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Tax exemption for KP-Fata/Pata: ATIR interprets applicability of Clause 126F

Tax exemption for KP-Fata/Pata: ATIR interprets applicability of Clause 126F

ISLAMABAD: The Appellate Tribunal Inland Revenue (ATIR) has ruled that a three-year tax exemption declared for KP-Fata/Pata areas under clause 126F of Second Schedule of Income Tax Ordinance, 2001 is not applicable to cases which are subjected to final taxation.

As per details, the ATIR has issued a judgment on the tax exemption availed under clause 126F of Second Schedule of Income Tax Ordinance, 2001 which is not applicable to cases, subjected to final taxation under section 169 of the Ordinance. Interpretation of clause 126F by ATIR may lead to recovery of illegal refunds amounting to billions of rupees.

In its verdict, the ATIR interpreted the applicability of Clause 126 F of second schedule to the Income Tax Ordinance, 2001 which provides exemption to profits and gains derived by a taxpayer belonging to the most affected and moderately affected areas of Khyber Pakhtunkhwa, Fata and Pata for a period of three years, starting from tax year 2010.

On the other hand, experts described the verdict first of its kind by the Additional-CIR by invoking provisions of section 122-5A of the Ordinance. They were of the view that the verdict would be helpful in recovery of billions of rupees illegal refunds already picked by taxpayers in the garb of Clause 126F who otherwise falls under final tax regime. It is to be noted that a large number of companies claimed illegal refunds after the introduction of Clause 126 F which was basically meant for businessmen of strife-ridden areas of KP and Fata.

In its verdict, the ATIR states, “Coming back to the applicability of clause (126 F), it is evident from its language that intention of the legislature was to give fiscal relief to the taxpayers of KP, Fata & Pata. In the instant case, the taxpayer is a private limited company whose office is located in Lahore and has been executing construction contracts worth billion of rupees. By any stretch of imagination, this fiscal relief is not meant for such company, which has not even remotely been affected by the on-going strife in KP, Fata & Pata.

In the instance case, we feel no hesitation to hold that the action of learned ACIR based on correct interpretation of exemption clause (126F) of Part 1 of the 2nd Schedule of the Ordinance and therefore he justifiably invoked section 122(5A) of the Ordinance, which is squarely in accordance with the law. Therefore, for the reasons recorded supra, the orders passed by both authorities are upheld and the appeals of the appellant/taxpayer rejected being devoid of any merit”; the ATIR order added.