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ISLAMABAD: The Appellate Tribunal Inland Revenue (ATIR) has declared that the Section 111 (unexplained income/assets) of the Income Tax Ordinance 2001 is applicable to residents of Pakistan only and cannot be extended to the persons, who are resident abroad and do not have taxable in Pakistan.

Tax lawyer Shaheer Bin Tahir, who pleaded the case on the behalf of a French national, told Business Recorder that the tribunal has issued the order in favour of the non-resident Pakistani with the directions to the Commissioner Inland Revenue to return the amount extorted from the bank accounts of the appellant and with compensation. The judgement of the ATIR was also confirmed in the tax reference file by the department under Section 133 before the Lahore High Court. Justice Ayesha A Malik while heading the Divisional Bench has dismissed the Reference in limine.

According to a recent decision of the Appellate Tribunal Inland Revenue (ATIR), the bilateral tax treaty between Pakistan and France has an overriding effect on the IT Ordinance. Furthermore, since the appellant is filing his tax returns in France, in light of the tax treaty between Pakistan and France, no action can be perpetuated in Pakistan by the Pakistan tax authorities.

In the recent tribunal decision in case of Raja M Raheel vs Commissioner Inland Revenue (CIR) Appeal has been filed against the impugned order passed by the Commissioner Inland Revenue (Appeals), Sialkot on the following ground that the Appellant is non-resident Pakistani, engaged in Restaurant business in France where he is earning his livelihood. Since he does not have any Pakistani Source Income, therefore, Section 111 of the IT Ordinance cannot be invoked. Even otherwise, he had enough agricultural income to purchase this property.

Shaheer Bin Tahir Director (International Taxes) in Tahir Razzaque Khan & Co explained that the appellant is a French national and is not a resident of Pakistan. He is engaged in the business of restaurant and is owner of one in Paris, France and holds that his source of income is outside Pakistan. The proceedings in the case were started by the Assistant Commissioner Inland Revenue (ACIR) on the basis of information where it was alleged that the taxpayer purchased properties for the consideration of Rs3,432,000. Notice under Sections 114(4) and 116(1) of the Income Tax Ordinance was issued but on the day of the hearing neither anyone appeared, nor filed any reply. Later on, notice under Section 111(1)(b) were issued but to no avail.

Consequently, the ACIR completed assessment, creating a tax demand of Rs858,000 and subsequently attached the bank accounts and recovered the impugned tax so assessed.

According to the record this fact is evident that the appellant has an established business in France and resides abroad. In Pakistan, he has purchased a certain piece of land in Pakistan regardless how the amount was paid. At this stage, if at all we presume that he has permanent home in both the states (i.e., France and Pakistan) though it is not alleged by the department at any point of time. Even then, the taxpayer cannot be subject to Pakistani tax because the centre of vital interest is France and his personal and economic relations are closer, he referred to the tribunal judgment.

The order the tribunal revealed that the provisions of the Income Tax Ordinance cannot be invoked because the Bilateral Tax Treaty between Pakistan and France has an overriding effect on the IT Ordinance. Furthermore, since the appellant is filing his tax returns in France, in light of the Tax treaty between Pakistan and France, no action can be perpetuated in Pakistan by the Pakistan Tax authorities.

The ATIR held that the Appellant has centre of vital interest in France by virtue of his personal and economic interests abroad. He has his habitual abode abroad, and his income is assessed in France.

The Appellant is absolved from Pakistan taxation and no provision of the IT Ordinance is attracted as he does not have any plausible source of income that has deemed to have accrued to him.

Section 111 is applicable to residents of Pakistan only and cannot be extended to appellant who is resident abroad and do not have taxable in Pakistan. Section 111 of the IT Ordinance cannot be invoked on non-resident French National who’s habitual abode is in France and have more personal and economic interest in France than Pakistan and has not earned any income from any Pakistan source. The department has failed to discharge it’s onus for the reinforcement of Section 111.

The Appellant is not taxable in Pakistan and Section 111 is not attracted to non-resident in the presence of Tax treaty between Pakistan and France upon applicable tie-breaker text. The ATIR deleted the levy of Tax under Section 111. The consequential to deletion of liability the Zonal Commissioner Inland Revenue is directed to return the amount extorted from the bank accounts of the Appellant and with compensation, if applicable, be paid to the appellant.

Copyright Business Recorder, 2021

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