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November 17, 2020

Sarina Isa case: Mrs Isa’s money trail unsatisfactory, FBR tells Supreme Court

Top Story

November 17, 2020

ISLAMABAD: Tax authorities have informed the apex court that the defence put forth by the wife of Justice Qazi Faez Isa to explain the sources of investment made in the purchase of her three expensive London properties is quite unsatisfactory.

The Federal Board of Revenue (FBR) has submitted its final report with the Supreme Court (SC) following its 19th June judgment that ordered the tax authorities to probe Mrs Sarina Isa and her children under the tax law (Income Tax Ordinance, 2001) by inquiring nature and source of funds for their offshore property.

“As communicated vide para eight of show cause notice, dated July 30, 2020, total taxed/legitimate sources available with the taxpayer [Sarina Isa] till June 30, 2012 as per her own declarations worked out at Rs9.4 million. The said taxed/legitimate sources have already been consumed and accounted for by the taxpayer in her wealth statement e-filed for tax year 2013. Therefore, the taxpayer did not have taxed/legitimated sources for purchase of properties in question,” revealed the FBR’s conclusive findings submitted before the office of the Supreme Judicial Council (SJC) which may discuss these findings anytime soon.

“The plea regarding earning of agriculture income and subsequently its deposits to foreign currency account (was) not evident from any of the tax declarations e-filed by the taxpayer with the department up to tax year 2013. Moreover, no supporting details/evidence in this regard has been provided/submitted till date,” reads the findings exclusively made available with Geo News.

FBR's senior officers who were associated with the investigation told Geo News that tax authorities were continuing to probe Mrs Isa's income as well as her accounts. Following the receipt of information from one of her banks on Aug 24, 2020 and addendum to show cause notice issued on email address of Sarina Isa too, a senior FBR official added: "A fresh aspect of Mrs Sarina may come into light; if it comes shall be taken separately."

"Through this notice Sarina Isa was intimated that she had also operated the MCB account jointly with her husband. Although, the foreign currency transactions were undertaken yet it was neither declared by the taxpayer nor her husband until the tax year 2018 when the latter declared it. This aspect of the case coming into light does not have any bearing on the proceedings in hand and its cognizance, if any shall be taken separately. It may only be observed that before the tax year 2018, neither she nor her husband had declared the said joint foreign currency bank account," stated the FBR findings. She continued to conceal these properties till Jan 31, 2020 in her respective wealth statements, read the FBR's findings sent to the SC.

On this aforementioned claim made by the FBR in its findings, a source associated with Mrs Sarina's family said, "[Respected judge Qazi Faez Isa] is a tax filer and declared everything and have not received any notice from FBR. So please don't do these fictitious stories -- and against [Mrs. Isa] a fictitious liability has been created -- she has appealed, [Justice Isa and his family] have been persecuted for years because one of the things [they] believe in and which is guaranteed in the Constitution is media freedom, which media men are no longer interested in."

Tax authorities also informed the apex court that even the agriculture land declared for the first time by Mrs Isa in the tax year 2018 has never been declared in her wealth statements for the tax year 2012 and 2013.

“She does not show payment of any provincial agriculture income tax or related charges. She has also not declared and then proved as to how much agricultural income was earned each year. Therefore, the taxpayer has not been able to establish the existence or availability of any agricultural income which could serve as a source to substantiate the purchase of offshore properties. As stated aforesaid, the taxpayer enjoys no immunity with regard to her foreign currency bank account in view of the proviso to Section 5(1) of PERA, 1992. The taxpayer has not been able to establish any source to justify deposits i.e. credit entries in the foreign currency bank account, which remain unexplained till date,” read the FBR’s findings.

“The aforesaid proposition goes to establish that neither the taxpayer had resources nor their trail linking them with the purchase of the properties in question. The burden of proving the facts regarding sources and their passage to the accounts of solicitors/ sellers for purchase of offshore properties was entirely upon the taxpayer which, she failed to discharge," FBR's stated.

What is in FBR's proceedings?

Legal and technical issues raised by Sarina Isa in her replies filed during the proceedings have been discussed in the FBR's findings in some detail.

First, Sarina Isa challenged "assumption of jurisdiction" of FBR Islamabad Commissioner Office to probe her properties. In compliance with the SC order's para 4 of its 19th June order read with FBR's jurisdiction order no 7(1) jurisdiction/2018 92329-R, the FBR claimed in its reply that tax proceedings in this case along with the cases of taxpayer's children were carried out by the Islamabad Zone under legitimate authority.

Second, Sarina Isa asked for "copies of documents" e-filed by her through ITMS/IRIS, which according to the FBR, she could have obtained from her account by using her confidential login ID, password/pin code available with her or with her authorised representative.

Third, on "declaration of offshore properties," Sarina claimed she was not required to declare her foreign assets in tax declarations prior to the tax year 2018. The FBR refuted her assertion that foreign assets were not required to be declared before the tax year 2018 as misconceived; every resident taxpayer in Pakistan was bound to declare his/her income including world income u/s 11(5) of the Income Tax Ordinance and accordingly reconcile his/her wealth in the wealth statement containing all the movable and immovable assets/liabilities and expenditures within and outside Pakistan. Offshore assets have a special connotation under the said ordinance. The Section 2(38AA) thereof has defined offshore assets as follows: Offshore assets in relation to a person includes any movable or immovable asset held, any gain, profit, or income derived or any expenditures incurred outside Pakistan. The Section 116A was inserted through the Finance Act 2018 which did not exempt the requirement to provide a wealth reconciliation statement with regard to acquisition of foreign property, stated the FBR findings.

Fourth, Sarina Isa claimed "immunity with regard to foreign exchange accounts" saying she enjoyed immunity from probe under Section 5 of Foreign Currency Accounts Protection Ordinance, 2001. The FBR claimed the said law reversed the position of foreign currency account holders that existed prior to protection of Economic Reforms (Amendment) Ordinance, 1999 is not correct. The Foreign Exchange Account (Protection Ordinance), 2001 provides protection to foreign currency accounts and did not provide any immunity against any inquiry, added the findings. Also, in terms of the proviso to Section 5(1) of the PERA, 1992, the department is well within its rights to seek explanation of the legitimate sources through which bank deposits were made, added the FBR findings.

Fifth, Sarina said "six years limitation and applicability of Section 174 (3)" applied in her case, arguing no record can be called beyond six years under Section 174(3) of Income Tax Ordinance, 2001. The FBR, however, claimed Rule-31(2) of Income Tax Rules, 2002 prescribes maintenance of certain documents for person having property income. The record requisitioned by the FBR office regarding sources of investment made into purchase of these London properties does not fall within the purview of Rule 31(2) of Income Tax Rules, 2002, the FBR's findings revealed.

Sixth, on "remittances" Sarina Isa furnished a certificate dated Dec 12, 2019 issued by SCB Karachi purportedly by way of an explanation of the sources of investment made into purchase of 03 offshore properties. As highlighted at para-10 of the show cause notice dated July 30, 2020, the taxpayer was unable to establish the passage of remittances to the accounts of solicitors/sellers, revealed the FBR's findings. The information provided by the bank and as tabulated at para-10 of showcause notice dated July 30, 2020 reveals the purpose of remittances in outward remittance forms as children's education and living expenses but not for purchase of properties as claimed by the taxpayer, says the FBR.

Seventh, on issue of "non-applicability of Section 111 (2)(ii) of the ordinance," Sarina agitated that provisions of Section 111(2)(ii) are not attracted to her case. In the show cause notice dated July 30, 2020, the taxpayer has already been responded to vide para six and thirteen that the year of discovery of these three offshore properties was the tax year 2019, therefore, the relevant tax year in which addition under Section 111(1)(b)/111(2)(ii) is to be made is the immediately preceding tax year i.e. tax year 2018, the FBR said.

Despite repeated notices/ requests, the taxpayer also failed to divulge and provide a trail whereby it could be established that the outward remittances found their way into the solicitor's account in the UK, from which the properties were purchased. The bank remittances forms signed by the taxpayer only disclose children's education and living expenses, etc. to be the purpose for those remittances, the FBR stated. In none of those forms, the taxpayer has declared the purchase of the properties abroad to be the purpose for the remittances. Therefore, it is clear that the three offshore properties were not acquired from sources claimed by the taxpayer in her defence. Accordingly, there is no lawful justification to avoid the application of Section 111(2)(ii), added the FBR findings.