Section 225 of the Income Tax Ordinance, 2001 grants the Federal Board of Revenue (FBR) the authority to continue or initiate proceedings against companies undergoing liquidation without the need for leave from the Court.
The amendment, incorporated through the Finance Act, 2021, addresses the complexities that can arise when companies are subject to winding up orders or have provisional liquidators appointed.
Section 225 of the Income Tax Ordinance, 2001 reads as follows:
225. Proceedings against Companies under Liquidation – Notwithstanding anything contained in section 310 of the Companies Act, 2017 (XIX of 2017)], leave of the Court shall not be required for continuing with or commencing any proceeding under this Ordinance against a company in respect of which a winding-up order has been made or Provisional Liquidator appointed.
This provision empowers the FBR to proceed with or initiate legal proceedings against a company under liquidation without the need to seek leave from the Court. The exemption from obtaining the Court’s permission is crucial for expediting tax-related actions and ensuring that companies undergoing liquidation remain accountable for their tax obligations.
The amendment explicitly refers to Section 310 of the Companies Act, 2017, clarifying that the FBR’s authority to pursue tax proceedings against companies in liquidation is not subject to the usual requirement of obtaining leave from the Court. This exemption streamlines the legal process, enabling the FBR to act swiftly and independently in matters related to tax compliance.
The provision recognizes that tax obligations of companies do not cease merely because they are undergoing liquidation. The FBR’s ability to continue or initiate proceedings without the need for Court approval ensures that tax matters are addressed promptly, and potential revenue leakage is minimized.
While the amendment is seen as a positive step toward enhancing tax enforcement, concerns have been raised about the potential impact on the rights of creditors and other stakeholders in the liquidation process. Striking a balance between tax enforcement and protecting the interests of all parties involved will be crucial for the effective implementation of Section 225.
Section 225 in the Income Tax Ordinance, 2001 reflects the FBR’s commitment to strengthening tax enforcement mechanisms. By removing the requirement for leave from the Court in proceedings against companies under liquidation, the amendment ensures a more streamlined and efficient process. As the FBR exercises this authority, it will be essential to consider the broader implications on the liquidation process and strike a balance that upholds the principles of fairness and accountability in taxation.
