Law: Income Tax Ordinance, 1979

Section: 66A,62,11,12

(a) Income Tax Ordinance (XXXI of 1979)----Ss. 66-A, 62, 11 & 12---Convention for Avoidance of Double Taxation between Pakistan and Germany, Art. 7---Permanent establishment in Pakistan ---Assessee was a non-resident German Company--- Supply and installation of turbines for Hydropower project--­Return was filed declaring net losses attributable to its permanent establishment in Pakistan and the same was assessed after making certain add backs out of the expenses claimed by the assessee---Assessment was cancelled by the Inspecting Additional Commissioner under S. 66-A of the Income Tax Ordinance, 1979 on the ground that entire business transactions attributable to both on-shore and off-shore activities should have been subjected to tax as manufacturing activities carried on outside Pakistan being a part of a composite contract could not be split up for taxation purposes and off-shore activities were directly connected to permanent establishment and were inseparable extension of on-shore activities---Validity---Provisions of S.12(2) of the Income Tax Ordinance, 1979 provide that, in case of non-resident, its income was chargeable to tax in Pakistan only on such portion as was attributable to the permanent establishment situated in Pakistan---Order under S.62 of the Income Tax Ordinance, 1979 was passed by the Assessing Officer after examining various aspects of the case, the terms of contract and provisions of Art. 7 and para. 2(a) of the Convention and he had rightly decided that only so much of income of assessee was liable to tax in Pakistan as was attributable to the permanent establishment of the assessee in Pakistan i.e. on-shore activities---Order under S. 62 of the Income Tax Ordinance, 1979 was neither erroneous nor prejudicial to the interest of revenue and action under S. 66-A of the Income Tax Ordinance, 1979 being uncalled for was set aside by the Tribunal and order of the Assessing Officer was restored. (1999) 80 Tax 17 (Trib.); 172 ITR 358 and 116 ITR 868 ref. CIT v. Gabriel India Ltd. 203 ITR 108 rel. (b) Income Tax--- ----No income---No expense allowance---Validity---Inference that when no income, was declared, no expenses were to be allowed…

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