the Income Tax Ordinance 2001 would be covered into the minimum tax regime.
It is learnt here on Friday that a petition has been filed by Zulfiqar Khan President Pakistan Tax Bar Association against the FBR clarification before the LHC. The LHC has ordered that respondents - FBR, Chief Commissioner and Commissioner Inland Revenue RTO Lahore - to file para-wise comments.
Details of the case revealed that the petitioner is a private limited company engaged in the business of providing/rendering of services and is an existing taxpayer of the income tax. The company had declared its income from rendering of services in the Income Tax Return for Tax Year 2010 as per provisions of the normal Law taxation. On the basis and strength of its tax return and provisions of the law the unit qualifies for Exemption Certificate u/s 153 (1) (b) read with 1st Proviso to sub section 6 of section 153 of the Income Tax Ordinance, 2001.
The company filed the application for issuance of Exemption Certificate before the tax department. However, the commissioner rejected the application for issuance of Exemption Certificate u/s 153(1)(b) of the Income Tax Ordinance 2001. The Commissioner IR referred the Circular No 3 dated 17.7.2009. This circular was amended by the FBR vide Circular No 6 of 2009 dated 18.8.2009, related para reproduce as under:
"Matter has been examined in the light of relevant provisions of law and it is clarified that this interpretation is not based on correct interpretation of law. The amendments, made vide Finance Act, 2009, in section 153, modify the provisions of second proviso to subsection (6) to the effect that henceforth the services rendered by the non-corporate taxpayers stand excluded from the ambit of final tax regime and through another proviso the tax deducted under section 153(1)(b) is to be treated as minimum tax. Previously such services remained subject to final tax pursuant to exclusion of corporate sector from its ambit through first proviso to subsection (6). The position for services rendered by the corporate sector remains unchanged even after the recent amendments as services rendered/ provided by corporate sector remain outside the scope of both the final tax regime as well as the minimum tax regime of section 153 of the Income Tax Ordinance, it added.
The unit (petitioner) sent a reply to the concerned commissioner explained the position that as per Circular No 6 of 2009 the petitioner company qualifies for exemption as its income falls outside the purview of Presumptive Tax Régime therefore, the exemption certificate be issued.
During the pendency of the application the FBR has issued a clarification with respect of provisions of Section 153 (1) (b) read with 1st Proviso to Section 153 (6) of the Ordinance whereby it has been clarified that all persons providing services shall fall into the category of minimum tax, including companies' thereby making 1st Proviso to Section 153 (6) of the Ordinance redundant. The clarification further withdrew Circular No 06 of the 2009 issued earlier.
The advocate on the behalf of the company opined that it is entitled to be granted Exemption Certificate from the operation of under section 153(1)(b) of the Income Tax Ordinance 2001, on the following grounds:
Firstly, the FBR has no power to interpret the law and therefore the petitioner is entitled of Exemption Certificate under section 153(l)(b) of the Income Tax Ordinance 2001. Secondly, the petitioner has fulfils all the provisions of law and is not required to pay further tax under the Ordinance; therefore, deduction of any further tax on its rendered services is unreasonable and against the law. Thirdly, the provisions of law do not allow the tax department to charge the petitioner to tax so deducted u/s 153 (1) (b) of the Ordinance as a minimum.
The company further said that the clarification issued by the FBR is illegal and against the facts and law. The provisions of Section 122B of the Ordinance have been made redundant and of no avail to the Petitioner. The petitioner has no other adequate, efficacious and alternative remedy available against the impugned unlawful demand for deduction of tax. The matter relates to interpretation of the Constitution. The same can only be resolved by an exercise of its extraordinary power by this court.
The unit further argued that it may be affirmed that petitioner is entitled for exemption certificate from of deduction of tax under section 153(1)(b) of the Ordinance for the said remaining period of tax year 2011 ending on 30th June of 2011 and by allowing consequential relief the Respondent No 1 & 2 may be directed to issue the said exemption certificate forthwith. It may also be declared that the commissioner is competent to issue exemption certificate from the operation of section 153(l)(b) of the Income tax Ordinance, 2001, to the persons who are not likely to pay further deduction tax u/s 153(1)(b) of the said Ordinance for the concerned tax year. It may also be declared that the interpretation/ clarification issued by FBR vide letter No 1(25) WHT/2009 dated: 26-04-2011 is illegal and without jurisdiction.
In its order, the LHC observed that the advocate for the petitioner submits that the petitioner's right to be taxed under the normal regime as per proviso of Section 153 (6) of the Ordinance, 2001 has been denied by misreading clause (iii) of the second proviso of Section 153(6) of the Income Tax Ordinance. It is submitted that the petitioner being a company is covered by the first proviso while clause (iii) of the proviso is specifically for non-corporate sector and therefore does not cover the case of the petitioner. Clause (iii) second proviso to Section 153(6) of the Ordinance has been wrongly applied to the case of the petitioner. It is contended that the impugned circular dated April 28, 2011 cannot interpret the main provisions of the statute, the order added.
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