Islamabad High Court Orders Telecom Operator to Pay Rs22 Billion to FBR

The Islamabad High Court (IHC) has ruled against a prominent telecom company, mandating a payment of Rs22 billion (US$78 million) to the Federal Board of Revenue (FBR).

A Division Bench of the IHC, presided over by Justice Babar Sattar, issued a key verdict supporting the FBR in a tax reference case involving a major telecom operator. The ruling affirms the FBR’s authority to assess tax liabilities on significant intra-group transactions related to the transfer of the telecom operator’s tower assets. Consequently, the telecom operator is now obligated to remit approximately Rs. 22 billion (USD 78 million) in taxes on gains derived from the transaction.

The central issue of the case revolved around a 2018 internal asset restructuring, where the telecom operator transferred its nationwide tower infrastructure to a wholly owned subsidiary. The disposal of these assets, valued at Rs. 98.5 billion (USD 940 million), was documented in the telecom operator’s financial records as an accounting gain of about Rs. 75.9 billion. The telecom operator argued that the transaction should be exempt from taxes under section 97(1) of the Income Tax Ordinance, 2001 (ITO), which pertains to intra-group transfers, because the assets were transferred to a wholly owned subsidiary.

The high court rejected the petitioner’s argument, clarifying that the provision allows for a tax-neutral event only if all conditions outlined in section 97 of the ITO are satisfied. This includes maintaining the same written-down value of the transferred asset in the hands of the transferee as it was with the transferor, ensuring the transaction does not generate any economic value that would lead to taxable income. The Court established that the transaction occurred at a fair market value of USD 940 million, which the petitioner accepted as consideration, thus contravening section 97 of the ITO.

In its decision, the Court asserted that the gains from the transaction constituted a taxable event, as there was no basis to postpone taxation to a later date. The Court further stated that the Commissioner has the jurisdiction to consider accounting income when determining taxable income.

This judicial success for the FBR marks progress toward achieving the Prime Minister’s objective of efficiently recovering state revenue from pending cases across various appellate forums.

Under the leadership of Chairman Rashid Mehmood, the FBR’s Legal Wing, headed by Member (Legal IR) Mir Badshah Khan Wazir and in collaboration with Director General (Law), has undertaken multiple initiatives to aggressively pursue pending cases by offering adequate support to the courts. These collaborative endeavors have facilitated the resolution of numerous pending tax disputes across different legal platforms, involving billions of rupees in revenue. Asma Hamid, ASC, and Dr. Ishtiaq Ahmed Khan (DG Law) played key roles in representing the FBR in this case.

In a separate petition filed by the same telecom operator against a show cause notice issued under the Federal Excise Act, 2005, the court dismissed the plea and imposed a cost of Rs. 100,000 on the petitioner, payable to the Deputy Commissioner-IR, LTO, Islamabad, within four weeks.