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September 19, 2020

Sarina Isa case: FBR slaps Rs35m penalty for ‘tax liability’


September 19, 2020

ISLAMABAD: Evaluating the money trail submitted by Sarina Isa, the wife of Justice Qazi Faez Isa, the tax authorities asked her to pay the penalty of Rs35 million for tax liability on Friday.

Sarina Isa has denied any wrongdoing in the purchase of her three offshore properties, saying, “Zulfiqar Ahmed has now come up with a 164-page order and created an artificial tax liability of over Rs35 million. I do not even know if he wrote the order himself.” The gist of investigation, FBR's notices and Sarina Isa's responses, suggests that all according to tax authorities was not well with Sarina Isa's tax matters.

The FBR in its final show-cause notice served on Mrs Isa stated, “You [Mrs. Sarina Isa] fail to respond to the question with regard to the actual percentage of your investment regarding three offshore properties, (therefore,) this office had to rely on the declarations coupled with your plea for the purchase of property in 2004 and thereafter in 2013.

“Now you have come up with a changed stance that you had paid the entire amount for the purchase of two properties, jointly bought with your children in 2013. Under the circumstances and on the basis of your own admission in the reply dated Aug 10, 2020, your total investment works out as under total Rs104.7 million,” the FBR team told Mrs Isa through a show cause notice. The tax authorities further asked Mrs Sarina that her three London properties worth Rs104,680,020 have to be justified against the declared investment of Rs2,404,320.

“Mr Zulfiqar Ahmed's order is a piece of fiction and I shall be filing an appeal against it. A fiction in which my agricultural land earning were disregarded; a fiction in which my salary paid by the Karachi American School since 1982 is also not considered; a fiction in which the sale proceeds and profits earned from the sale of two properties in Clifton have been disregarded," Mrs Isa responded in her statement on Friday.

“As per record, Sarina had total white/taxed sources only to tune of Rs9.4 million which already stands utilised towards the assets declared up to June 30, 2013, while three offshore properties were concealed and not disclosed in your wealth statement as on June 30, 2013," read a show-cause issued to Sarina Isa.

The FBR team conducted a forensic analysis of the report of Sarina Isa's Standard Chartered Bank's account opened on May 26, 2003, where total transactions of GBP 0.698 million were made from the year 2003 to June 2013. The team also conducted a forensic analysis of net assets worth Rs119.915 million of Sarina Isa for the tax year 2017-2018, officials told the Geo News.

Mrs. Isa's personal expenses worth Rs1.886 million and charges/taxes of Rs0.386 million for the year 2017-2018, agriculture property, 24.7 acres land at Deh Korar, Tapa Zangipur in Sindh, agriculture property 425 rod, poles land at Dera Murad Jamali, Balochistan, 148.21 acres land at Deh Korar District Jacobabad, commercial/residential property plot 0109, Block 16-A, Shah Latif Town, Karachi, investment worth Rs23.6 million, other investments at UBL Khayaban-e-Shamsher Karachi worth Rs3.4 million and Rs196,262, deposit and receivables worth Rs6.4 million from daughter, precious possession worth Rs0.5 million for year 2017-2018 were also audited, added the officials.

The FBR also analysed the declared foreign assets worth Rs77.8 million and foreign income worth Rs4.73 million for the tax year 2018-2019 also came under scrutiny, immovable property worth Rs52.34 million, immovable property (with 50 per cent shares) in Coniston Court, London, Rs12 million, immovable property (with 50 per cent shares) 90-Adelaide Road London E-11 EDL worth Rs19.1 million, immovable property (with 50 per cent shares) 90-Adelaide Road London R-10 5NW worth Rs25.4 million, investments, bond, etc, worth Rs25.4 million, officials further revealed.

The officials also audited her total assets worth Rs124 million (Rs45.4 million in Pakistan, Rs77.8 million assets held outside Pakistan), the UBL accounts held Rs11 million, Standard Chartered accounts held Rs 217,185, deposits/receivables from her daughter Rs11.1 million, assets held outside in banks worth Rs25.5 million, they added.

In response to notices served under Section 122(9) and Section 111(1)(b), Mrs. Isa told the FBR that she did not know from where the tax authorities have taken the aforesaid figure of Rs9.4 million, as they did not provide its details nor as to how the FBR had determined the amount of Rs104,680,020. According to her, the investigators wanted her to reconstruct her life, explained every rupee earned by her since she started working in the Karachi American School some 38 years ago.

“For the record, I once again repeat the request that you provide me the documents you [FBR] rely upon,” she wrote in one of her recent replies sent to the FBR team. She drew the FBR's attention to Section 174(3) of the ordinance, which stipulates that an individual is not required to maintain any record for more than six years after the end of the tax year to which they relate, Sarina stated in her reply.

The Section 116(A) of the ordinance was inserted through the Finance Act, 2018 when, for the first time, "foreign income and assets statement" was required to be filed, Sarina further argued. Complied with this new legal requirement and filed her returns and statements with regard to foreign income and assets for tax year 2018 and again for 2019, paid requisite tax and the same were accepted by FBR, she stated in her reply. She continued to argue that the FBR has not explained under which provision was she required to make disclosure of foreign income and assets before the stated amendment, adding the FBR disregarded her agricultural income by purportedly relying on Section 111 and treating it as “unexplained income”.

According to Mrs Isa, the FBR intentionally disregarded the fact that the proviso to Section 111 of the ordinance, which accepts income derived from agriculture on which too, “agricultural income tax [is] paid under the relevant provincial law” was added through the Finance Act, 2013. Therefore, previous agricultural income cannot be disregarded, irrespective of whether provincial income tax was paid thereon or restricted to adjustment to the extent of such payment, she further argued. All three properties had been purchased before the insertion of the said proviso to Section 111 of the ordinance, which was published in the official gazette on 1st July, 2013, she told tax officials.

The FBR has not explained why they are retrospectively extending the application of this proviso to a time before its incorporation into the ordinance as according to her she has “disclosed in the returns for the tax years 2018 and 2019 considerable agricultural land in two provinces of Pakistan (Sindh and Balochistan), which I have held in my own name for decades”. According to her reply, the FBR did not dispute her agriculture holdings and yet disregarded the income derived from such land. “I again remind you of Section 41 of the 12 ordinance, which provides that agricultural income derived by a person shall be exempt from tax under this ordinance,” she stated in her response.

“Section 4 of the Protection of Economic Reforms Act, 1992 entitled individuals to bring, hold, sell, transfer and take out foreign exchange without being questioned in regard to the same and foreign currency account holders enjoy immunity against any inquiry from the Income Tax Department or any other taxation authority and such accounts are exempted from the levy of wealth-tax and income tax under Section 5 of PERA," she further argued. “Therefore, the FBR has no legal authority to ask me any question with regard to the monies in my foreign currency accounts. The 1999 Amendment held the field from 17th December, 1999 to 28th September, 2001, on which date the Foreign Currency Accounts (Protection) Ordinance, 2001 (the 2001 Protection Ordinance) was promulgated.

One property was purchased in the year 2004 and two in the year 2013, that is, when the 1999 Amendment was no longer in the field. In any event, the 2001 Protection Ordinance had an overriding effect on “any other law for the time being in force”, which would include the 1999 Amendment.

Admittedly FBR Islamabad Commissioner has no territorial jurisdiction to act under the ordinance, Mrs. Isa said adding that her tax jurisdiction was changed without her request and without informing her. “I continue to derive substantial amounts from my agricultural lands, and some of these amounts, I invest in saving certificates issued by the government and on profits derived there from income tax is deducted.” The price of UK pounds and US dollars was far less when they were bought. She argued that she does not accept, as alleged by FBR, that the price of the properties was Rs104,680,020.