The Islamabad High Court (IHC) ruled that resident companies in Pakistan are not exempt from paying taxes on income derived from their foreign currency accounts held in authorised banks in the country, under Clauses 78 and 78(a) of the Income Tax Ordinance, 1979.
According to media reports, the decision came after a hearing by a Division Bench, comprising Justice Sardar Ejaz Ishaq Khan and Justice Babar Sattar, which reviewed the reference against the verdict of the Appellate Tribunal Inland Revenue (ATIR).
In the case, the Additional Commissioner had invoked Section 66A of the Income Tax Ordinance, 1979, against Sun Gas Pvt Ltd for reassessment of the income from its foreign currency account. The company was being taxed on the yield from its foreign currency account, as no exemption had been provided under Clause 78 or 78B of the Second Schedule of the repealed ordinance.
Sun Gas Pvt Ltd had appealed to the ATIR, which, on March 20, 2012, ruled that the yield from foreign currency accounts was exempt from tax. The tribunal’s decision was challenged by Babar Bilal, representing the Commissioner of Inland Revenue, who argued that the ATIR’s ruling was erroneous. He stated that the Income Tax Ordinance did not provide exemptions for resident companies regarding profits from foreign currency accounts.
Bilal explained that while individuals might be exempt under certain provisions, resident companies were not granted this privilege. He further argued that the ATIR had incorrectly assumed that Section 5 (2) of the Economic Reforms Act, 1992, allowed for such an exemption.
After hearing the arguments, the IHC bench sided with the Commissioner of Inland Revenue, ruling that the yield from foreign currency accounts held by resident companies was subject to taxation.
