In a significant ruling reinforcing Pakistan’s tax enforcement framework, the Islamabad High Court (IHC) has sided with the Federal Board of Revenue (FBR) in a high-profile case involving Jazz’s Rs. 98.5 billion intra-group tower asset transfer. The court declared that the transaction does not qualify for tax exemption and upheld FBR’s tax claim of Rs. 22 billion (approx. USD 78 million).
Background: Restructuring Under Scrutiny
The case relates to Jazz’s 2018 internal restructuring in which it transferred its telecom tower infrastructure to a wholly owned subsidiary. The transaction created an accounting gain of Rs. 75.9 billion, which Jazz claimed was exempt under Section 97(1) of the Income Tax Ordinance, 2001, a clause that allows tax-free intra-group asset transfers under strict conditions.
However, the FBR argued that the transaction failed to meet those conditions, particularly the requirement that the written-down value (WDV) of the assets remain unchanged post-transfer.
The Verdict: Market Value = Taxable Gain
Justice Babar Sattar, leading the IHC Division Bench, ruled that since the transaction was carried out at fair market value and resulted in an actual economic gain recognized in Jazz’s financials, it could not be treated as tax-neutral. The court emphasized that tax exemptions under Section 97 must be strictly interpreted and fulfilled.
The court also reaffirmed the authority of the Commissioner Inland Revenue to consider accounting profits when assessing taxable income.
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Additional Penalties and Dismissed Petitions
In a related matter, the court also dismissed another Jazz petition challenging a show cause notice under the Federal Excise Act, 2005, and imposed a penalty of Rs. 100,000, to be paid to the Deputy Commissioner, LTO Islamabad.
Strategic Legal Win for FBR
This landmark ruling has been hailed as a major win for the FBR’s legal team under Chairman Rashid Mehmood and Member Legal-IR Mir Badshah Khan Wazir. Led by DG (Law) Dr. Ishtiaq Ahmed Khan and senior advocate Asma Hamid (ASC), the FBR’s successful representation aligns with the federal government’s directive to fast-track high-value revenue recoveries.
Implications: A Warning to Corporates
Tax professionals believe this ruling sets a strong precedent for assessing the economic substance of intra-group transfers, particularly for large corporations attempting to structure transactions to avoid taxes.
This judgment may impact pending cases across sectors like telecom, banking, and energy, and signals a more assertive legal posture by the FBR in curbing tax avoidance.
As Pakistan intensifies its efforts to broaden the tax base and reduce fiscal deficits, the judgment reinforces accountability and strengthens the legal framework around corporate tax compliance.
