WHT Exemptions & Exemption Certificate u/s 159

This blog is written by Mr. Hussain Mehmood Asif, Senior Manager Taxation and Corporate Services. Please read this interesting and informative blog and provide your valued comments.


This is with reference to the various exemptions contained in various sections/clauses of ITO, 2001 and SROs like SRO 586 whereby withholding tax is not required to be deducted on certain payments. As clause 46 of Part- IV of 2nd Schedule to the ITO, 2001 grants exemption from withholding tax to oil refinery and permanent establishment (PE) of a non-resident. The clause 46 was read and reproduced hereunder for ease of reference:

Quote: “The provisions of sub-section (1) of section 153 shall not apply to any payment received by an oil distribution company or an oil refinery  [“and provisions of sub-section (2A) of section152 shall not apply to”] Permanent Establishment of Non-resident Petroleum Exploration and Production (E&P) Companies] for supply of its petroleum products.]” Un-quote

 Like wise SRO 586(1)/1991 dated June 30, 1991, which is saved vide Section 239(12) of the ITO, 2001, also provide exemptions to certain payments listed there including payments on account of supply of electricity, gas, crude oil, agricultural products etc. The said SRO excluded many sectors from deduction of withholding tax especially E & P sector and agricultural products and sets a threshold on payment on account of goods of less than Rs. 25,000 and services of Rs. 10,000.

Now when we see section 159 of the ITO, 2001, it requires a certificate to be issued to effect any exemption or reduced rate of withholding.

However, when we see this requirement with only parties mentioned in SRO 586(1)/1991, it creates a practical problem. For example, a plain reading of this section setting requirements of a certificate on payments whether exempt or subject to reduced rate of withholding. That means every party mentioned in SRO 586 i-e a Refinery, a supplier of electricity, gas, crude oil, agricultural produce supplier, fish farmers and persons supplying goods of less than Rs. 25,000 and services of less than Rs. 10,000 are required to obtain a certificate of exemption in terms of Section 159. This will lead to chaos which cannot be legislature intent.

A case law reported as 108 TAX 249 have provided an insight to the wisdom behind the section 159 as follows:

Quote:“The wisdom behind section 159 is to avoid burdening the taxpayer and the tax administration with the calculations, refunds and adjustments of amounts, which in the end are not required to be credited to the State exchequer.” Un-quote

The above clearly means that the provisions of section 159 are applicable in the cases where the income is exempt from tax and meant to save time and effort on both department and taxpayer in calculations of refunds, credits etc.

However, currently the Department is hardly going by the interpretation leading to requirement and not much consideration is given to the above mentioned explanation of the honorable Court. Thus, there is a need of clarification or a speaking order by higher appellate authorities to identify the scope of application of section 159 and remove the absurdity arising from department’s interpretation.

Hussain Mehmood Asif