IHC Rules in Favor of FBR in Tax Dispute with Telecom Operator

A divisional bench of the Islamabad High Court (IHC), presided over by Justice Babar Sattar, has decided in favour of the revenue authority in a tax case initiated by a major telecom firm, according to an official statement released on Thursday.

The verdict reinforces the authority of the Federal Board of Revenue (FBR) to determine tax obligations on a substantial intra-group transaction involving the transfer of the telecom company’s tower assets.

The FBR’s statement indicated that “Consequently, the telecom provider is now required to remit approximately Rs22 billion ($78 million) in taxes on the income generated from this transaction.”

Background of the Case

The case revolved around an internal asset restructuring conducted in 2018, wherein the telecom company transferred its nationwide tower infrastructure to a fully owned subsidiary.

The telecom operator’s financial records indicated that the disposal of these assets for Rs98.5 billion ($940 million) resulted in an accounting gain of roughly Rs75.9 billion.

The telecom operator, however, argued that the transaction was exempt from taxation, citing Section 97(1) of the Income Tax Ordinance, 2001 (ITO), which pertains to intra-group transfers, as the asset was transferred to its wholly owned subsidiary.

Court’s Ruling

According to details, the IHC rejected the petitioner’s argument, asserting that the provision allows for a tax-neutral event only if all conditions outlined in Section 97 of the ITO are satisfied.

This includes ensuring that the written-down value of the transferred asset remains constant in the hands of the transferee compared to the transferor, implying that the transaction should not yield any economic value that leads to taxable income.

The court noted that the transaction occurred at a fair market value of $940 million, which the petitioner accepted as consideration, thereby contravening Section 97 of the ITO.

The court concluded that the gain from the transaction constituted a taxable event since there was no basis to defer taxation to a later date.

The court further stated that the commissioner possessed the jurisdiction to take accounting income into account when assessing taxable income.

FBR’s Efforts Acknowledged

The FBR stated that “Under the leadership of Mr. Rashid Mehmood, Chairman, FBR, the Legal Wing of the FBR, led by Mir Badshah Khan Wazir, Member (Legal IR), in conjunction with Director General (Law), has undertaken numerous measures to actively pursue pending cases by offering appropriate assistance to the courts.”

“These combined efforts have led to the resolution of numerous outstanding tax disputes across various legal platforms, involving significant revenue in billions of rupees. Ms. Asma Hamid, ASC, and Dr. Ishtiaq Ahmed Khan (DG Law) effectively represented the Federal Board of Revenue in this matter,” the FBR added.

In a separate matter, the court dismissed another petition from the same telecom operator against a show cause notice issued under the Federal Excise Act, 2005, and imposed a cost of Rs100,000 on the petitioner, payable to the Deputy Commissioner-IR, LTO, Islamabad within four weeks.