Islamabad: The Islamabad High Court (IHC) has ruled in favor of the Federal Board of Revenue (FBR) in a high-profile tax case involving a Rs59.3 billion transaction by a major telecom operator. The judgment, issued by a Division Bench led by Justice Babar Sattar, affirms FBR’s authority to tax intra-group transactions that fail to meet specific legal conditions.
The case revolved around the telecom operator’s 2018 internal reorganisation, in which it transferred its nationwide tower infrastructure—valued at Rs98.5 billion ($940 million)—to a wholly owned subsidiary. The company recorded an accounting gain of Rs75.9 billion from the deal but claimed the transaction was tax-exempt under section 97(1) of the Income Tax Ordinance, 2001 (ITO), citing it as an intra-group transfer.
However, the IHC dismissed this argument, ruling that the transaction did not meet all the required conditions for tax neutrality. Specifically, the court held that the transfer at fair market value created economic value and taxable income, thereby violating section 97. The telecom company is now liable to pay Rs22 billion ($78 million) in taxes on the gain.
The court also upheld the commissioner’s authority to assess accounting income when determining taxable income. Furthermore, a separate petition filed by the same telecom operator against a show cause notice under the Federal Excise Act, 2005, was dismissed, and the court imposed a Rs100,000 cost on the petitioner.
The FBR praised the legal victory as a major win in its ongoing efforts to reduce litigation and improve tax enforcement. The case was effectively pursued under the leadership of FBR Chairman Rashid Mehmood, Member (Legal IR) Mir Badshah Khan Wazir, and DG (Law) Dr. Ishtiaq Ahmed Khan. Legal counsel Asma Hamid represented the FBR in court.
The ruling strengthens FBR’s position in taxing corporate restructuring deals and sets a precedent for future intra-group asset transfers.
