Law: Income Tax Ordinance, 1979

Section: 79

Law: Income Tax Act, 1922

Section: 42(4)

Income Tax Ordinance (XXXI of 1979)---S.79---Transfer pricing---Putative source---Income or windfall---Proof---Assessee was a subsidiary of a non-resident foreign company and in assessment years in question it received certain amount from its parent company, which were stated to be a voluntary payment by way of gift and voluntary payment by way of subsidy---In both years, amount received from abroad was stated to be remittances. to help assessee improve its financial position, which deteriorated due to accumulated losses-Plea raised by assessee was that such amounts were not income but rather a windfall received from parent company---Income Tax Appellate Tribunal concluded that since parent company had charged a higher price from assessee than that was prevailing internationally, it would continue to do so---Tribunal further stated that there was a continuous siphoning off of funds with attendant result that parent company would have to periodically make remittances to assessee to (partially) replenish the funds being siphoned off---Income Tax Appellate Tribunal also found that on such basis there was periodical monetary return coming in with an expected regularity front a definite source---Validity---Such reasoning and conclusion was fundamentally flawed and unsustainable in law and if such was the Tribunal's rationale, it could only be described as conjectural---Remittances were what the assessee claimed they were: a mere windfall, which could be regarded as periodical monetary return coming in with an expected regularity---Income Tax Appellate Tribunal erred in its conclusion that the remittances constituted assessee's income---Question was decided in favour of assessee and against the authorities---Reference was decided accordingly. Pakistan International Airlines Corporation v. Commissioner of Income-Tax 1975 PTD 219; PLD 1975 Kar. 924 and 1991 PTD 999 = 1991 SCMR 2374 ref. PLD 1975 Kar. 924 distinguished. Commissioner of Income Tax v. Smith, Kline and French of Pakistan Ltd. and others 1991 PTD 999 = 1991 SCMR 2374 rel. THIS ORDER PASSED BY: MUNIB AKHTAR, JUSTICE:--------------- This Income Tax Reference relates to two assessment years of the applicant…

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