PTBA calls for larger bench on taxability of overseas income

KARACHI: The Pakistan Tax Bar Association (PTBA) has called for the formation of a larger bench to address inconsistencies in rulings on the taxability of rental income and capital gains from the United Arab Emirates (UAE) and the United Kingdom (UK) for Pakistani tax residents.

In a letter to the chairperson of the Appellate Tribunal Inland Revenue (ATIR), the PTBA highlighted conflicting orders issued by different divisional benches on the same issue. The controversy revolves around whether income from properties located abroad is taxable in Pakistan for residents.

According to the letter, the divisional bench at the Lahore registry annulled an earlier taxation officer’s decision in Case No ITA 4299/LB/2022 for the tax year 2022, ruling on September 8, 2022, that rental income and capital gains from UAE properties are not taxable in Pakistan.

Contrary to this, the divisional bench at the Islamabad registry, in Case No ITA 1524/IB/2021 for the tax year 2017, held on November 7, 2022 that such income is taxable in Pakistan. Further complicating matters, the Lahore registry recently issued another ruling in Case No ITA 2460/LB/2024 on October 23, 2024, reaffirming that rental income and capital gains from properties in both the UAE and UK are not taxable in Pakistan.

“The inconsistency in rulings has created significant uncertainty about the taxability of such income,” the PTBA said in its letter. It urged the chairperson to exercise powers under Rule 3(2) of the Appellate Tribunal Inland Revenue (Functions) Rules, 2023, to constitute a larger bench.

The PTBA said that conflicting decisions from benches of equal strength lead to confusion and legal uncertainty, hampering justice. It cited a precedent reported in [(1997) 75 TAX 108 (Trib)], which underscored the need for clarity and consistency in legal rulings.