Messrs Elite Estate (Pvt.) Ltd. vs Federation of Pakistan through Secretary
The petitioner, a private entity, engaged a non-resident Egyptian company for consultancy services related to infrastructure and golf course development. Seeking exemption from withholding tax on the consultancy fees, the petitioner approached the Federal Board of Revenue under Section 152 of the Income Tax Ordinance, 2001. Upon rejection of the exemption request and subsequent dismissal of the revision and constitutional petition, the matter reached the Supreme Court. The core legal question was whether the petitioner was liable to deduct 15% withholding tax on payments made to the foreign entity. The Court examined the Pakistan-Egypt Double Taxation Treaty, specifically Article 12 concerning fees for technical services. It held that the consultancy services fell squarely under Article 12, which permits taxation in the contracting State where the services arise, rather than Article 7 regarding business profits. Consequently, the Court affirmed the lower court's decision, ruling that the petitioner was not entitled to the claimed exemption. The principle established is that consultancy fees for technical services are governed by specific treaty provisions regarding technical services, precluding reliance on general business profit provisions when the nature of the income is clearly defined.
- Whether consultancy fees paid to a non-resident company for technical services are subject to withholding tax under the Income Tax Ordinance 2001?
- Does Article 12 of the Pakistan-Egypt Double Taxation Treaty apply to fees for technical services?
- Can a taxpayer rely on Article 7 of the Pakistan-Egypt Double Taxation Treaty for business profits when the income is derived from technical services?
- Section 152, Income Tax Ordinance 2001
- Article 7, Pakistan-Egypt Double Taxation Treaty
- Article 12, Pakistan-Egypt Double Taxation Treaty
- Article 12.2, Pakistan-Egypt Double Taxation Treaty
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 Egyptian Company. In terms of the Consultancy Agreement executed between 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 avoidance 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 be 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 find 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.