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An Appellate Bench of the Securities and Exchange Commission of Pakistan (SECP) has allowed a leading telecom company to obtain letter for group taxation for designation of companies within the Group (application for 2018) and directed the SECP to issue the designation letter with immediate effect.

A two-member SECP Appellate Bench has issued an order in favor of the top telecom company of Pakistan.

According to the SECP Bench order, "In view of the circumstances, subject to applicable formalities, if any, the Bench hereby allows issuance of the designation letter for group taxation against the Application for 2018, and direct the Respondent (SECP) and competent authority to issue the afore-stated designation letter with immediate effect. The Bench also directs the appellant (telecom company) to be careful and vigilant in compliance with regulatory and statutory requirements in future.

"This order shall dispose of Appeal No. 83 of 2019 filed under Section 33 of the Securities and Exchange Commission of Pakistan Act, 1997 by telecom company (the Appellant), against the Order dated September 30, 2019 (the Impugned Order) issued by Assistant Director, CCD SECP (the Respondent) on behalf of Executive Director, CCD."

Brief facts of the case are that for availing group taxation under Section 59AA of the Income Tax Ordinance, 2001, the telecom company, vide application dated March 14, 2018 (Application for 2018), applied for designation of companies within the Group i.e. holding company and its wholly owned subsidiaries under Regulation 8 of the Group Companies Registration Regulations, 2008 (the Regulations). The telecom company had not indicated in the application that the designation letter was being sought for the year 2018. The application was deficient in terms of the Regulations.

Therefore, the telecom company was advised, vide SECP (the Commission) letter dated March 21, 2018, to file the requisite certificate from the Chartered Accountant firm regarding compliance of the Regulations and to deposit the application fee.

The appellant was again advised, vide the Commission's letter dated March 26, 2018, to file the requisite certificate and deposit the fee. The telecom company replied, vide letter dated March 27, 2018 (received by the Commission on January 30, 2019), and provided an unsigned certificate of compliance dated March 14, 2018.

The Commission again vide letter dated February 27, 2019 required the telecom company to provide the application fee, affidavit, signed compliance certificate, updated NTNs and evidence of shareholding.

The telecom company has challenged the impugned order inter alia on the grounds that the telecom company is fully compliant with the regulatory requirements; therefore, the allegation of "late compliance of application formalities" is illegal.

The telecom company further contended that the application for designation for 2019 was accepted and processed concurrently, whereas the application for designation for the year 2018 was rejected through the arbitrary Impugned Order.

The telecom company stated that the application for designation for the year 2018 could not be rejected on the grounds of delay as various documents and clarifications were provided during the proceedings, prior to the Impugned Order.

Lastly, the telecom company stated that the Impugned Order is not sustainable, as it is against the settled principle that non-jurisdictional technical objections cannot be made the basis of denial of relief, where merits of the case otherwise favor the telecom company.

The Respondent (SECP official) has rebutted the grounds of appeal and reiterated the facts of the case and requested to dismissal of the instant appeal, because the telecom company had failed to meet the requirements of the regulation in a timely manner.

The SECP official further stated that previously, the Commission had not issued year-wise designation letters, because there is no such requirement under the provisions of the Regulations. However, holding companies normally apply for a designation letter from the Commission for taxation purposes upon registration and after change in composition/alteration of the Group.

The Appellate Bench (the Bench) has heard the parties and perused the record with the able assistances of the appellant's representatives and the respondent. The parties have reiterated their respective arguments. Bench has observed from the case details that the Application for 2018 was filed on March 14, 2018; however, its deficiencies were removed on September 13, 2019, that is, after a lapse of approximately seventeen (17) months.

After filing of the application for 2018, the SECP continuously approached the telecom company for removal of the deficiencies that were in vain, until the telecom company eventually provided the requisite documents.

The Bench is of the view that the SECP official should have rejected application for 2018 within a reasonable period of time upon the telecom company's failure to remove the deficiencies. The delay in disposal of the application for 2018 was caused due to the negligent and casual conduct of the appellant.

The bench has minutely examined the record, and noted that the appellant's claim with regard to illegality of the allegation of "late compliance of application formalities" is false and contrary to the available record.

"The appellant is a leading telecom company; therefore, its regulatory affairs team should be highly professional and vigilant," the SECP Bench observed.

The Bench has examined the contents of the impugned order and written comments of the SECP. The impugned order indicated "late compliance" as the reason for rejection of the application for 2018, and in the written comments the SECP official also stated "post facto", as one of the reasons for rejection of the application for 2018.

The Bench is of the view that as per settled legal principles, the SECP cannot proceed beyond primary findings. Furthermore, the observation of "post facto" is not applicable in this case as no time limit has been prescribed in the Regulations, whereby the application for 2018 is not timely, added the SECP Bench.

Copyright Business Recorder, 2019