Law:

Section:

Income Tax Ordinance (XLIX of 2001)--- ----S.122(1)(5)---Customs Tariff, First Schedule, Chapter 88---Double Taxation Agreement between Islamic Republic of Pakistan and Government of Canada, Art.XII, Cl.4(a)---Amendment of assessment---Lease of Air Crafts---Dry lease charges---Royalty---Dry lease charges were treated as royalty by treating "Air Crafts" as commercial equipments---Taxpayer contended that lease charges or rental received by non-resident airlines was not taxable in Pakistan as it was taxed in their home country because they did not have any permanent establishment in Pakistan; that department had initiated proceedings in the assessment year 1994-1995 with the intention of treating lease rental as royalty for use of industrial, commercial or scientific equipment; that payment of lease rental could not be equated with royalty; that department in order to resolve the disputed issue had entered into an agreement with non-resident airlines that 4% of lease rental will be attributed as taxable receipts in Pakistan on which Income Tax at the prevailing rate on corporate cases will be applied and this was also accepted by all the non-resident airlines in Pakistan as a agreement; and that assessment for the year 1994-1995 till the tax year 2008 had been finalized on the said agreement basis---Validity---Aircraft was a collection of various components joined together and placed in a single basket for efficient operation and capable of independent use and can be described as a flying machine with wings of fixed or variable sweep angle---Aircraft was a machine capable of flight or flying and not an equipment---Aircraft had been defined and assessed as, "machine in normal flying order" in Pakistan Customs Tariff, and excludes therefrom equipment other than permanent fitted items of equipments being part of machine---For the purpose of assessment for levy of Customs duty under Customs Act, 1969, aircraft had been treated as a machine in normal flying order and not as equipment---Aircraft was an independent machine and as it was neither an industrial nor commercial equipment within the meaning of Para 4(a) of Art. XII of Double Taxation Agreement with Canada or…

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