PAKISTAN MOBILE COMMUNICATIONS LIMITED (PMCL) vs COMMISSIONER INLAND REVENUE (ZONE-IV) LARGE TAXPAYERS, UNIT,

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PAKISTAN MOBILE COMMUNICATIONS LIMITED (PMCL) VS COMMISSIONER INLAND REVENUE (ZONE-IV) LARGE TAXPAYERS, UNIT, ISLAMABAD S. 97---Disposal of assets between wholly-owned companies---Principle---Where a parent company does not hold all shares of a subsidiary company, such parent, even where it holds more than three-fourths of the shares of the subsidiary company, cannot be considered a part of a wholly owned group---Provision of S.97(1) of Income Tax Ordinance, 2001 is atax deferral provision that allows intra group transfer between resident companies constituting a wholly owned group in atax-neutral manner---As transfer takes place between companies comprising a wholly-owned group, there is no real change in ownership of transferred asset---Transferred asset also undergoes no change in terms of its character and tax basis by virtue of the requirement of S.97 (2) (b) of Income Tax Ordinance, 2001 that transfer of a depreciable asset must be recorded by transferee as written down value of asset in the hands of transferor (even in case of an asset that is not depreciable, the transferee's cost must be the same as the transferor's cost at the time of disposal, in terms of S.97(2)(b)(iii) of Income Tax Ordinance, 2001---In cases of tax-neutral intra-group transfers, often shares of subsidiary company are issued in lieu of consideration for the transfer, which is catered for by S.97 (2) (d) of Income Tax Ordinance, 2001 requiring that any consideration in kind received by transferor may not be greater than the transferee's cost in respect of the acquisition (which, in turn, is the written down value of the asset in the hands of the transferor or cost of the transferor)---This is the principle applicable where an asset changes hands between wholly-owned resident companies, in circumstances where the character and tax basis of the asset undergoes no change and the transaction is recorded in terms of written down value or transferor's cost at the time of disposal, such transaction gives rise to no taxable event---Any gain or loss by virtue of such transaction is neither booked by transferor nor by transferee---Any gain or loss by virtue of such transfer is not realized at the time of transfer and is deferred to be realized at subsequent time, when asset is disposed of, if at all, by transferee company at its fair market value.

PAKISTAN MOBILE COMMUNICATIONS LIMITED (PMCL) vs COMMISSIONER INLAND REVENUE (ZONE-IV) LARGE TAXPAYERS, UNIT, ISLAMABAD S — 2026 PTD 45 ISLAMABAD

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