Law: Income Tax Ordinance, 2001

Section: 4,7,11,101,107,143,4(1),7(1)(b)

(a) Income Tax Ordinance (XLIX of 2001)-------Ss. 7, 11, 107 & 143--- Cargo embarked outside Pakistan carried to Pakistan on ships operated by non-resident shipping companies/ charterers---Sale of such cargo to Pakistani buyers by foreign seller on FOB basis---Payment of freight charges to carriers in Pakistan by resident buyers---Liability of carriers to pay income tax on such freight---Scope---Provision of S. 7 of Income Tax Ordinance, 2001 would apply to freight charges for cargo embarked in Pakistan, whether received or receivable in or outside Pakistan and freight charges for cargo embarked outside Pakistan, if received or receivable in Pakistan---Cargo embarked outside Pakistan should be headed for Pakistan as per terms of S. 143 of Income Tax Ordinance, 2001 for imposing tax thereon under S. 7(1)(b) thereof---Freight charges paid by Pakistani buyers would remain liable to tax under S. 4(1) of the Ordinance, rather than S. 7 thereof---Buyers (here Pakistani importers) in FOB contracts would be regarded as party to Bill of Lading creating relationship between buyer and carrier--Carrier would have a lien on goods shipped for payment of freight charges and would be entitled to hold same till such payment---Release of cargo, in the present case to Pakistani buyers on payment of freight charges had established that freight charges were received by carriers in Pakistan within meaning of S. 7(1)(b) of the Ordinance---According to avoidance of double taxation agreements (DTAs) by Pakistan with France and Denmark, "source State" was that in which payment was made and such State was regarded as entitled to tax such payments---Payment, in the present case, was made in Pakistan, which was a "source State"---Payments received by carriers would be considered as profit derived from sources within Pakistan, thus, were liable to be taxed in Pakistan---Nothing in such avoidance of double taxation agreements that would bar application of S. 7(1)(b) of the Ordinance, to freight charges received or receivable in Pakistan---Profits earned by such carriers from international shipping business would come within meaning of "industrial or commercial profits" used in the…

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