PESHAWAR: A joint venture of Chinese and Pakistani engineering companies constructing Mohmand Dam has challenged in Peshawar High Court on multiple grounds the imposition of advance income tax on it by Federal Board of Revenue (FBR).

M/S CGGC (China Gezhouba Group Company)-DESCON Engineering Joint Venture (JV) has filed a petition in the high court, requesting it to declare as illegal the issuance of income tax notice to it on June 13, 2023, and a subsequent recovery notice issued on June 22.

The petitioner has requested the court to stop the respondents including FBR from initiating any adverse proceedings against it. It has also sought interim relief, requesting the high court to suspend the two impugned notices till final disposal of the petition.

The petitioner stated that if FBR attached its properties in accordance with the threats it had mentioned in the recovery notice, it would adversely affect the entire project.

Claim notice not issued in accordance with Income Tax Ordinance

The petition is filed through senior lawyer Isaac Ali Qazi, who has contended that under section 92 of Income Tax Ordinance 2001, the two JV partners are corporate entities, therefore, their respective shares in the venture will be assessed separately under the normal provisions applicable to the companies.

The petitioner stated that first the impugned notice was issued under section 147 of Income Tax Ordinance (ITO), seeking advance income tax from the JV for the year 2023 and subsequently the impugned recovery notice was issued under section 138.

The JV stated that FBR in the impugned recovery notice threatened attachment and sale of its movable and immovable property; appointment of receiver for the management of the moveable and immovable property; and, arrest and detention of concerned person for a period not exceeding six months.

The petitioner contended that under the ITO, companies were to file tax returns for the year 2023 on December 31, 2023, therefore, the impugned notices were misconceived, unjustified and mala fide.

It is stated that the FBR had issued instructions on June 30, 2015, wherein officers of Inland Revenue were directed to issue bar coded notices/appealable orders. Similarly, it is said that through other instructions issued on January 28, 2021, the assessing officers were directed to issue notices/appealable orders through online portal for income tax (Iris).

The petitioner said that the impugned notices were neither bar coded nor issued through Iris, therefore, those were liable to be set aside as instructions of FBR were binding under section 214 of ITO.

The petitioner stated that the JV was formed on May 25, 2018 with exclusive objective to bid for the construction of Mohmand Dam Hydropower Project, having potential of 1300 megawatts power generation with water storage of 1,293 million acre feet.

The M/SCGGC as a lead foreign partner is having 70 per cent shares in the JV, whereas M/S DESCON Engineering, a local partner, is having 30 per cent shares. It said that the petitioner being successful bidder was issued letter of acceptance on March 7, 2019.

The petition said that government entered into agreement with the JV on March 26, 2019. It stated that the petitioner acquired 34 acres of land in Mohmand district through a rent deed for setting office of JV at the site.

The petitioner claimed that under clause 14.1 of the contract between it and Wapda, it had been categorically mentioned that because of its situation in the former Federally Administered Tribal Areas (Fata) the contractual income of the contractor was not subject to ITO and in case contractor income was made subject to the ordinance such quantum of tax should be added to the contract price.

The petitioner has given details about its legal battle with FBR on the issue of tax exemption, saying the issue has now been pending before Supreme Court, where an earlier judgment of PHC of January 30, 2023, has been challenged.

The respondents in the petition are federal government through secretary finance, FBR through its chairman, chief commissioner Inland Revenue, Regional tax Office Peshawar, commissioner Inland Revenue Peshawar and assistant/deputy commissioner Inland Revenue Mardan zone.

Published in Dawn, July 3rd, 2023