In a landmark ruling dated June 12, 2025, a Division Bench of the Islamabad High Court led by Justice Babar Sattar upheld the Federal Board of Revenue’s jurisdiction in assessing tax liabilities in a high-stakes intra-group transaction involving one of Pakistan’s major telecom operators.
The judgment mandates the telecom company to pay an estimated Rs. 22 billion (USD 78 million) in taxes following the transfer of tower assets to its wholly owned subsidiary during an internal asset reorganization that took place in 2018. The transaction, valued at Rs. 98.5 billion (USD 940 million), resulted in an accounting gain of approximately Rs. 75.9 billion, which the operator claimed was non-taxable under section 97(1) of the Income Tax Ordinance, 2001, due to the nature of the intra-group transaction.
However, the court rejected this argument, concluding that the transaction failed to satisfy all conditions required for tax neutrality under section 97 of the Ordinance. Specifically, the requirement that the written-down value of the transferred asset must remain unchanged in the hands of the transferee was violated, as the asset transfer occurred at fair market value. The petitioner’s acceptance of USD 940 million as consideration indicated an economic gain, making the transaction a taxable event. The court also held that the Commissioner had the authority to consider accounting income while evaluating taxable income, reinforcing the legitimacy of the FBR’s actions.
This decision signifies a major legal triumph for the FBR, aligning with the government’s broader goal to expedite revenue recovery from cases pending before appellate forums. Under the leadership of Chairman Rashid Mehmood and Member Legal IR Mir Badshah Khan Wazir, and with support from Director General Law Dr. Ishtiaq Ahmed Khan and ASC Ms. Asma Hamid, the FBR has pursued aggressive litigation strategies to resolve high-value disputes. This particular judgment also included the dismissal of a separate petition filed by the same telecom operator against a show cause notice issued under the Federal Excise Act, 2005. The court imposed a penalty of Rs. 100,000 on the petitioner, payable to the Deputy Commissioner-IR, LTO Islamabad.
The tax dispute stems from the telecom company’s declared income for the tax year 2018. The return, filed on December 14, 2018, reported a loss of over Rs. 80 billion and was treated as a deemed assessment under section 120(1)(b). During routine examination, the Commissioner Inland Revenue found multiple discrepancies, prompting action under section 122(5A) of the Ordinance. A show cause notice was issued regarding several issues, including taxation of the gain from the tower asset disposal, non-payment under section 113C, inappropriate claims of depreciation and amortization losses, and inadmissible deductions.
The company responded to the notices, maintaining that the transaction was covered under section 97. However, after further scrutiny, the CIR rejected their explanations and amended the deemed assessment order. The taxable income was determined at Rs. 78 billion, with the outstanding tax liability reaching over Rs. 22 billion. The taxpayer’s appeal to the Commissioner of Income Tax (Appeals-I), Islamabad was also rejected, prompting a further appeal to the Tribunal.
During tribunal proceedings, several legal questions were raised. One significant issue was whether the Commissioner retained concurrent powers after delegating authority under section 210. The appellant contended that without revoking the delegation, the CIR could not issue show cause notices or amend assessments. However, the tribunal dismissed this argument, emphasizing the distinction between contractual and statutory delegation. Citing legal precedents, the tribunal concluded that a delegator in statutory contexts retains concurrent authority unless explicitly restricted, and the CIR’s powers remain intact unless exercised by the delegate.
Further, the tribunal addressed the core issue of whether the transaction between the telecom company and its subsidiary Deodar (Pvt.) Ltd qualified under section 97 for tax neutrality. Despite the wholly owned relationship, the fact that the assets were transferred at fair market value undermined the argument for tax exemption. The tribunal noted that the declaration of an accounting gain exceeding Rs. 59 billion and the sale consideration recorded at market rate demonstrated a clear economic benefit, making the transaction liable for taxation.
The tribunal also considered the broader corporate structure of the telecom operator, a subsidiary of International Wireless Communication Pakistan Ltd., which is further owned by Global Telecom Holding, ultimately controlled by VEON Ltd. This intricate ownership framework, while not directly impacting the section 97 argument, highlighted the need for strict compliance with tax regulations in intra-group dealings, especially when significant value is transferred.
Regarding the company’s status as an industrial undertaking, the tribunal evaluated whether its operations in telecommunication services qualified under section 2(29C) of the Ordinance. While the appeal document includes this point, the tribunal’s main focus remained on the legitimacy of the gain and the taxation thereof. Other claims related to brought forward depreciation and amortization losses, and the application of super tax, were also examined and addressed in the amended assessment.
The tribunal’s judgment reaffirms the principle that intra-group transactions, even among wholly owned subsidiaries, are not automatically tax-exempt. The legal conditions under section 97 must be stringently observed, especially the requirement for value consistency between transferor and transferee. By emphasizing substance over form, the judgment strengthens the FBR’s authority in challenging corporate structuring used to defer or evade tax obligations.
This case also reinforces administrative flexibility within the tax enforcement framework. The ruling on delegation of authority underlines that CIRs retain control and oversight, ensuring accountability and effective enforcement. It dispels the notion that once power is delegated, it cannot be exercised concurrently unless retracted. Such interpretation is crucial in maintaining the efficiency and responsiveness of tax administration, especially in high-value and complex corporate cases.
In conclusion, the Islamabad High Court and the Tribunal’s rulings collectively represent a milestone in Pakistan’s tax jurisprudence. They affirm the FBR’s jurisdiction, establish limits on tax-neutral intra-group transfers, and uphold statutory integrity in delegation matters. For corporate entities engaged in internal reorganizations, this case serves as a potent reminder of the importance of compliance and transparency. For the FBR, it marks a decisive victory in the ongoing effort to reclaim significant revenue locked in litigation. With leadership committed to legal rigor and institutional reform, the FBR’s success in this case sets a precedent likely to influence future tax enforcement strategies and judicial outcomes.
