PESHAWAR: A single-member Peshawar High Court bench has stopped the Federal Board of Revenue from acting against three textile mills, which have challenged the retrospective application of reduction in tax credit from 10 percent to five percent for industrial units, which had made investment for modernisation and expansion.

Justice Ahmad Ali also directed the three textile mills be allowed to submit their returns manually or by making adjustment in e-portal/computer system as interim arrangement as per un-amended provisions of Section 65-B of the Income Tax Ordinance, 2001.

A petition jointly filed by the Gadoon Textile Mills Limited and two other textile mills had challenged the application of an amendment made to Section 65-B of the Income Tax Ordinance, 2001, through the Finance Act, 2019, whereby tax credit had been reduced to five percent for the tax year 2019 and the amendment had also been applied retrospectively upon the petitioners.

Qazi Ghulam Dastagir, lawyer for the petitioners, said a scheme of tax incentives was introduced through insertion of Section 65 –B in the Income Tax Ordinance (ITO), 2001, in 2010 and the said provision had been amended from time to time.

Mills challenge retrospective application of reduction in tax credit

He said Section 65-B contained two incentives.

The lawyer added that according to the first incentive a tax credit off 10 percent of the investment in an existing industrial undertaking had to be given.

He said the incentive was meant to incentivise investment and expansion of the existing plants through tax credits enabling industrial undertakings to modernise their machinery and compete internationally.

The lawyer said the benefit was initially available in cases where plant and machinery was purchased and installed at any time between June 30, 2010 and June 30, 2015.

He said the sunset clause had been extended from time-to-time and through the Finance Act, 2018, the benefit was extended up to June 30, 2021.

The lawyer said through Finance Act, 2019, Section 65-B had been amended in two important ways. Firstly, he said the tax credit of 10 percent was reduced to five percent for tax year 2019. Secondly, he said the period under the sunset clause had been reduced from June 30, 2012, to June 30, 2019.

The lawyer said while Finance Act, 2019 applied prospectively, with effect from July 1, 2019, the amendments in question were being applied retrospectively.

He said relying on the tax incentives offered under section 65-B, the petitioners carried pout modernisation and expansion of their textile plants during the period Jul 1, 2018, to Jun 30, 2019 by investing in various plants and machinery.

The lawyer said the said investment had become entitled to tax credit in terms of Section 65-B on the date of installation.

He said the respondents including FBR was interpreting the amended Section 65-B wrongly and they were seeking to apply the reduced tax credit of five percent even to investment in plant and machinery that already stood installed on or before Jun 30, 2019.

The lawyer requested the court to allow his client to file returns in line with the un-amended Section 65-B.

Published in Dawn, January 1st, 2020