(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑S.9(2)(b)‑‑‑Jurisdiction, functions and powers of the Federal Tax Ombudsman‑‑‑Scope‑‑‑Cases where maladministration has been alleged the Federal Tax Ombudsman has jurisdiction to investigate into such cases irrespective of the fact whether a review, revision or appeal is provided by the statute.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑S.10(3)‑‑‑Procedure and evidence‑‑‑Limitation‑‑‑Condonation of delay‑‑‑Delay was condoned on considering the facts and circumstances of the case and also that office of Federal Tax Ombudsman was a newly created institution and jurisdiction, which was not widely known.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Second. Sched., Part I, Cl. (121A)‑‑‑C.B.R. Circular No.7 of 1984, dated 24‑7‑1984‑‑‑C.B.R. Letter C. No.IT.JI.5(9)/84, dated 29‑9‑1986‑‑ C.B.R.Circular No.6 of 1987, dated 5‑7‑1987‑‑‑S.R.O. 173(1)/91, dated. 19‑2‑1991‑‑‑S.R.O. 673(1)/91, dated 21‑7‑1991‑‑‑S.R.O. 499(1)/95, dated 14‑6‑1995‑‑‑C.B.R. Letter C. No. 1(II) Survey‑1/97, dated 22‑8‑1998‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Exemption‑‑‑Non‑fulfilment of required conditions‑‑‑Regional Commissioner of Income‑tax in a detailed, order had dealt with non‑compliance of the three conditions viz., the industry was based on highly sophisticated technology; the technology applied had fast obsolescence and the investment undertaken involved high risk‑‑‑Reasons advanced by the complainant with regard to the said issues were rejected on tangible grounds‑‑‑First two conditions required evidence of technological nature to determine whether the complainant had complied with them at all ‑‑‑Complainant/assessee had not produced any documentary evidence or expert's opinion to show that they had complied with the first and second conditions. Department, with regard to the third condition had pointed out that in the final account submitted with the returns no investment/expenditure had been shown to have been incurred on R&D and since inception no machinery and equipment had been scrapped‑‑‑Record showed that the complainant/assessee had produced ingots and had declared the sale at Rs.26,34,400 in the charge year 1997‑98 and Rs.19,46,38,673 in the assessment year 1998‑99 and no expenditure was shown to have been incurred on R&D which contradicted the claim of the claimant/assessee‑‑‑Claim had been rejected on reasonable and legal grounds and the Department had not committed any maladministration‑‑‑Claim of exemption was also rejected by the Federal Tax Ombudsman.

Anwarul Haq for the Complainant.

Anwarul Haq Gilani, DCIT for Respondent.

DECISION/FINDINGS

The complainant in this case is a Company registered with the Joint Stock Companies who had set up a unit for the manufacture of Alloy Steel Ingots. The grievance is against refusal by the C.B.R. to grant exemption from income‑tax under clause (121A) of the Second Schedule to the Income Tax Ordinance.

2. The brief facts are that through Finance Ordinance, 1984, clause (121A) was introduced in Second Schedule to the Income Tax Ordinance. Sub‑clauses (c) and (d) were substituted 'through Finance Act, 1987 whereafter clause (121A) reads as under:‑‑‑

"(121A) Profit and gains derived by an assessee from a pioneer industrial undertaking which is get up by 30th day of June, 1997 for a period of five years from the date of commencement of commercial production:

The exemption under this clause shall apply to a . pioneer industrial undertaking which‑‑‑

(a) is owned and managed by a company formed and registered, under the Companies Act, 1913 (VII of 1913), having its registered office in Pakistan;

(b) is an undertaking the income, profits and gains of which are not liable to be computed in accordance with the rules contained in the Fifth Schedule.

The exemption under this clause shall apply from the date of commencement of operations of the said company."

Later; on July 24, 1984, the C.B.R. issued explanation as per Circular No.7 of 1984, as under:‑‑‑

"Tax holiday for a period of five years beginning from the date of commencement of commercial production has been introduced for pioneer industrial undertakings irrespective of their location. This concession would be available to industrial undertakings owned by Pakistani public companies to which the Fifth Schedule does not apply and which fulfil such other conditions as may be prescribed. Approval of the Board shall be required in each case for the purposes of We tax holiday, the procedure and conditions for which would be notified separately."

In response to a query by ‑a Tax Consultant, "rules and procedure" were made part of the clause vide an amendment by the Finance Act, 1987, the effect of which has been explained in C.B.R.'s Circular No.6 of 1987 dated July 5, 1987, an extract wherefrom is as follows:‑‑‑

"Under clause (121A) of Part I of the Second Schedule, income of a pioneer industrial undertaking, approved by the Central Board of Revenue for the purpose of the said clause, is exempt from tax for a period of five years from the date of commencement of commercial production. The said clause has been amended to specify the conditions which are to be fulfilled by an undertaking for the purposes of the clause."

3. The complainant formed a company and got it registered sometime in 1995 and having set up a unit for the manufacture of Alloy Steel Ingots applied for exemption under clause (121A) on 5‑10‑1996. Although clause (121A) came on the statute book in 1984, "the procedure and conditions" for making an application for the grant of exemption were framed as late as February 19, 1991 and notified through S.R.O. 173(1)/91. Thereafter, vide S.R.O. 673(1)/91, dated 21‑7‑1991 the C.B.R. delegated the power to grant approval for purpose of clause (121A) to the respective RCITs. In the meantime, complainant's unit had commenced production on 10‑6‑1997. During the pendency of the original application dated 5‑10‑1996 for grant of approval, the complainant sought a clarification from the C.B.R. as to whether its industry could be characterized as "pioneer industry" to which the C. B. R. replied vide C. No. I(II) Survey‑1/97, dated 22‑8‑1998 which inter alia reads as under:

"I am directed to clarify/confirm that Messrs Numan Adnan Industries (Pvt.) Limited, Lahore are the pioneer manufacturers of Alloy Steel Ingots and the said product is not produced by any other unit in the country as per record available with the Board. "

4. In this regard to keep the record straight reference can be made to C. B.. R. Circular Letter C. No.IT.JI.5(9)/84, dated 29‑9‑1986 the contents of which were as under:‑‑‑

"The undersigned is directed to refer to your letter dated, 2nd August, 1986 on the subject noted and to say that according to the criterion based on the industrial Policy Statement, a Pioneer Industry has to, be the one which involves highly sophisticated technology, has fast obsolescence of logy/machinery and produces such goods for which there is no existing capacity available in the country." .

The claimant claiming that it has flfilled all the conditions as laid down in clause (121A) is entitled to 5 years exemption because the industrial undertaking

:is owned and managed by a company land registered under the Companies Act having ‑10 registered office in Pakistan,

:is an undertaking of which the profits arid gains are not liable to be computed in accordance with the rules contained in the 5th Schedule,

:is art undertaking based on highly sophisticated technology, uses the technology which, has fast obsolescene, investment carries high risk,

:produces goods for which, no identical or close substitutes, are produced in Pakistan, and

5. On 24‑5‑2000 the RCIT, Eastern Region, Lahore turned down its claim for exemption under clause (121A). It has been pleaded that under section 8 of the Income Tax Ordinance all instructions, directions and clarifications by the C.B.R. were binding on the officers serving under it, hence the refusal by the RCIT amounted to disregard of the C.B.R. clarification, dated 22‑8‑1998 referred to above and, therefore, it was clearly a void and illegal order and hence delay in filing the complaint to the F.T.O, Secretariat was not hit by the law of limitation.

6. In reply the department pleaded that instant complaint has been filed on.11‑9‑2001 whereas the impugned order was passed on 15-6‑2000 and is barred by the limitation under section 10(3) of the E.O. F.T.O. Ordinance' and that the jurisdiction is barred under section 9(2)(b) of the Ordinance. The complainant had failed to substantiate the claim for exemption as regards conditions such as "highly sophisticated technology" "fast obslescence". "involvement of high risk", and therefore, the refusal to grant exemption was valid in law. It was pleaded that C.B.R. clarification dated 22nd August, 1998 was not in reply to the request as respects' exemption under the Income Talc Ordinance but relates to exemption from Sales Tax and that is why the subject thereof referred to S.R.0.499(I)/95, dated 14‑6‑1995. The prescribed conditions were to be judged independently under the Income Tax Ordinance unmindful of the conditions relating to the levy of sale tax. The claim was considered and exhaustively dealt with by the RCIT in his order dated 4‑5‑2000. The complainant did not comply with all the conditions required for claiming exemption.

7. The learned representative of the department has raised two preliminary issues. As far as objection .to jurisdiction is concerned it is clarified that in all cases where maladministration has been alleged the Federal Tax Ombudsman has jurisdiction to investigate into it irrespective of the fact whether a review, revision or appeal is provided by the statute. An exhaustive decision has been rendered in Complaint No.1250 of 2001. As regards limitation, considering the facts and circumstances of the case and also that this is a newly created institution and jurisdiction, which is not widely known, the delay is condoned.

8. Now coming to the merits, it seems that the complainant is mainly relying on CAR. letter dated 22‑8‑1998 referred above for its claim that it is the pioneer manufacturer and thus be called pioneer industry. The department has explained that the letter was written with reference to the sales tax and not exemption under clause (121A). From the Statement of fact and the relevant documents filed, it is clear that exemption from income‑tax is claimed under clause (121A) of the Second Schedule of the Income Tax Ordinance. The C.B.R. had delegated its power to the Regional Commissioner of Income‑tax. Therefore, it is the R.C.I.T., who has to determine the claim for exemption. According to the learned representative of the department there are seven conditions prescribed for seeking exemption under clause (121A). The learned representative for the claimant contended that all the conditions have been fulfilled but the department has denied it. It has been pointed out as contained in the decision/order, dated 24‑5‑2000 that the following conditions have not been fulfilled:

(i) The industry is based on highly sophisticated technology;

(ii) the technology employed has fast obsolescence;

(iii) the investment undertaken involves high risk.

9. Therefore, the dispute is with regard to compliance with these three conditions. The learned RCIT while examining the case had heard the complainant and in a detailed order has dealt with non‑compliance ofthese three conditions. The reasons advanced by the complainant with regard to these three issues were rejected on reasonable grounds. These first two conditions required evidence of technological nature to determine whether the complainant has complied with them at all. The complainant has not produced any documentary evidence or expert's opinion to show that they had complied with conditions number one and two referred above. As regards condition number three the department had pointed out that the final account submitted with the returns no investment/expenditure had been shown to have been incurred on R&D and since inception no machinery and equipment have been scrapped. According to the record the complainant has produced ingots and has declared the sale at Rs.26,34,400 in the charge year 1997‑98 and Rs.19,46,38,673 in the assessment year 1998‑99 and no expenditure was shown to have been incurred on R&D. This contradicts the claim of the claimant. The claim has been rejected on reasonable and legal grounds and the department has not committed any misadministration. The claim: is rejected.

C.M.A./M.A.K./262/ETO Complaint rejected.