Telecom co ‘fails’ to prove deductible expenses exceeding its taxable income

LAHORE: A telecom company has failed to establish that its deductible expenses exceeded its taxable income, said sources.

The company had submitted its income tax returns for multiple years against which a show-cause notice was issued alleging that the income declared was erroneous.

Pursuant to submission of reply by the company, an Additional Commissioner decided against on the issues like fixed assets, activation tax, advertisement expenses and interconnect cost; etc. The Commissioner Income Tax dismissed the appeal and a similar treatment was extended by the appellate tribunal.

The company was of the view that it was entitled to claim the sales tax as expenses after paying sales tax against free air time but the department has disallowed it.

Also, payment of activation tax in terms of SRO dated 18.6.2001 against software as equipment and same is liable to consider as expenditure. Thirdly, the company objected to disallowing entire adjustment of unabsorbed depreciation and amortisation loss brought forward from prior years by the department.

The department, on the other hand, maintained that the company adopted their own marketing strategy of providing free air time to increase the business but this practice does not absolve them from payment of sales tax, and once paid it cannot be allowed to be considered in terms of expenses.

It further pointed out that the tax liability has not been assessed and calculated by the company in accordance with the provisions of the law.

The department also took the stance that the grant received by the company through Universal Service Fund (USF), meant for provision of uninterrupted high quality telecommunication services in far-flung areas, would be added to the income of the taxpayer, as USF is not the federal government. It said that the USF is a separate entity registered under the Companies Act despite being controlled by the federal government.

Accordingly, the relevant higher forum agreed with the department as well as the findings the appellate tribunal and answered in negative to all the references by the company.

Copyright Business Recorder, 2024