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ISLAMABAD: The Lahore High Court (LHC) has dismissed all petitions filed against the imposition of the Alternative Corporate Tax (ACT), which was 17 percent of the accounting income of the company.

According to the order of the LHC issued on Thursday, the petitioners have impugned the vires of Section 113C of the Income Tax Ordinance 2001 as inserted through the Finance Act 2014.

The case of the petitioners is that by virtue of the Finance Act as of July 1, 2014, Section 113C of the Ordinance was inserted, which rendered the companies liable to pay ACT.

This tax is worked out at 17 percent of the accounting income of a company and “accounting income” means the accounting profit before tax for the relevant tax year.

Accordingly, the tax liability is determined as the higher of the ACT or the total corporate tax payable (which includes minimum tax and final tax).

The companies argued that the effect of Section 113C is that the petitioners' unabsorbed losses cannot be taken into account, while working out the tax liability.

They explained that the companies are entitled to carry forward business losses by virtue of Section 22, 23, 56, and 57, of the Ordinance, whereas Section 113C negates the ability of the companies to carry forward their business losses.

Hence, Section 113C is ultra vires the Constitution as it infringes upon the property rights of the petitioners.

They further argued that the business loss of the companies and their treatment under Section 22, 23, 56 and 57 of the Ordinance means that the business losses are part and parcel of the property of the companies, and the impugned tax is an illegal extraction of the property of the petitioners.

The LHC observed that the Section 113C provides that the ACT shall be paid by a company on the accounting income less any amount to be excluded as provided under sub-section 8 where the ACT is higher than the corporate tax.

This tax is applicable to companies only, such that the company is to pay the ACT or the corporate tax, whichever is higher.

The basic ground for challenge of the vires of Section 113C is Article 24 of the Constitution which is the fundamental right for protection of property, whereby, no person can be deprived of his property saved in accordance with the law.

It is settled law that taxing provisions do not deprive any one of their property rights and that the right under Article 24 is subject to the provisions of the law.

Therefore as such this ground is not made out to the extent that Section 113C is ultra vires the Constitution.

The imposition of ACT is on accounting income, which means the accounting profit before tax for the tax year.

The petitioners explained that calculating “accounting income” would amount to denial of claims under Sections 22, 23, 56 and 57 of the Ordinance.

None of the companies have been able to explain actually what they have been deprived of and their apprehension is based on the fact that the Act was introduced to discourage perpetual declaration of losses or low income to evade tax.

However, the Commissioner is empowered to make adjustments and compute the accounting income, hence at this stage the petitioners cannot assert that they have been deprived of any property.

The second ground urged by the companies is that they are entitled to certain allowances and carry forward of business losses in terms of Sections 22, 23, 56 and 57 of the Ordinance, which is negated by Section 113C of the Ordinance.

The Income Tax Ordinance itself is a comprehensive code which provides for the remedy of appeal before the Commissioner Inland Revenue (Appeals) under Section 127 of the Ordinance.

Against the order of the commissioner Inland Revenue (Appeals) remedy under Section 13i of the Ordinance is provided being an appeal before the Appellate Tribunal.

Against the order of the Appellate Tribunal remedy under Section 133 of the Ordinance is available to the taxpayer in the form of a reference in which questions of law can be decided.

Therefore, the petitioners' contention of any benefit under Section 72, 23, 56 and 57 of the Ordinance, is a matter for the competent authority to determine against which the petitioners are entitled to avail efficacious remedy.

Even to the extent that the petitioners claim that previous business loss cannot be taken into consideration so far as the tax year 2015 is concerned, this argument can be raised before the competent authority by way of an objection in response to the show cause notices.

Under the circumstances, no case for interference is made out. All the petitions are dismissed, the LHC order added.

Copyright Business Recorder, 2020

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