Show-cause notice under Sec 114(1): SC dismisses petition against FBR

ISLAMABAD: The Supreme Court dismissed a petition against the Federal Board of Revenue (FBR) for issuing a show-cause notice under Section 114(1) of the Income Tax Ordinance, 2001

M/s Payoneer Inc had impugned the notice dated 07-04-2021 under Section 114(1) of the Income Tax Ordinance 2001 calling upon the petitioner to file Income Tax returns for years 2019 and 2020, failing which best judgment assessment would be made under Section 121(1) of the ITO.

A three-judge bench, headed by Chief Justice Yahya Afridi, heard M/s Payoneer’s appeal against the Islamabad High Court (IHC). The IHC judge Babar Sattar had dismissed the petition.

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Chaudhry Imtiaz Ahmed, representing the FBR, submitted that the impugned judgment passed by IHC is unexceptionable as no final order has been passed and has caused no prejudice to the petitioner. The petitioner having been registered under the Income Tax Ordinance, 2001 is under statutory obligation to file return of income tax under Section 114 of the ITO.

The impugned notice has caused no injury to the petitioner. The lis involves serious factual controversy as if the petitioner is or is not receiving any fee or paying any fee to Mobilink Microfinance Bank Limited (MMBL) under an agreement, which has not been placed on record before the High Court.

The petitioner a non-resident entity engaged in transactions based on the Home Remittance Agreement (HRA) signed with Mobilink Microfinance Bank Limited (MMBL). The transaction involved in transfer of money from customers located outside Pakistan to the beneficiaries in Pakistan who are the seller of and/or freelance consultants.

On 11-11-2020 in terms of Section 176 of the Income Tax Ordinance, 2001 the tax department required the petitioner to furnish information regarding compliance with the tax laws applicable in Pakistan for offshore digital services/digital presence.

On 18-12-2020 the petitioner replied “as the transaction, based on Home Remittance Agreement signed with MMBL, involves transfer of money from customers located outside Pakistan to the beneficiaries in Pakistan. Nevertheless, denied any physical or digital presence in Pakistan.”

On26-03-2021 the petitioner was registered with FBR A007380. On 28-04-2021 notices for the tax years 2019 and 2020 under Section 114(4) of the Income Tax Ordinance, 2001 were served upon the petitioner for furnishing return of income under sub-section (1) of the Section 114.

Chaudhry Imtiaz stated that instead chose to question the notices before the Islamabad High Court which was dismissed on 20-06-2024.

The stance of the petitioner was that it had created a payment gateway that allowed foreign non-resident entities to make payments to entities in Pakistan for supply of goods or services.

The bench, after hearing the arguments, dismissed M/s Payoneer Inc’s appeal. The chief justice said that petitioner had an opportunity to present its defence to the tax department in response to the show cause notices and to the extent that it was aggrieved by any order passed by the Income Tax authorities, such order could be challenged before the adjudicatory forums provided for under the provisions of the ITO.

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