Summary: Income Tax Ordinance (XLIX of 2001)--- ----Ss.67, 120, 122(5), 148 & 237---Income Tax Rules, 2002, R.13---Income tax---Manufacturer deriving income from locally manufactured products and imported finished goods---Imported goods subjected to final tax at import stage---Allocation/apportionment of expenditures between presumptive and non-presumptive income---PTR (presumptive tax regime) income on importation of goods---Re-apportionment of expenses by applying Rule 13 of the Income Tax Rules, 2002---Legality---Briefly, for tax year 2003, the petitioner taxpayer derived income from two sources: locally manufactured beverages chargeable under the normal tax regime and imported finished beverages subjected to final tax at import stage under section 148 of the Income Tax Ordinance, 2001---The taxpayer filed its return under Section 120, which became a deemed assessment, wherein it apportioned common expenditures between the two income streams on the basis of gross profit ratio---The Commissioner Inland Revenue amended the deemed assessment under Section 122 by reallocating expenditures between presumptive and non-presumptive income through application of Rule 13 of the Income Tax Rules, 2002, using a sales-based formula---The departmental appeal failed, but the appellate tribunal set aside the amendment, whereafter the High Court, in a tax reference, reversed the tribunal’s decision---The taxpayer then sought leave to appeal before the Supreme Court against the High Court’s judgment---Pivotal question of law for consideration was as to “whether the appellate tribunal was justified to hold that Rule 13 of the Income Tax Rules, 2002 was not mandatory for purpose of apportionment of expenses under Section 67 of the 2001 Ordinance?”---Held: As long as “any” reasonable basis was used for the proration of expenditures the basis applied by the taxpayer could not be defeated or denied simply for the reason that applying Rule 13 of Income Tax Rules, 2002 would have resulted in a larger or enhanced tax liability---Or, to invert that observation, it was impermissible to conclude that since the non-application of Rule 13 (and the reasonable basis actually adopted by the taxpayer in its stead) resulted in a smaller tax burden that, in terms of Section 122(5), amounted to income chargeable to tax escaping assessment or led to the total income being under-assessed---That would be to completely misconstrue and misapply both that provision and Section 67(1)---The point, for present purposes, was reinforced by sub-rule (2) which provided that any expenditure incurred for a particular class or classes of income was to be regarded as so allocated---From this, it was clear that submission made on behalf of the petitioner was correct that the manufacturing and other such expenses incurred for the local production of beverages had to be allocated solely to the non-PTR (presumptive tax regime) income and had nothing to do with the PTR income---For such expenditure the question of proration did not arise---The order amending the deemed assessment showed that the department, while applying the formula laid down in sub-rule (3), had taken “total admissible expenses” into account, which was incorrect in the facts and circumstances of the case---Nature of the exercise required (i.e., allocation between PTR and non-PTR income) and keeping in mind the relevant factors as applicable i.e., the relative size and nature of the activities (local manufacture versus import) to which the expenditure related) the basis actually adopted was a reasonable one---That sufficed for purposes of subsection (1) of Section 67---It followed that the approach taken by the department and upheld by the High Court was not sustainable---Leave petition was converted into an appeal and the question posed was answered in the affirmative, in circumstances. Adnan Haider, Advocate Supreme Court for Petitioner. Ahmed Pervaiz, Advocate Supreme Court for Respondent (via video-link, Lahore). Date of hearing: 3rd October, 2025.

Summary: (a) Income tax – Apportionment of deductions – Scope of s. 67, Income Tax Ordinance, 2001 and Rule 13, Income Tax Rules, 2002 – Whether Rule 13 is mandatory or only a possible method of allocation Taxpayer, a beverage manufacturer, derived (i) normal tax regime (NTR) income from locally manufactured soft drinks, and (ii) presumptive / final tax regime (PTR/FTR) income from imported finished soft drinks taxable under s.148 as final tax – Department amended deemed assessment under s.122 by reallocating common expenses between PTR and non-PTR income strictly on the basis of Rule 13(3)(a) (gross receipts formula), holding such rule to be mandatory – Taxpayer had apportioned on gross profit basis and claimed this as “reasonable” under s.67(1). Held, s.67(1) is the primary provision and uses mandatory “shall” with “any reasonable basis”; s.67(2) only confers a discretionary rule-making power on FBR and Rules framed thereunder remain subordinate legislation – Rule 13 cannot override or displace the statutory requirement that any reasonable basis may be used; it cannot convert “any” into “only” once exercised – Rule 13 provides one reasonable basis, not the exclusive basis, for apportionment – Question whether Tribunal was justified in treating Rule 13 as non-mandatory answered in the affirmative. (b) Subordinate legislation – Rule-making power under principal statute – Interaction between s. 67(1) and s. 67(2) – Limits on effect of rules Section 67(2) authorises FBR to make rules “for the purposes of apportioning deductions” but such rules must operate consistently with, and not in derogation of, s.67(1) – Held, rule-making power cannot be interpreted so that, once exercised, rules automatically eclipse the statutory phrase “any reasonable basis” and compel a single formula in all cases – “Any” in s.67(1) retains its full meaning both before and after the framing of rules – Department’s approach effectively converted the permissive rule-making power into a mechanism to narrow the primary charging/allocating provision, which is impermissible in law. (c) Apportionment between PTR and non-PTR income – “Common expenditure” vs clearly allocable expenditure – Proper application of Rule 13 Manufacturing and related costs for locally produced beverages related solely to Pakistan-source business income (non-PTR) and had no nexus with imported finished drinks (PTR) – Under Rule 13(2) read with definition of “common expenditure” in Rule 13(8), any expenditure incurred for a particular class of income must be directly allocated to that class and falls outside “common expenditure” to be prorated – Held, Department erred in treating “total admissible expenses” (including manufacturing costs) as common expenditure for purposes of Rule 13(3)(a) formula; even on its own terms Rule 13 had been misapplied – Correct legal position: first allocate directly attributable expenses to the relevant class(es) of income; only genuinely common expenses may fall under Rule 13(3) proration. (d) Standard for “reasonable basis” under s. 67(1) – Taxpayer’s choice vs departmental formula – No primacy of rule-formula where both are reasonable Taxpayer allocated relevant (common) expenses between NTR and PTR income on gross profit ratio; Department insisted on gross-receipts formula of Rule 13(3)(a) – Held, if Rule 13 applies on its terms, it supplies a reasonable basis, but not the only reasonable basis – Where both (i) the statutory rule-formula and (ii) the taxpayer’s method independently qualify as reasonable under s.67(1), the taxpayer’s chosen basis cannot be displaced merely because the rule-formula yields higher tax – Taxpayer is entitled to arrange its affairs to minimise liability within the law; as long as “any reasonable basis” is used, the Department cannot substitute another merely more revenue-yielding basis – In present case, given distinct activities (local manufacture vs import) and their relative nature and size, gross-profit-based apportionment was a reasonable basis; Department’s substitution was therefore unsustainable. (e) Amendment of deemed assessment under s. 122(5) – Non-application of Rule 13 as “escaped income” or “under-assessment” – Limits on revisional powers Deemed assessment under s.120 was amended under s.122(5) on the premise that non-application of Rule 13 caused income to “escape assessment” or total income to be “under-assessed” – Held, where taxpayer has already apportioned expenses on a reasonable basis in terms of s.67(1), resulting tax computation cannot be treated as escaped or under-assessed income merely because an alternative method (Rule 13) would have produced a higher tax – Using s.122(5) as a vehicle to impose the rule-formula whenever it is fiscally favourable to the Revenue misconstrues both s.67(1) and s.122(5); the statutory threshold for “escaped assessment” or “under-assessment” is not met where the original assessment is based on a legally permissible and reasonable apportionment. (f) Precedents on Rule 13 and Rule 231 distinguished Lahore High Court in impugned judgment had relied on Commissioner Inland Revenue v. Monnoowal Textile Mills Ltd. 2022 PTD 305, following Sindh High Court decision in Commissioner Inland Revenue v. Quality Textile Mills Ltd. 2013 PTD 2095, both involving interaction of Rules 13 and 231 concerning export profits – Held, those authorities dealt with export-related computations and a different rule-framework (Rule 231) and were not apposite to present case concerning apportionment between PTR income on imports and non-PTR business income – Impugned reliance on said precedents misplaced. (g) Result Leave petition converted into appeal – Question of law framed by High Court answered in the affirmative, in favour of taxpayer and against Department – High Court judgment set aside – Tribunal’s decision restored – Appeal allowed.

Summary: (Against judgment dated 04.11.2024 passed by the Lahore High Court, Lahore in P.T.Rs. Nos. 603, 604 of 2008, 605 and 606 of 2020). (a) Income Tax Ordinance (XLIX of 2001)--- ----Ss. 161, 205 & 236(1)(b)---Advance payment of tax---Principles---Conceptual framework---Prepaid telephone services---Transactions between telecom company and franchisees---Liability to collect advance tax---Scope---Briefly, petitioner company operating through a network of franchisees, was subjected to proceedings under the Income Tax Ordinance, 2001 in respect of tax years 2004 and 2005, on the basis that it had not collected advance income tax under Section 236(1)(b) on the supply of prepaid telephone cards to its franchisees---Consequent orders were passed by the tax authorities treating the company as a deemed taxpayer in default under Section 161, which were upheld in departmental appeal but set aside by the appellate tribunal---Tax references filed by the commissioner were initially dismissed by the High Court and later remanded by the Supreme Court for decision afresh, and thereafter decided in favour of the department, leading the taxpayer to file the present civil petitions for leave to appeal before the Supreme Court---Held: If at all Section 236 applied between the taxpayer and its franchisees then the latter had to be the persons from whom the advance tax had to be collected, along with the payments made by them for the prepaid cards---This, in sum and substance, was the department’s case --- But if so, then they would have had to be the persons who could claim the benefit of the tax so collected in advance---However, it was common ground between the parties that the franchisees were not the persons who could claim the benefit of any tax collected in advance under Section 236---It was correctly accepted all around that they could not be in the picture at all when it came, as it necessarily had, to claiming the benefit of the advance payment of tax---Indeed, a specific query was put in this regard to the DG (Law) and counsel for the department---Both of them correctly accepted that no such claim from the franchisees, if made (which was not the case), would have been entertained---But if that be the case, who were the persons who could, if at all, make a claim for the benefit of the advance payment of tax under Section 236?---The only possible answer was that they would be the persons who purchased the prepaid cards from the franchisees(i.e., the subscribers or customers)---Taxpayer was under no obligation to collect advance tax from franchisees and hence Section 161 (read with Section 205) could not be applied against it---This fundamental aspect of the matter, at the conceptual plane, was not kept in mind by the High Court---Question was answered in the negative, against the department and in favor of the taxpayer---Accordingly, petitions were converted into appeals and succeeded by setting aside the impugned judgment. (b) Income Tax Ordinance (XLIX of 2001)--- ----Ss.153, 160 & 236(1)(b)---Advance payment of tax---Essence---Different types---‘Deduction’ and ‘collection’---Legal framework elaborated---The advance payment of tax takes one of two forms: deduction or collection---Two types of possibilities are envisaged under the Chapter: a transaction or simply a point of interaction---The difference between the two is that in a transactional situation some payment is invariably being made in relation to which there is the advance payment of tax, whereas in the latter some point of interaction (usually with some State authority or agency) is selected for such payment, the interaction itself not necessarily envisaging any payment---In a transactional situation there can be either deduction or collection---Thus, it may be that A has to make payment to B and the relevant provision provides that while doing so A has to deduct a certain specified amount and pay it into the State treasury (more formally, “to the Commissioner” under Section 160)---Or it may be that B has to make payment to A and the relevant provision provides that while doing so B has also to make an (additional) payment of a certain specified amount, which A is then required to pay into the State treasury---In the other type of situation, i.e., a point of interaction, there is only collection: the agency or authority interacting is required to collect from B a certain specified amount, which it then has to deposit into the State treasury---But in all cases (subject to what is stated below) it must be remembered that what is being deducted or collected is the payment of tax in advance---From the foregoing, another principle follows: the referent taxpayer must be identified (or identifiable) when the advance taxis deducted or collected---It must also be remembered that, as noted above, severely adverse consequences follow for the person who is liable to deductor collect advance tax under the provisions of Chapter XII but fails to do so. Collector of Inland Revenue v. Coca Cola Pakistan Ltd. 2025 SCP 364 rel. Khurram Shahbaz Butt, Advocate Supreme Court for Petitioner. Ch. Muhammad Zafar Iqbal, Advocate Supreme Court along with Dr. Ishtiaq, D.G. (Law), FBR for Respondents. Date of hearing: 1st October, 2025.

Summary: (a) Income Tax Ordinance, 2001 ----Ss. 236, 161, 163 & 205----Advance income tax by way of collection or deduction----Conceptual necessity of “referent taxpayer” / “claimant”----Whether advance tax can be levied or collected absent an identified person entitled to adjustment----Held, that advance payment of income tax, whether by way of deduction or collection under Chapter XII of the Income Tax Ordinance, 2001, is not a free-standing exaction but is intrinsically linked to the ultimate income tax liability of a particular taxpayer who must, in principle, be able to claim the credit/benefit of such payment in his return as an adjustment or discharge of tax due---There can, conceptually, be no valid advance tax where there is no person who is, or can be, its “referent” or “claimant”; otherwise the amount collected is merely a disembodied extraction of funds, detached from any tax liability, which the 2001 Ordinance does not contemplate—From this follows the further principle that such referent taxpayer must be identified (or at least identifiable) at the point where advance tax is collected or deducted; the statutory mechanism in Chapter XII is premised on the existence of such a claimant to whom the benefit of the advance tax payment is ultimately relatable. (b) Income Tax Ordinance, 2001 ----Ss. 236(1)(b), 236(3), Part IV of First Schedule----Telephone users----Prepaid telephone cards, mobile subscribers and franchisees----Scope of obligation to collect advance tax----“Purchaser” and “subscriber” under s. 236—Petitioner, a telecom company, supplied “prepaid cards/units” to franchisees who, in turn, sold them to end-users/subscribers; Department alleged that at the time of supplying prepaid cards/units to franchisees, the petitioner was obliged, under s. 236(1)(b) read with s. 236(3), to collect advance tax from those franchisees, and on failure was liable as a person in default under s. 161 read with s. 205 and s. 163---Held, that s. 236 relates to a transactional situation and, in terms of subsection (3), obliges “the person issuing or selling prepaid cards for telephones” to collect advance tax from the “purchasers” at the time of issuance/sale, the rate being 10% of the “amount of bill or sale price of pre-paid telephone card” in the case of a “subscriber of mobile telephone and pre-paid telephone card” under Part IV of the First Schedule---On a proper construction, the “purchaser” and “subscriber” in s. 236 are the ultimate consumers/end-users who buy the prepaid cards from franchisees and are the only persons who could be “claimants” of the advance tax; franchisees, by common ground between the parties, could neither claim nor be recognized as entitled to any adjustment of such tax---Since at the stage of transactions between the petitioner and its franchisees the ultimate subscribers did not yet exist or were not identifiable, there was no referent taxpayer in view and the statutory precondition for advance tax was not satisfied---Consequently, s. 236 could not be attracted to those intra-network transactions, and the only transactions capable of falling within s. 236 were those between franchisees and subscribers/end-users; the petitioner had no obligation to collect advance tax from franchisees and could not be treated as a person in default under s. 161/205 thereon---High Court, in treating franchisees as “purchasers” for purposes of s. 236 and fastening liability on the petitioner, misdirected itself on both the facts and the conceptual structure of advance tax. (c) Income Tax Ordinance, 2001 ----Ss. 161(1), 161(2) & 163----Failure to deduct/collect advance tax----Deemed taxpayer in default----Right of recoupment from person “from whom tax should have been collected or deducted”----Necessity that such person be known/knowable at time of advance tax event----Held, that s. 161, when triggered, not only treats the person failing to deduct/collect as personally liable for the unpaid amount with recovery “as if it were tax due under an assessment order” per s. 163, but by subsection (2) grants that person a statutory right to recover such tax from the person “from whom the tax should have been collected or deducted”---This structure presupposes that such underlying taxable person is identifiable at the time of deduction/collection; if such person is unknown or unknowable at that point, the deemed defaulter cannot in practice recoup the recovered amount, underscoring that advance tax provisions must be applied only where a referent taxpayer is present or identifiable—This reinforces the Court’s conclusion that s. 236 could not apply to the petitioner’s supplies to franchisees where the ultimate subscribers/claimants were not yet in the picture. (d) Income Tax Ordinance, 2001 ----Ch. XII (Transitional Advance Tax Provisions)----Interpretation of advance tax provisions in light of penal consequences under s. 161----Analogy to charging provisions----Held, that provisions imposing obligations to deduct or collect advance tax, though structurally distinct from classical “charging sections”, have severe penal and financial consequences for non-compliance: the defaulting person becomes personally liable as if under an assessment order, faces recovery proceedings and other adverse consequences (e.g. disallowance regimes under s. 21(c))---In such circumstances, and following earlier pronouncement in Collector of Inland Revenue v. Coca Cola Pakistan Ltd. (CPLA 2845-L/2022, 2025 SCP 364), advance tax provisions must be construed “tightly and narrowly”; while not with the extreme literalism of a charging section, they cannot be treated as mere procedural recovery mechanisms---On this standard, s. 236 could not be expansively interpreted to impose collection duties at a stage where no identifiable claimant existed and where the statutory text, read with Part IV of the First Schedule, clearly pointed to subscribers/end-users and not franchisees. (e) Income Tax Ordinance, 2001 ----Ch. XII, Part IV of First Schedule----Nature of advance tax as “adjustable” and anomalies of “final/minimum” or “non-adjustable” regimes----Implications for s. 236----Court noted that in many sections of Chapter XII (particularly later insertions) the statute expressly declares the tax collected/deducted to be “final” or “minimum” tax (e.g. ss. 233, 235, 236A etc.) or, in now-omitted provisions such as ss. 235B and 236W, “not adjustable”, which are conceptually anomalous because an “advance tax” by its very nature must be adjustable in favour of some taxpayer---Such anomalies must be treated as express statutory departures and subjected to close scrutiny as to their validity and scope---S. 236, however, is not in such category; it nowhere states that the tax is final, minimum or non-adjustable, and thus remains within the core conceptual framework that every advance tax must be linked to a specific taxpayer’s liability and be claimable as credit---The absence of an express “adjustable” label in s. 236 does not detract from, nor can it override, this inherent character; it rather confirms the need to insist on the presence of an identified or identifiable claimant at the time of collection. (f) Income Tax Ordinance, 2001 ----Ch. XII----General principles for future application----Art. 189, Constitution of Pakistan----Binding effect of Supreme Court’s reasoning----Held, that although the controversy before the Court arose in context of s. 236 for tax years 2004 and 2005, the underlying principles articulated regarding the conceptual structure of advance tax, the necessity of a referent/claimant taxpayer, and the strict/narrow construction of provisions imposing collection/deduction obligations, constitute a principle of law within the meaning of Art. 189 of the Constitution and will apply, mutatis mutandis, to other advance tax provisions in Chapter XII (and related parts of the Ordinance) and other tax years, save where the statute expressly and validly creates an anomalous non-adjustable or final/minimum regime. (g) Constitutional jurisdiction and disposition----C.P.L.As. 22-L to 25-L of 2025----Question of law answered in favour of taxpayer----Effect----Leave petitions filed by the taxpayer were converted into appeals to determine the framed question of law regarding the possibility of advance tax being payable absent an identified person entitled to its benefit---The question was answered in the negative, against the Department and in favour of the taxpayer; the impugned judgment of the Lahore High Court, which had answered tax references in favour of the Department by treating the petitioner as liable under s. 236 and consequently under s. 161/205, was set aside and the Tribunal’s decision restored----Appeals were accordingly allowed.

Summary: (a) Income Tax Ordinance (XLIX of 2001)--- ----Ss.153, 236G & 236H---Tax, collection of---Withholding tax agents (wholesalers, distributors and retailers)---Constitutionality of enactment---Legislature, powers of---Contention of the petitioners (wholesalers and distributors) was that S. 236H was the repetition of Ss. 153 and 236G of Income Tax Ordinance, 2001---Validity---It is oozing from the bare perusal of the S.236-H that tax palpably is collectible from retailers, while the petitioners are distributors/wholesalers, thus, the wholesalers and distributors merely act as withholding tax agents when they make sales to retailers, consequent of which burden of advance tax collected under section 236-H rests upon retailers---Although all Ss. (153, 236G and 236H) relate to withholding and advance taxes, but they cover different types of transactions and have different applicability---Section 236G is related to the advance tax on sales made to distributors, dealers and wholesalers and S. 236H deals with the advance tax on sales to retailers---The whole idea behind the scheme was build up a database of unregistered persons and then use this information for broadening of tax base---Section 153 is a tax on payments for goods and services, while Ss. 236G and 236H are taxes on sales of specific goods---Pertinently, all the withholding taxes/advance taxes (sections 148 to 156 and Ss. 231 to 236) under Income Tax Ordinance are being withheld/collected through the persons other than Inland Revenue Department since decades, thus, the distributors/wholesalers are not the sole withholding tax agents---Tax under S. 236 is a tax on income of a retailer and the same cannot be shifted to consumers---Tax collectable under Ss. 153, 236G and 236H is to be borne by suppliers, distributors and retailers respectively against the income separately---The tax chargeable under S. 236H is nominal which merely serves to document the economy in view of contribution in GDP i.e. 18%---Presumption is always there in favour of the constitutionality of enactment in case of challenge being made to it, however, another principle qua presumption regarding judging the statute is that there should have been no classification at all (excepting reasonable classification)---No eventuality arose from the case to take contra presumption---In case of revenue relating laws, if they are questioned and attacked and equal possible interpretations can be possible one favouring the revenue is to be adopted---Petitioner had failed to point out any illegality or irregularity on the part of the respondents---Writ can be issued where any violation of law and rules is pointed out but no such eventuality has been found in the present case---Petitioners failed to make out their case for interference---Writ petition was dismissed. 2000 PTD 2959 ref. (b) Tax--- ----Imposition of---Legislature of Azad Jammu and Kashmir, powers of---It is the prerogative of the Legislature to impose tax under the Interim Constitution of Azad Jammu and Kashmir---It is the domain of the Legislature to impose taxes for the purpose of generation of revenues required to defray the cost of governance; subject to the roadmap of the Constitution---Modus operandi of tax deduction is prerogative of the Legislature to device the mechanism for the collection of taxes. Sardar Tahir Anwar for Petitioners. Mrs. Bilqees Rasheed Minhas for Respondents.

Summary: Income Tax Ordinance (XLIX of 2001)--- ----Ss.122(9), 177(1), 214-C & Second Schedule, Part IV, Clause 72B---Constitution of Pakistan, Art. 199---Constitutional petition---Petitioner / taxpayer assailed notice selecting its case for audit---Validity---Notice under S. 177(6) of Income Tax Ordinance, 2001 was issued on 20-05-2017, as the audit was to be conducted within the financial year---Completion of audit lingered due to failing of petitioner/taxpayer to convey concerns, as required under S. 177(6) of Income Tax Ordinance, 2001---No concerns were raised to the audit except a plea that it should be completed by 30-06-2017---No such construction could be attributed to S.177(6) of Income Tax Ordinance, 2001 which manifested and envisaged that concerns were invited on audit report---Taxpayer had no objections regarding conduct of audit and preparation of report thereby---Proceedings for audit concluded for all intent and purposes, and stage to amend assessment of the latest tax year had triggered and authorities issued notice under Ss. 122(9) & 111(1) of Income Tax Ordinance, 2001---No objection was raised by petitioner / taxpayer that the notice was beyond limitation provided in S.122 of Income Tax Ordinance, 2001---Petitioner / taxpayer failed to explain as to why response to notice dated 17-09-2021 was not filed and instead Constitutional petition was instituted---High Court in exercise of Constitution jurisdiction declined to interfere in the matter as there was no jurisdictional defect in issuance of notice dated 17-09-2021 and petitioner/taxpayer lacked cooperation / facilitation, to raise concerns to the audit report---Constitutional petition was dismissed in circumstances. Commissioner of Inland Revenue, Sialkot and others v. Messrs Allah Din Steel and Rolling Mills and others 2018 SCMR 1328; Messrs SKF Pakistan (Pvt.) Ltd. through Managing Director and others v. Federation of Pakistan through Secretary (Law and Justice Division) and others 2024 PTD 716; The Collector of Sales Tax, Gujranwala and others v. Messrs Super Asia Mohammad Din and Sons and others 2017 SCMR 1427; Abdul Ghani v. Federation of Pakistan and others 2019 PTD 764 and Nagina Silk Milk, Lyallpur v. The Income Tax Officer, A-ward Lyallpur and others PLD 1963 SC 322 distinguished. Zahid Imran Gondal and Muhammad Junaid for Petitioner. Rana Ghulam Hussain, Assistant Attorney General for Pakistan. Malik Muhammad Shahzad Awan for Respondents.

Summary: (Against judgment/order dated 08.05.2023 and 06.05.2024 passed by the High Court of Sindh, Karachi in Income Tax Cases Nos. 633 to 638 of 2001 and Income Tax Reference Application No. 220 of 2008, respectively). (a) Income Tax Ordinance (XXXI of 1979) [since repealed]--- ----Second Sched., Pt.1, Cl. 93---Income Tax Ordinance (XLIX of 2001), Second Sched., Pt.1, Cl. 59---Constitution of Pakistan, Art.185(3)---Income tax exemptions---Scope and preconditions---Essential elements and components---Charitable purpose---Meaning, extent and application---Pakistan Stock Exchange Limited filed seven connected civil petitions arising from income tax assessments for tax years 1993-94 to 1998-99 under the Income Tax Ordinance, 1979, and tax year 2003 under the Income Tax Ordinance, 2001, in which the appellate tribunal had earlier allowed exemption on income from ‘house property’ under clause (93) of the Second Schedule (1979 Ordinance) and clause (59) (2001 Ordinance), but the High Court later reversed those findings---Core issue befor e the Supreme Court was “whether the petitioner was legally entitled to income-tax exemption by establishing that its income was derived from house property held under legal obligation for charitable purposes and was actually applied or finally set apart for such charitable application”?---Held: Insofar as the first “element” for exemption from tax was concerned, it appeared to be clear that the income in question was derived from “house property”---Therefore it was appropriate to move on to the second “element”, which had been the principal point of dispute between the parties---This itself could be regarded as having two “sub-components”: (i) the income must be held under trust or “other legal obligations”, which must (ii) be “wholly, or in part only, for … charitable purposes” (it being common ground that no “religious” purposes were involved in the case)---It was not enough for the petitioner simply to show that the sub-clause was a “charitable purpose” as the exemption clause required that the sources of income or the income be held under some “legal obligation”, either wholly or in part, for a “charitable purpose”---Sub-clause (2) could be regarded as a “charitable purpose” within the meaning of the definition clause---Therefore, while disagreeing with the High Court, Supreme Court concluded that the petitioner’s situation, in the facts and circumstances of the case, came within the definition clause---An examination of the order of the tribunal showed that there was no affirmative and actual finding of fact that the income in question was either actually applied or “finally” set aside for purposes of achieving the objects set out in sub-clause (2)---The entire discussion related to a matter of law, i.e., whether the sub-clause in question could be regarded as a “charitable purpose”---A finding in favor of the petitioner was recorded in this regard, but that was not enough---The tribunal also had to apply its mind as to whether the third “element” of the exemption clause existed during the periods in question and absent any such finding the benefit of the exemption clause could not be extended to the petitioner---In our view, while the finding of the tribunal might have sufficed for purposes of the second “element” of the exemption clause, it was wholly deficient for the third “element”---The reasoning appeared simply to amount to this: that because the second “element” was found to exist therefore the third was equally found to (or must) exist---But, the tribunal failed to appreciate that while the determination of the second “element” was a question of law (or perhaps a mixed question of law and fact) the third “element” was a separate requirement, which was only a question of fact---The existence of the one could not, and did not, inevitably, as seemed to have been concluded by the tribunal, lead to the other---To conclude that the one existed did not show or mean that the other did as well---The positive obligation that lay on the petitioner in this regard was not discharged---And since the tribunal was the last finder of fact the exercise in relation to the third “element” could not be carried out by either the High Court (which in any case decided against the petitioner) or the Supreme Court---This deficiency was fatal for the petitioner’s case---Even when the exemption clause was viewed in its totality the last portion thereof had to be clearly established, at the latest, by or before the final forum designated to determine questions of fact---This was patently not the situation at hand---Petitioner had failed to make out a case for entitlement to the exemption clause---Leave to appeal was refused and the petitions were dismissed, in circumstances. Cotman v. Brougham [1918] AC 514, [1918-19] All ER Rep 265, [1918] UKHL 358; Re Introductions Ltd. [1968] 2 All ER 1221; [1969] 1 All ER 887; Anglo Overseas Agencies Ltd. v. Green and another [1960] 3 All ER 244 and Commissioner of Income Tax v. Merchant Navy Club 2004 PTD 1304 ref. Commissioner of Income Tax v. Muhammad Abdur Rauf Khan PLD 1963 SC 209; Hamdard Dawakhana v. Commissioner of Income Tax PLD 1980 SC 84 and Fauji Foundation v. Shamimur Rehman PLD 1983 SC 457 rel. (b) Interpretation of statutes--- ----Fiscal statute---Exemption clause---Application and interpretation---Firstly, the onus lies on the taxpayer to show that his case comes within the exemption---Secondly, if two reasonable interpretations are possible the one against the taxpayer will be adopted---But, thirdly, if the taxpayer’s case comes fairly within the scope of the exemption then he cannot be denied the benefit of the same on the basis of any supposed intention to the contrary of the legislature or authority granting it. Oxford University Press v. Commissioner of Income Tax 2019 SCMR 235 rel. (c) Income Tax Ordinance (XXXI of 1979) [since repealed]--- ----Second Sched. Pt.1, Cl.93---Income Tax Ordinance (XLIX of 2001), Second Sched., Pt.1, Cl.59---Income tax---Exemption---Essential elements / components---The exemption clause can be said to contain three “elements”---The income for which exemption is sought (i) must be from “investments in securities of the Federal Government and house property”; (ii) either the said sources of income or the income itself must be “held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes”; and (iii) the income must be “actually applied or finally set apart for application thereto”. Abdul Ghaffar Khan, Advocate-on-Record for Petitioner (in all cases via video-link, Karachi). Munawar Ali Memon, Advocate Supreme Court, Mrs. Abida Parveen Channar, Advocate-on-Record, M. Masood, Additional Commissioner, (via video-link, Karachi) and Dr. Ishtiaq, D.G. (Law) for Respondents. Date of hearing: 21st April, 2025.

Summary: (Against judgment/order dated 08.05.2023 and 06.05.2024 passed by the High Court of Sindh, Karachi in Income Tax Cases Nos. 633 to 638 of 2001 and Income Tax Reference Application No. 220 of 2008, respectively). (a) Income Tax Ordinance (XXXI of 1979) [since repealed]--- ----Second Sched., Pt.1, Cl. 93---Income Tax Ordinance (XLIX of 2001), Second Sched., Pt.1, Cl. 59---Constitution of Pakistan, Art.185(3)---Income tax exemptions---Scope and preconditions---Essential elements and components---Charitable purpose---Meaning, extent and application---Pakistan Stock Exchange Limited filed seven connected civil petitions arising from income tax assessments for tax years 1993-94 to 1998-99 under the Income Tax Ordinance, 1979, and tax year 2003 under the Income Tax Ordinance, 2001, in which the appellate tribunal had earlier allowed exemption on income from ‘house property’ under clause (93) of the Second Schedule (1979 Ordinance) and clause (59) (2001 Ordinance), but the High Court later reversed those findings---Core issue befor e the Supreme Court was “whether the petitioner was legally entitled to income-tax exemption by establishing that its income was derived from house property held under legal obligation for charitable purposes and was actually applied or finally set apart for such charitable application”?---Held: Insofar as the first “element” for exemption from tax was concerned, it appeared to be clear that the income in question was derived from “house property”---Therefore it was appropriate to move on to the second “element”, which had been the principal point of dispute between the parties---This itself could be regarded as having two “sub-components”: (i) the income must be held under trust or “other legal obligations”, which must (ii) be “wholly, or in part only, for … charitable purposes” (it being common ground that no “religious” purposes were involved in the case)---It was not enough for the petitioner simply to show that the sub-clause was a “charitable purpose” as the exemption clause required that the sources of income or the income be held under some “legal obligation”, either wholly or in part, for a “charitable purpose”---Sub-clause (2) could be regarded as a “charitable purpose” within the meaning of the definition clause---Therefore, while disagreeing with the High Court, Supreme Court concluded that the petitioner’s situation, in the facts and circumstances of the case, came within the definition clause---An examination of the order of the tribunal showed that there was no affirmative and actual finding of fact that the income in question was either actually applied or “finally” set aside for purposes of achieving the objects set out in sub-clause (2)---The entire discussion related to a matter of law, i.e., whether the sub-clause in question could be regarded as a “charitable purpose”---A finding in favor of the petitioner was recorded in this regard, but that was not enough---The tribunal also had to apply its mind as to whether the third “element” of the exemption clause existed during the periods in question and absent any such finding the benefit of the exemption clause could not be extended to the petitioner---In our view, while the finding of the tribunal might have sufficed for purposes of the second “element” of the exemption clause, it was wholly deficient for the third “element”---The reasoning appeared simply to amount to this: that because the second “element” was found to exist therefore the third was equally found to (or must) exist---But, the tribunal failed to appreciate that while the determination of the second “element” was a question of law (or perhaps a mixed question of law and fact) the third “element” was a separate requirement, which was only a question of fact---The existence of the one could not, and did not, inevitably, as seemed to have been concluded by the tribunal, lead to the other---To conclude that the one existed did not show or mean that the other did as well---The positive obligation that lay on the petitioner in this regard was not discharged---And since the tribunal was the last finder of fact the exercise in relation to the third “element” could not be carried out by either the High Court (which in any case decided against the petitioner) or the Supreme Court---This deficiency was fatal for the petitioner’s case---Even when the exemption clause was viewed in its totality the last portion thereof had to be clearly established, at the latest, by or before the final forum designated to determine questions of fact---This was patently not the situation at hand---Petitioner had failed to make out a case for entitlement to the exemption clause---Leave to appeal was refused and the petitions were dismissed, in circumstances. Cotman v. Brougham [1918] AC 514, [1918-19] All ER Rep 265, [1918] UKHL 358; Re Introductions Ltd. [1968] 2 All ER 1221; [1969] 1 All ER 887; Anglo Overseas Agencies Ltd. v. Green and another [1960] 3 All ER 244 and Commissioner of Income Tax v. Merchant Navy Club 2004 PTD 1304 ref. Commissioner of Income Tax v. Muhammad Abdur Rauf Khan PLD 1963 SC 209; Hamdard Dawakhana v. Commissioner of Income Tax PLD 1980 SC 84 and Fauji Foundation v. Shamimur Rehman PLD 1983 SC 457 rel. (b) Interpretation of statutes--- ----Fiscal statute---Exemption clause---Application and interpretation---Firstly, the onus lies on the taxpayer to show that his case comes within the exemption---Secondly, if two reasonable interpretations are possible the one against the taxpayer will be adopted---But, thirdly, if the taxpayer’s case comes fairly within the scope of the exemption then he cannot be denied the benefit of the same on the basis of any supposed intention to the contrary of the legislature or authority granting it. Oxford University Press v. Commissioner of Income Tax 2019 SCMR 235 rel. (c) Income Tax Ordinance (XXXI of 1979) [since repealed]--- ----Second Sched. Pt.1, Cl.93---Income Tax Ordinance (XLIX of 2001), Second Sched., Pt.1, Cl.59---Income tax---Exemption---Essential elements / components---The exemption clause can be said to contain three “elements”---The income for which exemption is sought (i) must be from “investments in securities of the Federal Government and house property”; (ii) either the said sources of income or the income itself must be “held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes”; and (iii) the income must be “actually applied or finally set apart for application thereto”. Abdul Ghaffar Khan, Advocate-on-Record for Petitioner (in all cases via video-link, Karachi). Munawar Ali Memon, Advocate Supreme Court, Mrs. Abida Parveen Channar, Advocate-on-Record, M. Masood, Additional Commissioner, (via video-link, Karachi) and Dr. Ishtiaq, D.G. (Law) for Respondents. Date of hearing: 21st April, 2025.

Summary: Income Tax Ordinance (XLIX of 2001)--- ----Ss.114(6), 120(1), 122(3), 122(4), 122(5A) & 133(1)---Amendment of assessment---Further amendment sought by department with reference to earlier deemed assessment---Legality---Subsequent amendment---Scope---Whether original deemed assessment survives after amendment---Briefly, for the tax year 2009, the respondent taxpayer filed a return of income which was treated as a deemed assessment under S. 120(1) of the Income Tax Ordinance, 2001; subsequently, the assessment was amended by the tax authorities under S. 122 of the Ordinance---Thereafter, the department sought to carry out a further amendment by referring back to the earlier deemed assessment instead of the amended assessment---The appellate tribunal inland revenue held that once an assessment stood amended, any further amendment could not be made in the amended assessment order---Aggrieved of the said order, the commissioner inland revenue filed the present income tax reference before High Court under S.133(1) of the Ordinance---The issue before the High Court was “whether, in law, the commissioner was entitled to further amend the original deemed assessment under S. 120(1) despite the existence of an amended assessment, in view of S. 122(4) of the Ordinance, or whether the amended assessment alone remained operative and amenable to further amendment?”---Held: A collective reading of subsection (6) of S. 114, read with S. 120 and subsection (3) of S. 122 of the Ordinance led to an ineluctable conclusion that once amended, the deemed assessment order merged into the amended order and as a natural corollary, the only assessment which remained in field was the amended assessment---If the commissioner intended to further amend the assessment order, the only available assessment was the revised/amended assessment as the return already filed under S. 120(1) of the Ordinance lost its efficacy and became irrelevant to the extent of the omission/wrong statement---The amended assessment order was only available assessment, which could be subjected to any further amendment in terms of subsection (5A) of S. 122 of the Ordinance---There was no substance in the question sought to be raised through the present reference application, as such, same was dismissed. Dr. Abdul Nabi, Professor, Department of Chemistry, University of Balochistan, Sariab Road, Quetta v. Executive Officer, Cantonment Board, Quetta 2023 SCMR 1267; All Pakistan Newspaper Society and others v. Federation of Pakistan and others PLD 2012 SC 01; M/s. Elahi Cotton Mills Ltd. and others v. Federation of Pakistan and 6 others PLD 1997 SC 582 and Commissioner Inland Revenue v. Ch. Muhammad Akram 2013 PTD 1578 rel. Liaquat Ali Ch. for Applicant. Barrister Usman Khalil for Respondent (in ITR No.293 of 2016) Shahbaz Butt for Respondent (in I.T.R. No.284 of 2016). Date of hearing: 24th October, 2025.

Summary: Summary pending