Balochistan High Court Affirms Provincial Authority Over Agricultural Income Tax

The Balochistan High Court has declared that the imposition of taxes on agricultural earnings is a provincial matter, and any repercussions for late payments must adhere to provincial regulations.

The Acting Chief Justice of the Balochistan High Court sided with the taxpayer, Khalid Hussain, in a dispute concerning the tax implications on agricultural income as per Section 111 and the exemption under Section 41 of the Income Tax Ordinance, 2001.

Riffat Naeem Jan Advocate High Court, Karachi, represented the taxpayer in this matter.

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At the heart of the issue was whether the Federal Board of Revenue (FBR) had the jurisdiction to tax agricultural income, which is categorized as a provincial subject. The Commissioner Inland Revenue contended that Hussain incorrectly sought an exemption on agricultural income and did not fulfill tax obligations. Conversely, the taxpayer maintained that, particularly after the 18th amendment, agricultural income falls within provincial jurisdiction and is not subject to FBR taxation.

A central argument revolved around the legitimacy of notices and assessments. The Commissioner asserted that the notice issued under Section 122(9) was sufficient, negating the requirement for a separate notice under Section 111 following amendments in the 2021 Finance Act.

However, the taxpayer insisted that FBR lacks the authority to override the exemption provided by Section 41.

The case originated when the Deputy Commissioner Inland Revenue issued an assessment order, which created a tax liability of Rs. 10,154,812. While the Commissioner Appeal IR upheld this order, the Appellate Tribunal Inland Revenue (ATIR) later overturned it, ruling in favor of Hussain. ATIR underscored that agricultural income cannot be taxed through a reinterpretation of Section. Subsequently, the Commissioner sought judicial review via a high court reference.

The Balochistan High Court rejected the Commissioner’s appeal, referencing precedents set by the Supreme Court (CP 2447-L/2022) and the Lahore High Court (ITR No. 61061 of 2022).

The verdict reaffirmed that the authority to tax agricultural income lies with the provinces, and any penalties for delayed payments are governed by provincial laws.

This ruling reinforces the legal stance that the FBR is barred from taxing agricultural income and validates the exclusive authority of provincial governments over such taxation matters.