๐ˆ๐ง๐ญ๐ž๐ซ๐ง๐š๐ญ๐ข๐จ๐ง๐š๐ฅ ๐“๐ซ๐ž๐š๐ญ๐ข๐ž๐ฌ ๐จ๐ง ๐“๐š๐ฑ ๐š๐ซ๐ž ๐‘๐ž๐ฅ๐ข๐ž๐ฏ๐ข๐ง๐  ๐ข๐ง ๐๐š๐ญ๐ฎ๐ซ๐ž. ๐“๐ก๐ž๐ฒ ๐’๐ก๐จ๐ฎ๐ฅ๐ ๐›๐ž ๐ˆ๐ง๐ญ๐ž๐ซ๐ฉ๐ซ๐ž๐ญ๐ž๐ ๐๐ซ๐จ๐š๐๐ฅ๐ฒ:

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๐ˆ๐ง๐ญ๐ž๐ซ๐ง๐š๐ญ๐ข๐จ๐ง๐š๐ฅ ๐“๐ซ๐ž๐š๐ญ๐ข๐ž๐ฌ ๐จ๐ง ๐“๐š๐ฑ ๐š๐ซ๐ž ๐‘๐ž๐ฅ๐ข๐ž๐ฏ๐ข๐ง๐  ๐ข๐ง ๐๐š๐ญ๐ฎ๐ซ๐ž. ๐“๐ก๐ž๐ฒ ๐’๐ก๐จ๐ฎ๐ฅ๐ ๐›๐ž ๐ˆ๐ง๐ญ๐ž๐ซ๐ฉ๐ซ๐ž๐ญ๐ž๐ ๐๐ซ๐จ๐š๐๐ฅ๐ฒ:

๐€ ๐“๐ก๐ซ๐ž๐ž-๐ฆ๐ž๐ฆ๐›๐ž๐ซ ๐๐ž๐ง๐œ๐ก ๐จ๐Ÿ ๐ญ๐ก๐ž ๐’๐ฎ๐ฉ๐ซ๐ž๐ฆ๐ž ๐‚๐จ๐ฎ๐ซ๐ญ ๐œ๐จ๐ฆ๐ฉ๐ซ๐ข๐ฌ๐ข๐ง๐  ๐‰๐ฎ๐ฌ๐ญ๐ข๐œ๐ž ๐’๐ฒ๐ž๐ ๐Œ๐š๐ง๐ฌ๐จ๐จ๐ซ ๐€๐ฅ๐ข ๐’๐ก๐š (๐ญ๐ก๐ž ๐€๐ฎ๐ญ๐ก๐จ๐ซ ๐‰๐ฎ๐๐ ๐ž), ๐‰๐ฎ๐ฌ๐ญ๐ข๐œ๐ž ๐‰๐š๐ฆ๐š๐ฅ ๐Š๐ก๐š๐ง ๐Œ๐š๐ง๐๐จ๐ค๐ก๐ข๐š๐ฅ ๐š๐ง๐ ๐‰๐ฎ๐ฌ๐ญ๐ข๐œ๐ž ๐€๐ญ๐ก๐š๐ซ ๐Œ๐ข๐ง๐ง๐š๐ฅ๐ฅ๐š๐ก ๐ก๐š๐ฌ ๐ ๐ข๐ฏ๐ž๐ง ๐š ๐ฌ๐ข๐ ๐ง๐ข๐Ÿ๐ข๐œ๐š๐ง๐ญ ๐ฃ๐ฎ๐๐ ๐ฆ๐ž๐ง ๐จ๐ง ๐ญ๐ก๐ž ๐ข๐ง๐ญ๐ž๐ซ๐ฉ๐ซ๐ž๐ญ๐š๐ญ๐ข๐จ๐ง ๐จ๐Ÿ ๐ข๐ง๐ญ๐ž๐ซ๐ง๐š๐ญ๐ข๐จ๐ง๐š๐ฅ ๐ญ๐š๐ฑ ๐ญ๐ซ๐ž๐š๐ญ๐ข๐ž๐ฌ.

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 (โ€œ๐‚๐ƒ๐‚โ€), container service charges (โ€œ๐‚๐’๐‚โ€) and terminal handling charges (โ€œ๐“๐‡๐‚โ€) falls within the category of โ€œprofits 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.”

๐“๐ก๐ž ๐‚๐จ๐ฆ๐ฆ๐ข๐ฌ๐ฌ๐ข๐จ๐ง๐ž๐ซ ๐ˆ๐ง๐ฅ๐š๐ง๐ ๐‘๐ž๐ฏ๐ž๐ง๐ฎ๐ž ๐Š๐š๐ซ๐š๐œ๐ก๐ข’๐ฌ ๐…๐ข๐ง๐๐ข๐ง๐ :

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, โ€œPakistan-Denmark Conventionโ€ and โ€œPakistan-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.

๐“๐ก๐ž ๐‰๐ฎ๐๐ ๐ฆ๐ž๐ง๐ญ ๐จ๐Ÿ ๐ญ๐ก๐ž ๐‚๐จ๐ฎ๐ซ๐ญ:

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.

๐‚๐จ๐ง๐œ๐ฅ๐ฎ๐ฌ๐ข๐จ๐ง:

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.

 

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