In a significant development for taxpayers with foreign assets, the Appellate Tribunal Inland Revenue (ATIR), Lahore Bench, rendered a thorough and decisive decision in ITA No. 5221/LB/2023 dated February 14, 2025, therefore rendering in favor of the taxpayer. The Tribunal unequivocally answered whether foreign assets reported under the Foreign Assets (Declaration and Repatriation) Act, 2018 (FADRA) are exempt from additional taxes under the Capital Value Tax (CVT) Act, 2022.
Background and Factual Aspects:
Under the Income Tax Ordinance, 2001 the appellant, Mr. Shahzad Saleem, an individual and resident taxpayer, filed his income tax return together with the Wealth Statement, Foreign Income and Assets Statement for tax year 2022. During the scrutiny proceedings, the tax authorities noted that the taxpayer had only partially released CVT burden despite declaring overseas assets. Inquiring why the CVT responsibility had not been paid on the whole value of disclosed foreign assets, the Deputy Commissioner in Inland Revenue (DCIR), Zone-AEOI, Large Taxpayers Office (LTO), Lahore issued a notice. After rejecting the taxpayer’s response, the DCIR issued an order under section 8(7) of the CVT Act, 2022 creating a CVT demand.
The taxpayer challenged the said order before the Commissioner Inland Revenue (Appeals), who rejected the appeal. Consequently, the taxpayer filed an appeal before the Appellate Tribunal Inland Revenue.
Jurisdictional Challenge:
The main argument made by the taxpayer was that the DCIR lacked authority to evaluate CVT without a particular notification from the Federal Board of Revenue (FBR), therefore rendering such jurisdiction useless. The Tribunal examined section 8(7) of the CVT Act, 2022, and Rule 6(2) of the CVT Rules, 2022, and concluded that the Officer Inland Revenue having jurisdiction over the taxpayer’s income tax matters inherently possesses jurisdiction over CVT matters. Therefore, no separate notification was necessary, and the Tribunal rejected the jurisdictional challenge.
Supremacy of FADRA over CVT Act, 2022:
The main point of attraction was whether foreign assets disclosed under FADRA were exempt from CVT application under the 2022 Act. Under sections 3 and 8 of FADRA, the taxpayer claimed, once tax is paid on foreign assets, such assets have exemption against additional taxes under any law, including future legislation.
The Tribunal reiterated well-established statutory interpretation rules that:
- A special law (FADRA) prevails over a general law (CVT Act);
- FADRA has a non-obstante clause while the CVT Act does not;
- Immunity granted under FADRA extends to “any law for the time being in force,” covering future legislation unless expressly excluded.
Examining Department Dependency on High Court Decisions:
The Department mostly relied on rulings from the Lahore and Sindh High Courts, contending that these rulings had subtly refutes the FADRA immunity claim. The High Courts addressed only the constitutional validity of CVT with reference to the legislative competence under Entry 50 of the Federal Legislative List; the issues of FADRA’s supremacy and sections 3 and 8 of FADRA were neither raised or adjudicated; observations regarding assets declared under amnesty schemes were made in a different context (i.e., extraterritoriality of legislative power) and could not be treated as binding precedents on the FDAQ immunity issue.
Conclusion:
Based on the foregoing analysis, the Tribunal unequivocally held that foreign assets declared under FADRA, 2018, enjoy immunity from further taxation under the CVT Act, 2022. It allowed the taxpayer’s appeal, annulled the CVT demand, and emphasized that its ruling applies exclusively to assets declared under FADRA. Assets not declared under FADRA remain outside the scope of this judgment.
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