Financial Risk Manager

1. The reference has been made to the Board to clarify that who will take the credit of the tax withheld under clause (c) of sub-section (1) of section 233A of the Income Tax Ordinance, 2001. Whether the Member of the Stock Exchange or the seller of shares who did the trading of shares through the said Member?

2. The matter has been considered. Though the tax in respect of trading of shares is deducted from the member by the stock exchange yet the tax so withheld under clause (c) of sub-section (1) of section 233A of the Income Tax Ordinance, 2001, does not pertain to him exclusively. He is only an intermediary and the tax withheld under the aforesaid provisions of law, belongs to the seller of shares also who traded through him. Legally speaking, the seller is entitled to take the credit of the tax so withheld as well as the member in respect of the shares owned by him. The member of the stock exchange is the custodian of the record,as the transactions of shares are made through him on the stock exchange.

3. It is, therefore, clarified that the Member would certify the quantum of tax withheld from each person traded through him and shall furnish a statement, to the concerned Director General, RTO, for the verification of claim of the taxpayers who traded the shares through him.

Circular no. 02 of 2009 dated 26 March, 2009

Under clause (b) of section 158 of the Income Tax Ordinance, 2001 (hereinafter referred as “Ordinance”), a person is required to deduct tax from an amount paid by the person at the, time the amount is actually paid. It has, however, been noticed that some inter-account adjustments of receivable/collectable against payable are carried out through ledger accounts or journals maintained by the persons and such “adjustments” are not construed as “payments” or “actually paid” and no tax is withheld therefrom.

2. Though the word “adjustment” has not been defined in the Ordinance yet it as a matter of common prudence that it is at par with the word “paid”, because by such “adjustment” the payables are reduced which amounts to “actual payment” by other means.

3. The matter has been examined. According to Black’s Law Dictionary, “adjustment” amounts to “an arrangement; a settlement”. This obviously means that payable settled by payment or inter-account adjustment of receivables against the payables tantamount to “actually paid” and thus attracts the provisions of clause (b) of section 158 of the Ordinance, whenever any such adjustment is made. It is, therefore, clarified that in such circumstances, the person who is making such interaccount adjustments is required to withhold tax under the relevant provisions of law at the relevant rates and in case of any default, provisions of the Ordinance shall apply accordingly.

Circular No. 01 of 2009 Income Tasx - February 20, 2009