Payments Received by POF Board Not Liable to Collection or Deduction of Advance Tax: ATIR

The Appellate Tribunal Inland Revenue (ATIR), Islamabad declared that the Pakistan Ordinance Factories (POF) Board is the department of the Federal Government and any payment received by the Federal Government, a Provincial Government, or a Local Government shall not be liable to any collection or deduction of advance tax.

This has been announced by the Appellate Tribunal Inland Revenue (ATIR), Islamabad while deciding the case about the status of the M/s Wah Industries Limited, Wah Cantt (appellant).

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The ATIR has declared that the POF Board is the department of the Federal Government and any payment received by the Federal Government, a Provincial Government, or a Local Government shall not be liable for any collection or deduction of advance tax. Further, the revenue department itself issued the Free Tax Number (FTN) to the POF Board.

Details of the case revealed that the appellant i.e. M/s Wah Industrie Limited, was incorporated as a public limited company under the Companies Act. The company is wholly owned by the Government of Pakistan through the Pakistan Ordinance Factories (POF).

The company is principally engaged in the manufacturing and sale of 12-Bore ammunition, Ammo containers, and sale of civil products from POF and other parties. The company also acts as a commission agent for POF to facilitate the sale of obsolete/surplus stores and scraps.

During the scrutiny of the taxpayer’s record for Tax Year 2015, it was observed that the taxpayer has not deducted withholding tax in terms of section 150 of the Income Tax Ordinance, 2001 (“the Ordinance”) while making dividend payments amounting to Rs.200,000,000/- to the POF Board.

Subsequently, Large Taxpayer Office (LTO), Islamabad passed an assessment order under section 161/205 of the Income Tax Ordinance. Felt aggrieved, the appellant taxpayer filed an appeal before the Commissioner Inland Revenue (Appeals-I), Islamabad who decided the appeal of the taxpayer vide Order in Appeal No.89/2021 dated 24.09.2021. Being aggrieved, the appellant registered person has now come up before the ATIR and has assailed the impugned order on a number of grounds.

The judgment of the ATIR stated that the only issue involved in the instant appeal is whether the appellant was required to withhold the tax under section 150 of the Ordinance while making payment on account of the dividend to the Pakistan Ordnance Factories Board? Before answering the said question, it is necessary to first determine the status of the POF Board whether it is a body corporate and comes within the ambit of section 49(4) of the Income Tax Ordinance.

Whereas the POF is a corporate body, it has been established by the Federal Government under the Pakistan Ordnance Factories Board Ordinance, 1961. The preamble of the Ordinance clearly suggests that POF Board is working on behalf of the Federal Government which says that “Whereas it is expedient to provide for the constitution of Pakistan Ordnance Factories Board and for investing it with certain powers and functions of the Central Government in relation to the Ordinance Factories.’ Section 3 and 6 of the Ordinance provide the constitution of the Board and its functions respectively.

The lawyers of the POF Board explained that the POF Board is a government organization invested in the functions of the Federal Government. The mere fact that government functions have been entrusted to the board would not make such a Board as a corporate body. Further argued that POF Board does not fall within the ambit of section 49(4) of the Income Tax Ordinance.

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The judgment of the ATIR concluded that the principal function of the Board is to manage and administer the affairs of the factories and to run them and commercial lines to adequately meet during war and peace the needs of the defense of the country and to utilize the surplus capacity of the factories to meet the needs of the civil population. Section 7 of the Ordinance provides the power of the Board.

Thus, the POF Board is the department of the Federal Government and in terms of subsection (3) of section 49 of the Ordinance, any payment received by the Federal Government, a Provincial Government, or a Local Government shall not be liable to any collection or deduction of advance tax, ATIR added.

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Updated: April 14, 2022 — 6:15 pm
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