Law: Income Tax Ordinance, 2001

Section: 114,114(6),Second Schedule,(131),122(3),122(5A),201(1A)

Law: Qanun-e-Shahadat (10 of 1984)

Section: 177

(a) Income Tax Ordinance (XLIX of 2001)----Second Sched., Part-1, Cl. (131), Ss. 122(3), 122(5A), 201(1A) & 114(6)---Qanun-e-Shahadat (10 of 1984), Art.177---Exemption---Engineering and technical services to a Turkish company under an agreement---Taxable income---Exempt income---Taxpayer contended that entire receipts were in US dollars and were received in bank account in Pakistan; and were exempt from tax; and software of PRAL was unable to segregate the income from non-taxable income due to certain problems; and return of taxable income and exempt income was correctly revised manually---Revenue contended that services rendered or provided outside Pakistan were exempt from tax subject to receipt of payments through banking channels, whereas services provided by the taxpayer to foreign client includes jobs undertaken in Pakistan; and claiming different expenses which had no nexus with the principal business activity had proved that receipts declared were not representing and restricting itself to the consideration of services rendered and provided outside Pakistan; and similarly provision of services/expenses on account of Air fuller repairs, Customs clearance and trials of truck/vehicles, repair and maintenance of vehicle sold to Pak Army/Air Force etc. and receipts other than from their Principal i.e. foreign entity were not covered under exemption Cl. (131) of the Income Tax Ordinance, 2001---Validity---Receipts declared include the consideration of other services/works done in Pakistan---Returns were silent with regard to the characterization of receipts from domestic and foreign sources---Statement of expenses also omitted the identification of all expenses in account of activities performed domestic or outside Pakistan---Agreement between the taxpayer and the foreign enterprise was silent with regard to fee rates/schedule for technical services and did not cover the treatment to be extended to any service/work done to be performed in Pakistan---Admittedly consideration for services rendered by the taxpayer in Pakistan such as maintenance and repair during the warranty period of vehicle sold by foreign entity to Pak Military or Air Force included…

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