CAA told to avail ADR mechanism for resolving income tax exemption issue

KARACHI: The Sindh High Court (SHC) has turned down a Civil Aviation Authority petition seeking exemption from the levy of the income tax and directed the authority to either avail the alternative dispute resolution (ADR) resolution mechanism under Section 134A of the income tax ordinance or under Rule 8(2) of the 1973 rules of business.

The Civil Aviation Authority (CAA) had approached the court for seeking declaration that it is exempt from the levy of the income tax pursuant to Section 34 of the Pakistan Civil Aviation Authority Act, 2023 and Section 38 of the Pakistan Airports Authorities Act, 2023 read with Article 165A of the constitution notwithstanding the restriction imposed under Section 54 of the Income Tax Ordinance, 2001. The court had earlier confronted the CAA as to the recent amendment in the income tax ordinance whereby Section 134A has been amended requiring the state-owned enterprise to mandatorily go for ADR, whereas even in terms of Rule 8(2) of the rules of business the matter has to be resolved at the level of the federal government.

The counsel for the CAA however contended that the CAA does not fall within the definition of an SOE, and Section 3 of the state-owned enterprises (Governance and Operation) Act, 2023 (“SOE Act”) is not applicable; therefore, the provisions of section 134A of the Ordinance are not relevant. Regarding objection of Rule 8(2) of the 1973 Rules, the counsel submitted that the CAA and Airport Authorities Acts in question have been passed by the Parliament and have an overriding effect. Therefore, Rule 8(2) of the 1973 Rules has no relevance as well.The counsel submitted that the matter cannot be referred to the ADRC and has to be decided by the court by exercising its jurisdiction under Article 199 of the constitution. He has further contended that he FBR has already deducted more than Rs15 billion from the bank account of the CAA as advance tax for the last quarter. A high court division bench headed by Justice Mohammad Junaid Ghaffar, after hearing the arguments of the counsel, observed that the petitioner is an authority which is generating its revenue from selling services on a commercial basis, and there appears to be no dispute that the petitioner is being run on a commercial basis. The court observed that it does not appear to be the case of the petitioner that is not controlled or managed by the federal government and the petitioner is covered by the SOE Act. The SHC observed that most significant and relevant amendment made in the income tax ordinance, which was fully applicable to the CAA as now it is mandatory for SOE to go for ADR. The court after the perusal of the amendments in the income tax ordinance and gathering the intent of the federal government observed that it clearly reflects that an internal mechanism has been evolved for the quick disposal of tax disputes between SOEs and the FBR.

The court further observed that the reason being that at the end of the day, in any such disputes, it is, in fact, the federal government which is the ultimate loser, by way of litigation costs, besides delay in the settlement of such disputes from the courts of law.