The Sindh High Court (SHC) has restrained the Federal Board of Revenue (FBR) from taking any coercive measures against a company regarding the payment of capital gains tax on the disposal of shares under the Income Tax Ordinance, 2001.
The company had challenged an order dated March 11, 2025, issued by the Appellate Tribunal Inland Revenue (Special Bench), Karachi. The dispute stems from the transfer of shares in two associate companies—Engro Foods Limited and Engro Fertilizers Limited—by the applicant during the tax year 2017. Both entities are publicly listed companies.
A Show Cause Notice was issued to the company on September 17, 2020, arguing that the capital gains from the share transfer were taxable under Section 37A of the Ordinance. The company responded, asserting that the shares were held before July 1, 2012, and thus the gains were exempt under Section 37A and Division VII of the First Schedule.
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On December 26, 2020, the Additional Commissioner (Audit-III) concluded that the taxpayer’s claim warranted deeper scrutiny but did not draw any adverse inference or proceed under Section 122(5A). No appeals followed from either party.
However, on April 19, 2023, a second Show Cause Notice was issued, repeating the capital gains tax demand, this time referencing Section 37 of the Ordinance instead of Section 37A. The company argued that this second notice was both beyond the permissible timeframe under Section 122 and an improper re-evaluation of a previously settled matter.
Key questions raised by the Applicant include:
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Whether the amendment order dated June 14, 2023, is time-barred under Section 122.
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Whether capital gains tax applies under Section 37 for the share disposals in 2017.
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Whether the FBR’s actions constitute a change of opinion disguised as “definite information.”
In its interim order, the SHC stated that the Applicant’s contentions merited consideration and suspended the impugned notice. The court directed the FBR not to take any coercive action against the company until the matter is fully adjudicated.
