Messrs Elite Estate (Pvt.) Ltd vs Federation Of Pakistan through Secretary
The petitioner, a private company, engaged an Egyptian non-resident entity for consultancy services related to infrastructure and golf course development. Seeking to avoid withholding tax on payments made to this foreign entity, the petitioner applied for an exemption under Section 152 of the Income Tax Ordinance, 2001. Upon the rejection of this request by the Federal Board of Revenue and the subsequent dismissal of their revision and constitutional petition, the matter reached the Supreme Court. The core legal question was whether the petitioner was liable to deduct withholding tax on these consultancy payments, specifically whether the income fell under Article 7 (Business Profits) or Article 12 (Technical Services) of the Double Taxation Treaty between Pakistan and Egypt. The Court held that because the payments were for consultancy services and not general business profits, the matter was governed by Article 12, which mandates taxation in the State where the services arise. Consequently, the Court dismissed the petition, affirming that the petitioner was not entitled to the claimed exemption.
- Does a consultancy fee paid to a non-resident entity for technical services fall under the category of business profits or technical services under the Pakistan-Egypt Double Taxation Treaty?
- Is a petitioner liable to deduct withholding tax on payments made to a foreign entity for professional consultancy services under the Income Tax Ordinance, 2001?
- Does Article 12 of the Double Taxation Treaty between Pakistan and Egypt permit the taxation of technical services in the State where they arise?
- Section 152, Income Tax Ordinance 2001
ORDER
MAQBOOL BAQAR, J.---The petitioner engaged an Egyptian Company namely Medhat Abouzeid Egyptian Consulting House for providing services for preparation of Master Plan for a development scheme and infrastructure and for a Golf Course. The said Company being an Egyptian Company is a non-resident. The petitioner applied to the FBR for exemption from deduction of withholding tax under section 152 of the Income Tax Ordinance, 2001 ("ITO 2001 ") in respect of the consultancy fee to be paid by it to the Egyptian company . The request was not acceded to. The revision filed against such ejection also was dismissed and the petition filed there against was dismissed through the impugned judgment.
2. The question to be resolved in the instant case is as to whether or not the petitioner is liable to deduct withholding tax at the rate of 15% from the payments made by it to the Egyp tian Company . In terms of the Consultancy Agreement executed betw een the parties, the Egyptian Company is to provide services of professional architects, urban/ town planners and engineering consultant. Such consultancy is being provided by the Egyptian Company for development of infrastructure and Golf Course. Indeed there is a treaty between Pakistan and Egypt providing for avoida nce of double taxation on income derived from technical services as covered under Article 12 thereof. Article 12.2 of the treaty provides that fee for technical services is to he taxed in the contracting State in which they arise and in accordance with the laws of that State. The petitioner however claims benefits of Article 7 of the treaty which deals with the business and provides that the business profits earned by an entity of a contracting State shall be taxable in the State to which the Company belongs, unless the enterprise carries on business in other contracting Slate through a permanent establishment situated therein.
However , since admittedly the tax payable in the present case is in respect of the consultancy services and not on any business profits, reliance of the petitioner on Article 7 is wholly misplaced. The case, as noted above, squarely falls within the Article 12 of the treaty .
3. We do not fine any justification for our interference with the impugned judgment whereby the request of the petitioner for exemption from deduction of withholding tax in respect of the consultancy fee paid or to be paid by them to the Egyptian Company was rejected. The petition is accordingly dismissed.