Pakistan’s Source of Investment Law Not Applicable on Non-Resident Pakistanis in France - Android

The Federal Board of Revenue (FBR) cannot probe the source of investment of non-resident Pakistanis including French nationals, having no… Read More

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The Federal Board of Revenue (FBR) cannot probe the source of investment of non-resident Pakistanis including French nationals, having no taxable income in Pakistan, under section 111 (unexplained income/assets) of the Income Tax Ordinance 2001.

According to a recent decision of the Appellate Tribunal Inland Revenue (ATIR), the Bilateral Tax Treaty between Pakistan and France has an overriding effect on the IT Ordinance. Furthermore, since the appellant is filing his tax returns in France, in light of the Tax treaty between Pakistan and France, no action can be perpetuated in Pakistan by the Pakistan Tax authorities.

In the recent Tribunal decision in the case of Raja M. Raheel VS Commissioner Inland Revenue (CIR) the appeal has been filed against the impugned order passed by the learned Commissioner Inland Revenue (Appeals), Sialkot on the following ground that the Appellant is a non-resident Pakistani, engaged in Restaurant business in France where he is earning his livelihood. Since he does not have any Pakistani Source Income, therefore, Section 111 of the IT Ordinance cannot be invoked. Even otherwise, he had enough agricultural income to purchase this property.

The appellant is a French National and is not a resident of Pakistan. He is engaged in the business of a restaurant and is the owner of one in Paris, France and holds that his source of income is outside Pakistan. The proceedings in the case were started by the Assistant Commissioner Inland Revenue (ACIR) on the basis of information where it was alleged that the taxpayer purchased properties for the consideration of Rs. 3,432,000.

Notice under Sections 114(4) and 116(1) of the Income Tax Ordinance was issued but on the day of the hearing, neither anyone appeared, nor filed any reply. Later on, notice under Section 111(1)(b) was issued but to no avail. Consequently, the ACIR completed the assessment under Section 121(1) vide order dated 28.4.2012 received on 2.6.2016, creating a tax demand of Rs. 858,000 and subsequently attached the bank accounts and recovered the impugned tax so assessed.

According to the record, this fact is evident that the appellant has an established business in France and resides abroad. In Pakistan, he has purchased a certain piece of land in Pakistan regardless of how the amount was paid. At this stage, if at all we presume that he has a permanent home in both the states (i.e., France and Pakistan) though it is not alleged by the department at any point of time. Even then, the taxpayer cannot be subject to Pakistani tax because the center of vital interest in France and his personal and economic relations are closer.

The order the tribunal revealed that the taxpayer has closer personal relations as well as substantial economic relations; to one contracting state (France), while in the other state (Pakistan) he merely has an economic interest that is current (wherein the appellant has just purchased a piece of land). His center for vital interest will be deemed to be the first contracting state, i. e. France. In the case of the appellant, it is obvious to us now that the center for vital interest for him is France and not Pakistan.

Once it is established that the center of vital interest is not Pakistan, Section 111 read with Section 82 is thus superseded by, and thus quashed by Article 4 of the Bilateral Tax Treaty between Pakistan and France.

Therefore, the ATIR held that the provisions of the Income Tax Ordinance cannot be invoked because the Bilateral Tax Treaty between Pakistan and France has an overriding effect on the IT Ordinance. Furthermore, since the appellant is filing his tax returns in France, in light of the Tax treaty between Pakistan and France, no action can be perpetuated in Pakistan by the Pakistan Tax authorities.

The ATIR held that the Appellant has centre of vital interest in France by virtue of his personal and economic interests abroad. He has his habitual abode abroad, and his income is assessed in France.

The Appellant is absolved from Pakistan taxation and no provision of the IT Ordinance is attracted as he does not have any plausible source of income that has deemed to have accrued to him. Section 111 is applicable to residents of Pakistan only and cannot be extended to the appellant who is resident abroad and does not have taxable in Pakistan. Section 111 of the IT Ordinance cannot be invoked on non-resident French National whose habitual abode is in France and have a more personal and economic interest in France than Pakistan and has not earned any income from any Pakistan source. The department has failed to discharge its onus for the reinforcement of Section 111.

The Appellant is not taxable in Pakistan and Section 111 is not attracted to a non-resident in the presence of Tax treaty between Pakistan and France upon applicable tie-breaker text. The ATIR deleted the levy of tax under Section 111. The consequential to deletion of liability the Zonal Commissioner Inland Revenue is directed to return the amount extorted from the bank accounts of the Appellant and with compensation, if applicable, be paid to the appellant.

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