ISLAMABAD: The Supreme Court held that the Universal Service Fund (USF), an autonomous body to spread the development of telecommunication services in un-served and under-served areas, was not obligated to deduct tax under Section 153(2)(b) of the Income Tax Ordinance, 2001.
A three-member bench, headed by Justice Munib Akhtar, set aside the decision of the Alternate Dispute Resolution Committee. It also declared that Section 21(c) of the Ordinance had no application to the facts and circumstances of the case.
The appellant filed its return for the tax year 2023 and in terms of Section 120 it became a deemed assessment order. This was sought to be amended by the Department under Section 122 for a number of reasons, of which only one is relevant for present purposes. The appellant was intimated that as it had failed to make deductions as required by Section 153 in respect of payments (which ran to tens of billions of Rupees) to certain persons (being licensees under the Pakistan Telecommunication (Reorganization) Act, 1996), liable to the application of Section 21(c) in respect of such payments. Section 21(c), inter alia, disallows the deduction, for purposes of determining tax liability, of payments in respect of which no deduction has been made under Section 153.
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The USF (appellant) filed an appeal, on 29.02.2024, to the Commissioner (Appeals) against the amended assessment order. While that appeal was still pending, the fifth iteration of Section 134A was amended by the 2024 Act. The appellate authority by order dated 04.12.2024 expressly referring to the 2024 Act, informed the appellant that it had to approach the ADR Committee and that the appeal stood disposed of accordingly.
The appellant filed an application in relation to the tax dispute before the ADR Committee, on or about 13.02.2025. By order dated 21.03.2025 the ADR Committee held that the appellant had indeed been under an obligation to make deductions under Section 153. The appellant was not satisfied with the decision of the ADR Committee.
The appellant is under a statutory obligation in terms of Chapter V of the USF Rules to prepare and award contracts for projects the purpose of which is the provision of telecommunication services to unserved or underserved areas.
Copyright Business Recorder, 2026