• Apex court action comes on petition filed by revenue authorities
• High court had quashed proceedings on FBR show-cause notices in 35 cases in 2020

ISLAMABAD: The Supreme Court on Monday suspended the Dec 22, 2020 Sindh High Court (SHC) order regarding the declaration of foreign income, assets and liabilities statement needed to be filed by resident Pakistani taxpayers.

A three-judge SC bench headed by Justice Umar Ata Bandial issued the suspension order during the hearing of a joint petition moved by the Federal Board of Revenue (FBR), commissioner of Inland Revenue, AEOI Zone, Large Taxpayers’ Office, Karachi, deputy commissioner of Inland Revenue and the finance secretary. The plea was filed through senior counsel Hafiz Ahsaan Ahmad Khokhar.

Through the Finance Act 2018, the government made an amendment to the Income Tax Ordinance (ITO) 2001 requiring every resident taxpayer maintaining foreign assets, incurring foreign expenditure, earning foreign income and owning foreign liabilities to file the foreign income and asset statement separately from the tax year 2019 under the amended Section 116A (1) of the ITO. In addition, SRO No 880 (I)/2018 was also issued on July 13, 2018 in this regard.

In case of default, further amendment was also made in the Section 182(1) Serial 1AAA, whereby penalty at the rate of two per cent was imposed on the foreign income or value of foreign assets for each year of default.

Thus under the jurisdiction of AEOI Zone Karachi alone, about 650 taxpayers were required to file such statements along with returns for the tax year 2019 of which 433 taxpayers complied by filing their statements in time as required under the amended law.

Consequently, show-cause notices were issued by the FBR to the remaining 217 taxpayers on default. Out of them, 182 taxpayers complied with the notices, filed their replies and adopted the due course provided under the ITO provisions, while only 35 persons filed petitions in the SHC, challenging the FBR notices.

The SHC had on Dec 22, 2020 quashed the pending proceedings on show-cause notices in 35 cases despite the fact that the adjudication proceedings on these notices were pending before the authority under the ITO.

The petition pleaded that legal recourse was available with taxpayers to file appeals before the Inland Revenue (appeals) commissioner and then in the Inland Revenue Appellate Tribunal or to file references in the high court to thrash out the issue as per the procedure given in the ITO.

The petition pleaded that the high court, while deciding the matter, failed to appreciate that the amendment was made with clear intention by parliament through the Finance Act 2018 to make sure that the resident Pakistanis submit their foreign income and asset statement separately, starting from the tax year 2019.

The petition argued that the legislature has specifically provided the procedure with rational and wisdom for the first time for resident Pakistanis for submission of the foreign income statement separately.

The high court has failed to appreciate that the foreign income and assets statement is aimed at encouraging financial transparency in Pakistan. Therefore, the high court misconstrued the foreign income statement, it said, adding that in the wake of alternative remedies available under the ITO, the petitions before the high court were not competent against mere issuance of show-cause notices to the taxpayers and, therefore, liable to be set aside.

The petition highlighted that the show-cause notices were issued by the AEOI Zone, Large Taxpayers’ Office, Karachi, under the lawful jurisdiction prescribed and in compliance with the ITO provisions. And the taxpayers were provided opportunities to respond and file detailed reply and to raise all such legal objection if they had any, it said, adding that these proceedings would have been decided by the petitioners strictly in accordance with the law.

The petition pleaded that since no final adjudication or assessment has made on these show-cause notices, the challenges before the high court were premature as no cause of action has accrued to the taxpayers nor any violation of fundamental rights made, which justifies them to file the instant petitions. Therefore, it argued, the high court judgement is liable to be set aside on this touchstone as well.

Published in Dawn, January 11th, 2022