Income Tax Ordinance, 2001: ATIR interprets applicability of Section 18(1)(d) The interest-free loan taken from directors cannot be charged to tax in the hands of company by treating it as deemed income under section 18(1)(d) of the Income Tax Ordinance, 2001, the Appellate Tribunal Inland Revenue (ATIR) has recently ruled by rejecting the action taken by Additional Commissioner-IR. Sources told Business Recorder here on Sunday that in a landmark judgement of its first kind the ATIR has interpreted the applicability of Section 18(1)(d) of the Ordinance, which says fair market value of any benefit or perquisite, whether convertible into money or not, derived by a person shall be chargeable to tax under the head income from business. The ATIR ruled that order passed by authorities is perverse, erroneous and factually incorrect as it has resulted in great miscarriage of justice, to be squarely in conflict with statutory stipulation and fatally flawed. Section 18(1)(d) has no application whatsoever to the instant case in hand. When contacted, a Lahore-based tax lawyer Waheed Shahzad Butt told this correspondent about the brief facts and legal implications of appeals recently decided by the ATIR. In this case, Additional Commissioner-IR, the RTO Gujranwala in the amended order, charged to the tax the deemed income by invoking the provisions of section 18(1)(d). Action under section 122-5A of the Ordinance has been taken solely by misinterpreting the law. In a taxing statute, one can only look at the language used in the law, since there is no room for intendment or presumption in the interpretation of law. The action of the Additional Commissioner-IR with regard to taxing the interest free loans taken from directors as taxable income in the hands of company was patently illegal thats why it has been crumbled down by the ATIR: waheed added. The ATIR order states A perusal of the assessment order as well as the first appellate order shows that both the learned two officers below fell in grave error in misconceiving the accounting principles and relevant law on the issue and as such deemed income was wrongly charged to tax by invoking provisions of Section 18(1)(d). Observation made by the Additional-CIR reflects lack of understanding on the facts of the case as well as law. In case interest/mark-up if not paid by the appellant is a financial benefit at one part then on the other part it is quite obvious that the appellant must charge the same amount in its accounts as expenditure and under the Ordinance the revenue would allow it as an admissible deduction. In actual fact, it was a benefit/income in shape of not claiming/charging the expenses/liability under the head mark-up on interest free loan. By adding the said deemed mark-up again is a double jeopardy by taxing one thing twice. The pivotal question which requires determination is as to whether the provisions of Section 18(1)(d) of the Ordinance are attracted in the given circumstances on the amount received by the appellant from its directors as interest free loan? The answer is quite obvious, under any stretch of imagination said transaction cannot be charged to tax by invoking deeming provisions of section 18(1)(d). In-fact taxpayer has not charged/claimed the expenses and because of this reason business income has already been declared and offered to tax at higher side when compared with the resultant proposition where appellant was required to pay mark-up to the directors and then claimed it as admissible deduction against taxable income offered for taxation for that tax year but this is not the case in the instance controversy. If the Revenue prefers to treat said deemed interest/markup as taxable business income under section 18(1)(d) then obviously it would also be a lawful right of the appellant to reduce its business income by deducting same amount. It is not the choice of pick and choose by treating it as business income and charged to tax separately in isolation without realising the basic accounting principles that at the same time is also a deductible admissible allowance in the hands of appellant. The orders passed by authorities below are perverse, erroneous, factually incorrect and has resulted in great miscarriage of justice. Orders passed by authorities below to be squarely in conflict with statutory stipulation, it must, therefore, be struck down decisively. Resultantly, addition made by Additional-CIR under Section 18(1)(d) of the Ordinance is held to be patently illegal and a nullity in the eyes of law: ATIR order added.
Posted on: Mon, 17 Mar 2014 05:51:32 +0000
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