Law: Income Tax Ordinance, 1979

Section: 79,136,136(1)(2)

Income Tax Ordinance (XXXI of 1979)--- ----Ss. 79 & 136---Income from transactions with non- resident---Prerequisites for application of S. 79 of the Income Tax Ordinance, 1979---Transfer pricing---'Arms length transaction'---Scope----Question before High Court was whether additions made to income of taxpayer, which was a pharmaceutical company, under S. 79 of the Income Tax Ordinance, 1979 on basis of its import of raw materials from its parent company, were in accordance with law---Contention of Department inter alia, was that such practice tantamount to transfer pricing by way of which profits were transferred to parent company by taxpayer, therefore invocation of S. 79 of the Income Tax Ordinance, 1979 was justifiable---Validity--Assessing Officer, in the present case, compared price of imported raw materials of taxpayer, which taxpayer imported from its parent company, with raw materials imported by other companies from other sources and thereafter made additions in respect of imported price of raw materials---Difference between import prices was tabulated without any justification or details about other factors required for necessary comparison in order to justify additions under S. 79 of the Income Tax Ordinance ,1979---Onus lay on Department to prove an 'arms length transaction', and simply observing that some other companies imported a particular raw material was not sufficient to establish transfer pricing or to justify the invocation of S. 79 of the Income Tax Ordinance, 1979 --- Additions made to the income of the taxpayer were therefore not in accordance with law --Reference was answered accordingly. Messrs Squibb Pakistan (Pvt.) Ltd. and another v. Commissioner of Income Tax and another 2017 SCMR 1006 rel. THIS JUDGMENT DELIVERED BY: IRFAN SAADAT KHAN, J.--- The instant matter was referred by the Income Tax Appellate Tribunal (ITAT) under the provisions of Section 136(1) of the Income Tax Ordinance, 1979 (Repealed Ordinance) for consideration of following question of law:-- "Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal was justified in holding that the assessing officer has rightly applied section 79 of…

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