| Case ID |
0b1c0525-d666-471d-b24f-d7f94de8c447 |
| Body |
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| Case Number |
P.T.R. No. 429 of 2010 |
| Decision Date |
|
| Hearing Date |
Jun 14, 2021 |
| Decision |
The Lahore High Court delivered a favorable verdict for the respondent-taxpayer, MESSRS SARITOW SPINNING MILLS LIMITED, Lahore, against the applicant-department, Commissioner of Inland Revenue, Lahore. The court held that since no actual payment was made when raw materials were transferred to the associated company, the taxpayer was not liable to deduct income tax at source under Section 50(4) of the Income Tax Ordinance, 1979. The court emphasized that tax deduction is contingent upon the event of payment, and in the absence of a cash transaction, withholding tax provisions do not apply. Consequently, the provisions of Section 80C were not chargeable, and the initiation of proceedings under Section 161 was invalid. The court further distinguished the case from prior judgments, asserting that the lack of payment renders earlier precedents inapplicable to the current circumstances. Thus, the appeal filed by the Commissioner of Inland Revenue was dismissed, upholding the taxpayer's position. |
| Summary |
In the landmark decision of P.T.R. No. 429 of 2010, heard on June 14, 2021, the Lahore High Court addressed a significant issue concerning withholding tax obligations under the Income Tax Ordinance, 2001. The case involved the Commissioner of Inland Revenue, Lahore, as the petitioner and MESSRS SARITOW SPINNING MILLS LIMITED, Lahore, as the respondent. The crux of the dispute centered on whether the transfer of raw materials to an associated company triggers the requirement to deduct income tax at the source, specifically under Sections 50, 50(4), 80C, and 153(1) of the Income Tax Ordinance, 2001, and Section 161.
The taxpayer, a public limited company engaged in spinning, manufacturing, and sales of yarn, argued that no actual cash payment was made during the transfer of raw materials to its sister concern. Instead, these transactions were handled through internal book adjustments and ledger entries. Consequently, the taxpayer contended that since no payment was effectuated, the withholding tax provisions did not apply, and the tax under Section 80C was not chargeable. The Commissioner of Inland Revenue maintained that the transfer of goods constituted a “sale of goods” under Section 153(1)(a), thereby necessitating tax deduction at the source as per Section 50(4).
The court meticulously examined the sequence of assessments and appeals that led to the Reference Application. It was evident that the Appellate Tribunal had remanded the case for fresh assessment, but subsequent findings reaffirmed that the absence of cash transactions exempted the taxpayer from liability under the specified tax provisions.
Referencing prior case law, specifically Commissioner of Income Tax Legal Division, Lahore and others v. Khurshid Ahmad and others 2916 PTD 1393, the court distinguished the current case by highlighting the lack of payment linkage, which was present in the earlier case. The judgment underscored that tax deduction obligations are directly tied to the actual event of payment, aligning with the statutory language of Section 50(4) of the Income Tax Ordinance, 1979, and Section 153(1) of the Income Tax Ordinance, 2001.
In its decision, the court concluded that since no payment was made, the triggering event for tax deduction had not occurred, thereby invalidating the initiation of proceedings under Section 161. The judgment decisively ruled in favor of the respondent, dismissing the appeal filed by the Commissioner of Inland Revenue. This ruling not only clarified the application of withholding tax in intra-group transactions but also set a precedent for future cases involving similar circumstances where non-cash transfers are prevalent.
Key takeaways from this case highlight the importance of the actual transaction event in determining tax liabilities and serve as a critical reference for legal professionals and corporations in managing their tax obligations under the Income Tax Ordinance, 2001. The decision ensures that companies engaged in internal transfers without direct payments are not unduly burdened by tax deductions, promoting fair and clear tax practices. |
| Court |
Lahore High Court
|
| Entities Involved |
Commissioner of Inland Revenue, Lahore,
MESSRS SARITOW SPINNING MILLS LIMITED, Lahore,
Khurshid Ahmad and others
|
| Judges |
MUHAMMAD SAJID MEHMOOD SETHI, JUSTICE,
ABID HUSSAIN CHATTHA, JUSTICE
|
| Lawyers |
Mr. Shahbaz Butt,
Muhammad Ahsan Mahmood
|
| Petitioners |
Commissioner of Inland Revenue, Lahore
|
| Respondents |
MESSRS SARITOW SPINNING MILLS LIMITED, Lahore
|
| Citations |
2021 SLD 1637,
2021 PTD 1572,
(2022) 125 TAX 113
|
| Other Citations |
Commissioner of Income Tax Legal Division, Lahore and others v. Khurshid Ahmad and others 2916 PTD 1393
|
| Laws Involved |
Income Tax Ordinance, 2001
|
| Sections |
50,
50(4),
80C,
153(1),
161
|