LAHORE: “No tax official can override tax exemption by changing his opinion under the garb of rectification of mistake once certain payment is allowed without tax deduction,” said sources.
The sources said such controversies arise generally in the case of foreign treaties. According to the sources, the appellate forums have declared time and again that the Income Tax Ordinance 2001 has vested no power in Commissioner Income Tax to undertake a review of its previous order in exercise of authority given under the Ordinance, as such exemption could not have been withdrawn retrospectively after a period of four years on the basis that the Commissioner granting such exemption had misinterpreted provisions of the tax treaty with a foreign company.
They said the appellate forums do not entertain the argument that in the event there were two reasonable interpretations of the provisions of a treaty which were possible and the Commissioner had opted for one of them; such exercise of judgement could not have been overridden by another Commissioner to prefer a different interpretation of the treaty provisions.
Such exercise tantamount to a review of the decision previously made and not a rectification of any mistake apparent from the record, they stressed.
Generally, they said, the higher tax authorities take a plea the decision of lower staff was liable to be annulled due to a mistake committed in allowing tax exemption against a payment made to a foreign company under a treaty.
However, the payment made by the local counterpart of a foreign firm was liable to deduction of withholding tax as the expense had been incurred and paid in Pakistan.
But the tax experts are of the view that such a mistake could only be rectified prior to release of such payments by the taxpayer, and not after the execution of the same.
Interestingly, such controversies take long to settle down after passing through the reviews of respective appellate tribunals, which results into wastage of precious resources of bothering the department as well as the taxpayers besides the valuable time of the highest appellate tribunals.
Since, the Tax department does not maintain record of tax decisions therefore the tax authorities commit the same mistake time and again and reluctantly inviting the ire of the higher appellate forums every now and then.
They said tax exemptions are extended to taxpayers under Section 221 of the Ordinance while the same is reviewed under Section 152(5A) of the Ordinance to override it under the impression of rectification of mistake which is not allowed.
Copyright Business Recorder, 2023
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