PPI Original Text (PPI-OT) – The Hub Power Company Limited’s dissemination of material information

Karachi, May 30, 2012 (PPI-OT): We have to inform you that in order to restrict the potential exposure / liability of the Company, the Company has decided to avail the scheme offered by the Federal Bureau of Revenue (FBR) vide their SRO 547 dated 22 May 2012 and pay Rs. 1,615,474,998 in connection with the case of levy of tax by FBR on issuance of shares against the project development costs. The background information on this case is available in note 11.2 to the condensed interim unconsolidated financial statements for the period ended March 31, 2012 which are already available with you and are also readily available on the Company’s website (for easy reference copy of the note is attached).

The Company strongly believes that it is not liable for this tax and will continue to vigorously defend itself before the Honorable Supreme Court of Pakistan. The Company, its tax and legal advisors strongly believe that the Company has a strong case and eventual outcome ought to be in favour of the Company and the tax paid will become refundable.

Note 11.2 extracted from condensed interim unconsolidated financial statements for the period ended March 31, 2012.

(i) In 1998, the FBR made assessments under section 52/86 of the Income Tax Ordinance, 1979 [ITO.79] amounting to Rs. 1,896 million stating that the Company did not withhold tax at the time of issue of shares to sponsors against project development costs incurred by them. The Company deposited tax amounting to Rs. 297 million against the above assessments in accordance with the departmental procedures. Appeals flied by the Company before the Commissioner of income tax (Appeals) [the “CIT (A)"] and thereafter with the income Tax Appellate Tribunal (the “ITAT”) were decided against the Company. Against the decision of the ITAT, the Company filed appeals before the High Court (the “HC”) which were decided against the Company in March 2012. After the HC’s decision, the FBR on 30th March issued notices to Company’s bankers and customers for direct recovery due to which the Company has been unable to operate the bank accounts freely. Against the decision of the HC, the Company has filed appeals before the Honorable Supreme Court of Pakistan (SCP) along with the stay application in order to restrain FBR from recovering any amounts until the matter is adjudicated by the SCP.
(ii) On the unpaid tax demands referred in (i) above, further assessment orders were issued for Rs. 50 million (Rs. 29 million being additional tax and Rs. 21 million being penalty). Against these orders, the Company filed appeals before the CIT (A), who has deleted the amount of additional tax of Rs. 29 million and reduced the penalty of Rs. 21 million by Rs. 6 million. Against the decision of the CIT (A), the Company and Income Tax Department filed further appeals before the ITAT which had upheld the decision of the CIT (A). Against this order, the Company moved reference application to the ITAT which was rejected.

(iii) Due to nonpayment of tax demands referred in (i) & (ii) above, during the period further assessment orders were issued for Rs. 80 million. Against these orders, the Company filed appeals before the Commissioner Inland Revenue (A) who has decided the appeals in favour of the Company by declaring the assessment orders as null and void. However the FBR has filed appeals before the Appellate Tribunal Inland Revenue against CIR (A)’s order.

(iv) Due to nonpayment of tax demand referred in (i) above, during the quarter further assessment orders wore issued for Rs. 1,645 million. The Company has filed appeals with the CIR (A). Subsequent to period end, the FBR issued notice for urgent payment of the amount failing which FBR could initiate proceedings to attach and sell movable and immovable property; appoint receiver for the management of movable and immovable property; and arrest and detain company’s officers. The notice also directed the Company not to sell, mortgage, charge, issue or otherwise deal with any property, except with the permission of FBR in writing. The Company immediately filed a suit in the Sindh High Court (SHC) which has suspended the FBR notice till 10th May 2012. The SHC has clarified that this order shall at all times be and remain subject to such orders as may be made by Honorable Supreme Court.

The management and their tax and legal advisors are of the opinion that the position of the Company is sound on technical basis end eventual outcome ought to be in favour of the Company in the case filed in the Honorable Supreme Court of Pakistan and consequently all of the above matters would also be decided in favor of the Company. Pending the resolution of the matters stated above, no provision has been made in these unconsolidated financial statements:-

For more information, Contact:
Shamsul Islam
Company Secretary
The HUB Power Company Limited
Islamic Chamber Building
Block-9, Clifton
P. O. Box 13841, Karachi-75600
Tel: 92-21 587 4677-86
Fax: 92-21 587 0397
Website: http://www.hubpower.com