Clause 126F of ITO: FBR plea to deny benefit of exemption dismissed by SC

ISLAMABAD: The Supreme Court has dismissed the Federal Board of Revenue's appeal to deny benefit of the exemption under clause 126F of Income Tax Ordinance, 2001, to secretary Revenue Division Khyber-Pakhtunkhwa (KP).

A three-judge bench, headed by Justice Umer Ata Bandial, announced its reserved judgment against the Peshawar High Court verdict.

The bench on 28-09-2020 had reserved the judgment, after hearing the arguments of the parties' counsels.

Clause 126F of ITO says, "Profits and gains derived by a taxpayer located in the most affected and moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA for a period of three years starting from the tax year 2010...."

The secretary Revenue Division KP (respondent-taxpayer), a franchisee of a mobile company, Mobilink, has business/outlet in District Nowshera, which was declared to be a "moderately affected area" for purposes of the exemption clause during the relevant period. In respect of the business activities carried out by the taxpayer as franchisee (sales/services provided to customers), which were all at its business outlet, it was entitled to payment of commission by Mobilink.

The court noted that ordinarily, in terms of Section 233 of the 2001 Ordinance, advance tax would be deducted by Mobilink (the franchisor) on the commission payments being made to the taxpayer (the franchisee).

However, on account of the exemption clause, the respondent contended that no such deduction ought to be made.

It applied to the concerned Commissioner under s. 159 for a certificate of exemption in this regard, which was refused. The respondent then filed a writ petition in the Peshawar High Court, which declared that the respondent was entitled to the benefit of the exemption clause, and directed the concerned Commissioner to issue the exemption certificate. The department approached the Supreme Court against the PHC verdict.

Copyright Business Recorder, 2020