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Aftab Maken
ISLAMABAD: Islamabad High Court (IHC) has ruled that a prominent telecom operator—Jazz Pakistan–is liable to pay approximately Rs 22 billion ($78 million) in taxes on the transfer of its tower infrastructure. The decision, handed down by a Division Bench led by Justice Babar Sattar, settles a long-standing dispute over a multi-billion-rupee internal asset reorganization.
The case dates back to 2018 when the telecom company undertook a significant restructuring, transferring its nationwide network of communication towers to a subsidiary it wholly owned. While the assets were sold for a substantial Rs 98.5 billion ($940 million), resulting in an accounting gain of nearly Rs. 76 billion for the parent company, no taxes were paid on this gain.
The operator argued that the transaction was legally exempt from tax. Their defense hinged on Section 97 of the Income Tax Ordinance, 2001, which allows for tax-neutral asset transfers between a parent company and its wholly-owned subsidiary. The company contended that since it was an internal group transfer, no tax was due.
However, the Federal Board of Revenue (FBR) challenged this interpretation, taking the matter to court. The FBR’s legal team argued that the exemption only applies if the transaction does not generate any new economic value.
The High Court sided with the FBR, delivering a detailed judgment that clarifies the limits of tax-neutral intra-group transfers. Justice Babar Sattar’s bench ruled that the telecom operator did not meet all the necessary conditions of the tax law. The court noted that the transaction was conducted at a fair market value of $940 million, which the company itself accepted as payment. This creation of significant value, the court determined, meant the deal could not be considered a simple, non-taxable internal shift.
In its ruling, the court stated that since the transaction was not value-neutral and generated a clear gain, it was indeed a taxable event. The court also affirmed that tax commissioners have the authority to consider accounting gains when determining taxable income.
This landmark decision is being hailed as a significant achievement for the FBR in its mission to recover state revenue tied up in legal disputes. Officials credited the legal wing of the FBR, led by Member (Legal IR) Mir Badshah Khan Wazir, and the effective representation by Ms. Asma Hamid, ASC, and Dr. Ishtiaq Ahmed Khan (DG Law), for the successful outcome.
In a separate ruling, the same court also dismissed another petition filed by the telecom operator against a show-cause notice under the Federal Excise Act, imposing a penalty of Rs. 100,000 on the company for the legal challenge.