Electricity bill relief: Taxpayers required to obtain 'certificate' from Commissioner IR: LHC

ISLAMABAD: Lahore High Court has held that taxpayers registered with the sales tax department as exporters or manufacturers of carpets, leather items, surgical/sports goods and textile and articles thereof are required to obtain a certificate from the Commissioner Inland Revenue for not depositing income tax on their electricity bills to the relevant power distributing company (DISCO).

In this regard, the LHC has disposed of hundreds of writ petitions on the requirement of exemption certificate to claim benefit of clause 66 of Part-Iv of the Second Schedule of the Income Tax Ordinance 2001.

As per facts of the case reported by Director Law, FBR, based at Lahore in his report to the Federal Board of Revenue (FBR) the writ petitions were filed on the basis that as per clause (66) of Part IV of Second Schedule of the Income Tax Ordinance 2001 the DISCO should not collect income tax under section 235 with their electricity bills as they are registered in sales tax as manufacture of five export-oriented goods. Whereas Dr Ishtiaq Ahmad Khan, Director Law represented the department before the court and pleaded that merely that the petitioners were registered with the sales tax as the manufacture of five export-oriented goods is not sufficient and they are required to obtain an exemption certificate from the Commissioner Inland Revenue as envisaged under section 235(3) and 236O (c ).

The court accepted the viewpoint of the department by relying upon on section 53 (1) (d ) which provides that persons or class of persons specified in Second Schedule shall be exempt from the operations of any provision of the Ordinance subject to any conditions and to the extent specified therein.

Court further observed that in order to maintain the benefit of injunctive orders granted by the court against payment of advance tax collected through electricity bills, the petitioner should obtain the requisite certificate from the relevant commissioner certifying their entitlement to exemption certificate for the relevant period failing which the department may recover the tax from the petitioners. Accordingly, in his letter Dr Ishtiaq, Director Law has requested the FBR that the Commissioner may be asked to recover the outstanding income tax along with default surcharge for late payment either from DISCO under section 161 or from the taxpayers under section 162.

When contacted for comments Bashrat Qureshi, Tax Consultant was of the view that the court was not properly assisted regarding the amendment made in clause (66) through which the reference to zero-rating was omitted through Tax Laws (Second Amendment Ordinance 2019 dated 26 December 2019 as well as that exemption certificate envisaged under section 235(3) and 236O ( c) is applicable where the income is exempt from tax whereas none of petitioner had claimed that their expert income is exempt from tax.

Bashrat observed that clause (66) provided an exclusion from section 235 pertaining to advance collection of income tax through electricity bills. He opined that since there was stay by the court therefore now tax cannot be collected as meanwhile financial year 2019-20 has ended on 30 June 2020 and advance tax due has been paid under other heads of collection/deduction at source and section 147 tax payments.

Copyright Business Recorder, 2020