ISLAMABAD: The Islamabad High Court (IHC) held that the resident company in Pakistan did not enjoy exemption on income derived from its foreign currency account held within an authorised bank in Pakistan in terms of Clauses 78 and 78 (a) of the Income Tax Ordinance, 1979.
A Division Bench, comprising Justice Sardar Ejaz Ishaq Khan and Justice Babar Sattar, heard the reference against the verdict of the Appellate Tribunal Inland Revenue (ATIR).
The Additional Commissioner invoked section 66A of the Income Tax Ordinance, 1979 against the appellant (Sun Gas Pvt Ltd) in respect of impugned assessment years (1998-99, 2000-2001, 2000-2001) for reassessment to be made on the ground; i.e., yield of foreign currency account to be taxed as no exemption was allowed under clause 78 and 78B of Part I of the Second Schedule of the repealed ordinance.
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The appellant, feeling aggrieved with the Additional Commissioner’s order, filed an appeal before the Appellate Tribunal Inland Revenue (ATIR) on the common grounds for all the assessment years. The ATIR on 20-03-2012 held that the yield of foreign currency accounts is exempt from tax under the provisions of the Income Tax Ordinance, 1979.
Babar Bilal, representing the Commissioner of Inland Revenue, contended that the order of the Appellate Tribunal Inland Revenue, dated 20-03-2012, is erroneous as it did not appreciate that no exemption was afforded to resident companies from payment of tax on any profit generated from foreign currency accounts in terms of Clauses 78 and 79 of the Second Schedule of the Income Tax Ordinance, 1979.
He further submitted that the Tribunal assumed that an exemption was available to the taxpayer in terms of Section 5 (2) of the Economic Reforms Act, 1992. He also submitted that plain language of the said provision affords continuity from the exemption of levy of Income Tax, but does not grant an exemption itself, suggesting that where there was a prior exemption available to a taxpayer, such exemption would continue.
However, in the instant case, there was no prior exemption afforded to resident companies in relation to any income generated from foreign currency accounts, and such exemption was only available to individuals.
He raised the question whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in allowing exemption on the account of yield of foreign current account, as no exemption was allowed under clause 78 and 78B of the Second Schedule to the repealed ITO, 1979?
The bench, after hearing the arguments, decided the reference in favour of the department.
Copyright Business Recorder, 2025
