๐๐ง๐ญ๐๐ซ๐ง๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐๐ซ๐๐๐ญ๐ข๐๐ฌ ๐จ๐ง ๐๐๐ฑ ๐๐ซ๐ ๐๐๐ฅ๐ข๐๐ฏ๐ข๐ง๐ ๐ข๐ง ๐๐๐ญ๐ฎ๐ซ๐. ๐๐ก๐๐ฒ ๐๐ก๐จ๐ฎ๐ฅ๐ ๐๐ ๐๐ง๐ญ๐๐ซ๐ฉ๐ซ๐๐ญ๐๐ ๐๐ซ๐จ๐๐๐ฅ๐ฒ:
๐ ๐๐ก๐ซ๐๐-๐ฆ๐๐ฆ๐๐๐ซ ๐๐๐ง๐๐ก ๐จ๐ ๐ญ๐ก๐ ๐๐ฎ๐ฉ๐ซ๐๐ฆ๐ ๐๐จ๐ฎ๐ซ๐ญ ๐๐จ๐ฆ๐ฉ๐ซ๐ข๐ฌ๐ข๐ง๐ ๐๐ฎ๐ฌ๐ญ๐ข๐๐ ๐๐ฒ๐๐ ๐๐๐ง๐ฌ๐จ๐จ๐ซ ๐๐ฅ๐ข ๐๐ก๐ (๐ญ๐ก๐ ๐๐ฎ๐ญ๐ก๐จ๐ซ ๐๐ฎ๐๐ ๐), ๐๐ฎ๐ฌ๐ญ๐ข๐๐ ๐๐๐ฆ๐๐ฅ ๐๐ก๐๐ง ๐๐๐ง๐๐จ๐ค๐ก๐ข๐๐ฅ ๐๐ง๐ ๐๐ฎ๐ฌ๐ญ๐ข๐๐ ๐๐ญ๐ก๐๐ซ ๐๐ข๐ง๐ง๐๐ฅ๐ฅ๐๐ก ๐ก๐๐ฌ ๐ ๐ข๐ฏ๐๐ง ๐ ๐ฌ๐ข๐ ๐ง๐ข๐๐ข๐๐๐ง๐ญ ๐ฃ๐ฎ๐๐ ๐ฆ๐๐ง ๐จ๐ง ๐ญ๐ก๐ ๐ข๐ง๐ญ๐๐ซ๐ฉ๐ซ๐๐ญ๐๐ญ๐ข๐จ๐ง ๐จ๐ ๐ข๐ง๐ญ๐๐ซ๐ง๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ญ๐๐ฑ ๐ญ๐ซ๐๐๐ญ๐ข๐๐ฌ.
The dispute was between a domestic revenue authority, Commissioner Inland Revenue Karachi and two foreign companies, one from Denmark and another from Belgium, which were operating through local agent in Pakistan.
The issue before the Court was that “whether income arising from container detention charges (โ๐๐๐โ), container service charges (โ๐๐๐โ) and terminal handling charges (โ๐๐๐โ) falls within the category of โprofits from the operation of ships in international trafficโ in the context of double taxation conventions concluded between Pakistan and Denmark, as well as between Pakistan and Belgium.”
๐๐ก๐ ๐๐จ๐ฆ๐ฆ๐ข๐ฌ๐ฌ๐ข๐จ๐ง๐๐ซ ๐๐ง๐ฅ๐๐ง๐ ๐๐๐ฏ๐๐ง๐ฎ๐ ๐๐๐ซ๐๐๐ก๐ข’๐ฌ ๐ ๐ข๐ง๐๐ข๐ง๐ :
The Commissioner Inland Revenue, Karachi had declared that such an income arising from the three heads mentioned above does fall within the category of “profits from the operation of ships in the international traffic”, thus relaxation in light of Section 107 of the Income Tax Ordinance, 2001 andย Article 8 of the two Conventions, โPakistan-Denmark Conventionโ and โPakistan-Belgium Conventionโ, which have been concluded between the state parties, cannot be extended to them. This matter came up before the Sindh High Court which set aside the finding of the Commissioner. The Commissioner challenged the same before the Supreme Court.
๐๐ก๐ ๐๐ฎ๐๐ ๐ฆ๐๐ง๐ญ ๐จ๐ ๐ญ๐ก๐ ๐๐จ๐ฎ๐ซ๐ญ:
The Supreme Court held that such treaties require different interpretive approach from that which is applicable to domestic laws. They need broader interpretation as they are relieving in nature, they provide relaxation in tax and avoid double taxation. Further, the sources of interpretation of such treaties can be found in model treaties, their commentaries, international tax language and scholarly academic works where appropriate. They ought to be interpreted in a common and workable manner by applying expansive and broader interpretive approach.
The Supreme Court ruled that Article 8 of the Conventions does not only cover direct profits obtained from transportation by ships but it also includes profits arising from activities connected to shipping directly or indirectly, that is to say, ancillary thereto. The Court interpreted ancillary activities as those activities which by their nature are associated to operation of ships so closely as they cannot be regarded as a separate business to it, they make a minor contribution relative to such operation and they are not needed by the enterprise for its personal use in operation of the ships in the international traffic.
๐๐จ๐ง๐๐ฅ๐ฎ๐ฌ๐ข๐จ๐ง:
So the gist of the judgment is that broader and expansive interpretive approach ought to be adopted while interpreting international tax treaties; profits which are covered under Article 8 of the Conventions to avoid double taxation and grant tax relaxation are not confined to profits arising directly from transportation of ships but they also include those profits which arise from activities directly connected to operation of ships or ancillary thereto.
c.p._560_k_2019