KARACHI, Nov 19: The income tax authorities have raised tax demand of over one billion rupees against the Trading Corporation of Pakistan (TCP). The demand pertains to annual subsidy received by the corporation from the government for the last many years, official sources said.

Disputes have been going on between the CBR and the state-run corporation over the classification of certain revenue receipts extended by the government to such organizations for bailing them out from financial crisis.

For the past several years these disputes have been going on and several attempts to settle them could not produce results. On the one hand the government-owned organizations were not willing to discharge their tax liability and on the other hand the CBR rejected decision of the secretary law appointed by the government for settling these disputes.

However, recently the government has asked the Attorney General of Pakistan to settle all such outstanding tax disputes involving billion of rupees between the government-owned organizations and the Central Board of Revenue.

Consequently, the CBR has asked the tax authorities to prepare cases where previous decisions were not acceptable to the tax authorities.

In one of such cases prepared by the income tax department a tax demand of Rs1.096 billion has been raised against the TCP.

Dilating on the issues, the tax department pointed out that in order to recoup trading losses of the TCP, the government contributed towards its revenue receipt by way of “subsidy” every year. As such a total tax demand on such revenue receipts from 1991-92 to 1999-2000 has been calculated by the tax authorities to the tune of Rs1.096 billion.

However, the TCP claims that the “subsidy” is not a revenue receipt rather it is a contribution by the government towards TCP’s capital. Hence not liable to tax. However, the tax department is of the view that “subsidy” is a revenue receipt liable to tax.

Therefore, the issue involved is thus bringing “subsidy” received by the TCP from the government into the ambit of taxation.

In support of their arguments the tax authorities also pointed out that tax demand of over a billion rupees against the TCP had been upheld in the appeals to Income Tax Appellate Tribunal (ITAT).

The tax department inter alia has argued that the secretary law and justice division is not a statutory authority for assessment, revision or appeal under the Income Tax, 1979. His findings or decision cannot be given effect under any of the provisions of Income Tax Ordinance, 1979.

Furthermore, the Supreme Court in a judgment reported as (1975) 32 Tax 225 PIAC vs CIT, has found “subsidy” to be in the nature of income/receipt liable to tax under the Income Tax Ordinance, 1979. These findings of the Supreme Court have duly been discussed in the decision of the learned ITAT in ITA No 271/KB of 1995-96 (A.Y. 1992-93) dated 30-07-1996 in the case of TCP.

Similarly, in TCP’s own case various appellate forums have upheld the taxing of “subsidy” in the hands of TCP. Appeals for assessment years 1998-99 and 1999-2000 are pending before the CIT (Appeals). Whereas assessments for subsequent years are pending with DCIT.

Therefore, the tax department has point out that it is evident from above that question of taxability of “subsidy” has been decided in favour of the department not only in TCP’s own case, more than once, but also by the Supreme Court in the case of PIAC vs CIT.