Syed Syedain Raza Zaidi Additional Commissioner Inland Revenue Audit Range, Zone II Regional Tax Office I Karachi

Dear Sir PAXAR PAKISTAN (PRIVATE) LIMITED NOTICE UNDER SECTION 122(9) WORKERS WELFARE FUND (WWF) TAX YEAR 2011

March 29, 2013 BT 1934

We refer to your notice No. AC-AR/ZONE-II/RTO/2013/625 dated March 19, 2013 issued under section 122(9) read with section 122(5A) of the Income Tax Ordinance, 2001, alleging that the assessment treated to have been made under section 120 is erroneous in so far as it is prejudicial to the interests of revenue. You have accordingly required our abovenamed client to explain as to why the assessment may not be amended under section 122(5A). Our reply with regard to the payment of WWF issue raised by you, is given below: 2. You have alleged that our client had failed to pay WWF for the above tax year and required them to explain, as to why WWF amounting to Rs 781,911 at the rate of 2% on accounting profit before tax of Rs.39,095,547 (being higher than the declared income as per the return of income), should not be charged. 3. At the outset, we would inform you that our client had already accounted for and discharged the WWF liability amounting to Rs 461,960 computed at the rate of 2%, on Taxable income of Rs 23,084,514. Since there was no field in the return form for the adjustment of WWF liability from the excess amount of taxes already suffered / paid, the fact about WWF liability adjustment against the taxes already suffered and paid was communicated to the Commissioner Inland Revenue, Zone I, Regional Tax Office I, vide our letter BT 1581 dated January 16, 2012 (Annexure 1). 4. Regarding your contention about discharging WWF liability on the higher of accounting profit before tax or declared income as per the return of income, it is submitted that through Finance Acts, 2006 and 2008, certain amendments were made in the Workers Welfare Fund Ordinance, 1971 (WWFO). As per these amendments, the scope as well as definition of total income was amended. Subsequently, the Lahore High Court (LHC) in its decision, reported as 2011 PTD 2643 (Annexure 2), struck down the amendments introduced vide Finance Acts, 2006 and 2008 in the WWFO. The relevant extract is reproduced below: 30. the impugned amendments introduced in WWF Ordinance through Finance Acts, 2006 and 2008 are declared unconstitutional

and therefore struck down .. The petitioner is, however, liable to pay WorkersWelfare Fund under WWF Ordinance as it stood prior to the impugned amendments. 5. Relying on the LHC judgement reported as 2011 PTD 2643, the Islamabad Bench of the ATIR in the decision dated January 16, 2012 deleted the WWF liability in the case of MCB Bank Limited. Even the Karachi ATIR in the case reported as 2012 PTD (Trib) 1535 (Annexure 3) relied upon the LHC judgement, favouring the taxpayers. The relevant extract is reproduced below: 4. . Even otherwise the amendments made through Finance Act has been struck down by the honourable Lahore High Court in a case reported as 2011 PTD 2643 wherein it has been held that WWF being a fee cannot be amended, altered or modified through money bill but require regular legislative procedure under Article 70 of the Constitution. 6. In view of the above decisions and as mentioned in para 2 above, our client also discharged its WWF liability at the rate of 2% of its normal taxable income for the year. 7. Without prejudice to what has been mentioned in paras 4 to 6 above and keeping in view the recent Sindh High Court (SHC) judgment dated March 1, 2013 (whereby amendments made through Finance Acts, 2006 and 2008 have been declared valid), our client with a view to avoiding litigation and legal costs involved in contesting in the SHC judgment, under protest would discharge the WWF demand at the rate of 2% on accounting profit before tax of Rs.39,095,547 (being higher than the declared income as per the return of income), due to immaterial differential amount of WWF payable of Rs 319,951 (Rs 781,911- Rs 461,960). You may also be aware of the fact that various tax payers are now filing constitutional petitions in the Courts against the SHCs order. The differential amount of Rs 319,951 can be adjusted against the available refunds of Rs 9,863,700 (Annexure 4) for the same Tax year. 8. We hope that our response will meet your approval and now no action under section 122(5A) will be initiated. If, however, for any reasons, you are not in agreement with our submissions, please accord us an opportunity of further discussing the matter with you before you proceed any further. Yours truly

encls cc Mr. Nasrullah Ghulam Ali Financial Controller Paxar Pakistan (Private) Limited C-1, Sector 31-A, Mehran Town Extension Korangi Industrial Area Karachi
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