COMMISSIONER INLAND REVENUE, ISLAMABAD vs FAUJI FOUNDATION Ss — 2024 PTD 637 SUPREME-COURT

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COMMISSIONER INLAND REVENUE, ISLAMABAD VS FAUJI FOUNDATION Ss. 18(1)(d), 122(5) & 122(9)---amendment of original assessment order---Pre-requisites---Income from business---Scope---Subsidiary company's shares---Increase in value---Whether the increase in the fair market value of the subsidiary company's shares held by the taxpayer-respondent as long-term investment was taxable under the head "income from business" in terms of section 18(1)(d) of the Income Tax Ordinance, 2001---Held, that section 18(1)(d) of the Income Tax Ordinance, 2001 prescribes a two-pronged test for bringing income under the head "income from business" ; first is that any benefit or perquisite must have a fair market value, not necessarily whether it can be converted into money; second is that a person may have received the value of that benefit or perquisite during or under a past, present, or prospective business relationship---Coexistence of both is necessary and the absence of one of them will not constitute income from a business---as regards the first constituent component of the test, the notional gain derived by the taxpayer from the increase in the fair market value of its shares may in appropriate circumstances be counted as "benefit"---However, no definite answer need be given on this, in the facts and circumstances of the present case---With respect to the second constituent component of the test, the principle to be applied for purposes of present case is whether the investment which led to the notional gain was connected with the carrying on of the taxpayer's business---It bears mentioning that enhanced fair market value of any benefit or prerequisite may be so assessable under Section 18(1)(d) of the Income Tax Ordinance, 2001, where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business---In the present case, the Revenue has not brought any material on record which discloses definite information that the taxpayer had made the said investment in furtherance of its business or in connection therewith---Given this scenario, the relationship between the taxpayer and its subsidiary may be held to be contractual, and governed by articles of association---So viewed, the facts of this case do not meet the test for section 18(1)(d) of the Income Tax Ordinance, 2001, and thus, the taxpayer's gain from its investment cannot be treated as business income in terms of section 18(1)(d)---Furthermore, according to section 122(5) of the Income Tax Ordinance, 2001, two conditions have to be complied with before a Taxation Officer acquires jurisdiction to issue notice under section 122(9) in respect of an assessment beyond the period of five years from the end of the relevant financial year---These two conditions are: firstly, that the Taxation Officer must have obtained definite information from the audit or otherwise; and secondly, that on that basis he must also be satisfied that income chargeable to tax had escaped assessment or total income has been undervalued, or assessed at too low a rate, or has been the subject of excessive relief or refund or any amount under a head of income has been misclassified---In the present case the two conditions of section 122(5) were not adhered to while assuming jurisdiction to amend the original assessment order---Show cause notice and the order amending the original assessment speaks elaborately that the Taxation Officer had not acquired any definite information subsequent to the original assessment order---On the contrary, the Taxation Officer based on the information provided in the return and documents attached to it by the taxpayer, proceeded to amend the assessment---Taxation Officer had only made reanalysis of existing information and came to a conclusion that was different from the one that was drawn in the original assessment order---Notice issued under section 122(9) of the Income Tax Ordinance, 2001 was without jurisdiction, and the order passed in consequence of it was also void---appeal was dismissed accordingly.

COMMISSIONER INLAND REVENUE, ISLAMABAD vs FAUJI FOUNDATION Ss — 2024 PTD 637 SUPREME-COURT

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