LAHORE, April 26: ‘Misinterpretation’ of Income Tax Ordinance 2001 with regard to deduction of withholding tax from the stipend of doctors has brought the postgraduate trainees at Mayo Hospital and the Punjab Accountant General’s Office on the verge of a clash.

The Punjab AG’s Office had deducted Rs1,488 from the stipend of each of the 380 or so post-graduates working at the hospital as withholding tax, a source said.

The affected students think they have no other option but to go for an agitation over the ‘unjustified’ deduction as the issue could not be resolved through official correspondence that had been continuing for the last two months or so.

The trainees allege the AG’s Office was planning to use the ‘Mayo Hospital case’ as a precedent to bring other autonomous institutions of the province in the tax net.

Earlier, the trainees, through their correspondence with the AG’s Office, had termed the deduction of withholding tax unjustified, arguing that the stipend was actually ‘scholarship’ which was exempted from tax by Punjab government.

The AG’s Office rejected their claim, saying that according to the Chief Commissioner Inland Revenue, Lahore, the stipend was taxable.

Both sides support their respective stances on the basis of official documents.

Assistant Accountant General Kausar Parveen quotes sub-section (2) of Section 12 of the Income Tax Ordinance 2001 to justify taxing the stipend.

Quoting the interpretation of the Ordinance given by the Chief Commissioner Inland Revenue in January 2012, she says, “Salary means any amount received by an employee from any employment, whether of a revenue or capital nature, including any pay, wages or other remuneration provided to an employee, including leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees, gratuity or work condition supplements (such as for unpleasant or dangerous working conditions)…”

“Since the definition of stipend within the meanings of Section 12 of the Income Tax Ordinance, 2001 no specific exemption has been given in the Second Schedule to the Ordinance to the receipts covered within the meanings of “stipend”, she further quotes.

Thus, the total receipts under this account are subject to taxation according to the prescribed rates under the law, the assistant accountant general says.

Meanwhile, the affected students counter the argument by quoting documents relating to the Punjab government Budget Book in which an estimated budget was allocated for the postgraduate students as stipend under the head of “scholarship”.

In order to further support their stance, they quote Section 47 of the Income Tax Ordinance 2001 which says, “Any scholarship granted to a person to meet the cost of the person’s education shall be exempted from tax under this Ordinance.”

Mayo Hospital Medical Superintendent (MS) Dr Zahid Pervez had also written to the AG, quoting Section 47 of the Ordinance and requesting the office not to deduct withholding tax from the stipend amount.

He also sought reimbursement of the amount deducted as tax from the previous months’ stipends of the students.

Young Doctors Association’s Punjab Secretary-General Dr Salman Kazmi termed it misinterpretation of the Ordinance and demanded the authorities should get clarified the relevant sections by involving legal experts.

“In order to protest the levying of unjustified tax, the affected doctors have no option but to surround the offices of Punjab AG and the Chief Commissioner Inland Revenue”, he warned.

He said deduction of tax from the stipend had sent a wave of anger among the doctors and the YDA had called a meeting to finalise the mode of agitation over the issue.