ISLAMABAD: A landmark judgment by the Islamabad High Court (IHC) headed by Justice Babar Sattar has sided with the Federal Board of Revenue (FBR) in a tax reference case against leading telecom operator (Jazz).
Jazz has been ordered to pay nearly Rs22 billion (USD 78 million) in tax on its transaction profits.
The case originated from a 2018 internal asset restructuring where Jazz transferred its nationwide tower infrastructure to its wholly-owned subsidiary. The disposal of these assets, valued at Rs. 98.5 billion (USD 940 million), resulted in an accounting gain of nearly Rs. 75.9 billion in Jazz’s financial statements.
The telecom operator had argued that the transaction should be exempt from tax under Section 97(1) of the Income Tax Ordinance, 2001 (ITO), which deals with intra-group transfers. This section generally allows for a tax neutral event if certain conditions are met. The primary condition is that the written value of the transferred asset remains in the hands of the transferor, thereby preventing the immediate creation of taxable economic value.
However, the High Court rejected this argument. The court found that the transaction was made at a fair market value of USD 940 million, which was accepted by the petitioner as consideration. This acceptance, the court concluded, violated the terms of Section 97 of the ITO, as it clearly creates economic value and taxable benefit. Consequently, the court ruled that the benefit derived from the transaction is a taxable event, on which there is no reason to defer tax.
Furthermore, the court upheld the power of the Commissioner to consider accounting income while determining taxable income. This judicial victory of the FBR is in line with the Prime Minister’s vision for expeditious resolution of state revenue cases pending in various appellate forums. Under the leadership of Mr. Rashid Mahmood, Chairman, FBR, and Mir Badshah Khan Wazir, Member (Legal IR), the Legal Wing of FBR has intensified its efforts to proactively pursue pending cases while providing crucial support to the courts. These joint efforts have resolved several tax disputes, leading to recovery of revenue worth billions of rupees.
Ms. Asma Hamid, ASC, and Dr. Ishtiaq Ahmed Khan (DG Law) represented the FBR laudably in this particular case. In a separate but related development, the court also dismissed another petition filed by the same telecom operator against a show cause notice issued under the Federal Excise Act, 2005. The petitioner was ordered to pay Rs. 100,000 to the Deputy Commissioner-IR, LTO, Islamabad, within four weeks.
When contacted Jazz for an official comment, but they chose not to provide anything regarding the decision.
