Universal Service Fund, Islamabad v. Federation of Pakistan through Secretary, Revenue Division, Ministry of Finance, Islamabad and others

Background

Background

Supreme Court allows USF’s tax appeal, explains “wholly owned” SOEs under section 134A and rules on section 153 deductions for public-benefit telecom projects.

The Department disallowed roughly Rs. 17.76 billion in project expenditure for tax year 2023 on an alleged withholding default. After mandatory ADR and a High Court challenge, USF invoked the special section 134A(13) appeal route.

Legal questions

Legal questions

Was USF entitled to appeal the ADR decision, and did section 153 require withholding on the public-benefit telecom payments at issue?

Court holding

What the Court decided

For the limited section 134A appeal inquiry, USF was not wholly owned by the Federal Government. On the transactions examined, section 153(1)(b) did not require deduction because the telecom services were provided to third-party public beneficiaries rather than USF.

Final outcome

Final outcome

Preliminary objection dismissed and appeal allowed. The ADR Committee’s decision and the amended assessment, to the relevant extent, were set aside; section 21(c) was declared inapplicable to these facts.

Practical effect

What the decision means in practice

Preliminary objection dismissed and appeal allowed. The ADR Committee’s decision and the amended assessment, to the relevant extent, were set aside; section 21(c) was declared inapplicable to these facts.

This summary states the immediate effect recorded in the decision. The original judgment and the facts of the particular case remain controlling.

Key legal principles

Key legal principles

• Ownership under section 134A was construed for a narrow remedial purpose.
• A public-sector company or SOE is not necessarily wholly federally owned.
• The guarantee-company inquiry required legally compliant membership and independent representation.
• The Court preferred the reasonable interpretation favourable to the alleged withholding obligor.
• On these facts the services themselves were supplied to the public, rather than USF.
• The relief set aside the assessment only to the relevant extent.