ISLAMABAD: A division bench of the Islamabad High Court (IHC) has ruledinfavour ofthe FederalBoard of Revenue (FBR) in assessing tax liability on a high-value intra-group transaction involving the transfer of telecom operator`s tower assets.

As a result, the telecom operator is now liable to pay taxes amounting to approximately Rs22 billion ($78 million) on its gain from the transaction.

The bench, headed by Justice Babar Sattar, has delivered the landmark ruling in favour of FBR in a reference filed by a major telecom operator. This ruling upholds the powers and jurisdiction of the FBR in assessing tax liability on a high-value intra-group transaction involving the transfer of a telecom operator`s tower assets.

The landmark case focused on the 2018 internal asset reorganisation, where the telecom operator transferred its nationwide tower infrastruc-ture to its wholly owned subsidiary.

The disposal of these assets for Rs98.5bn ($940m) by the tele com operator was recorded in its financial statements as an accounting gain of approximately Rs75.9bn.

However, the telecom operator contended that the transaction was not taxable because the asset was disposed of to its wholly owned subsidiary, according to section 97(1) of the Income Tax Ordinance 2001 (ITO) concerning intra-group transfers.

The court determined that the transaction was conducted at a fair market value of $940m, accepted by the petitioner as consideration, thereby violating section 97 of the ITO. Consequently, the IHC concluded that the gain from the transaction was a taxable event since nothing remained to defer taxation to a later date.

Additionally, the court ruled that the commissioner had the authority to consider accounting income when evaluating taxable income.