Law: Income Tax Ordinance, 2001

Section: 50,50(4),80C,153(1)

Law: Income Tax Ordinance, 2001

Section: 161

Income Tax Ordinance (XXXI of 1979)- -Ss. 50 80C-Deduction of income tax at source-Payments made to associated companies / undertakings-Essential prerequisite for deduction of tax at source-Scope-Question before High Court was whether taxpayer was liable to deduct income tax at source for supply of material to associated company of taxpayer--Held, that taxpayers unit which purchase material deducted tax from payment made to a seller in accordance with S.50(4) of Income Tax Ordinance, 1979, but said unit, when transferring stock to associated company / sister concern, at cost, made necessary book entries in relevant ledgers of the units without involvement of any cash - Since instance of payment had not occurred, therefore tax under S.80C of Income Tax Ordinance, 1979 was not chargeable and accordingly provisions of S. 50(4) of said Ordinance were not attracted-Event of tax deduction would come into play only at time of making payment and S.50(4) of Income Tax Ordinance, 1979 would not be applicable unless payment was actually made-Reference was answered, accordingly. Commissioner of Income Tax Legal Division, Lahore and others v. Khurshid Ahmad and others 2916 PTD 1393 distinguished. JUDGMENT: MUHAMMAD SAJID MEHMOOD SETHI, JUSTICE:---.--- Through instant Reference Application under Section 133 of the Income Tax Ordinance, 2001 (“the Ordinance of 2001”), the following question of law urged to have arisen out of impugned order dated 23.01.2010, passed by learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore (“Appellate Tribunal”), has been pressed and argued for our opinion:- “Whether transfer of raw material to sister concern attracts withholding tax provisions?” 2. Brief facts of the case are that respondent-taxpayer is a public limited company deriving income from spinning, manufacturing and sale of yarn. Proceedings under section 161 of the Ordinance of 2001 were initiated for alleged failure of respondent-taxpayer to deduct tax at source while making payment against the supply of cotton (raw material) received from sister concern, which culminated in passing of original assessment order under Sections 161/205 of the Ordinance of 2001, determining…

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