Appellate Tribunal Inland Revenue rules no minimum tax without actual liability, grants relief to bank

The Appellate Tribunal Inland Revenue has ruled that minimum tax under Section 113 of the Income Tax Ordinance, 2001, cannot be imposed where no actual tax liability exists, providing relief to a banking company.

According to a news report, the tribunal held that the phrase “instead of the actual tax payable” requires the presence of a normal tax liability, and in cases where a taxpayer incurs losses, the condition for applying minimum tax does not arise.

In its detailed order, the bench said the interpretation adopted by the Supreme Court of Pakistan in the Kassim Textile case applies to minimum tax provisions, making them inapplicable where there is no taxable income.

The tribunal also set aside multiple tax additions, stating that proceedings under Section 122(5A) are limited and cannot be used for broad-based inquiries or to introduce new legal grounds beyond those specified in the original show-cause notice.

On issues relating to bad debts and non-performing loans, the tribunal ruled that tax authorities had exceeded their jurisdiction by invoking provisions not cited earlier and by conducting fresh fact-finding outside the permissible scope of amendment proceedings.

It further held that interest income does not qualify as “turnover” under Section 113(3) and cannot be subjected to minimum tax. In addition, separate taxation of dividend income and capital gains at 10% was disallowed where such income had already been offset by losses.

The tribunal also allowed tax credit for payments made in Azad Jammu and Kashmir, stating that denial would result in multiple taxation.

The ruling emphasised that tax authorities must adhere strictly to the grounds outlined in show-cause notices and cannot rely on subsequent justifications to sustain additions.

The decision is expected to impact banking companies and corporate taxpayers, particularly in cases involving minimum tax applicability, amendment proceedings and treatment of different income streams under the tax regime.