| Citation(s) |
|---|
| 2026 SLG 1019 2026 SLD 1019 = 2026 PTD 424 = 2026 PDS 6169 = 2026 SCMR 566 |
Supreme Appellate Court, Pakistan
Civil Petitions Nos. 2007 to 2017, 2178 to 2184, 2206 to 2214, 2345, 2377 to 2381, 2570 to 2573, 2575 to 2576, 1746 to 1751, 2903 to 2907 of 2022 and 1472 of 2023, decided on 29th November, 2023.
Presented By: Syed Mansoor Ali Shah, Sayyed Mazhar Ali Akbar Naqvi, Jamal Khan Mandokhail and Muhammad Ali Mazhar, JJ
Dr. G. M. Chaudhary, Ch. Zafar Iqbal, Dr. Farhat Zafar, Ch. Imtiaz Ahmed, Advocates Supreme Court, Ch. Akhtar Ali, Advocate-on-Record and Khan Faisal, Additional Commissioner, Inland Revenue. For the
Respondents: Azid Nafees, Hafiz M. Idrees, Khurram Mumtaz Hashmi, Sardar Ahmed Jamal Sukhera, Rashid Anwar, Advocates Supreme Court (Through video link from Karachi), Barrister Umer Aslam Khan, Anis M. Shahzad, Advocates Supreme Court and Syed Rifaqat Hussain Shah, Advocate-on-Record.
Civil Petitions Nos. 2007 to 2017, 2178 to 2184, 2206 to 2214, 2345, 2377 to 2381, 2570 to 2573, 2575 to 2576, 1746 to 1751, 2903 to 2907 of 2022 and 1472 of 2023, decided on 29th November, 2023.
Presented By: Syed Mansoor Ali Shah, Sayyed Mazhar Ali Akbar Naqvi, Jamal Khan Mandokhail and Muhammad Ali Mazhar, JJ
Dr. G. M. Chaudhary, Ch. Zafar Iqbal, Dr. Farhat Zafar, Ch. Imtiaz Ahmed, Advocates Supreme Court, Ch. Akhtar Ali, Advocate-on-Record and Khan Faisal, Additional Commissioner, Inland Revenue. For the
Respondents: Azid Nafees, Hafiz M. Idrees, Khurram Mumtaz Hashmi, Sardar Ahmed Jamal Sukhera, Rashid Anwar, Advocates Supreme Court (Through video link from Karachi), Barrister Umer Aslam Khan, Anis M. Shahzad, Advocates Supreme Court and Syed Rifaqat Hussain Shah, Advocate-on-Record.
DEPUTY COMMISSIONER OF INCOME TAX, ISLAMABAD and others
VS
. Messrs MARI GAS COMPANY LIMITED, ISLAMABAD and others
Law: Income Tax Ordinance, 2001
Section: 62
JUDGMENT/ORDER/FINDINGS/RECOMMENDATIONS Summary, This judgment, authored by Syed Mansoor Ali Shah, J., resolves a significant tax dispute between the Federal Board of Revenue (FBR) and petroleum companies regarding the calculation of "Depletion Allowance." The Core Dispute Mari Gas Company Limited claimed a Depletion Allowance (a tax deduction for the exhaustion of natural resources) equal to 15% of its "well-head value" of production. The Tax Department argued that the Royalty paid by the company to the Government should be deducted from the gross receipts before calculating this 15% allowance. Their logic was that Royalty represents the Government's share of the resource, not the company's income. Key Legal Findings 1. Defining "Well-head Value" The Court looked at the Pakistan Petroleum (Exploration and Production) Rules, 1986. Definition: Well-head value is the market value of petroleum minus the costs of gathering, processing, treatment, and transportation. The Ruling: The Court found that "Royalty" is not listed as a cost to be deducted in this definition. 2. Royalty as an Independent Component The Court clarified that while Royalty is calculated as a percentage (12.5%) of the well-head value, it does not mean Royalty itself is a "cost" that reduces the well-head value for tax purposes. Royalty and Depletion Allowance are two separate legal components. Royalty is a payment to the State for the right to extract resources; Depletion Allowance is a tax incentive provided to the undertaking. 3. Rejection of the "Equity Interest" Argument The Tax Tribunal had previously treated Royalty as the Government's "equity interest" in the product (meaning the Government owns that portion of the gas). The Supreme Court rejected this, stating that the law does not allow for such an interpretation when calculating tax allowances under the Fifth Schedule to the Income Tax Ordinance, 1979. Final Decision The Supreme Court upheld the Islamabad High Court's judgment and ruled: Royalty is not deductible while computing the well-head value for the purpose of…