ARMY WELFARE TRUST, RAWALPINDI vs COMMISSIONER OF INCOME TAX Second Sched — 2023 PTD 351 ISLAMABAD

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ARMY WELFARE TRUST, RAWALPINDI VS COMMISSIONER OF INCOME TAX Second Sched., Part I, Cl. 58(1)---Income Tax Ordinance (XXXI of 1979), Second Schedule, Part I, Cl. 62 (1)---Tax exemption---Welfare activity---Onus to prove---Onus of discharging obligation of establishing that a certain amount from income from business has been expended in carrying out welfare activities in tax year in question rests with the taxpayer. Citation Name: 2023 PTD 351 ISLAMABADBookmark this Case ARMY WELFARE TRUST, RAWALPINDI VS COMMISSIONER OF INCOME TAX Expend---Meaning. Citation Name: 2023 PTD 351 ISLAMABADBookmark this Case ARMY WELFARE TRUST, RAWALPINDI VS COMMISSIONER OF INCOME TAX Ss.3 & 5---Cooperative Society---Status---Society is a juristic person and body incorporated and formed under Cooperative Societies Act, 1925---As legal personality of society registered under Cooperative Societies Act, 1925 becomes distinct from personality of natural persons who come together to create the society, it becomes a body corporate formed as a legal person by virtue of its registration under Cooperative Societies Act, 1925. Citation Name: 2023 PTD 351 ISLAMABADBookmark this Case ARMY WELFARE TRUST, RAWALPINDI VS COMMISSIONER OF INCOME TAX S.29---Bad debts---Pre-condition---For purposes of any tax year in relation to which either Income Tax Ordinance, 1979 or Income Tax Ordinance, 2001 is applicable, a necessary precondition for any debt to qualify as bad debt is for the taxpayers to have written off such debt in its books and accounts for such tax year as bad debt--- Such written off amount in lieu of bad debts then determines ceiling of bad debt in lieu of which adjustment can be sought in relation to a particular tax year---Treatment in the books and accounts of debt in relation to which taxpayer seeks a deduction on account of it being bad debt as having been written off in relevant tax year is a necessary precondition---Once such condition is met, the second condition to be satisfied is reasonability of belief that such written off debt is irrecoverable---Where a taxpayer has not written off debt within its own books and accounts for relevant tax year for having become irrecoverable, question of seeking deduction for such debt as bad debt does not arise. Citation Name: 2023 PTD 351 ISLAMABADBookmark this Case ARMY WELFARE TRUST, RAWALPINDI VS COMMISSIONER OF INCOME TAX Ss.2(29), 9, 10, 11, 80(2)(b)(v), 133 & Second Sched., Part-I, Cl.58(2)(1)---Income Tax Ordinance (XXXI of 1979), Ss.2(24), 11, 15, 23(1)(x) & Second Schedule, Part-I, Cl. 62(1)---Income of trust---Tax exemption---Overriding title---Applicant/Trust sought exemption on the plea that its income was diverted by virtue of overriding title of Directorate of Army controlling the affairs of applicant/Trust and other projects---Validity---Concept of overriding title leading to diversion of income had no application when had come to income of a trust or society or a charitable institution---Constituent documents of such entity constrain its ability to determine freely how the income was to be used once it had reached the entity, who was not free and autonomous to use it as it pleased---Constituent documents of the entity determined how income was to be employed or even who all would be the beneficiaries of such income---Such constraint did not transform income of welfare entity (whether constituted as a S. 42 company or a trust or a society) into that of the beneficiaries---Once income had reached the entity (i.e. the taxpayer), it qualified as income under Ss.2(24) & 11 of the Income Tax Ordinance, 1979 and Ss. 2(29), 9 & 10 of Income Tax Ordinance, 2001---Manner in which such income was to be employed was a question of its utilization and not that of overriding title--- Income that had reached a taxpayer or accrued to it, notwithstanding the manner of its utilization, remained income in the hands of taxpayer and was to be taxed as such---What qualified as "income" under Income Tax Ordinance, 1979 or Income Tax Ordinance, 2001 was income liable to tax in the hands of taxpayer who was in receipt of such income---Applicant / Trust was under no legal obligation to transfer its entire income to the Directorate due to legal necessity---Even in the event that the constituent documents of applicant / Trust stated that its entire income would be employed in welfare activities through another organization such as the Directorate, such arrangement for utilization of income of applicant / Trust would still not create any overriding title in favour of Directorate over the properties and income of applicant / Trust to the extent that applicant / Trust had received income generated by assets and projects owned by it and such income would be liable to tax in the hands of applicant / Trust---Reference was disposed of accordingly. Citation Name: 2023 PTD 351 ISLAMABADBookmark this Case ARMY WELFARE TRUST, RAWALPINDI VS COMMISSIONER OF INCOME TAX Profit margin---Determination---Taxation officer, discretion of---Scope---Taxation officer has no discretion to determine in arbitrary manner profit margin that he finds reasonable in relation to a certain income stream---What is vested in taxation officer under Income Tax Ordinance, 2001 is not discretion but a right to exercise judgment while reassessing income pursuant to provisions of Income Tax Ordinance, 2001---Where such judgment is being exercised in a manner that rejects the treatment afforded to income by taxpayer, the taxation officer is under an obligation to provide reasons for the manner in which he/she has chosen to exercise judgment---Without such reasons, which are justiciable, rejection of tax treatment afforded by taxpayer or change in profit margin applied bytax department cannot be countenanced---Tax authorities cannot arbitrarily apply a profit margin. Citation Name: 2023 PTD 351 ISLAMABADBookmark this Case ARMY WELFARE TRUST, RAWALPINDI VS COMMISSIONER OF INCOME TAX Second Sched., Part I, Cl. 58(1)---Income Tax Ordinance (XXXI of 1979), Second Sched., Part I, Cl. 62(1)---Tax exemption---Trust, entitlement of---Army Welfare Trust is a welfare institution and is entitled to seek exemption under Second Schedule, Part I, Cl. 62(1) of Income Tax Ordinance, 1979 as well as under Second Sched., Part I, Cl. 58(1) of Income Tax Ordinance, 2001, in relation to "income from business as is expended in Pakistan for purposes of carrying out welfare activities" to the extent permissible under such clauses.

ARMY WELFARE TRUST, RAWALPINDI vs COMMISSIONER OF INCOME TAX Second Sched — 2023 PTD 351 ISLAMABAD

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