Law: Income Tax Ordinance, 2001

Section: 170,171

Income Tax Ordinance (XLIX of 2001)--- ----Ss. 170 171---Additional payment for delayed refunds---Scope---Compensation payable to a taxpayer under S. 171 of the Income Tax Ordinance, 2001 (the Ordinance) on account of a delay in the payment of a refund that becomes due and payable to the taxpayer---Whether such compensation was to be regarded as a capital or revenue---Held, that such compensation was not a capital receipt---Payment under S. 171 of the Ordinance became due when the taxpayer was not refunded, in a timely manner, the tax in excess to the amount which the taxpayer was properly chargeable under the Ordinance---In essence the question boiled down to this: if the amount that was liable to be refunded in terms of S. 170 was to revenue account, whether the compensation payable under S. 171 on account of late payment could nonetheless take the character of a capital receipt---High Court rightly came to the conclusion that in such circumstances the character of the compensation could not be altered or affected and continued to retain the character of what might be called principal payment (the refund payable under S. 170)---Even the audited accounts of the taxpayer in the present case showed that the compensation was disclosed by the tax payer itself as part of its income---Appeal filed by taxpayer was dismissed. JUDGMENT MUNIB AKHTAR, JUSTICE:---.--- This matter arises out of the Income Tax Ordinance, 2001. The question is whether the compensation payable to a taxpayer under section 171 on account of a delay in the payment of a refund that becomes due and payable to the latter is to be regarded as a capital, or revenue, receipt? The learned Appellate Tribunal, on an appeal filed by the respondent-taxpayer, concluded that such compensation was a capital amount and could not therefore be brought to tax. The department filed a tax reference in the High Court, which by means of the impugned judgment dated 19.04.2017 came to the contrary conclusion and decided the reference in favor of the former. The taxpayer petitioned this Court for leave to appeal which was granted vide order dated 01.10.2018. After having heard learned counsel for the parties we came to…

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