Pakistan vs Interquest Informatics: CASE SUMMARY
Case Information
- Court: Supreme Court of Pakistan
- Case No: Civil Review Petitions No. 988–1001/2023
- Applicant: Interquest Informatics Services
- Defendant: The Commissioner of Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable...
- Judgment Date: 28 November 2024
- Download the FULL JUDGMENT
Judgment Summary
The case revolves around the taxation treatment of receipts received by Interquest Informatics Services, a Netherlands-incorporated company, under agreements with Schlumberger Seaco, Inc., operating in Pakistan. Interquest claimed the receipts as “business profits,” invoking Article 7 of the Netherlands-Pakistan Double TaxationDouble Taxation occurs when the same income or financial transaction is taxed twice, typically in different jurisdictions. It can arise in two primary contexts: economic double taxation, where the same income is taxed twice in the hands of different taxpayers, and juridical double taxation, where the same taxpayer is taxed on the same income in more than one country. Double... Convention (DTT) to exempt them from Pakistani taxation. However, the Pakistani tax authorities treated these as “royalties” under Article 12, subjecting them to a 15% income taxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable....
The case passed through the Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... Appellate Tribunal, which upheld the tax authority’s stance. The Sindh High Court subsequently ruled in Interquest’s favour, asserting that the receipts were not royalties. However, in 2023, a Supreme Court majority judgment overturned the High Court’s ruling, reinstating the Tribunal’s decision. The present review petition challenges this majority judgment, highlighting errors in fact and law.
The review petition argued that the Supreme Court erroneously dismissed the High Court’s jurisdiction in addressing questions of law and misinterpreted critical treaty provisions. The review Bench examined these claims and identified several errors apparent on the record. These included misjudgments about alternate remedies under the DTT, an erroneous assumption of material facts regarding receipts’ nature, and reliance on a stricter interpretation of the treaty’s “royalties” clause.
The Bench ruled in favour of the petitioner, overturning the majority judgment. It concluded that the receipts were “business profits,” not taxable as “royalties” under Pakistani law. This decision reinstates the High Court’s earlier ruling, emphasizing the dynamic interpretation of DTTs to promote equitable international tax practices.
